CRR cut isn't a govt versus RBI case: Bimal Jalan

Excerpts from India Business Hour on CNBC-TV18 Watch the full show »

The Reserve Bank of India (RBI) cut the cash reserve ratio (CRR) by 50 bps, tilting the policy in favour of growth.

Bimal Jalan, former governor of Reserve Bank of India says, CRR cut isn't a government versus RBI case. "It gives confidence to the system. The RBI is watchful. Inflation is same as was forecasted last year for the year-end. That's good, that's a very positive sign," he adds.

According to him, as far as growth is concerned, growth is entirely within our power to move and the monetary action per se on growth momentum is neutral.

Also read: Inflation stability a key for long-term growth, says RBI

Below is the edited transcript of his interview on CNBC-TV18. Also watch the accompanying video.

Q: One of the concern that Reserve Bank highlights in its commentary is and it says "in the absence of credible fiscal consolidation, the Reserve Bank will be constrained from lowering the policy rate in response to decelerating private consumption and investment spending. The forthcoming Union Budget must exploit the opportunity to begin this process in a credible and sustainable way." We are looking at a very difficult picture, as far as fiscal consolidation is concerned, which is then going to constrain the Reserve Bank from acting on the rate front.

A: I think that it's not Reserve Bank versus government. That's not the issue. You take a collective view. One is essentially saying that if the fiscal deficit is higher than what can be tolerated in terms of both inflation and financial stability. Then we have a problem and that needs to be tackled. We should take a view not sort of posing it as two opposite camps.

Q: I am not posing it as two opposite camps. I am essentially trying to say is that the budget now becomes a big event because the Reserve Bank has also very clearly said that we need to see sustainable action from the government. So far the efforts on the part of government have really not met with expectations, the government's or the street's.

A: That's true. That's what the government is also saying. Everybody wants a certain amount of fiscal consolidation. Now, is it politically feasible or not? The government has to take a call. I entirely expect that something would be done. You are absolutely right in saying that now the budget is the next big event.

Q: What would you like to see from the government to boost private investment? That clearly has been emphasised several times over in the RBI's commentary. What would you like to see the government do? What is your expectation on boosting private investment by way of action in the budget?

A: The kind of rules that we have in terms of land allocation, investment and clearances needs to be looked. The second thing you have to do is make some ministry in charge of what it is that it's suppose to be doing. If it is human resource, education, then leave education to that ministry. It doesn't have to go to six other ministries to get it approved.

Q: The Reserve Bank says, the government needs to act on fiscal consolidation before the Reserve Bank can actually go ahead and start the process of easing the monetary cycle. It's moved only on the CRR front. There is expectation that perhaps even in March we are not going to see the Reserve Bank move on the repo rate front because it wants to wait to see what the government is going to do. In your sense, what is that reflective of as far as the Reserve Bank is concerned - it's still tentative on what it thinks the government is actually going to able to pull off?

A: It means essentially that a change in interest rate by say 25 basis points, 1/4th of percentage point, doesn't have the kind of impact on creating the financial stability or reducing the threat of inflation as does a reduction of say Rs 2,00,000 crore in fiscal deficit.

Q: Given the fiscal constraints and the fact that we also have to content with things like the Food Subsidy Bill, we are also going to have to content with a higher Oil Subsidy Bill because it doesn't seem like the government has the political capital to go ahead and deregulate prices. Given that, are we going to have to live with higher rates atleast well into the next fiscal?

A: You are asking a very provocative question. If we don't have the ability to do anything as people, as government then what can you expect then just pray.