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Need fresh outlook to growth: Rajan

Source-The Hindu

There is no appetite in most countries to look for what makes sense for the globe. Countries are too focused on what makes sense for themselves.’

Reserve Bank of India Governor Dr Raghuram Rajan has said countries need to adopt polices that add to growth rather than ones that shift growth from one region to other. He called for the need to have a well-capitalised multilateral organizations with widespread legitimacy and better international safety nets.

“Even as we create conditions for sustainable growth, we need new rules of the game, enforced impartially by multilateral organizations to ensure that countries adhere to international responsibilities,” he said while addressing the 6th R. Venkatraman Endowment Lecture at Madras School of Economics in Chennai on Friday.

“Rules developed post World War II became archaic, and the world is in a situation to develop new rules of the game as to what policies are permissible for countries,” he added.

Dr. Rajan said that there was no appetite in a number of countries to look for what made sense for the globe. Countries were too focused on what made sense for themselves.

He argued that there was tremendous pressure for growth on both industrial countries and emerging markets. While growth was yet to pick up despite various efforts, there was al trend of countries stealing growth from each other i.e. shifting demand by depreciating exchange rates rather than creating own demand through appropriate policies. “If you have crises, you undertake policies and the crisis shift to other region. That region, too, resorts to policy initiatives and crisis shift somewhere else,’’ he added.

These kinds of policies that shift growth from other countries had the effect of creating new social instabilities, he said. “As we are in a globalised world, we need policies that add to global growth than shift growth from elsewhere. Unfortunately, the policies that add to growth are either of the limited use today or really painful politically. As a result, more and more countries resort to policies that shift growth,’’ he said.

Of course, such instabilities had not occurred now. It had occurred at least three times in different parts of the world in the past two decades, he pointed out.

Dr. Rajan asserted that there was a need to create better safety nets in the world in order to make sure that countries were self-insured. Countries were building reserves as part of safety net measures. But it would be a waste for each one to build reserves since all of them would not be used at the same time. There should be collective resources with mutual guarantees, he added.

-SOURCE- The Hindu