The Hindu Business Line : Chidambaram welcomes monetary policy

The Finance Minister, Mr P. Chidambaram, while welcoming the annual monetary policy, has said that he would aim for a growth higher than that projected in the policy while trying to keep inflation below the figure mentioned in the policy.

The monetary policy announced on April 18 has projected 7.5-8 per cent growth and pegged inflation between 5 per cent and 5.5 per cent.

In an interaction at his residence here with journalists, Mr Chidambaram said his aim was to achieve a higher growth while he would strive to keep inflation below 5 per cent.

"The Government and the RBI are on the same wavelength. We acknowledge RBI's authority in the matter of monetary policy. We are quite pleased that there is a broad convergence in the views of the government and the central bank," he said. The monetary policy, Mr Chidambaram said, had leaned in favour of growth even while uttering the "very necessary caution" about certain downside risks.

The increase in the risk-weight for capital market, real estate, personal loans and housing in excess of Rs 20 lakh was an important signal to the banks that the bulk of the credit must go to the productive sectors. If some of these high demand sectors were allowed to cool a bit, then it was possible to moderate credit growth without affecting the legitimate credit needs of the productive sectors, especially manufacturing and agriculture, he said.

Cash reserve ratio

Asked about anticipations of a cut in cash reserve ratio, Mr Chidambaram said it was expected about three weeks ago.

The whole situation changed dramatically... The reverse repo absorption was now in the region of Rs 30,000-40,000 crore and when that happened, there was no case for reducing CRR.

On concerns about the market being overheated, the Finance Minister said if bank funds were going to the capital markets, then the increase in risk-weight would moderate that flow.

But if FII money was coming in and household savings were being channelled through the mutual funds, then those were signs of investor confidence in the economy. The RBI can do precious little in that case. Broadly, it indicated investor confidence in the expected performance of listed companies.

The listed companies' performance in Q4 was better than Q3 overall, just as it was last year, so a rise in the market sentiment was inevitable.

Fuel prices

To a question, he said incomplete pass-through of fuel prices was a problem. The Petroleum Ministry had to forge a consensus on the issue in Parliament before any solution could be thought of.

He felt that the movement of crude prices past the $70 a barrel mark was a temporary phenomenon because of the exchange of words on Iran.

"I am pretty confident that the US will heed the words of the rest of the world, especially China and Russia, whose support is critical for any resolution. India has also advised US that negotiations under the aegis of the IAEA are the only correct course of action in the matter," he said.

Mr Chidambaram said that resolving the fuel price issue was no longer just an issue of economics. "It is not a pure economic issue where you find an economic solution for that. It is a complex issue and therefore one has to forge a consensus," he said.

"At this level of fuel prices, it is no longer a pure economic issue," he said and asserted that "nothing can be done and nothing will be done" without a consensus.

On capital account convertibility, he said the committee had been asked to give its report by July. Besides the roadmap for capital account convertibility, there was also the roadmap for FRBM. The revenue deficit had to be wiped off and the deadline was 2008-09. The two roadmaps would have to be looked at in parallel.

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