Former RBI Governor Raghuram Rajan 'dreads' another round of tariff hikes by the Modi government

Raghuram Rajan, the former Reserve Bank of India (RBI) Governor, has said in an interview that he dreads another round of tariff increases by the Narendra Modi government, making India a high-cost destination thereby increasing the challenge of becoming an alternative to China.

In an interview with ET Now, Rajan claimed that the greatest contribution the Centre can come up with in the upcoming Budget would be to come out with a vision for reforms that is sensible and sustainable and energise them in the growth process.

For Rajan, India needs to stop raising tariffs as they are deterrents to firms looking to relocate to India in order to make India a credible alternative to China. Furthermore, he pointed out that while India is a country that companies are looking at, it is not the number one option as companies would rather opt for countries like Vietnam where policies are a little more certain and less volatile.

“It has to make policies much more certain and less against foreign direct investment, some of which we have seen against companies like Amazon and Walmart in order to favour domestic participants. India has some way to go,” Rajan said.

Earlier in an interview with Congress chief Rahul Gandhi, the former RBI Governor had said that the next year will be difficult for the Indian economy as also for the rest of the world. Rajan added that the country would be lucky to achieve a 5 per cent growth rate next year as key interest rates have gone up and exports have slowed down.

Furthermore, Rajan highlighted that while the pandemic was part of the problem, India was slowing even before the pandemic. "We haven't generated reforms needed for growth," he stated.

On Gandhi's question regarding the concentration of wealth in the hands of a few industrialists, Rajan said,

“We cannot be against capitalism but we have to fight for competition. We should be against (creation of) monopoly.”

He also added that the lower middle class suffered the most during the pandemic due to unemployment and rising interest rates. Policies should be formulated keeping in mind the lower middle class which suffered the most due to the coronavirus pandemic, Rajan said.

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