 "Chidambaram agrees inflation harming growth")
Chairing the Financial Stability and Development Council (FSDC) meet here, the minister said though the deceleration in growth had been arrested in the second quarter of 2013-14, inflationary pressures and structural bottlenecks were some factors that weighed on the process.
The economy grew 4.8 per cent in the second quarter against 4.4 per cent in the previous one. Though growth picked up, it was the fourth quarter in a row which delivered below five per cent growth. In this scenario, it seemed certain the ministry would pitch for a rate cut or status quo, particularly after both retail and wholesale price inflation moderated, though at an elevated level, particularly the consumer price one.
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Economic Affairs Secretary Arvind Mayaram had said signs of moderation in inflation had strengthened the case for a cut in interest rates to boost growth.
"I don't think there is a case for a rate hike at all at this point of time. If RBI is comfortable at the manner at which the inflation is coming out, they may consider it (rate cut)... And, I also believe that there is now a very strong case for incentivising growth... because we now need to move out of this trough, specially considering the fact that employment is also suffering, investments have been sluggish," he'd told a television channel on the sidelines of the World Economic Forum at Davos. However, RBI raised the repo rate by 25 basis points.
While wholesale price index-based inflation declined to a five-month low of 6.16 per cent cent in December from a 14-month high of 7.52 per cent a month before, its consumer price index counterpart had fallen to a three-month low of 9.87 per cent, from a record 11.16 per cent.
Earlier, the ministry and the RBI under D Subbarao had publicly aired their differences on the monetary stance of the central bank. The ministry had not done so publicly after Raghuram Rajan took over as governor since September 2013, though it had pitched for reviving growth.
The Council made an assessment of the emerging issues relating to financial stability, including preparedness for the impact of the US Federal Reserve's bond buying tapering, liquidity crunch and re-pricing of risk.
Coming from the meeting, Rajan told journalists India was better prepared to deal with any further US Fed tapering but the country needed to remain vigilant.
"We have done a lot to make the economy robust and we are better prepared (to deal with impact of tapering). (But) I will never say we are fully prepared for any eventuality. We have to be vigilant. We are better prepared certainly now than we were six months ago and that is because of hard work by the government, as well as regulators," Rajan said.
Last week, the US Fed decided to cut its bond purchases further by another $10 billion, to $65 bn a month.
Rajan also said the new US Federal Reserve chief, Janet Yellen, was a very experienced central banker. "I have full faith that she will do whatever is appropriate and she will be a very reliable central banker," he said.
He also said inter-regulatory issues should be resolved in a time-bound manner by the FSDC sub-committee. "Priority should be accorded to steps like a common demat account for financial assets, which will add considerable benefits to the consumers," he said.
The Council, according to a ministry statement, noted the deterioration in the asset quality of banks and its impact on capital adequacy ratios. It reviewed the steps taken by the government and the Reserve Bank to revitalise distressed assets and assessed the additional capital requirements of banks under the Basel-III norms.
It was apprised of certain management and governance issues of banks and discussed remedies.
Beside Chidambaram and Rajan, the meet was attended by U K Sinha, chairman of the Securities and Exchange Board of Indi; T S Vijayan, chairman, Insurance regulatory and Development Authority; Ramesh Abhishek, chairman, Forward Markets Commission and Anup Wadhawan, chairman of the Pensions Fund Regulatory and Development Authority, beside senior officials.