The economy is on course to see CPI inflation rate of 8 per cent by the end of the current year and subsequently 6 per cent by the end of the next year, said Raghuram Rajan, Governor of Reserve Bank of India.

Controlling inflation is a paramount issue, and the immediate objective for the RBI and the Government is to maintain everything good in this economy. The RBI is determined to make sure the consumer inflation takes a glide path, and “will do what it takes to ensure that”, he said.

RBI-Govt tie up

Delivering his special address at the FICCI Ladies Organisation in Chennai today, he said the right solution to inflation would be collaboration between RBI and the government, as some of the inflation comes from food inflation as a consequence of supply side problems.

“Just working on the supply side is not adequate because supply takes time to kick in. By the time food supplies are enough to bring down the inflation it may be 3-4 years down the line. In the mean time, if we don’t do anything to constrain demand, it will result in very high rates of inflation that will complicate everything else,” he added.

The other most immediate problem the country faces, according to him, is the issue of increasing stressed assets in the banking system.

Stressed assets

“Fortunately, in the last quarter, it tapered off. As the economic growth is expected to be stronger over the course of the year, some of the bad assets will turn back to be performing. “But, we have to take every action we can to ensure the problem is contained. RBI is taking a number of actions in this direction, including trying to get banks to join together to identify stressed assets, to pin point where these stressed assets are and take action through coordinated efforts. “So, I feel we are getting the handle on both. Though there is a long way to go, it’s very critical for stability,” he said.

In the longer term, we need to build up infrastructure. Enormous infrastructure needs enormous financing. One of the major areas RBI is working on is to make it easier for banks to structure long-term loans to infrastructure projects.

Market borrowing

As announced in the budget, he said, the apex bank will also work on making it easier for banks to borrow from the market through bonds and lend it to long-term infra projects.

Those bonds if used to finance infrastructure, will be exempt from SLR and CRR. Responding to a question from the media , he said a sustainable growth of 7-8 per cent is absolutely feasible. “I think we can get there.”