Economic outlook improving: Gokarn

MUMBAI: Subir Gokarn, the new deputy governor of the Reserve Bank of India (RBI) indicated the Indian economy is at a better footing compared to a year ago. But he also had a word of caution- he warned that recovery is still very sluggish and not broad based.

Mr Gokarn, will be in charge of monetary policy, economic analysis, statistics and information management, department of communication and Deposit Insurance & Credit Guarantee Corporation (DICGC). Speaking to media briefly on taking charge he said, “The economic outlook is far more comfortable compared to a year ago. This gives policy makers a little bit of breathing space.”

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

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

At the same time 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 that 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 exit is to keep recovery intact,” said Mr Gokarn.

He said, “the exit has to be strategically and how we sequence it is a challenge.... There is no ready-made road map on exit (of expansionary policy) and every country will have to look at its domestic drivers and balance it.”