Upset FM ready for lonely walk on road to growth

Barley hiding his discomfiture with the Reserve Bank of India (RBI) not paying heed to his advice to take a calibrated risk by easing its monetary policy stance, finance minister P Chidambaram on Tuesday said growth is as much a challenge as containing inflation and that the government would "walk alone" to face it if things come to such a pass.

Revising this fiscal's GDP growth projection to 5.8% from 6.5% earlier and March-end inflation forecast to 7.5% from 7%, the RBI kept interest rates unchanged while conceding a marginal 25 basis points cut in cash reserve ratio.

A day after he unveiled a fiscal consolidation road map and elicited a reciprocal gesture from the monetary authority to complement his effort to revive growth momentum, Chidambaram refused to endorse the latter's choosing the well-trodden path at Tuesday's second quarter policy review. Avoiding even the customary statement from North Block on such occasions, the finance minister quipped: "I have not read the last few paragraphs of the (RBI) statement but if it holds out hope for the future, I look forward to that future." He added: "Sometimes it is best to speak, sometimes it is best to remain silent. This is the time for silence."

Asked to respond to Chidambaram's comments, RBI governor Subbarao said in Mumbai: "Both the government and the Reserve Bank share concerns both about growth and inflation."

While Chidambaram has made his preference for an easing of monetary policy amply clear after his return to the finance ministry in August, Prime Minister Manmohan Singh too seemed to have supported the view in his recent statements on the economy.

The pertinent question is, while inflationary pressures are indeed persistent, how efficacious would a tight monetary policy be to address it at this juncture. The overwhelming view among economists is that the sticky inflation is due to supply-side issues which have no immediate wholesome solution. Infrastructure deficit and the global commodity prices (which is behind imported inflation) have had a bearing on prices.

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