The government appears to have accepted the Urjit Patel report on setting inflation target. Finance Minister P Chidambaram said on Friday that the government will fix the inflation target through Parliament while the RBI will implement the decision.
“I think that is the correct approach. The sovereign has the right to set the target and then the central bank has the mandate to take steps to achieve the target. I think that there is a great degree of convergence on the way to go forward,” Chidambaram said after addressing the RBI board meeting.
“The economy 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,” Chidambaram said.
His comments come days after RBI Governor Raghuram Rajan told a private TV channel that Parliament should set the inflation target and the central bank should be given the mandate to deliver on the objective.
A committee headed by Deputy Governor of RBI Urjit Patel had recently suggested a major shift in the way monetary policy is designed. It recommended that retail price inflation or the consumer price index should be the nominal anchor for inflation. The panel had also proposed moving to an inflation target of 4 per cent in three years, with a 2 per cent band on either side when setting monetary policy.
India’s retail inflation has hovered close to 10 per cent for the last three years driven mainly by food inflation.
In what could be music to the ears of investors, Chidambaram said government will be able to curb current account deficit below $40 billion in current fiscal. In the interim budget, the minister had suggested that the CAD would be curbed close to $45 billion.
“I am glad that the measures taken by the RBI and measures taken by the government are complementing each other and have delivered substantially the goal of stability that we had set for ourselves 18 months ago,” Chidambaram said.
Talking about the economy, Chidambaram said India must achieve “price stability and growth, that is what the people of the country of want and that is what the people of the country deserve.”
To a query on easing of curbs on gold imports, the Finance Minister said the government would revisit the matter after the final CAD numbers are out.
Chidambaram said he made no recommendations to the RBI regarding the bank licences.
