Yesterday, North Block here and Mint Road in Mumbai seemed in sync.o Today, differences between the two sides over the central bank’s monetary stance came to the fore.
Finance Minister P Chidambaram nearly criticised the Reserve Bank of India’s decision to keep the key policy rate unchanged. He said the government would even fight alone to meet the challenges of growth, if the situation came to that extreme.
“Growth is as much a challenge as inflation. If the government has to walk alone to face the challenge of growth, then we will walk alone,” he told reporters after RBI kept the repo rate unchanged. Adding: “Sometimes it is best to speak, sometimes to remain silent; this is the time for silence.”
The government seemed to have distanced itself from the central bank’s decision, which is based on the premise of fighting high inflation. The minister said both growth and inflation were equally big problems and the government was doing its best to send a clear message that it was on the path of fiscal consolidation.
RBI’s decision to maintain the repo rate and cut banks’ Cash Reserve Ratio (CRR) by 25 basis points came a day after the finance ministry issued its revised fiscal consolidation schedule. Its target to restrict the fiscal deficit to 5.3 per cent of GDP this year and three per cent by 2016-17 had fuelled speculation that RBI would aid the effort to spur growth by reducing the policy rate. Today, however, it only gave a hope of some easing in early 2013.
“It is my hope that everyone will read and understand the government’s commitment to the path of fiscal consolidation. I haven’t read the last few paragraphs of the (monetary policy) statement but if it holds out hope for the future, I look forward to that future,” Chidambaram said.
Other government functionaries had similar sentiments. Planning Commission deputy chairman Montek Singh Ahluwalia, who also chose not to comment “in detail” on RBI’s decision, said the reduction in CRR was a good move but there was a need to push growth along with inflation.
“Monetary policy is an important push for growth; the fiscal push depends on the consolidation,” Chidambaram said.
A sufficient amount has been done to start in the other policy; RBI itself seems to have indicated that it is looking towards the future,” he added.
The government’s fiscal deficit plan unveiled yesterday was short on detail and on Tuesday RBI also said it would look for more details on this, while it stressed the need to contain inflation.
"The ball is now in RBI's court. They will have to take a decision (on) when they want to cut rates. I hope they will consider next time...Before January, there is need for (a) rate cut... We are also confident that inflation will begin to moderate from January," said Arvind Mayaram, secretary, department of economic affairs.
India's economic growth declined to a nine-year low of 6.5 per cent in 2011-12. In the last quarter of FY12, the GDP grew just 5.3 per cent. Growth had slightly picked up to 5.5 per cent in the first quarter of the current year.
Inflation, on the other hand, did not show any slowing tendency, particularly after diesel prices were raised by Rs 3 a litre and subsidised cooking gas cylinders were capped at six a family in a year. Wholesale-price inflation rose to 7.81 per cent in September from 7.55 per cent in August.
