The nature of monsoon will determine the central bank’s policy in the next three months, according to RBI Governor D. Subbarao.
Speaking on India’s macroeconomic challenges at the Institute of Public Enterprise’s Golden Jubilee function here on Friday, Subbarao said that while retail inflation was still ‘high’ the wholesale price-led inflation was coming down.
In April, the consumer price-led inflation was 9.39 per cent, while the annual WPI-based inflation came down to 4.89 per cent.
Stating that monetary policy was the first line of defence against inflation, the Governor said growth-inflation dynamics should be handled keeping in view several risk factors and also the interests of the poor. The RBI, however, is also sensitive to criticism from ‘pro-growth’ commentators, he said, adding: “Some sacrifice of growth is inevitable to manage inflation.”
Observing that current account deficit (the difference between a country’s total imports of goods, services and transfers and total exports) was a big challenge, he said, the deficit should be brought down to a sustainable level through short- and medium-term measures. “There is a need to focus on short-term financing of current account deficit.”
On fiscal consolidation, he said the political economy would be an influencing factor.
GROWTH DRIVERS
Despite the challenges, India’s growth story was still credible as growth drivers were still there, the RBI chief said.
“The promise of increase in productivity, demographic dividend…will drive growth,” he added.
P. Rama Rao, President, Board of Governors, Institute of Public Enterprise, said larger funding and encouragement should be given to research in social sciences.