RBI, government united in fighting inflation

news
02 June 2014

There seems to be some consensus on the need to contain price rise between the government and the central bank and RBI governor Raghuram Rajan who discussed the macro-economic situation with Prime Minister Narendra Modi on Saturday and finance minister Arun Jaitley a day earlier, in New Delhi, is expected to keep policy rates unchanged when he reviews monetary policy tomorrow.

Finance minister Arun Jaitley also underlined the need to contain inflation, while at the same time he pointed to the need for boosting economic growth.

Attributing the present economic woes to a "decade of jobless growth", Jaitley on Sunday underlined the need to contain price rise and hasten economic reforms to boost low-cost manufacturing.

In fact, the finance minister hinted at immediate measures to strengthen the economy.

He emphasised that there is a need to move towards an era of fiscal discipline with objective to reduce fiscal deficit, contain inflation and improve growth rate. "Short-term (fiscal) disciplining till we reverse the present trend will give us long-term benefits," he said.

"We must commit ourselves to this discipline so that in order to strengthen the Indian economy which can improve the quality of life of every Indian and pull out the deprived ones from the state of poverty," he said.

The manufacturing sector has had an abysmal performance last year, he said, adding that the negative sentiment has affected trade, hotels and transportation sectors, which are posed for a slower growth.

"The slowdown in economic growth coupled with high inflationary pressure poses a challenge to the macroeconomic environment.... India can ill afford this trend. This has serious social consequences since slowdown comes with a decade of jobless growth," he said.

The RBI's bi-monthly policy review on June 3 will be the first after Prime Minister Narendra Modi assumed office on May 26.

"Governor of the Reserve Bank of India (RBI) Raghuram Rajan called on Prime Minister Shri Narendra Modi at 7, Race Course Road today. It was a courtesy call," an official statement said.

While India's economic growth stayed below 5 per cent for the last two financial years at 4.6 per cent in 2012-13 and 4.7 per cent in 2013-14. Inflation rate remained buoyant all through, except for minor swings.

Both the newly constituted consumer price index and the wholesale price index remained stubborn for most of the year.

Inflation is still high and the threat of monsoon being weak this time is looming large, allowing little leeway for RBI to loosen policy stance.

RBI had kept the policy rate unchanged at 8 per cent in its earlier (1 April) review as inflation, especially of food inflation, hovered at over 8 per cent. Food inflation in April stood at 9.66 per cent and retail inflation at 8.59 per cent.

India's economic growth remained subdued at 4.6 per cent in the fourth quarter of the financial year (January-March 2013-14).





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