Reserve Bank of India must focus on growth and job creation instead of just targeting price stability in deciding monetary policy, Finance Minister P. Chidambaram said on Wednesday.
“The mandate of price stability must be seen as part of the larger mandate and the larger mandate is growth and employment”, he said in the Rajya Sabha while replying to a debate on state of economy.
“Yes, the mandate of central bank traditionally is price stability. In fact, there are many who would argue that should be only goal of the Central Bank. But I believe, my party believes, my government believes that price stability must be seen as part of the larger mandate of growth and employment”, he said.
Referring to U.S. President Barack Obama’s statement about expectation from next chief of the Central Bank, the Finance Minister said, “Obama two weeks ago said my next Fed chairman must have two objectives one is price stability and other one is employment.”
Mr. Chidambaram made a case to build a consensus on the issue of larger mandate for the RBI so that a clear message can be sent.
“I wish each party takes stand on this. Let Parliament take a stand on this so that the message will go to the country so that message will go to the central bank that price stability is important it is primary mandate of Central Bank but it is part of the larger mandate of promoting growth and employment”, he said.
Committing to fiscal consolidation and reducing Current Account Deficit (CAD), Finance Minister P. Chidambaram said steps are being taken to stabilise the Rupee and expressed confidence that it will find its correct level once the other parameters are taken care of.
Replying to a debate on the state of economy in the Rajya Sabha, he made a strong case for more foreign investment to bridge the CAD, which had touched the historic high of 4.8 per cent of the GDP in 2012-13.
On the issue of rise in prices of essential commodities, he said although the wholesale price-based inflation has come down to below five per cent in five months till June, efforts would have to be made to address the supply side problems to bring down the retail inflation.
He advised the RBI that the mandate of the Central Bank of ensuring price stability should be seen in the larger context promoting growth and employment.
“We will leave no stone unturned to contain CAD at $ 70 billion (in current fiscal) and add to the foreign exchange reserves...As fiscal deficit is a red line, the CAD is also a line and every endeavour will be made not to breach that line”, he said.
Mr. Chidambaram said the UPA government had taken a host of measures to boost economy during the last nine years in the face of global recession and cited figures to draw a comparison with the previous NDA rule.
He told the BJP that if comparison of the performance of NDA and UPA rules are made it “will only end with egg on your face”.
He was responding to attack from BJP, which said the UPA had rendered the economy in a “critical” state because of lack of good governance and crony capitalism.