Need to cut spending rather than rely only on tax increases: Subbarao
Reserve Bank of India (RBI) Governor D. Subbarao has said that the bank could ease pressure on the brake pedal of tight monetary controls only in a calibrated manner, given the prevailing macro-economic situation.
Delivering a lecture on ‘India in a globalising world - some policy dilemmas,’ organised by the State Planning Board here on Monday, he said the opinion that consistently got reflected in the media would have it that tight monetary controls were stifling growth.
This view was that of the financial market.
The country also had to contend with the problem of inflation, which was prevailing at a level of more than 7 per cent, having come down from 11 per cent. This prevailing level still was above the tolerance limit. Growth had come down, but inflation was yet to come down.
He said there was no concern in the matter of cereal supply to the people because of the poor performance of the monsoon thus far since the country had good buffer stock. However, supply of pulses might face some problems since the rain-deficit meteorological divisions include areas where pulses were being grown.
He said there were three dilemmas before the policy-makers. First was how to manage the growth-inflation dynamics. The second related to external sector problems — the growing current account deficit and decelerating capital inflows. Oil and gold imports accounted for a major share of the current account deficit and global recession the diminishing capital inflows.
The third dilemma was the political compulsions that make fiscal consolidation exercise a sluggish one, he said.