Ahead of the monetary policy review scheduled for October 25, coming as it does when inflation is at an “uncomfortable” high amid fears of a slide in growth, Prime Minister Manmohan Singh went into a huddle with his top advisers and officials on Saturday to take stock of the economic situation in the backdrop of an uncertain global environment.
The meeting, convened by the Prime Minister, was attended by his Economic Advisory Council (PMEAC) chairman C. Rangarajan, Reserve Bank of India Governor D. Subbarao, Planning Commission Deputy Chairman Montek Singh Ahluwalia and Finance Ministry's Chief Economic Adviser Kaushik Basu, besides other senior officials.
Incidentally, Dr. Basu heads the Inter-Ministerial Group (IMG) on inflation, which was set up at the instance of the Prime Minister to recommend ways and means of tackling the price rise.
In a conversation with a private news channel on Friday, Dr. Rangarajan said: “The meeting [with the Prime Minister] is on the current economic situation. We will have a discussion on growth and inflation, and consider the policy options in this regard.”
Even as there is no official word on what transpired at the informal meeting, it is evident that the discussions focused on the global economic scenario, the delicate Indian situation of sticky and high inflation and low growth and the policy options available to tide over the crisis.
With headline inflation remaining at near 10 per cent, Dr. Rangarajan had also pointed out that there was no clear sign of a declining trend in the price rise, and in such a situation, there would be no escape from tight money measures. “For the monetary policy stance to change, inflation has to come down and show signs of a definite decline. But that kind of an indication has not come…”
The RBI has also noted that except for increasing the key policy rates, there was no other monetary mechanism to tackle inflation. Aimed at reining in inflation, the RBI has raised interest rates a dozen times since March last year. As things stand, it may well be yet another increase of at least 25 basis points on October 25 during its second quarter monetary policy review.
While headline inflation stood at 9.72 per cent in September with food items, fuel and manufactured goods turning dearer, the overall growth was pegged at 7.7 per cent in the first quarter this fiscal, compared with 8.8 per cent in the same period of 2010-11.
