Minister of state for finance Namo Narain Meena said that the RBI's monetary tightening has helped to moderate aggregate demand. He "Credit growth also moderated from the peak of 24.2% in end December 2010 to 18.6% in mid-July 2011," he added
New Delhi: Attributing the persisting high inflation to demand-supply mismatch, the government today said it would have been higher had not the Reserve Bank of India (RBI) increased its key policy rates.
"The monetary policy operates with long and variable lags... The transmission of monetary policy action taken in the past is still playing out. However, inflationary pressure have persisted due to a combination of supply and demand factors," minister of state for finance Namo Narain Meena said in a written reply to Rajya Sabha.
He said this in reply to a question on whether frequent changes in interest rates have been effective in reducing inflation during the current fiscal year.
Mr Meena said the RBI's monetary tightening has helped to moderate aggregate demand.
"Credit growth also moderated from the peak of 24.2% in end December 2010 to 18.6% in mid-July 2011.
In the absence of (monetary) tightening, inflation perhaps would have been higher on account of demand pressures," he said.
The minister said a series of supply shocks, particularly of global commodities, has raised input costs and spiked the headline inflation.
Headline inflation, as measured by the Wholesale Price Index (WPI), stood at 9.44% in June.
The RBI has projected inflation to remain around 9% during the first half of the fiscal and then moderate to 7% by March 2012.
In reply to another question on dearness allowance for government employees and pensioners, the minister said an additional instalment of DA has become due with effect from 1st July and will be released in September.
"The All India Consumer Price Index includes a component pertaining to fuel. Dearness allowance (DA) and Dearness relief (DR) to central government employees/pensioners is revised twice a year... based on the accepted formula after Sixth Pay Commission and is normally released in the months of March and September," Mr Meena said.
He said inflation based on the All India Consumer Price Index for Industrial Workers has shown an increase during the first six months of 2011. Measures had been taken to contain prices of essential commodities, he added.
Mr Meena said among other steps taken is the decision to suspend futures trading in rice, urad and tur by the Forward Market Commission.
Besides, it has also extended stock limit orders in the case of pulses, paddy and rice up to 30th September.
The minister said the 'Core Group of Central Ministers and State Chief Ministers on Prices of Essential Commodities" met in April last year under the chairmanship of the prime minister and constituted three working groups.
The three groups comprise the Working Group of Agriculture Production, the Working Group of Consumer Affairs and the Working Group on Food and Public Distribution.
"The Working Group on Agriculture Production presented its report in December 2010. It proposes, inter alia, measures to improve yields, expand winter rice cultivation in eastern India, electric power availability, water control, improved farming system, new varieties and hybrid seeds... insurance and other related matters," Mr Meena said.
The Working Group on Consumer Affairs presented its report in March 2011 and recommended measures to improve competition in Agriculture Produce Markets and Reforms on APMCs, besides developing single unified agricultural market, reducing barriers, improving infrastructure and setting up of cold chain facilities.
"Reports are yet to be considered by the Core Group", Mr Meena said, adding the Working Group on Food and Public Distribution in yet to submit its report.
Finance minister Pranab Mukherjee maintained that India's economic fundamentals were strong and capable of meeting any challenge posed by the downgrade of the US economy and the crisis in some Eurozone nations
New Delhi: With all eyes on the global situation, finance minister Pranab Mukherjee on Tuesday said India's macro-economy was moving in a positive direction and hoped international commodity prices would decline, helping the government tame inflation and cut subsidies, reports PTI.
Mr Mukherjee maintained that India's economic fundamentals were strong and capable of meeting any challenge posed by the downgrade of the US economy and the crisis in some Eurozone nations.
"I would like to emphasis that some of the investment banks have upgraded India to market weight, that means the basic fundamentals are strong and macro-economic recovery is moving toward a positive direction," he told reporters, referring to Monday's Goldman Sachs report.
The minister said the US downgrade has created some problems for India, but the country could handle any situation arising out of international developments.
"The challenge is there, but we have the capabilities of facing these challenges," Mr Mukherjee said. "... collectively, with the efforts of all concerned, particularly with the cooperation of the RBI (Reserve Bank of India), we will be able to face the challenges," he added.
Expressing happiness over the quick recovery shown by the Indian stock market, which was much better than other Asian countries, he said, however, it was too early to say how the markets would behave in future.
The downgrade of the US economy by Standard and Poor's last week has created havoc in stock markets worldwide, but led to a decline in commodity prices, including crude oil.
Talking about the decline in crude prices, Mr Mukherjee said he was not fully satisfied with the downward movement from $107 per barrel to $102 per barrel, as it is still 'reasonably high'.
Mr Mukherjee hoped that prices of oil and other commodities will come down further, "which will help us to manage inflation and also help in reducing subsidy on oil".
Referring to the movements in the Indian stock market on Tuesday, he said "it has recovered from the loss in the morning... if you compare it with Asian markets... the average going down of various Asian markets are varying from 2%-4% per cent."
The continuity of D Subbarao at the helm of the RBI comes at a time when the government and the central bank are gearing up to meet the challenge posed by downgrade of the US sovereign rating and the economic crisis in several Eurozone nations
New Delhi: Ending months of suspense, prime minister Manmohan Singh today gave a two-year extension to Reserve Bank of India (RBI) governor D Subbarao beyond September, reports PTI.
"The Prime Minister approved the extension to D Subbarao, governor of RBI, for two years," a PMO spokesman said.
The extension will be with effect from 5th September this year till 4th September 2013.
The 61-year-old IAS officer and veteran finance ministry official was appointed the 22nd governor of the central bank in September 2008, for a three-year term.
Interestingly, the announcement of his extension comes just two days before his birthday.
The continuity of Mr Subbarao at the helm of the RBI assumes significance as it comes at a time when the government and the central bank are gearing up to meet the challenge posed by downgrade of the US sovereign rating and the economic crisis in several Eurozone nations.
Mr Subbarao, who has headed RBI since 2008, steered the country through the economic crisis. He is credited with taking a tough monetary stance to check inflation.
Under his governorship, the RBI recently doubled the frequency of monetary policy reviews from every quarter to eight times a year with a view to decrease the need for off-cycle rate moves.
Mr Subbarao had earlier served under Manmohan Singh in the finance ministry as a senior official in the early 1990s, when the latter was finance minister. Prior to this appointment, he was the country's finance secretary.