Interest rates may harden, says PM panel chief

If the inflation rate was not brought under control quick enough, it could have a bearing on the monetary policy, leading to a slight hardening of the interest rates, Rangarajan told reporters here.

Speaking after paying homage to late renowned economist, Raja J Chelliah, on his first death anniversary, at the Madras School of Economics (MSE), Rangarajan anticipated “some appreciation” in the rupee value vis-à-vis US dollar, but “not to such an extent to hurt our exports.” “I don’t think capital flows will be too strong for that,” he said.
Though this year’s Union Budget envisages large borrowing programme by the Centre, Rangarajan was optimistic it would not be at the expense of funds requirement of private/corporate sector.

Releasing a book by Chelliah, titled ‘Political Economy of Poverty Eradication in India & Essays on Fiscal Reforms’, he said overall fiscal deficit of 6 per cent of GDP (three per cent at the Centre and three per cent for all states put together) “seems to be the right level.”

Due to global economic scenario, fiscal deficit had gone up in the last two years, but “we are hopeful we will return to a more appropriate level of fiscal deficit,” he said. Rangarajan also called for greater investment in agriculture to achieve a higher rate of growth. “In the last three or four years, our agriculture growth rate is less than the target of four percent. This has to be improved upon through investments in the agriculture sector,” Rangarajan said.