Dr Saumitra Chaudhuri, member of the economic advisory council to the prime minister as well as the economic advisor at Indian Credit Rating Agency, sees inflation at single-digits by November-end. He said liquidity in the system is still restrained despite a series of CRR, or Cash Reserve Ratio, cuts as banks are unwilling to lend funds.

Chaudhuri feels the RBI has a number of options of infusing funds into the system. "An SLR or CRR cut can be made. There could be some other options by which the Rs770,000 crore, that is presently locked up in Treasury Bills on 1-2-3 year notes under the Markets Stabilisation Scheme is brought into play. It could be made available to the system in more than one way. It could also be made available to the Centre for use."

CNBC-TV18 shares with domain-b, its transcript of the exclusive interview with Saumitra Chaudhuri.

What possible unconventional measures can be done at this rate? There is serious liquidity tightness at this juncture, how can it be addressed?
The liquidity tightness is not surprising. The CRR cuts brought in about Rs 1,00,000 crore into the system. The FX intervention drained away half of that. So only about Rs 50,000 crore entered the market. Banks are not lending very aggressively that is why money market conditions had been subdued in the last few days and it is not at all surprising that they had become tight again. Clearly, more liquidity needs to be injected into the system and that will be done.

What would be the favoured instruments be? Statutory liquidity ratio (SLR) apparently is not being thought about because that's the one holding that has given Indian banks the standing which the other foreign banks have not enjoyed, The RBI is extremely reluctant to use a SLR cut at this juncture when finance stocks everywhere are getting butchered. Do you think another cash reserve ratio (CRR) is the only option?
CRR could be an option. There could be some other options by which the Rs770,000 crore, that is presently locked up in Treasury Bills on 1-2-3 year notes under the Markets Stabilisation Scheme (MSS), is brought into play. It could be made available to the system in more than one way. One, by making it available to the Central Government for use,  which is in any case paying interest on those bills.

An SLR cut could be done. A CRR cut can also be made, considering that the reserve instrument is basically an instrument to maintain the interest on money market instruments within a certain target. The target right now is between 6-8%. If there is spillover outrage, clearly a CRR cut could also be possible.

The RBI's inflation target continues to remain 7% at the end of the year; a little surprising because the commodity prices in July were all 50% higher than what it is today, and yet they maintained a hawkish target for the inflation number. Would you say that's hawkish and therefore more severe repo cuts can also be on the anvil?
Repo cuts are not certain but very possible. Inflation is certainly coming off, they have been changing on a week-to-week basis. It is likely to be in single-digit numbers by the end of November. But the RBI would remain cautious and would like to see inflation actually hitting single-digits before they take a call on further rate cuts and that is why I suppose they have maintained a 7% inflation rate. We see a much lower rate. The entire benefit of the commodity price down cycle isn't going to benefit us because we insulated part of the market from that commodity prices when it was rising.

The GDP forecasts are at 7.5-8%. What would be your own hunch more importantly for FY10? How severely is the trajectory damaged?
It depends on what happens in the next 6-months. If business confidence as well as the pace of the investment is maintained, we can come out of it in 2009-10 reasonably well.  If the early signs of some stabilisation that we see in the world markets in the last 4-5 days, don't translate into anything much, then 2009-10 becomes a little iffy.

We have to keep our economy strong however much of the world might be suffering it is a question of commodity strength. We would come out of it. If India can protect its economy with some measures from whatever is happening elsewhere, we will not only preserve growth in this year but in the next year as well.