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Oil prices are low, eliminate subsidies now: Raghuram Rajan to Centre

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Reserve Bank of India (RBI) governor Raghuram Rajan told the government on Monday to seize the moment to eliminate subsidies, especially given for oil in the country.

Speaking at the inaugural session of Indian Banking Conference organised by the Federation of Indian Chambers of Commerce and Industry (FICCI) in Mumbai, Rajan said if one looks outside India, one would find a hesitant world.

The United States economy has begun growing, but it is just recovering from a very long period of stagnation. Lower oil prices are helping India for certain, because lower oil prices mean lower current account deficit. But lower oil prices also mean lower inflation and lower oil subsidies. However, Rajan said, one cannot be sure how long the oil prices will be down.

He said the oil prices are low because of low demand, but given the geopolitical risks in Ukraine and the Middle East, these low oil prices are temporary. He warned, “Do not take low oil prices for granted.”

Rajan said that within India, the change in the government has been the single most important change for the economy. As a result, India is standing out among its emerging economy peers. The data on Friday has shown that the recovery in the economy is on its way, though the production of capital goods has gone down. The consumer durables section is not encouraging though auto sales data could bring in some positive signs for the economy. The monsoon has strengthened, but the one thing that needs to pick up is investment growth.

Rajan said inflation numbers are coming down, which is consistent with the RBI forecast. “Macro economic conditions are improving but Indian economy has a long way to go”, Rajan said.

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