Buoyed by a sharp rebound in factory output in November, PMEAC Chairman C Rangarajan today exuded confidence that industrial production will pick up in the remaining months of the fiscal.
"I think the industrial production will pick up in the second half of the year... The indications as thrown up by the data for November may continue into the rest of the months of the current fiscal," the Prime Minister's Economic Advisory Council (PMEAC) chief told reporters.
After witnessing low growth from July to September, factory output growth -- as measured by the Index of Industrial Production (IIP) -- slumped by 4.74% in October. The revival in IIP growth at 5.9% in November is likely to boost the industry sentiment.
"I think the IIP number for the month of October was an aberration in some way. While the overall growth rate in the industrial production may not be as strong as last year, it will not be too bad," Rangarajan added.
Replying to queries on the forthcoming monetary policy review, the PMEAC chief said the RBI's action will entirely depend on the inflation situation.
"I would say that the action of the RBI will largely depend upon how the inflation numbers turn out to be for the month of December. Certainly, a strong action on the part of the RBI in reversing the policy will be called for only if inflation shows very strong signs of decline," he said.
The RBI has adopted a tight monetary policy stance since March, 2010. The central bank is scheduled to review the monetary policy on January 24.
When asked if the RBI could cut the CRR from the current 6%, Rangarajan said, "I don't think a CRR cut is any different in terms of indications than for the change in the policy rate. Therefore, I think that the two go together."
He further said, "If there is a liquidity crunch, which needs to be tackled, I think it should be done through open market operations."
Open market operations, he said, provide a very convenient mechanism for the RBI to not only time the release of liquidity, but also adjust the quantum.
CRR is the quantum of deposits which banks are required to park with the RBI in cash.
On economic growth prospects during the fiscal, the PMEAC chairman said, "Overall, growth for the year will be in the region of about 7% or a little above 7%."
