Rangarajan bats for food subsidy, allays industry fears on retail FDI

Written by fe Bureau | Kolkata | Updated: Nov 25 2012, 06:38am hrs
Says rupee will stay at current levels n Suggests CIL tie-up with private sector

The rupee is likely to remain at the current levels, C Rangarajan, chairman, Prime Ministers Economic Advisory Council, said on Saturday.

I expect the exchange rate to remain around these levels moving forward as the current account deficit will come down, aided by capital inflows, by the end of this year, Rangarajan said.

On Friday, rupee slid to a two-month low of 55.52 against the dollar. He said current account deficit would come down to around 3.5% of the GDP by the end of the current fiscal on the back of lower gold imports and increased capital inflows.

He said the government is trying to maintain the current account deficit around 2.5% of the GDP in the medium term through management of grain market and fiscal and monetary measures to keep inflation under control.

Pointing out food subsidy as a matter of paramount importance for countries like India, he said that policy measures are required to contain inflation. The fact that inflation is triggered primarily by supplyside shocks does not mean that monetary policy and fiscal policy have no role to play. There is an imperative need to contain expenditures, more particularly subsidies, which need to be pruned, well focused and prioritised. This calls for policy actions, which may not be popular, he said.

Present at an interactive session organized by MCC Chamber of Commerce and Industry, Rangarajan said that FDI in retail will not have much impact on the small retailers. "The small retailers have a locational advantage and would act more business-like under the shadow of the large ones," he said.

Commenting on the economic growth, he said that the growth likely to remain between 5.5% and 6% in the current fiscal and current account deficit would be between 3.5% to 3.6% of the GDP. On banks performance, he said their net interest margin is not likely to see a substantial drop soon. I do not think that the net interest margin is coming down substantially, he said.