CPI inflation at 8% by fiscal-end possible: RBI Governor

Says India can achieve a sustainable growth of 7-8%

The Reserve Bank of India (RBI) Governor Raghuram Rajan today said that the target of reaching CPI inflation rate at 8 per cent by the end of the current fiscal is on course. He was also bullish that the country can achieve a sustainable growth of 7-8 per cent and it is absolutely feasible.

In his special address at the FICCI Ladies Organisation in Chennai today, he said, "The right answer to inflation is collaboration between the Reserve Bank and the government, both working on the sides they can effect best inorder to bring down the inflation. That collaboration, I think, is underway".

Hopefully by the end of the year we think the economy is on course to come down to a CPI inflation rate of about 8 per cent, and by the end of next year down to a level of 6 per cent. We are certainly determined to make sure it follows this glide path, and will do what it takes to do that."

"Just working on the supply side is not adequate because supply takes time to kick in. By the time food supplies are enough to bring down the inflation it may be 3-4 years down the line. In the mean time, if we don't do anything to constraint demand, it will result in very high rates of inflation that will complicate everything else," he added.

According to Rajan, one of the major problems currently faced is growth in stressed assets. To contain the stress banks should join hands to identify stressed asset early, to pinpoint where these stressed assets are and take action.

According to him in the last quarter it (bad assets) tapered off and as the economic condition is expected to improve in the coming day, some of the bad assets will turn back to be performing.

One of the reasons for the increased in stressed assets is poor evaluation by banks and RBI is pushing the Banks to build better project evaluation skills.

Rajan said RBI is working to make it easier for banks to structure long-term loans to infrastructure projects and will work on making it easer for banks to borrow from the market through bonds and lend it to long-term infra projects. Those bonds if used to finance infrastructure, will be exempt from SLR and CRR.

"We will come up with a position paper on payment banks and position paper on small banks to indicate how the RBI would proceed forward to strengthen financial inclusion. We are working very hard in providing some of the best technology. We have a lot of technology and we need to use it," said Rajan.