Pay panel may queer pitch for monetary policy: ASSOCHAM President Mr Sunil Kanoria on credit policy

Though the RBI monetary policy is on the expected lines, what really worries the industry are the challenges in the next fiscal because Governor Dr Raghuram Rajan has not factored in the impact of the Seventh Pay Commission while setting the inflation target and the government fiscal balance.

If the Pay Commission recommendations are accepted and implemented without any dilution or staggering, the consequences are going to be disastrous for the economy, coming from deteriorating quality of expenditure both at the state and central level. Let us hope, we do not remain in the fire-fighting mode even when there are immediate concerns on growth revival. The tepid sale of the automobile firms in January is a clear pointer of slackening consumer demand amidst continuation of high interest rates. The picture is further marred by the level of stressed assets in the economy, said Mr. Sunil Kanoria, President ASSOCHAM.

The ball is certainly now in the court of the Finance Minister Mr Arun Jaitley who must ensure that his Budget is innovative in creating a trigger impact on investment in the key infrastructure while there should be a well-coordinated inter-ministerial approach to clear the stalled projects. With so much pressure on the fiscal, the Finance Minister may have to depend on some off-Budget tools to boost investment, said Mr. Kanoria.

With the rural economy in distress due to failure of monsoon for two successive years, the macro picture could become more challenging. To that extent, the RBI Governor is justified in waiting for clarity before he outlines his priorities for the next financial year. He would like to wait for the effects of likely events including the Budget announcement and the Monsoon, What the US Fed is going to do in March, and the effect of turmoil in global economic environment also remain areas of concern.

As the financial industry is facing liquidity crunch, ASSOCHAM expects RBI to keep a watch on the unfolding situation and ensure that enough cash is available in the system to help growth, said its Chief.

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