News Column

'RBI must keep India growth goal in price fight'

January 24, 2014

From left: P Chidambaram, India's finance minister; Nikesh Arora , senior vice-president and chief business officer of Google ; and Sunil Bharti Mittal , chairman of Bharti Enterprises attend the 44th annual meeting of the World Economic Forum in Davos . Bloomberg / Davos India's central bank must retain the objective of supporting economic growth as it battles price rises, Finance Minister Palaniappan Chidambaram said, signalling challenges in implementing a proposed shift to target inflation. "Inflation targeting is only one among the objectives," Chidambaram said in an interview yesterday at the World Economic Forum meeting in Davos . "Another objective of the RBI must be to support growth." An Indian central bank committee has recommended setting a 4% target for consumer-price inflation by 2016 as part of the most sweeping changes in the organisation's 78-year history. That target is "ambitious" and the government will have a say in any final decision, said Chidambaram, who called it a "laudable objective" to work towards inflation targeting. Prime Minister Manmohan Singh has seen policies to boost rural wages and distribute cheap food contribute to consumer price inflation of more than 9% for about two years. The slowest economic expansion in a decade has sapped support for his ruling Congress party, which is trailing in opinion polls ahead of federal elections due by May. Chidambaram said the government would continue curbing gold imports into the next fiscal year. The government would meet its fiscal deficit target of 4.8% of gross domestic product in the financial year ending March 31 , he said. The rupee, which has fallen about 13% in the past year, pared losses after Chidambaram's comments on gold imports. It fell 0.2% to 61.95 per dollar at 4:39 pm in Mumbai . The S&P BSE Sensex gained 0.2%. The yield on the 10-year bond rose to 8.65% from 8.61% on Wednesday. Consumer prices rose 9.87% in December from a year earlier, compared with 11.16% in November and the fastest pace in a basket of 17 Asia-Pacific economies tracked by Bloomberg . Wholesale inflation was 6.16%, the lowest in five months. The December figures are "very encouraging," Chidambaram said. Reserve Bank of India Governor Raghuram Rajan surprised economists last month by holding the benchmark repurchase rate at 7.75%. He will leave the rate unchanged at the next meeting on January 28 , according to 25 of 28 economists in a Bloomberg News survey. Three predict a quarter-point move to 8%. Chidambaram is seeking to cut the budget gap to 4.8% of GDP in the year ending March 2014 , the narrowest fiscal shortfall in six years. The central bank panel appointed by Rajan proposed the government reduce its budget deficit to 3% of gross domestic product by March 2017 , a target that is shared by Chidambaram. The budget gap in the eight months through November reached 94% of the full-year target of Rs5 .4tn ( $87bn ). India's credit rating may be cut to junk in 2014 unless the general election leads to a government capable of reviving economic growth, Standard & Poor's said in November. Chidambaram said there are "no grounds" for cutting India's credit rating. He said he's "quite confident" India will meet its fiscal deficit target.


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Source: Gulf Times (Qatar)


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