Pay Commission's impact on inflation to be checked: ASSOCHAM

While maintaining that status quo on benchmark policy interest rates was on expected lines, RBI Governor Raghuram Rajan's assertion that the central bank remains "in accommodative stance" is quite reassuring for the industry, said ASSOCHAM president Sunil Kanoria.

He said the credit policy review has rightly raised a concern about the possible impact of the Seventh Pay Commission on quality government expenditure.

"The industry is fully in agreement with Governor Rajan, who has stressed the government to maintain the quality of the Budget while trying to keep the Fiscal Deficit intact, faced with the pressure of the Pay Commission resulting in additional cost of over Rs. one lakh crore," Kanoria said.

"As pointed out in the policy document, vigilance of the top order is required to ensure that the retail inflation particularly of the items of common consumption does not increase again. Or else, the RBI would not be able to maintain the accommodative stance. The ball in now in the court of the government to see to it that inflation is kept low through better food management, banks are nudged to do more on transmission and the public investment is stepped up to spearhead the investment recovery", Kanoria added.

ASSOCHAM opens that the government policy, both monetary and fiscal, must directly support creating more production capacities and ensuring adequate supply response on one hand and boost the demand growth on the other.

Banks are presently risk averse due to past problems. Once the issue of non-performing loans get sorted out, the private investment cycle will re-start.