Govt has right to set inflation target for RBI to achieve: FM

Stressing that economic stability should include steady prices, Finance Minister P Chidambaram today said Parliament could set an inflation target for the Reserve Bank to achieve.

Painting a rosy picture of the economy, the minister said the fiscal deficit target of 4.6 per cent of GDP for 2013-14 will be achieved and the current account deficit (CAD) will remain below USD 40 billion, against an earlier estimate of USD 45 billion.
Talking to reporters after his customary address to the RBI Board following the Budget presentation, Chidambaram, who took over as Finance Minister in August 2012, emphasised the economy is presently more stable than it was 18 months ago.

RBI Governor Raghuram Rajan, who was also present, said the central bank would issue new bank licences in "a few weeks" after obtaining the Election Commission's approval.

Elaborating on prices, Chidambaram said he was happy that Rajan in one of the statements "acknowledged that the government through Parliament will set an inflation target and leave the regulator to find ways and means to achieve that target. I think that is the correct approach."

The sovereign has a right to set the target and then the RBI has a mandate to take steps to achieve it, he said.

"I think there is great degree of convergence on the way to go forward...We must achieve both goals of price stability and growth...I am sure working together the government and central bank will be able to achieve these goals," he said.

The RBI-appointed Urjit Patel panel has recommended that the central bank should set a retail inflation target of 8 per cent by January 2015 and 6 per cent by January 2016.
Inflation as measured by the consumer price index was 8.79 per cent in January.
Referring to the economy, Chidambaram said it "certainly is more stable today than what it was 18 months ago. That is reflected in the strengthening of the rupee, that is reflected in heightened interest of investors, both FDI and FII."

He said measures taken by the RBI and the government are complementary and have delivered substantially on the goal of stability set 18 months ago.

On easing of curbs on gold imports, Chidambaram said the government would revisit the matter after the final CAD numbers are out.

The CAD narrowed to USD 26.9 billion (3.1 per cent of GDP) in the first half (April-September) of 2013-14 from USD 37.9 billion (4.5 per cent of GDP) in the first half of 2012-13. It narrowed sharply to USD 4.2 billion (0.9 per cent of GDP) in Q3 from USD 31.9 billion (6.5 per cent of GDP) a year earlier.

Replying to queries on new bank licences, RBI Governor Rajan said: "My sense is, if all goes well we should be able to do it in a few weeks."

He, however, added the RBI would seek formal approval from the Election Commission before issuing the licences as the model code of conduct is in force.
Over two dozen entities, including India Post, IFCI and large business houses such as the Anil Ambani group and the Aditya Birla group, have applied for bank licences.
The RBI is expected to issue only a few bank licences after completing due diligence.
Chidambaram said he had not made any recommendations to the RBI regarding the bank licences.

Talking about capital infusion in public sector banks, Chidambaram said it is time to "look for new or innovative" ways to raise more capital for the banks.

"We are looking at issuing shares to employees. We are looking at rights issue for minority shareholders. There was some discussion about non-voting shares but I think the time has come to look for new or innovative ways to raise more capital for the banks," he said.

He, however, added that the decision in this regard will be taken by the next government as "that is the appropriate way to go about it."

Rajan said there is a need to create a process for capital raising and it would be worked out over time.

"We have to give them (banks) more confidence that they will give adequate returns. We will work out over time. So it is a process. The Finance Minister mentioned different forms of capital raising so these will be explored," the Governor said.