Confident that inflation will come down further, Prime Minister Manmohan Singh today gave firm indications that monetary and fiscal policies would be used aggressively in relation to interest rates.
About the prices of petroleum products, the PM gave no firm commitment that they would be reduced in the light of the fall in international crude prices from a peak of $147 to about $56, but said “all options” were open on the question of reducing fuel prices.
“As far as the interest rates are concerned that is the prerogative of the RBI. It will not be proper for me to comment. But as I said it is an evolving situation ...If the inflation rate comes down and we feel confident that inflation will not be a problem, there is scope for manoeuvrability both in more aggressive use of monetary policy and more aggressive use of fiscal policy,” he told journalists accompanying him in his special plane on the way back from Washington where he attended a summit of G-20 leaders on the current global financial crisis.
The PM was replying to a question on the possibility of reducing interest rates in the context of easing liquidity situation to tackle the economic crisis.
Singh said as far as India was concerned, a stimulus package was already on and steps had been taken for ensuring increased liquidity. “If more is needed we will do more,” he added.
To a question on the possibility of reducing petroleum products' prices as part of a stimulus package to create more demand in the wake of recessionary trends and in the context of the steep decline in the international crude prices, Singh said “we will look at all options. We still have a considerable deficit on the oil account. It is an evolving situation”.
Asked if a fiscal stimulus package could be expected from the RBI, he said he did not think that it was a once and for all process. “We are keeping the situation under review on a day-to-day basis. The RBI is at it, the finance ministry is at it. I am heading a committee that includes the finance minister and the commerce minister.”
"So whatever is needed to keep the economy on an even keel will be done. Fortunately now the inflation has become less of a problem. If you look at inflation from a different angle, the data emerging is turning out to be much better on the inflation front than is evident. That will give us the manoeuvrability to deal with the economic situation," he said.
Maintaining that a fiscal stimulus plan is already on in India, the Prime Minister said he did not want to take credit but he and the Finance Minister had anticipated that there was likely to be a global slowdown this year.
And while preparing for the budget this year, he said the government had at that time said it had taken excessive risk about the budget deficit. "But conscious of the fact that a global slowdown was on the horizon, we had budgeted for a very substantial amount of deficit precisely to take care of the slack that may emerge. So far as our economy is concerned the fiscal stimulus is already on," Singh said.
"The fact is we had given record prices to the producers of rice and wheat and Rs 71,000 crore of loans were written off. We have a very extensive social service expansion and infrastructure expansion," the Prime Minister said.
On the summit in Washington, Singh said there was one important significance which is clear that the balance of power is shifting increasingly in favour of emerging economies.
"We were previously also invited for the past couple of years for the G-8 meetings. But consultations were merely for the sake of form. For the first time there was a genuine dialogue between many of the developed countries and the emerging economies," he said.
This was confirmation of a shifting balance of economic power and the western world has at long last got to realise this reality, he said.
"This is a positive gain. Also before I went when President (George W) Bush spoke to me first about his idea I had mentioned to him that there was a risk that if the meeting was not well-planned it could be counter-productive.
"Also I was worried that Europeans and Americans may not be able to agree and similarly the emerging countries may not receive the attention that we would like them to get in which case it would be a clear picture of dissension which would not be good for handling the financial crisis or its aftermath that is on the horizon," Singh said.
He said the G-20 meeting could be described as very successful. There was no attempt to score partisan points. It was recognised that the world was faced with a major financial crisis which was threatening to spill over to the real economy of the developing and developed countries.
