Use of food inflation in setting rate flawed; RBI should slash it: Goyal

Union Commerce Minister Piyush Goyal on Thursday said the Reserve Bank of India (RBI) should cut interest rates and give an impetus to growth.

Using food inflation, which restricted the RBI from any rate action for two years in the rate setting is a "flawed theory", the Chartered Accountant-turned-politician said at an event hosted by CNBC TV18.

"I certainly believe they should cut interest rates, growth needs a further impetus. We are the fastest growing economy in the world, we can do even better," Goyal said.

Speaking at the same event later, RBI Governor Shaktikanta Das declined to comment on the senior minister's suggestion, saying that the six-member rate setting panel will take the appropriate call at its next meeting scheduled in December first week.

 

Goyal's demands found a resonance in finance industry veteran Deepak Parekh, who advocated that the RBI cut both its repo rate and consider the cash reserve ratio (CRR).

Chief Economic Advisor G Anantha Nageswaran had made the suggestion of excluding food inflation in the headline inflation computation.

Goyal said he has been a proponent of the exclusion of food inflation in rates for the last 20 years, even when he was in the Opposition.

"I've been consistently saying it's a flawed theory that food inflation should be considered while deciding on the interest rate structure. Food inflation has nothing whatsoever to do with managing inflation. That's a demand-supply situation," he said.

Goyal, who has also handled the consumer affairs portfolio in the past, said food stocks are not hoarded or stocked in large proportions.

"It is time that the policymakers and regulators seriously sat down, discussed with all stakeholders, economists beyond their own and come to a considered view of food inflation should be a part of the decision making for inflation or interest rates," he said.

It can be noted that the RBI under Das has made its reservations about such an exclusion in the past. The headline inflation went up to 6.2 per cent for October, breaching the upper end of the 2-6 per cent band on CPI set for the RBI by the government.

On Thursday, Goyal said the inflation will come down in December and January once the base effect kicks in and also added that there are other factors at play in the higher CPI number like the festival season, etc.

He added that for 5-6 years, there has been a synchronised action between the RBI and the government to bring down inflation and the last decade has seen lowest inflation under any Prime Minister in India's history.

Meanwhile, the commerce minister asserted that private capital expenditure is picking up "massively", and also businesses to look at reducing costs to play a volume game in the market of 140 crore consumers.

Without naming South Korean auto major Hyundai, Goyal said a recently listed automaker has sent over USD 12 billion as royalties and dividends abroad on a USD 200 million investment made 25 years ago, and is still holding a USD 15-billion stake in the company, which is illustrative of the handsome opportunities that lie in India.

He exuded confidence that under President Donald Trump, India and the US will forge strong ties.