‘RBI won’t undervalue exchange rate for growth’

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Thiruvananthapuram: Reserve Bank governor Raghuram G Rajan said on Monday that RBI won’t undervalue exchange rate to spur growth. The RBI governor said that he firmly believed that the RBI’s philosophy of ‘minimizing extreme volatility’ through intervention when required was the right strategy. Rajan was in the capital for the 4th edition of micro, small and medium enterprises (MSME) summit.
“When people look at growth of countries such as Japan, China, and Korea, they argue that enterprises grew by undervaluing the exchange rate. But, there are lot of problems with undervaluation, which over time is reflected in the conditions of some these countries and I personally believe that sustained undervaluation, over long period of time, is not a feasible or desirable strategy,” he said.
Referring to the growth of MSMEs, he said that the growth should come through capabilities, cost-effectiveness, innovation and from ideas. Lauding the state, Rajan said that Kerala was extremely well-placed for a revolution in the sector.

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Referring to the perception of a Chinese professor at Massachusetts Institute of Technology, Rajan said that like China – where it was believed that MSME sector owes its growth to the high education levels in the country – Kerala too can tap its potential and revolutionize MSMEs.
Stating that India lacked good bankruptcy laws, Rajan said the new bankruptcy code would go a long way in addressing the problems faced by MSMEs. “We don’t have effective ways to deal with distress across the system because we don’t have a good bankruptcy code. The new bankruptcy code that the government is bringing before the Parliament will be the right step,” he said.
The RBI governor added that a safety net was essential for MSME workers. “Safety net is not for the enterprise. Small enterprises should be born quickly, if they work, should grow fast, and if they don’t work, they should die. The workers need a portable safety net that does not depend on the SME, but which is portable from enterprise to enterprise,” he said.