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Rediff.com  » Business » India's GDP can grow at 8%: Reddy

India's GDP can grow at 8%: Reddy

May 13, 2009 12:18 IST
A 9-10 per cent economic growth rate for India is not sustainable without creating necessary infrastructure like power, ports and roads, warns former Reserve Bank Governor Y V Reddy.

"You should run at a speed that would strengthen your muscles and if you run too fast it will affect your health," Reddy said, adding that ideally India should grow at eight per cent plus from 2011.

"There is a general perception that the economy has the potential to grow at 8-10 per cent but my own feeling is that India can grow at eight per cent plus from 2011," Reddy told PTI in a telephonic interview.

For the economy to grow higher than eight plus per cent, "we do not have the level of infrastructure and elasticity in supply," Reddy said, adding this meant it might lead to overheating of the economy.

On full capital account convertibility (CAC), Reddy said the global financial meltdown has endorsed India's view point that the migration to CAC should be "careful, calibrated and appropriate with an option to roll back whenever required."

The recent global crisis and the East-Asian currency meltdown in late 90s have clearly established the prescription for "rabid" capital account convertibility was not appropriate, the former RBI Governor said.

"There is a definite feeling that every country must be cautious about capital account liberalisation...we can not afford full capital account liberalisation before we are concomitant with other conditions."

Drawing lessons from the financial turmoil, Reddy said that it was not enough for central banks to concentrate merely on price stability but they also need to focus on financial stability.

As far as the country's banking and financial systems are concerned, Reddy said India and Canada are among the few markets which had the resilience to withstand the downturn.

"There is no vulnerability as such...However, there can be indirect effects. The indirect effects can be as part of export-related slowdown and demand," Reddy said.

The RBI had taken corrective measures when the credit off-take shot up in the banking industry, which, in turn, has helped the system to face the difficult times, said Reddy, who stepped down in September 2008 after a five-year stint at the helm of India's central bank.

Dinesh Unnikrishnan & K R Sudhaman
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