Amidst the debate over requirement of banks to park a certain portion of deposits with RBI,PMEAC Chairman C Rangarajan today said the banking system should move to situation where the cash reserve ratio (CRR) is used only in extraordinary circumstances. "We need to move towards a situation in which the level of CRR comes down and it is used as an instrument of credit control only in extraordinary circumstances," he told reporters on the sidelines of a financial summit organised by industry lobby Ficci and IBA. "As open market operation (an RBI tool to manage liquidity in the system) becomes increasingly a major instrument of credit control,the role of CRR as an instrument of credit control will come down," Rangarajan,himself a former RBI governor,said. The Reserve Bank of India (RBI) has been actively doing OMOs or buyback of government bonds to manage liquidity in the system over the last few months. Rangarajan's comments came at a time when there has been a debate started by the SBI Chairman Pratip Chaudhuri who wanted removal of CRR which now stands at 4.75 per cent. RBI's senior most Deputy Governor K C Chakrabarty has vehemently opposed the move and curtly stated that Chaudhuri should go elsewhere if he could not do business as per the rule of the land. The central bank Governor D Subbarao made light of the spat the other day. Rangarajan said CRR was used very frequently during his stint at the helm of RBI for liquidity management. He also jokingly reminisced that there used to be so many CRR hikes that someone used to wonder if it stood for his initials (CRR-C Rangarajan). As the financial sector reforms set in 1991,CRR has progressively been brought down,he said. Ranagarajan,whose council has projected 6.7 percent growth for FY13,said growth will revive to touch the 8 percent mark in two years. "As we move further ahead,the growth rate will pick up even more and perhaps in another two years time,we should get back to the 8 per cent rate of growth," Rangarajan said. He also said the elevated inflation will also ease off this year as the rainfall deficiency is not expected to be very high. "Therefore food inflation can be brought down and because of the other measures that have been taken,I expect inflation will come down," he said,adding that reform measures like an increase in diesel prices may hurt the price situation a bit. He said the higher pick up in growth and improvement in the fiscal deficit through measures like reducing fuel subsidies and allowing FDI in some sectors reduces the chances of a rating downgrade of the country to junk level,as has been threatened by some agencies. Asked about the impact on India if a third round of quantitative easing stimulus were to come in the US,Rangarajan said such a move would enhance capital flows into the country.
