Planning commission Deputy Chairman Montek Singh Ahluwalia said today that the Reserve Bank of India had done a lot to tackle the economic slowdown but had headroom to do more. Speaking to The Indian Express Editor-in-Chief Shekhar Gupta on NDTVs Walk the Talk,Ahluwalia said: In the area of monetary policy I think weve done a lot and I think the Reserve Bank still has room to do more. Part of the strategy of being cautious was not to shoot every bullet in the gun right at the beginning. So they actually wanted to have some reserves and they have a lot of instruments for reserves.
When it was suggested that the central bank could lower Cash Reserve Ratio (the proportion of deposits banks need to keep with the central bank) by 100 basis points to pump in an additional Rs 50,000 crore into the system,Ahluwalia said: That is certainly an instrument they can use,both CRR and interest rates,the policy rates are instruments available with the RBI. They have been using them and the good thing is that they have a lot of scope. So I think on the monetary side we have all the flexibility we need.
Asked whether the RBI could be expected to be more proactive,he said: Theyre very aware. And my impression from the policy pronouncements that the Governor has made,they recognise that inflation is now not a problem (it fell to 3.92% today) and I think youll see that in the next two or three weeks. They also recognise that growth is something we need to protect. Now you can draw your own conclusions,lets see how they behave.
Yesterday,speaking in Tokyo,RBI Governor D Subbarao had said that there certainly was room to cut rates. And added: The question is whether we should cut rates,when we should cut rates and by how much we should cut rates…Its not automatic that inflation is coming down and you cut rates.
Ahluwalia also made it clear that ongoing programmes to boost the economy will not be held up by the model code of conduct in the run-up to elections because these measures work within the broad parameters of intentions that have already been announced.
Still,to ensure that there is no misunderstanding on this,Cabinet Secretary K M Chandrasekhar will talk to the Election Commission,he said.
An interpretation of the Code of Conduct which says that activity that has already been announced and begun should come to an end would in my view be quite economically disastrous, said Ahluwalia. To imply that the government shut down for three months because of the conduct,he said,would be the most counterproductive thing you could think of.
Saying that EC,in the past,had shown flexibility,Ahluwalia said that there was no reason why the proposed low-cost housing projects should get held up as these have been already announced. The housing project,as reported in The Indian Express,involves getting states to provide land and the Centre to support the construction of houses through subsidies involving private builders as well.