Even as India Inc. remained unexcited saying that a deeper cut in interest rate was the need of the hour to perk up investments and the economy, the reactions of various government authorities to the Reserve Bank’s annual credit and monetary policy appear to be studies in contrast.
Reconciling to RBI Governor D. Subbarao’s prescription of a meagre 0.25 percentage point rate cut, Mr. Chidambaram noted that a fall in inflation would give more room to the apex bank for a deeper cut. “Let’s accept what has been done today and let us see what the future holds…The RBI reduced policy rates by 25 basis points. It also announced rather liberal OMO (Open Market Operations). If the inflation trend down further...that will decide scope for further policy action,” he said.
Planning Commission Deputy Chairman Montek Singh Ahluwalia, however, was more forthright in expressing his views on RBI’s projection on growth at 5.7 per cent for this fiscal as against the government estimate of 6.1-6.7 per cent. “The Reserve Bank is clearly more pessimistic than the government is. I think that the government forecast as of now is feasible. Critically what matters is, how effective we are in restoring the momentum of investment in the large projects,” he said.
Confident that GDP growth this fiscal would improve to over six per cent, Mr. Ahluwalia said: “I have no idea what the Reserve Bank thinks...we are working hard and over the next few weeks we would see that many impediments are removed.” He, however, lauded the cut in repo rate.
Alongside, Prime Minister’s Economic Advisory Council (PMEAC) Chairman C. Rangarajan, viewed that the RBI’s policy action was in line with the state of the economy. Having functioned as Governor of the Central bank earlier, Dr. Rangarajan said: “It is a measured response to the current economic situation. WPI inflation has shown signs of decline and the retail inflation still remains at a high level, CAD is also high.”