RBI priority is to keep inflation low, says Gokarn

The priority of the central bank is to keep the inflation low and stable. Certain measures undertaken by the Reserve Bank of India to control inflation may have short term impact on the growth of economy, but this needs to be accepted as there is no long term tradeoff between growth and inflation, says Subir Gokarn, Deputy Governor, RBI.

Fast growth over a longer period of time can only happen if inflation is low and stable, he added. Gokarn was speaking on the theme of “Key to Double Digit Growth” at the Banking and Capital Market Summit, 2011, organized by Indian Chambers of Commerce (ICC) here.

He said, the importance should be laid on fast, sustainable and inclusive growth, not on double digit growth. “Sustaining high growth means maintaining inflation at low level”, he observed.

The RBI official said, there are a lot of constraints in achieving high growth, like food productivity, up-skill, infrastructure capacity which needs to be addressed quickly and aggressively. Gokarn predicted that the inflation rate may come down as the growth rate has softened, which is a partial impact of raising the interest rates.

It may be noted that GDP growth has dipped to 6.9 per cent in the three months to September compared with 8.4 per cent in the same quarter a year ago. Pointing out that 41 percent of idle cash is lying with rural households, he said, it is up to the banks, how they leverage this fund for expanding their business. He said, financial inclusion plan should not be taken up by the banks as an obligation, but as an opportunity to do business.

On the question of post offices functioning as banks in rural areas, the RBI official said, the post offices have to meet certain obligations on safety of funds and maintain cash reserve ratio like the banks. There is a difference in the structure.