Clearly disappointed at the Reserve Bank of India’s not cutting lending rates, two key aides of Prime Minister Manmohan Singh said the Government intends to face the challenge of reviving growth on its own, without the assistance of the monetary policy regulator.
Finance Minister P. Chidambaram said: “Growth is as much a challenge as inflation. If the Government has to walk alone to face the challenge of growth then we will walk alone.” Echoing the sentiment, Deputy Chairman of Planning Commission Montek Singh Ahluwalia remarked: “Monetary policy is a very important aspect of the growth push but most of what needs to be done for growth has to be done by the government, and we will do it.”
However, some remarks of the RBI have raised hopes of a rate cut in the near future. The RBI did mention in the review statement that as recent policy initiatives by the Government start yielding results in terms of revitalising activity, the central bank would open up space for monetary policy to work in concert to stimulate growth.
Still, the Finance Minister is not very excited. That was evident when he said: “I haven’t read the last few paragraphs of the statement, but if it holds out hope for the future I look forward to that future. Sometimes it is best to speak, sometimes remain silent. This is the time for silence.”
The RBI’s stand has also surprised many who were anticipating that the Finance Minister’s plan to cut the fiscal deficit would encourage the central bank to push for growth. The Finance Minister had unveiled a detailed blueprint for fiscal consolidation where he talked about bringing fiscal deficit to 3 per cent by 2016-17.
Without taking the RBI’s name, Chidambaram had said: “Government is doing its best to send the clear message that we are on the path of fiscal consolidation. It is my hope that everyone will read and understand the Government’s commitment to the path of fiscal consolidation.”
It is not clear whether the RBI got the message or not, but Ahluwalia did. That is why he said: “When fiscal deficit is too high in an overall situation which is not supportive of growth, the important point is to have a credible medium-term roadmap, not slashing the fiscal deficit in a big hurry. From that point of view also, the fiscal roadmap that the Finance Minister outlined on Monday seems to me in the right direction.”