Economy in better shape, but recovery sluggish

Economy in better shape, but recovery sluggish
The Economic Times, November 25, 2009, Page 11

New RBI Deputy Governor Subir Gokarn Says It’s Too Early To Talk Of Exiting Easy Money Policy

Our Bureau MUMBAI

SUBIR Gokarn, the new deputy governor of the Reserve Bank of India (RBI), has indicated that the Indian economy is on a better footing compared to a year ago, but warned that recovery is still sluggish and not broad-based.

Mr Gokarn, who took charge on Tuesday, will be in charge of monetary policy, economic analysis, statistics and information management, department of communication and Deposit Insurance & Credit Guarantee Corporation.

During a brief interaction with the media, he said, “The economic outlook is far more comfortable compared to a year ago. This gives policymakers a little bit of breathing space”.

When asked how fast the RBI will consider exiting the expansionary policy (which includes hiking interest rates), he said, “Recovery is still very sluggish, not broad-based, (and) abnormally dependent on some sectors, so it could be premature to look for signs of normalcy”.

With regard to capital flows into the country, he said, “We have to see where the funds are flowing and whether they are flowing into activities that will eventually help sustain growth”. He also said that the RBI is dealing with other pressures like inflation, capital flows and implications for reserve management and liquidity management.

He said India’s exit (from expansionary policy) will have to be scheduled earlier than the rest of world. But at the same time, he said, the RBI will bear in mind that the exit does not disrupt economic growth. “It would not be a good strategy if it would have to significantly slow the rate of growth, the objective of the exit is to keep recovery intact. The exit has to be strategic and how we sequence it is a challenge. There is no readymade road map on exit and every country will have to look at its domestic drivers and balance it,” said Mr Gokarn.