The economic growth is picking up and fundamentals of economy are good, according to Reserve Bank of India (RBI) Governor, Raghuram G Rajan.

``We are expecting 5.5 pc growth this year which go up little more to 6 pc next year to touch 7 per cent later,’’ the RBI Governor said while interacting with the students at Indian School of Business (ISB) here on Thursday.

The Current Account Deficit had come down and some pick up was seen in the industrial growth though the shutdown of Nokia manufacturing unit in Chennai had adversely impact the Index of Industrial Production (IIP) to some extent.

Though the gold had gone up a little last month, it was mainly due to the festival season and the non-oil and non-gold exporters were still doing well. ``The RBI and Govt were successful in controlling inflation as indicated by bonds,’’ Rajan said.

When asked on sustainability of growth rate and the likelihood of reaching the growth targeted by Prime Minister Modi, he said: ``The Prime Minister has an ambitious agenda for India. In the US, I was told by the investors about the buzz he created. The level of expectations is high.. But to sustain growth we need to think how to reform the system.’’

On the implementations of the recommendations of the Financial Sector Legislative Reforms Committee (FSLRC) report and perceived threat to the autonomy of RBI he said the apex bank had cardial and friendly relationship with the Government.

The RBI was presently discussing a host of issues with the Government including the monetary policy framework, the ways to make the objectives of the central bank more effective in inflation control and the modalities of determining various processes.

INTEREST RATES

In response to a question from a student whether the tweaking of interest rates to tame inflation was a blunt policy tool, the Governor responded by agreeing that it was blunt tool but indicated that there was no better option available. Both monetary policy and fiscal policy were important to control inflation.

The banks were still waiting for a sustainable inflation regime to cut interest rates, he added.

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