FM hails policy, but says growth will be over 6%

Written by fe Bureaus | New Delhi | Updated: Oct 28 2009, 05:52am hrs
Welcoming RBIs decision to keep policy rates unchanged, key government functionaries on Tuesday said expansionary policies will continue till the economic recovery is firmly in place. Finance minister Pranab Mukherjee said RBIs monetary policy is broadly in line with the governments thinking, which is to continue with the stimulus until the economic recovery is secure.

Of course, the assessment of the RBI on the whole is in conformity with the governments own thinking on both the fiscal policy as well as the monetary policy, he said. Mukherjee welcomed RBIs decision to keep policy rates unchanged, but said economic growth will surpass the central banks estimate of 6% in 2009-10. RBI always makes very hard and conservative assessments. On GDP growth, I am inclined to accept the figure of Prime Ministers Economic Advisory Council, headed by C Ranagarajan, which is 6.5- 6.75%, the minister stressed.

Mukherjee added that the economy is responding positively to the RBIs monetary policy and also assured that the stimulus will continue. As I mentioned that until the economy is on a firm recovery path, it (the stimulus) will continue, he said. The minister also added that the cooperation between RBI and the government will continue.

Planning Commission deputy chairman Montek Singh Ahluwalia said the monetary policy did not signal any contraction. RBI has maintained its policy rates and is not signaling any basic contraction or tightening in the monetary policy. Dont regard SLR as contractionary. Basically, it is a reflection that banks are subscribing to government securities.

Finance secretary Ashok Chawla said the policy will give a positive signal to the economy. The economy is on a comeback track but there is need for more definite and robust signals, which is I am sure is what RBI has responded to. The continuation of the policy will serve industry and businesses well in the months ahead, Chawla said.

There is, however, a worry on the inflation front. RBI raised its inflation forecast to 6.5% by March 2010 from 5%. Inflation is basically grounded in food inflation. It is something which the government is definitely very concerned about. There are a number of administrative measures which the government has taken and will continue to take to respond to inflation, which is expected to be around 6% by the end of March 2010, he said.