NEW DELHI: Finance Minister P Chidambaram Friday said the government had the right to set a target for inflation and the Reserve Bank of India (RBI) could decide on its monetary policy in line with the target.
“I think that is the correct approach. The sovereign has the right to set the target and then the central bank has the mandate to take steps to achieve the target. I think that there is a great degree of convergence on the way to go forward,” Chidambaram told reporters after addressing the RBI board. The finance minister added goal of economic stability should include price stability as well as growth.
Asked about RBI Deputy Governor Urjit Patel committee report which recommended inflation targeting by RBI, he said the finance ministry and the central bank were on the same page on the issue.
The finance minister said RBI Governor Raghuram Rajan has acknowledged that it should be left to the central bank to fund ways and means to achieve the inflation target set by Parliament.
The Patel committee, formed to strengthen India’s monetary policy framework, had recommended sweeping changes such as formation of a monetary policy committee and inflation targeting. It suggested RBI primarily target four per cent inflation, with a deviation of 200 basis points. But the finance ministry is of the view that if RBI sets the target it would lead to conflict of interest.
Rajan said the RBI was worried about growth as much it was worried about inflation. “The key question is how we go about achieving high growth with low inflation,” he added.
Chidambaram said the measures taken by the RBI and the government are complementing each other and have delivered substantially the goal of stability.
“The economy certainly is more stable today than what it was 18 months ago. That is reflected in the strengthening of the rupee, that is reflected in heightened interest of investors, both FDI and FII,” he told reporters after addressing the board of the Reserve Bank of India,” he added.
The finance minister also said the current account deficit (CAD) for this year would be $40 billion-lower than his Budget projection of $45 billion and less than half of $88 billion in 2013-13. He reiterated the revised fiscal target of 4.6 per cent for 2013-14 would also be met.
CAD has narrowed down to $31.1 billion or 2.3 per cent of GDP in April-December this year, against $69.8 billion or 5.2 per cent in the corresponding period of 2012-13. The reduction came on the back of pick up in exports and restrictions in gold imports.
However, when asked about easing curbs on gold imports with reduction in CAD, he reiterated the government would revisit the matter after the final CAD numbers are out.
On GDP growth target of 4.9 per cent of the year, Chidambaram said he went by the estimates of the Economic Division in the finance ministry and the Central Statistical Organisation. He said fourth quarter must deliver higher growth in order to achieve the target of 4.9 per cent for the year.
The economy expanded at 4.7 per cent in the December quarter of 2013-14, after growing at 4.4 per cent in the first quarter and 4.8 per cent in second quarter.