The depreciation of the rupee “is something that has been building over a period, and solutions cannot happen overnight,” observed Raghuram Rajan, Chief Economic Advisor to the Union Finance Ministry.

The initiatives taken by the Government and the Reserve Bank of India to stem the fall of the rupee would yield results, but would take a while, he said, delivering the fourth Kuruvila Jacob Oration here on Saturday.

First, inflation should be brought down, and the RBI was working very hard at this, he said.

Fielding questions from the audience after his talk on current educational issues, Rajan said the Government should create more attractive instruments that would provide investors with an alternative investment option to gold or housing.

“We are working on it. We started with inflation index bonds, and there are some equity-linked deposits. As the economy starts doing better, these instruments will look more attractive,” he said.

He added that equities and fixed income schemes too would draw attention as inflation came down, and that would take down some of the hunger for gold as an investment. However, he said the demand for the yellow metal as ornaments may not come down yet.

“In fact, over time, presumably people will get richer and will import more gold. But, we will have the capacity to import more at that point,” he said.

If people look beyond the immediate, many good things could happen in this country, Rajan observed.

“That’s what we should be looking at. Because once the virtuous cycle starts, a lot of the things we see as problems now will get taken care of,” he said.

>ravikumar.r@thehindu.co.in

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