RBI says no proof that slowdown is due to high interest rates


RBI deputy governor Dr Chakrabarty said he do not know how much growth sacrifice is due to lack of productivity, lack of efficiency, and how much is it due to inflation

Mumbai: Reserve Bank of India (RBI) deputy governor Dr KC Chakrabarty on Friday sought to stave off criticism that the nine-year low gross domestic product (GDP) growth was primarily due to the 20-month high interest rate regime, saying it was driven by a host of other factors, reports PTI.


"I don't think that the interest rates are that high, or our policy rates are that high that should significantly affect growth. Growth is being affected for a variety of reasons. We are overplaying the interest rate aspect (for low growth). It may be one of the reasons," Dr Chakrabarty told the Skoch summit.


Buttressing his point further he said, "I don't know how much growth sacrifice is due to lack of productivity, lack of efficiency, and how much is it due to inflation."


At 6.5%, the economy slumped to the lowest rate in the past nine years in FY12, and many have blamed the Reserve Bank's tight monetary policy, coupled with the policy paralysis and lack of strong political will at the Centre as the reasons for the poor show.


Between March 2010 and October 2011, the RBI ramped up its key lending rates by a whopping 375 basis points in a 13 uninterrupted rate hikes cyle to batten down inflation which was near double-digits. But ironically, price index still hovers near 8%, while growth has plunged, inviting criticism from many quarters, especially the industry.


However, Dr Chakrabarty admitted that interest rates do affect growth, saying "what we are saying why interest rates affect growth is because inflation affects growth. If inflation comes down, interest rate will also come down. But to say that growth is only going (down) because of high interest rates is a little bit exaggeration and we must look into that."


"If inflation comes down, definitely monetary policy rate will come down," he said, adding that "for the Reserve Bank, the first priority is inflation. It is not only growth, we have a multiple indicator approach. But, inflation is definitely the major concerns."


Arguing that even a 2% drop in interest rates by the RBI will not majorly help bring down cost for corporates, he said, "6%-7% of overall cost for a any company is the interest cost. Even by reducing interest by 2%, their cost is not going to be impacted."


Countering the view that low GDP growth was driven by low investment growth, he said the GDP growth in fact came off the 2002-08 highs due to poor manufacturing growth.


"Our manufacturing growth used to be at one stage 8%-9%. That means we have a capacity of 8%-9%. Now it is only 2%-3%. If so, where is the question of additional investment? Immediately you can ramp up manufacturing growth, as there is an output gap," the deputy governor said.


On the impact on global economy with a possible exit by Greece from the Eurozone, he said, "It will have some impact, adverse impact that is all I can say," adding that if there is any problem arising from this, then the government and RBI will switch to their contingency plan.


SEBI chief calls for urgent reform measures to revive growth, sentiment


UK Sinha said India has still time to tide over the present growth deceleration if it moves ahead with some of the urgent reform measures and resolve the issues plaguing the implementation side

Mumbai: Market regulator Securities and Exchange Board of India (SEBI) on Friday called for accelerating policy reforms like pension bill to revive investor sentiment and faltering growth, reports PTI.
Calling for an urgent need to revive investor sentiment to revive the faltering growth, SEBI Chairman Upendra Kumar (UK) Sinha said, "Some of the reforms, which have long been pending, and one example being pension reforms... it has been years and years that some of these reforms...are yet to come through." 
"And that is something all of us have to counter very seriously, that how long can we go on deferring this?" 
Addressing the Skoch summit, Sinha said the country has still time to tide over the present growth deceleration if we move ahead with some of the urgent reform measures and resolve the issues plaguing the implementation side.
"If we start making some progress on these things (reforms), then in spite of the forecast about our economy coming down from the higher levels of 2007-08; if these policies change ... start happening, we can again come to levels which are commendable in comparison to any part of the world. (But) those changes have to take place," he said.
The GDP growth hit a nine-year low in FY12 at 6.5% due to a number of reasons, which many cite as policy paralysis and lack clarity on policy.
This has led to almost all the foreign banks and analysts such as Goldman Sachs, Morgan Stanley, Citi and HSBC, among others, to lower FY13 GDP growth to a low of 5.8%-6.3%.
Admitting that a part of our problems are imported, Sinha, however, said, "We cannot become complacent about policy making and implementation domestically." 
Stating that there is no reason why even private parties are not able to implement their projects on time, he said, "I am bewildered that if an agreement has been signed between a raw material supplier and a utility, why it is not being honoured." 
According to a CMIE estimate, as many as Rs5 trillion worth of projects, mostly in the power and steel sectors and running into 500 projects, were stalled in FY12 due for want of mandatory clearances, fuel, raw material linkages, etc.
Listing out the reform steps that are needed urgently, he said, "We all know what happened to FDI in retail, the PFRDA Bill, and the pension reforms are yet another examples.
"Passing the PFRDA Bill is not an end in itself, in my view it will serve a purpose, but a limited one. The more important thing is the largest pension funds in the country, which are being managed under a Central law, are they being reformed or not? The Pfrda Bill will not reform that," he said.
Yesterday, the government deferred the Pension Bill, that seeks to open up the sector to foreign and private investment, as the key ruling front ally Trinamool Congress put a spanner on the Regulatory and Development Authority Bill of 2011.
Noting that the EPFO has 40 million accounts amounting to a whopping Rs2 lakh crore in funds, Sinha said, "If a small portion of that money starts coming into the market, (it means a lot, but) that money is not coming, that reform is not happening." 
Regretting that the high interest rates that the EPFO offers is hurting the whole sector, he said the corporates which manage their own pension funds are not able to match the interest rate announced by the EPFO and have to fund it by themselves.


Anna Hazare takes a U-turn, gives clean chit to PM


The anti-corruption crusader softened his stand on the Prime Minister and instead appeared to blame Sonia Gandhi without naming her at a rally in Thane
Thane: Continuing his flip-flop, social activist Anna Hazare made a U-turn and gave a clean chit to Prime Minister Manmohan Singh on corruption charges against him, reports PTI.
Addressing a rally here last night as part of his tour to create awareness about a strong Lokpal, the anti-corruption crusader softened his stand on the Prime Minister and instead appeared to blame Sonia Gandhi, without naming her.
"Manmohan Singh is an honest person and there is no direct proof of his involvement in corruption. However, there is a certain remote control which dictates decisions to him and so there is an air of suspicion around him," he said.
Hazare had recently said that he had no faith in the Prime Minister and his associates had targeted him on alleged irregularities in allocation of coal blocks.
He had said that most of the elected representatives were involved in corruption and took undue advantage of lack of public information and during the last 65 years, not a single law of public interest was passed in Lok Sabha or state Assemblies by the "members elected by public".
Earlier, local Congressmen staged an agitation in front of the circuit house here, where Hazare was staying, and demanded an unconditional apology from him for his remarks against the Prime Minister.
To a question that whether he would return the Padma award in protest against the failure to pay any heed to his demands, Hazare said, "No, No. The fight will go on till our demands are fulfilled."
He said that before the 2014 general elections, he will tour the entire country for one more round of mass awakening to educate the citizens about the corrupt system.


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