Rajan not in favour of devaluing exchange rates

Reserve Bank of India (RBI) Governor Raghuram Rajan said on Monday that sustained devaluation of exchange rates would not facilitate growth in the country’s economy. He was speaking after inaugurating the fourth edition of the CII India Micro, Small and Medium Enterprises (MSME) Summit here.

Rajan said there were “problems” in the argument for devaluation and contention that enterprise grew in countries, including China, Japan and Korea through undervaluation of exchange rates. He said “personally” he did not believe that sustained undervaluation over a long period of time was feasible. Rajan reiterated the RBI stand that the way forward was not in the manipulation of exchange rates but in efforts to minimise “situations of extreme volatality”.

“… the exchange rate will not be a source of either comparable advantage or comparable disadvantage. We want to make it reasonably predictable, reasonably stable but the advantage will come from the capabilities of Small and Medium Enterprises; from their cost-effectiveness, innovativeness, ideas and from the systems rather than some kind of an exchange rate undervaluation,” Rajan said.

He said the RBI was looking at changes to facilitate a more conducive environment for startups. It is “gratifying” to see graduates from across the country wanting to work in or form startups rather than join “old, large establishments”, he said.