He also said that India has to go a long way to reach the per capita GDP level of China and needs many more years of sustainable strong growth.
Mr Rajan was speaking here during an interactive session at the National Institute of Rural Development and Panchayati Raj.
“The issue of value of the rupee is a complicated one. Some people think that to increase exports, the answer is devaluing rupee. There are, strictly, ways of doing it (devaluation), but lot of them require significant actions on the financial system that some of our neighbouring countries used for long time,” Mr Rajan replied to query on the devaluation of rupee to deal with the global slowdown.
“It has lot of side effects including…the inflation will pick up in this country if you have to pay significantly more for your imports. You have to pay significantly more for your oil, it will have inflationary impacts.”
“It (devaluation of rupee) may offset any benefits you get from the devaluation. My belief is that today’s value of the rupee is pretty reasonable and I don’t think we should emphasise moving one way or the other as the answer to any problem,” Mr Rajan said.
On growth, he said India’s growth rate has to be stronger and sustainable to reach Chinese levels.
“China’s per capita GDP is about four times of India today. So yes, we have a long way to catch with the level of per capita GDP and that means many years of strong sustainable growth.”
“I want to emphasise here, because a few years of growth will not help. After those few years, we have very slow growth. We need sustainable growth which is why we need systems in place, we need macro-stability in addition to the growth,” the RBI chief said.
He said India’s credit to GDP is 50 per cent, which is significantly below when compared to some of the emerging markets such as China, where the value is 150 per cent.
Mr Rajan said growth should not happen at the cost of environmental sustainability.
“Now whether just the GDP numbers are not enough to say that we have developed…absolutely not. It is good we reach their level of per capita GDP without the environmental damage that has occurred in some parts of China, that is also occurring in some parts of India.”
“We have to have an environmental sustainable development path and also we have to have equitable development path,” he added.
To a query on banks joining hands with money lenders for better financial inclusion, Mr Rajan said that though he was not averse to the idea, many issues such as methods used for recovery should be considered.
On the status of cooperative banking system in the country, he said the system lost its spirit and moved away.
“Cooperative banking system is cornerstone of the financial system in this country. I want to emphasise that it is extremely important it reaches parts of the country that their financial institutions don’t and it has to be nurtured.”
“What we need to do in some case is understand why the cooperatives have departed from the spirit of cooperative system. Why cooperatives are no longer cooperative in that sense and try and find ways to bring them back to the very important and very worthwhile goals of cooperative movement,” Mr Rajan said