Recovery sluggish despite inmprovement: Subir Gokarn

Dr Subir Gokarn, newly appointed deputy governor of the Reserve Bank of India (RBI) indicated that the Indian economy was in a better shape as compared to a year ago, but warned that the recover was still very sluggish and not broad-based.

Gokarn who took charge on Tuesday, will head the monetary policy, economic analysis, statistics and information management, department of communication and Deposit Insurance & Credit Guarantee Corporation. Speaking to the media on Tuesday he said the economic outlook is now far more comfortable as compared to a year ago, which gives policy makers some amount of breathing space.

Responding to a question regarding when the RBI would consider exiting the expansionary policy (which includes hiking interest rates), he said recovery was still very sluggish and not broadbased and also abnormally dependent on certain sectors, so that it could be premature to look for signs of normalcy.

Regarding capital flows in the country he said the bank would have to see where funds were flowing and whether they were flowing into activity which would eventually help sustain growth. He added that the RBI was dealing with other pressures like inflation, capital flows and implication for reserve management and liquidity management.

At the same time he said India's exit (from expansionary policy) will have to be scheduled earlier than the rest of the world but he said that RBI would bear in mind that the exit did not disrupt economic growth. He added that it would not be a good strategy if would have to significantly slow rate of growth. He added that the objective of exit was to keep recovery intact.

He said the exit had to be made strategically and how it would be sequenced remained a challenge so as not to leave an adverse impact on the economy. He said there was no ready-made road map on exit (of expansionary policy) and that countries would have to look at their own domestic drivers and balance it.

Gokarn, appointed for a period of three years, replaces Dr Rakesh Mohan, who took up an assignment with the Stanford University in June.

Gokarn's immediate previous assignment was at Standard & Poor's Asia-Pacific as chief economist.