Money & Banking

Aatmanirbhar Bharat: Raghuram Rajan cautions against import substitution by erecting tariffs

Our Bureau. New Delhi | Updated on October 21, 2020

Raghuram Rajan, former Governor of RBI

India would do well not to focus on import substitution by erecting tariffs under the Aatmanirbhar Bharat package, said Raghuram Rajan, former Governor of the RBI on Wednesday.

“If the focus under Aatmanirbhar is on import substitution by erecting tariffs – which we have done lot in the last few years – it is a direction we tried before and failed. I would caution against going that direction,” said Rajan at a webinar on ‘India’s Third Pillar – The Way Forward’, organised by the Centre for Financial Studies at Bhavan’s SPJIMR.

He was replying to a question on whether Aatmanirbhar Bharat was the right strategy or a protectionistic effort.

Imports of inputs

Rajan highlighted that in order to export, one would have to get imports of inputs as cheap as possible. “There are lot of imported elements that go into exports. China’s rise as export power came on the back of assembly – brought in the stuff, put it in the product and exported it. Production-linked incentive scheme is successful because you had reduced import duty on the stuff you are importing. In order to export, you have to import. Don’t erect huge tariffs and focus on creating right environment for production in India,” he said.

On monetary policy, Rajan declined to opine on whether the RBI monetary policy was too loose. “They have a monetary policy committee that will figure this out,” he said.

High inflation

He felt inflation is probably on the higher side and noted that how much of it is temporary and how much is on the longer term is hard to understand. “That is why the RBI is on a wait-and-watch mode. I don’t want to opine on the RBI policy and right future approach. I wouldn’t be drumming at this point to say that the RBI is too tight; I would let them do their job and they have a difficult task of balancing between inflation and growth,” said Rajan.

Published on October 21, 2020

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