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The Reserve Bank of India may not have found enough headroom for further rate cut, but the Finance Ministry believes that there will be sufficient space for incentives, which the central bank can look at.
“There will be scope for more rate cuts, if inflation comes down further,” Finance Minister P. Chidambaram told newspersons here.
The headline inflation has moderated to 5.96 per cent for March from 7.32 per cent last October. The important thing is that the food inflation has come down to 8.73 per cent in March from 12.35 per cent in January.
Grain impact
Taking Chidambaram’s statement forward, Economic Affairs Secretary Arvind Mayaram hoped that foodgrain production will be significant this year.
“Rabi also is going to be a bumper crop and in another month once the crops start coming into the market there is going to be a cooling of food prices. Adding to this will be steps which are being considered by the Government that will perhaps bring the food prices down further to a tolerable limit,” he said.
Mayaram said various agencies are projecting growth somewhere between 5.7 per cent and 6.4 per cent while the Government’s estimates peg it between 6.1 per cent and 6.7 per cent.
“But let me assure you the growth rate will not be below six per cent. Growth rate will surprise everyone. Investments are picking up, there are green shoots,” he said.
He also mentioned that investment figures have started improving with more foreign direct investment. This will help in bringing down the current account deficit less than five per cent. He also believed that confidence of foreign investor was intact.
“There is no reason to believe capital flows will be more volatile than in other years,” he added.
Mayaram hoped that the RBI might reconsider rates in next monetary policy given the improving environment.
“We believe there will be enough incentive to certainly look positively at the rate cut but am not predicting, I am not even demanding, I am only stating how I see the situation on the ground.”
Echoing similar sentiments, Chief Economic Advisor Raghuram Rajan said, “Twenty-five basis points is a good step. I think going forward if inflation stays low, if we can bring down food prices hopefully there will be more room.”
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