CEA pitches for rate cut by RBI; sees potential for 9% growth

Pinning hopes on adequate food grain stock helping to keep inflation under control even with below-normal monsoon, Chief Economic Advisor Arvind Subramanian today pitched for rate cut by the Reserve Bank next week to boost growth.
The CEA said the buoyancy in tax collections during April was indicative of GDP growth bettering to about 9 per cent in the current fiscal, from 7.4 per cent a year ago.
Drawing parallel with China, Subramanian wanted the RBI to cut interest rates so as to help depreciate the domestic currency to make Indian exports competitive and aid Make in India campaign.
He said the Current Account Deficit (CAD), which more than a year back was a big worry, would be less than 1 per cent in the current fiscal. Prices of oil, on which India is 79 per cent import dependent to meet its needs, are likely to remain in the comfort zone of USD 50-80 per barrel without "wild swings".

"Looking at the analysis of what is the inflation forecast, what is the fiscal consolidation, what is the international environment...And how monetary policy should respond, I think there is scope for monetary easing," Subramanian said while addressing a press conference on completion of one year of the Modi government.
The Reserve Bank is slated to announce its second bi- monthly policy on June 2 during which the central bank will take a call on interest rate taking into account inflation and other economic parameters.

"One factor that is going to affect inflation going forward is the monsoon ... Because we do have adequate stocks, we will be able to contain inflation even if monsoon does not turn out to be as good," he said.

The Indian Meteorological Department (IMD) has projected a below normal monsoon which might impact food production leading price rise.
Referring to indirect tax collections, Subramanian said that the receipts have grown by 9.8 per cent in April.
"Assuming (indirect tax) buoyancy of between 0.9 and 0.8, nominal GDP growth is between 10.9 per cent and 12.3 per cent, the real GDP growth (for 2015-16) should be between 7.7-9 per cent," Subramanian said.
Admitting that the "risk" to inflation is there, he expressed confidence that the government would be able to contain price rise as it did during the previous fiscal.

"Overall inflation is down, inflation prospects are looking good. Quantity and quality of fiscal consolidation and the external situation also are under reasonable control," he said.