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Journalism of Courage
A high-level inter-regulatory body today said though inflation is a cause of concern in the short-term,the growth prospects of the country in the long run remain buoyant.
The Financial Stability and Development Council (FSDC),chaired by finance minister Pranab Mukherjee,took stock of the financial stability situation in its third meeting today. The council discussed the impact of yesterdays rate hike by the Reserve Bank of India (RBI) on the economic growth,a key concern keeping in mind the RBIs hawkish policy stance.
The major concerns were relationship between inflation and growth. We are confident that growth trend will continue, J Hari Narayan,IRDA chairman,said after the meeting.
The meeting was attended by all financial sector regulators including Sebi chairman,RBI governor,PFRDA chairman,and finance secretary and chief economic advisor.
When asked if the trend in economic growth will remain same despite yesterdays rate hike by the central bank,Narayan replied in affirmative. The FSDC argued that the growth is not likely to get impacted as investment as a percentage of GDP is still very encouraging. The provisional tax collections figures for the first quarter of current fiscal are encouraging and they give reason for optimism on growth and meeting the fiscal targets, the statement said.
Yesterday,the Reserve Bank of India (RBI) raised the short-term lending (repo) rate by 50 basis points to 8 per cent and the short-term borrowing (reverse repo) rate by a similar margin to 7 per cent. However,the RBI maintained the earlier growth projection of 8 per cent.
The council was of the view that even as inflation is not conducive to short-term economic growth,Indias medium to long-term economic growth prospects remain bright, an official statement said.
This might be an indication that the RBI may mull further rate hike if the high prices scenario continues.
While the economy is expected to grow between 8 and 8.5 per cent in 2011-12,the persistently high inflation and subsequent interest rate hikes by the RBI have curtailed India Incs expansion plans and led to fears of a possible slowdown. A burgeoning fiscal deficit is also being seen as a potential threat to the economy.
