Making a case for lowering of interest rates, Minister of State for Finance Jayant Sinha has said RBI should take into account various factors, including low inflation...
Making a case for lowering of interest rates, Minister of State for Finance Jayant Sinha has said RBI should take into account various factors, including low inflation, while deciding on monetary policy stance.
He also stressed on the need to make the Indian exports more competitive by bringing down the cost of capital as also the cost of manufacturing.
Stating that the country’s economic “growth is not at its potential”, Sinha said RBI will certainly look into the factors like negative wholesale inflation and low GDP deflator while “establishing its monetary policy”.
Reserve Bank is scheduled to announce its next bi-monthly monetary policy review for the current fiscal on September 29, amid rate cut calls from the industry to boost growth rate, which fell to 7 per cent in the first quarter of 2015-16.
“If you look at wholesale price index (WPI) inflation and GDP deflator, they are near zero or negative… CPI continues to be in the 5-6 per cent range.”
So, how one takes into account all these data to decide what the inflationary expectations are and how to best anchor inflationary expectations, that is the job of RBI,” Sinha told PTI in an interview.
He said RBI is confronted with some conflicting data as WPI is in negative territory, the GDP deflator is at zero, but CPI (retail inflation) looks to be rising from 3.78 per cent in July and get back to 5-6 per cent.
“So, in light of all of that and the fact that you have volatility in global markets, you have growth not at its potential.
Those are all the factors which have to be taken into account when RBI establishes its monetary policy,” he said.
WPI inflation was in negative for the ninth consecutive month and stood at (-)4.05 per cent in July.
Referring to declining exports, Sinha said there is a need to make Indian exports more competitive by bringing down the cost of capital and cost of manufacturing.
“It is very important for Indian exports to be competitive and there are many factors that come into play around competitiveness. One is where the currency is, the other is the cost of production at home for which the interest and the cost of capital is an important component.
“Obviously we have other costs that impair our competitiveness. Our infrastructure cost is very high. Unfortunately, many manufactured goods tend to be high-cost, which impairs our competitiveness,” Sinha said.
When asked if the RBI is behind the curve in reducing the rates, he said: “Monetary policy is the prerogative of the RBI”.
Hit by global slowdown, India’s exports contracted for the eighth straight in July with a decline of 10.3 per cent to USD 23.13 billion.
The minister, however, said there is some comfort from the fact the several global companies, including Foxconn, GE and Amazon, have shown interest in investing in India.