|
| Rates may harden by fiscal end: Rangarajan |
| BS Reporter / Hyderabad Sep 18, 2009, 00:13 IST |
|
 Interest rates may harden a bit by the end of the current financial year, according to C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council.
Speaking to mediapersons on the sidelines of an international conference on ‘Global Economic Meltdown: Challenges and Prospects’ here on Thursday, Rangarajan said credit offtake was also showing signs of recovery.
He said though capital flow had improved, but were not of the same order as two years ago. Nevertheless, inflows through foreign direct investment (FDI) and foreign institutional investment (FII) would be larger this year compared with last year, he said.
Rangarajan said that fiscal actions involving a cut in excise duty and enlarging government expenditure would stimulate aggregate demand. The government has already extended its stimulus package up to March 2010, which could be reviewed thereafter. On the issue of the continuance of the accommodative policy, he said this policy of the Reserve Bank of India (RBI) and the government might have to be withdrawn gradually.
“The quantitative easing cannot continue indefinitely. RBI particularly has to guard against the re-emergence of inflation,” he said. In this context, Rangarajan cautioned that there shouldn’t be a “premature” withdrawal of the accommodative policy. “It has to come after definite signs of recovery are visible. But once they are visible, we have to withdraw,” he said.
Even in the case of central fiscal deficit, he said, we should revert to Fiscal Responsibility and Budgetary Management (FRBM) targets as the economy began to recover. He does not envisage any increase in the 2009-10 fiscal deficit, which is pegged at 6.8 per cent of the gross domestic product (GDP).
Rangarajan said that RBI had taken right steps by reducing CRR (cash reserve ratio) and repo and reverse repo rates for expanding liquidity. However, it was being pointed out that the actions of the central bank have not percolated to the ground level and credit growth was slow.
“Is this a case of taking the horse to the pond but cannot compel it to drink?” he asked while emphasising that the role of RBI was to create an environment in which additional credit could be made available.
He envisaged that India would see “definite signs” of recovery in the second half of 2009-10 and the economy would grow between 6 and 6.5 per cent. Fiscal 2010-11 would see a distinct improvement and the economy would grow between 7 and 8 per cent. But to go back to 9 per cent growth, the country has to wait for the world economy to improve and the world trade to pick up.
According to Rangarajan, the shock waves produced by the current financial crisis would have their own effect on the structure of capitalism. Acceptable capitalism would require more regulations. Future discussions must centre around the nature and scope of such regulations. Runaway financial innovations that were dysfunctional did more harm than good, he added.
|
|
|
|
|
|
|
|
|
|
 Read Business news in |  |
|
|
|
|
|
|
Advertisements |
|
|
|
|
|
|
|
|
|
Content Guide
