Terming the decision of the Reserve Bank of India to cut cash reserve ration a step in the right direction, Planning Commission Deputy Chairman Montek Singh Ahluwalia on Tuesday said the need to push growth should take precedence over combating inflation.
“I can see that the RBI remains concerned about inflation. I think we need to watch what happens in inflation but probably the need to push the growth at this moment is little higher on agenda than the concern about inflation,” Mr. Ahluwalia told reporters in New Delhi.
Showing concerns over hardening inflation, the RBI on Tuesday left the key interest rate unchanged but reduced cash reserve ratio by 0.25 per cent to inject Rs. 17,500 crore liquidity into the financial system.
The CRR or the portion of deposits banks have to park with the RBI now stands at 4.25 per cent while the repo rate, at which RBI lends to the system, has been retained at 8 per cent.
Mr. Ahluwalia said, “It was expected that they (RBI) would move in the direction that would be supportive of revival of growth. I do think that the reduction in the CRR is a step in that direction. Hopefully it would moderate pressure on the interest rates.”
About the RBI not doing enough to push growth, he said, “We have to push for growth anyway. Monetary policy is very important aspect of the growth push, but most of what need to be done for growth, has to be done by the government and we are going to do it.”
He is of the view that CRR cut would have stronger impact on interest rate than simply adjusting the repo rate because bank does not lend freely at the repo rate and it does not play the role which FED fund rate do in the U.S.
On the fiscal consolidation road map chalked out by Union Finance Minister P. Chidambaram, he said, “We are determined to bring the fiscal deficit down.”
On whether monetary policy is in sync with fiscal policy, he said, “...enough has been done to indicate a start in other policies like fiscal consolidation, reforms and moving big projects... the direction that monetary should move is quite clearly to be supportive of that.”
About the lowering of growth projection for this fiscal to 5.8 per cent this fiscal from earlier estimates of 6.5 per cent, he said, “If we do 5.8 per cent GDP growth this fiscal that would actually imply very significant improvement over the results that we have got for the first quarter.”
“I think that the growth in the second quarter would be similar to first quarter. If we do 5.5 in the first six months, can we do better in next half. I think we can. Therefore 5.8 per cent is not broadly off the mark,” he added.
Keywords: RBI monetary policy, CRR rates, Indian economy, economic growth, India inflation, Montek Singh Ahluwalia
Mr Ahluwalia needs to go back to school to learn basic economics. We
have a inflation of 16% and gdp growth of 7%. So in total we have
contracted by 9%. Central economic planning never worked anywhere in
the history of the world. We are in the mess because the govt wants to
run the economy. It is the people who are supposed to run the economy
and the govt is supposed to feed on the taxpayer's money. But the
trend is reverse now. This idea that some group of people sitting in
mumbai suddenly have a knowledge on what should the interest rates is
a myth. Let the interest be equation of savers and borrowers and also
the rate of depreciation in the purchasing power of rupee. Let not the
bureaucrats in RBI decide what should be the interest rates. Let the
free markets decide the cost pf borrowing money.
The current bubble in real estate is a huge threat that is waiting to burst. Cutting interest rates will probably lead to a bigger bubble and a more spectacular economic bust that will be a nightmare to cleanup. The Cong party has a tough job - it can't get political consensus to do the major infra projects (like China) - so it is pushing two fronts - let foreigners grow the economy via consumerism (like the east india days) and in the meantime cut interest rates here so that consumers have the money to keep driving the housing-based consumer economy. Colonialism in our future again?
Growth is more important than inflation. I want to know from him growth and inflation are two sides of the same coin. Is growth possible without curtailing inflation? pl. explain
People of the likes of Mr.Ahluwalia who are friends of the corporate world have to understand the basic fact that this nation's wealth belongs to all its people and not to a few crony capitalists and their stooges.
Indian inflation affects every one and indian version of growth does not come to every one in india
Whose GROWTH My Lord?
Growth of what Mr. Ahluwalia? Employment, income level of poor& middle class or simply the stock price and earnings of multi-millionnaire investors?
Sir, with all due respect(however small that may be) growth is meant for few crony capitalist whose numbers will bolster while adding some more billions to their pockets, while inflation has repercussions on larger picture of society. People do remember about your BPL limit joke that you have played on this country.I don't know whose growth, you are talking about if we can't tame the inflation monster. I wonder how can we become so intolerant to a larger society while thinking about a few.
Please Email the Editor