Expressing concerns over financial system of India, Former Reserve Bank of India (RBI) Governor C Rangarajan has said that full implementation of recent hike in Minimum Support Prices (MSP) for some of the agricultural products may push financial system under stress. He added that any steep rise in crude prices can pose severe problems for the country’s balance of payments. Recently, the government hiked the minimum support price for paddy by a steep Rs 200 per quintal as it looked to fulfil its poll promise to give farmers 50% more rate than their cost of production.
Rangarajan said ‘The trade war can get worse. Any steep rise in crude prices can pose severe problems for our balance of payments. The banking system is still under great stress. For a strong growth, we need a strong banking system. The fisc can come under stress if some of the new commitments such as the full implementation of new MSPs for agricultural commodities are to be fulfilled. Much depends on good governance.’
On the growth front, former RBI Governor said that the India economy after performing below potential for nearly four quarters beginning last quarter of 2016-17 showed a strong pick up in the last quarter 2017-18. He added that the expectation is that the overall growth in 2018-19 will be the little above 7%. He also said how much higher over 7% depends on a number of factors. He noted that the external environment is disturbing.