He said that the Narendra Modi government's 'Make in India' manufacturing initiative should not be read too narrowly as merely seeking to mimic the export-led growth strategy followed by China. Instead, he proposed a more open idea that focused on making Indian business more competitive.
Make in India will typically mean more openness, as we create an environment that makes our firms able to compete with the rest of the world, and encourages foreign producers to come take advantage of our environment to create jobs in India," Rajan said as he floated the idea of 'Make for India'. "If external demand growth is likely to be muted, we have to produce for the internal market." The governor also wondered whether there was a need for more institutions to "ensure deficits stay within control and quality of budgets is high". Rajan was delivering the Bharat Ram Memorial Lecture at FICCI in Delhi on Friday.
The governor pointed out that tax benefits for individuals had been largely fixed in nominal terms until the recent budget, implying that after adjusting for inflation the value of the benefits had eroded over the years.
The Modi government had in its July 10 budget for FY15 raised the exemption limit on savings by Rs 50,000 to Rs Rs 1.5 lakh. The governor felt there was a case for enhancing this incentive."Some budgetary incentives for household savings could help ensure that the country's investment is largely financed from domestic savings," Rajan said, adding that local demand should be financed as far as possible through domestic savings.
He said low and stable inflation and launching new institutions and products to seek out financial savings in every corner of the country will also help halt the erosion in the household savings rate.
The household savings dropped to 21.9 per cent of GDP in FY13 from 25.2 per cent in FY10, largely because of a decline in financial savings to 7.1 per cent from 12 per cent over the same period.The government has already re-launched the Kisan Vikas Patra savings instrument and the ambitious Pradhan Mantri Jan Dhan Yojana (PMJDY) to raise financial savings. PMJDY is aimed at ensuring all Indians have access to the banking system. With regard to the Make in India initiative, Rajan pointed out that a slowing world economy is not in a position to absorb substantial additional imports.
