He said India is largely protected from global volatility.
“The Indian economy has recorded 7.5 percent growth, which suggests we have macro stability, which is desirable and need to continue to preserve it,” Rajan said at the Mahtab memorial lecture here.
“There is a lot of uncertainty as to what Japan will do or what China will do. But, the way to maintain our growth is really to start with a strong policy. Today, we are largely protected from the volatility,” the RBI governor said.
He, however, said India needs to be vigilant against the global market.
“We need to grow. But, we need to grow with macro stability. We need to ensure we grow in a sustainable way. For that, we have to keep in mind the fiscal consolidation, control of inflation and clean-up of banks,” Rajan said.
He said the policy framework and macro stability would help gain the trust of outside investors and they would then be interested in lending to India.
The RBI chief said India is initiating reforms, including introduction of Goods and Services Tax bill, Aadhar and extension of crop insurance.
“Reforms also help to attract investors and make India a better place to stay. With the initiation of good policy, people will come to India and not abandon the country in a hurry no matter what happens in rest of India,” said the RBI governor.
“Today we have a reserve of $360 billion and managing it properly can serve as a line of defence,” he said.
Earlier, he said that even though the economy is in the midst of recovery, there is still work to be done as some sectors are experiencing stress.
“Some sectors are doing quite well while some are experiencing stress and they still need some pick up — most obviously the agriculture sector which faced two successive droughts.”
He batted for lighter regulation for small scale industries and easier business environment for start ups in order to foster job creation.
“Having lighter regulation is very important for small industries. While in UK, there are lighter regulations, Italy has very hard regulations. As a result, the small firms grow much faster and bigger in UK compared to Italy,” said Rajan.