RBI Should Be Ready to Take "Calibrated" Risks to Revive Economy; More Reforms Ahead Assures Indian Finance Minister

 
on October 14 2012 7:27 AM

Indian Finance Minister P Chidambaram urged Reserve Bank of India Saturday to support the struggling economy by reciprocating the government’s attempts to rein in fiscal deficit, whilst strengthening the industries and markets plea for monetary easing.

Chidambaram in an interview to Reuters said that the government is committed to “fiscal correction” and will go ahead with the economic reforms and now it is RBI’s turn to act.    

"It's a call that the RBI has to take," Chidambaram told Reuters on the sidelines of an International Monetary Fund meeting in Tokyo, two weeks before the RBI is due to review policy.

"But I hope that the positives outweigh the negatives and that while the government has taken and will take a number of fiscal measures, that these measures will encourage the RBI also to take what I call some calibrated risks," he added.

Chidambaram, who in August had taken charge of the Finance Ministry, had since undertaken a slew of big-ticket reforms, to revive Asia’s third largest economy, which had dropped to a nine-year low in last quarter. The economic reforms, which included allowing Foreign Direct Investment in retail, pension, insurance and aviation sectors has boosted the investor sentiment, leading to funds inflow.

The rupee and the equity markets responded positively to the measures raising hopes of economic recovery.

However, RBI is yet to respond to demands for easing monetary policy, as it cites high inflation as one of the factors that is above comfort levels. RBI has been emphasizing that it requires government to take corrective measures to boost growth and headline inflation measured by whole sale price index should drop below 5 percent.

"Decision making in life is about taking risks. That's my view. But I'm not the governor," Chidambaram said. RBI’s next policy review meeting is scheduled Oct.30.

The Minister also expressed confidence that the credit rating agencies would not downgrade India to junk status as the country’s real and potential growth rates are higher than most of the developed countries.

Standard & Poor’s, this week, warned India that it would downgrade the country to junk status, even after considering the recent reform measures.

Chidambaram said that there will be more reforms and structural changes in the capital markets, insurance and banking sectors in the following weeks. In an interview to a TV channel in Tokyo, the minister defended the social welfare programs and said they will be fully protected, while wasteful expenditure will be cut, according to News on Air.

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