Rajan: Devaluing rupee can increase import costs, inflation

RBI Governor Raghuram Rajan said that any depreciation in rupee could lead to increase in imports cost and rise in inflation, adding the current position of rupee is pretty reasonable.

During an interactive session at National Institute of Rural Development and Panchayati Raj in Hyderabad, Rajan said any attempt to devalue rupee may lead to a surge in inflationary pressures and "offset any benefits".

"The issue of value of the rupee is a complicated one. Some people think that to increase exports, the answer is devaluing rupee. There are, strictly, ways of doing it (devaluation), but lot of them require significant actions on the financial system that some of our neighbouring countries used for long time," said Rajan.

"It has lot of side effects including...the inflation will pick up in this country if you have to pay significantly more for your imports. You have to pay significantly more for your oil, it will have inflationary impacts. It (devaluation of rupee) may offset any benefits you get from the devaluation. My belief is that today's value of the rupee is pretty reasonable and I don't think we should emphasise moving one way or the other as the answer to any problem," he said.

Meanwhile, Rajan said India had a long way to go to match up with China’s GDP.

Rajan said India's growth rate has to be stronger and sustainable to reach Chinese levels.

"China's per capita GDP is about four times of India today. So yes, we have a long way to catch with the level of per capita GDP and that means many years of strong sustainable growth,” he said.

He said India's credit to GDP is 50 per cent, which is significantly below when compared to some of the emerging markets such as China, where the value is 150 per cent.