Households should be incentivised for higher savings: Rajan

Households should be incentivised for higher savings: Rajan Bangalore: Households need to be incentivised for enhancing financial savings, Chief Economic Advisor Raghuram G Rajan said here Monday.

"As a country, we need more investment, more saving and less consumption. Not only does the government need to save to more and spend less, especially on distortionary subsidies, but households need to be incentivised to increase financial savings. Lower inflation will help here," Rajan said.

He was addressing the 38th Annual Convocation of Indian Institute of Management, Bangalore.

Rajan also said there was a need to focus on better infrastructure, more effective and streamlined regulation, vigorous competition and more appropriate skills and education in the work force.

He stressed on maintaining equilibrium between democracy and free enterprise with a "delicate" role played by the government.

To obtain democratic support, the free enterprise system has to be seen as following fair rules of the game and most players should also believe they have the basic capabilities to have a reasonable chance of bettering themselves, he said.

"If rewards are excessively skewed and few feel they have a chance of getting them, the system loses democratic legitimacy", he said.

Rajan said the government had a role to play to ensure that the broad mass of people have the wherewithal to participate initially on equal terms.

"The government cannot, however, go further and determine winners and losers in the economic system, for that would make the political vote dominant over the economic vote. Equally, it cannot let money power buy the votes, for that would make democracy a sham," Rajan added.

PTI