Maintaining and improving confidence in the India story remains a challenge, according to H.R. Khan, Deputy Governor, Reserve Bank of India.
This challenge, however, can be tackled through reduction in the twin deficits — current account deficit and fiscal deficit, improvement in investment climate for both domestic and foreign investors.
Fiscal deficit is an economic condition when a government’s total expenditure exceeds the revenue it generates. Current account deficit occurs when a country’s total imports of goods, services and transfers is greater than its exports.
Khan observed that improving the investment climate in India has to be the priority area of focus both to retain the interest of Indian corporates in the country and attract foreign direct investment flows.
Financial sector solutions, the Deputy Governor said, cannot address real sector problems.
Real sector refers to the production of goods and services through utilisation of raw materials and other production factors such as labour, land and capital.
There is a need to rejuvenate employment-led recovery and pave the way for structural reforms. This is required for sustainable and balanced growth not only in advanced economies but also in other economies including India, Khan said.
In the current global environment, characterised by slowdown and uncertainty, on which the country has little control, Khan said the need of the hour is to address the structural and cyclical impediments.
The impediments, among others, could be addressed through credible action for fiscal consolidation, tax reforms and predictability and controlling inflation and inflationary expectations.
There is also a need to tone up political, administrative, and regulatory framework, Khan said at a function organised by the Institute of Chartered Accountants of India in Bhubaneswar.
Referring to the low 166th rank given to India by a World Bank study ‘Doing Business’, Khan said it clearly indicates that the country needs to focus on the 7L deficits — land, linkages, labour, legal, liquidity, leadership and learning deficits. This will boost the investment climate for both domestic and foreign investors.
Khan said role of the Government is very important in building confidence in the economy, encouraging long-term non-debt creating capital flows and taking measures to promote exports and moderate avoidable imports.
At the same time, the market participants and end-users have a significant role and stake in market’s early return to normalcy.