Here’s why RBI’s Raghuram Rajan is warning against growth through additional debt

The RBI governor Raghuram Rajan has warned that any additional growth through debt could hurt the stability of the economy. He suggested that hurting the macroeconomic stability in times of global instability is too big a risk and the government and RBI should work together to tame inflation.

“As Brazil's experience suggests, the enormous costs of becoming an unstable country far outweigh any small growth benefits that can be obtained through aggressive policies. We should be very careful about jeopardising our single most important strength during this period of global turmoil - macroeconomic stability,” he said as per a report by PTI.

"Unfortunately, the growth multipliers on government spending at this juncture are likely to be much smaller, so more spending will probably hurt debt dynamics. Put differently, it is worth asking if there really are very high-return investments that we are foregoing by staying on the consolidation path?" he added. The consolidated fiscal deficit has now risen to 7.2% in 2015 over 7% in 2014.