Tight monetary policy may go, feels Pranab

Says if monsoon is good, GDP will be better

“I feel that the existing monetary policy of reigning in inflation may not have to be extended... If the monetary policy is extended, there will be an overall impact on the growth scenario. I am optimistic that the present monetary stance will not have to be extended,” Mukherjee said at a CII event here.

In its bid to tame inflation, RBI has hiked policy rates 11 times since March 2010. The overall inflation, which crossed 9 per cent mark in December, stood at 9.22 per cent in July.

However, with higher cost of borrowing and slowing project investments, the GDP growth for the April-June quarter (Q1) slipped to a 18-month low of 7.8 per cent. In the corresponding period last year, it was 8.8 per cent. Referring to slowing of GDP growth in the April-June quarter, the Finance minister said, it is disappointing but not totally unexpected... If the monsoon is good, then GDP will be better. Mukherjee further said that good monsoon would help bring down food inflation to 6-7 per cent by March end.

After a gap of over five months food inflation jumped to double-digits. It was at 10.05 per cent for the week ended August 20, as onion, fruits, vegetables and protein-based items turned more expensive.

Seasonal factors
“I hope good monsoon and elimination of seasonal factors will bring down food inflation to single digit. By the end of the year, it should be around six to seven per cent,” Mukherjee added.

Further, Mukherjee said that the Indian economy should come back to the path of fiscal consolidation, after expansionary policy stance of the fiscals 2008-09 and 2009-10. He also sought cooperation of opposition for passage of the several financial sector reform bills pending in Parliament. Several bills like increasing FDI cap in insurance sector and GST, are pending in Parliament.

“Other political parties will have to cooperate so that the legislations are passed. Legislation concerning economic reforms could not be passed in Parliament as it did not function,” the Finance minister said. Trying to allay fears about high fiscal deficit (FD) in the first quarter, he said it was nothing unnatural.

“While FD in the first quarter was 55 per cent, it was around 58 per cent on average for the last five years in the similar period. It always happens.” For the current year, FD would be 4.6 per cent of GDP, he said. The Finance minister said that there had been considerable buoyancy in direct tax and indirect tax collections during the first four months. “It is quite satisfactory.”

“I have fixed a target of 10 per cent more resource mobilisation for the current year,” he said, adding that the department had taken a decision to refund I-T refunds upfront. “This has lead to some cash management problems, but we'll be able to tackle it and in the later part we will have nothing to pay,” Mukherjee said.

On the expenditure side, the Finance minister said that expenditure pattern of key ministries would be monitored on a quarterly basis. “I am telling the ministries to go on making expenditure but not to park resources somewhere and claim that expenditure has been made.”