Reserve Bank of India (RBI) Governor Raghuram Rajan yesterday said investment on sensible infrastructure projects is needed for faster economic growth.
“Magical infrastructure project is high speed train that is an overall solution if you need to spend money. If you want to get good economic growth, high speed line is needed to connect cities.”
Raghuram was delivering a public lecture on “Going bust for growth: policies after the global financial crisis” in Dhaka yesterday.
“Repairing and renovation of existing infrastructure require far more decentralised spending than mega projects,” he said.
He said high-return infrastructure investment is harder to identify and implement in developed countries where most obvious investments have already been made—political influence is as likely to create bridges to nowhere to unviable high speed train networks as need infrastructure.
Terming the current global slow growth “dangerous,” he said both industrialised and emerging economies need high growth to quell rising domestic political tensions.
“Politics that attempt to divert growth from others rather than create new growth are more likely under these circumstances.”
For sustainable growth, Rajan said: “We need rules of the game, enforced impartially by multilateral organisations to ensure countries adhere to international responsibilities.”
“The need for sensible investment is paramount,” he said.
In industrial countries, green energy initiatives such as taxes or emission limits, while giving industry clear signals on where to invest, also have the ability to know the aggregate investment and help to achieve long-run goals in environment protection, he said.
Rajan said most emerging markets have large infrastructure investments needs.
“We still need to understand how to improve project selection and finance too much public sector involvements.”
he said sensible investment has a much higher better chance of paying dividends when macroeconomic policies are sound. “And such policies are easier when the adverse spillovers from cross-boarder capital flows are limited.”
He said many economies are built on middle-class family. Middle-class family is disappearing in the west.
Stressing importance on structural reforms to raise potential growth, he said structural reforms are typically ones that increase competition, foster innovation, and drive institutional change.
On emerging markets, RBI governor said emerging markets have a clear need for infrastructure investment as well as growing populations that can be a source of final demand. “ideally, emerging markets would invest for the future, funded by the rich world, thus bolstering aggregate world demand.”
The lesson from the 1990s financial crisis was that emerging market reliance on foreign capital for growth was dangerous.
