RBI board meeting: Raghuram Rajan says economy gaining strength, but recovery volatile

Central bank Governor expresses comfort on govt’s plan to stick to the fiscal deficit target of 3.5 per cent.

By: ENS Economic Bureau | New Delhi | Published:March 13, 2016 2:00 am
Raghuram Rajan, Arun Jaitley, Fiscal Deficit, rbi rate cut, Finance Minister, RBI, Reserve Bank of India, Business News, Raghuram Rajan press conference Finance Minister Arun Jaitley, RBI Governor Raghuram Rajan during a presser in the capital New Delhi. (Express Photo by Tashi Tobgyal)

Expressing his disappointment over the latest industrial production numbers, Reserve Bank of India Governor Raghuram Rajan said that even though the economy is moving in direction of “strengthening growth”, but the recovery process is volatile.

“We are in recovery phase…there’s volatility in the recovery process not a strong sustainable recovery where the signals are exactly in the same direction, so the IIP numbers were certainly disappointing, but broadly we are moving in the direction of strengthening growth. It’s not as strong as we would like as a country but we will have to see,” Rajan told reporters after the RBI Board meeting here.

A decline in output of capital goods, manufacturing and consumer non-durables led to a contraction of industrial production for the third straight month by 1.5 per cent in January.

He also expressed his comfort for the government’s plan to stick to the fiscal deficit target of 3.5 per cent for the next financial year, saying that it is a firm indication of government intent on fiscal consolidation.

“The headline number of 3.5 per cent fiscal deficit target is a firm indication of government’s intent to fiscal consolidation. Both the markets and RBI are comforted by that. How that feeds into monetary policy is you have to wait and watch,” Rajan said.

Rajan further added that the government could explore the possibility of moving to a cyclically-adjusted fiscal deficit target.

“There are ideas that have been floated, for example, moving to a cyclically-adjusted fiscal deficit rather than a fiscal deficit that does not take into account ground condition. This is something that a number of countries also do. My guess is that all these issues will also be explored by the commission that is looking at this,” he said.

The central bank governor also said he was “happy” with the composition of the proposed monetary policy committee, which will help the monetary policy process.

“I think it’s a very reasonable step forward. I think the monetary process will benefit from this move. Very happy with this decision,” he said.

The Budget has proposed a six-member committee, with three members picked by the central bank and three by the government and a casting vote by RBI governor.

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