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Dr Subir Gokarn, who assumed charge as an RBI Deputy Governor in Mumbai on Tuesday. — Paul Noronha

Our Bureau

Mumbai, Nov. 24 Exit from expansionary monetary policy has to be done strategically and carefully to ensure that there is no negative impact on the economy, according to Dr Subir Gokarn who took charge as an RBI Deputy Governor here on Tuesday.

“There has been a shift from managing crisis to managing recovery. In the current situation, we don’t quite know what policy measures will work and to what extent. Even as we are pursuing an exit strategy, the risk of destabilising the apple cart is high. But the economic outlook for this year is far more comfortable than last year. It gives the regulators more breathing space while making policy decisions,” he said.

Dr Gokarn has been appointed as an RBI Deputy Governor for a period of three years. He replaces Dr Rakesh Mohan, who took up an assignment with the Stanford University in June.

Speaking to reporters after taking charge, Dr Gokarn allayed fears that an exit strategy will negatively impact growth. “For India, the trough is not that deep. Therefore, the recovery is little more robust. The whole idea of managing an exit is to keep the recovery intact. It has to be ensured that drivers of growth like investment, consumption and exports are not seriously affected”.

Stressing that exit need not mean a slowdown in growth, Dr Gokarn said investment by the government will now be replaced by investment by the private sector.

However, adding a note of caution, Dr Gokarn said, “We are on course to recovery, but it is fraught with threats. It’s a recovery but hardly a boom. Growth is sluggish and not broad-based. It is abnormally dependent on some sectors”.

He also pointed out that even though the macro-economic situation has improved, challenges like inflation and capital inflows remain.

Increase in capital inflows will have implications for currency and liquidity management. There is a need to balance out domestic compulsions and the external environment, he said.

At RBI, Dr Gokarn will look after the Monetary Policy Department, which was handled by the Governor after Dr Mohan’s exit. He will also head the Department of Economic Analysis and Policy, Department of Statistics and Information Management, Department of Communication and Deposit Insurance and Credit Guarantee Corporation. He will also represent the Reserve Bank at the G-20 Deputies’ forum. Prior to joining the Reserve Bank, Dr Gokarn was Chief Economist of Standard & Poor’s Asia-Pacific.

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