With inflation under control, NITI Aayog Vice-Chairman Arvind Panagariya today pitched for cut in policy rate by one percentage point saying that “this lever” can be used to boost growth.
“I think that the interest rate cut is warranted..I would say in the next round, we should have (rate cut of) 50 basis points to 100 basis points, somewhere there,” Panagariya said.
He further said that the retail inflation based on consumer price index has come down from 10 per cent to 3.5 per cent while the wholesale price index is in negative.
“Inflation has declined by six and a half per cent and I think in the economy this is the time at which (rate cut) can be used as a kind of lever,” he told Karan Thapar in an interview on India Today news channel.
RBI, since January 2015, has lowered key policy rate by a total of 0.75 percentage point in three tranches and may reduce it further depending on macro-economic data and monsoon. The next policy review is due on September 29.
The repo rate is at 7.25 per cent at present.
On whether the RBI Governor is wrong in keeping the interest rates high, Panagariya said, “It is not something to prove someone right or wrong..I trust him, his judgement. I think, my reconciliation would be that perhaps attitude wise he is more of a conservative and he worries a lot more about inflation than somebody who sits at Niti Aayog.
“He wants to be sure that inflation is down to 3.5 per cent for good. I would expect that he would be convinced in short period of time. We would see that interest rate cut happen.”
Answering question on the growth prospects, Panangariya expressed the hope that the economy will expand by around 8 per cent in the current financial year and reach the double digit mark in next 3-4 years.
He further said that the agriculture output in the current fiscal will be better than what was achieved in the previous fiscal on the back of increase in area sown and Monsoon turning out better than anticipated earlier.
He also expressed hopes that slowing growth in China will help India in increasing its exporting and recapturing the markets.
On land acquisition law, he expressed hope that state will take their initiatives and said, “If we are not progressing on Centre level then we progress at state level.”
About labour reforms, he said the process will go on.
On whether Prime Minister Narendra Modi will continue to enjoy an image of a reformer in view of stalled initiatives of government like land acquisition bill and labour reforms, he said, “I have surely no doubt about that.”