“Next year we will go into sixes and hopefully sevens the year after,” he said while addressing students of Indian Business School (ISB) here Thursday.
Rajan said that without thinking of major reforms, the country can put the economy back on track to a reasonable level but reforms will be key to sustain the growth and to take it to a higher level.
While claiming that the economy is improving, he hoped that there will be more sustainable growth going forward.
Rajan, however, underlined the need to support the growth in a strong way by working on the financial side.
“The bottom line is we do seem to be picking up in growth. Our current account deficit is smaller and inflation numbers look lot healthier than they looked a few months ago,” he said.
He said many market participants were convinced that India could hit the RBI’s target of bringing down consumer inflation to 6 percent by Jan next.
The central bank chief said there was some pickup of industrial growth but pointed out that Nokia shutting down its plant in Chennai made big difference to IRP numbers.
Rajan said while exports seem to have slowed down, the country is doing reasonably well in non-oil and non-gold exports with 6-7 percent growth. “This has been one of the strengths of the economy over last few months.”
Noting the government is focusing on improving the framework of doing business, he stressed the need to make easy for business to grow in terms of access to finance, regulations, and skilled labour.
“The government is working in all these areas. I don’t see why we can’t overtime reach double digit given our level of development,” he added.
Stating that some reliance on foreign investment is not bad, he said FDI alone may not be sufficient. He stressed the need for portfolio investments saying they are relatively stable form of financing.
Rajan admitted that there will be some volatility in foreign institutional portfolio investment but remarked that one has to live with it.
To a question, Rajan said Prime Minister Narendra Modi has an ambitious agenda for India. “The level of expectations is very high. We have to match it,” he averred.
Denying that there is a conflict between government and RBI, he said they enjoy free, frank and cordial relationship. He said discussions are creating institutional structures like financial resolution authority to improve functioning of financial sector.
“We need financial resolution authority so that we can close down financial institutions poorly functioning one and resurrect well functioning ones,” he said
The RBI governor said discussions were also on on the monetary policy framework. Terming it as a far sighted move by the government, he said this will help reach the standards which other countries have achieved and also decide how to make objectives of central bank more explicit like keeping inflation at certain level, financial stability and growth.
Discussions are also on creating a monetary policy committee, who will appoint the members of the committee and what will be the term of management of the RBI.
Rajan said the RBI would be restructured by appointing another deputy director. He, however, pointed out that RBI Act will have to be amended to create the post of fifth deputy director.
The RBI governor said the country need specialists – Indian or foreign – to put distress assets back on track. “If the specialists bring in new money which is required to complete projects they will be very welcome. It’s not that India is for sale but we need help on project restructuring.”
Stressing the need for strengthening asset restructuring companies with more capital, Rajan said the country will be open for more asset reconstruction companies. He said RBI will open licensing process for new asset reconstruction companies of various hues so that they can start helping in bringing down the level of distress.