What is important is that in a capital-scarce country like India, the real interest rate needs to be positive enough to encourage healthy growth of financial savings; we get into macro difficulties when real rates on financial savings become negative for a length of time.
This quote highlights the critical role of maintaining positive real interest rates for economic stability, especially in countries with limited capital. Negative real rates can discourage savings, impair investment, and lead to macroeconomic challenges. For developing economies like India, aligning interest rates to promote savings and investment is essential for sustainable growth. It underscores the delicate balance policymakers must strike to foster financial health without inducing inflationary pressures or other financial imbalances.
