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Jun 17, 2012, 12.49 PM IST
Amidst expectations of interest rate cut by the Reserve Bank on Monday, finance minister Pranab Mukherjee on Saturday expressed confidence that the central bank would "adjust the monetary policy" to address the challenges before the economy.
"The RBI is one of the most respected monetary authorities... I am confident they (RBI) will adjust the monetary policy as we are adjusting fiscal policy," the finance minister said at an Assocham conference on financial sector in Mumbai.
In his first public address after being nominated as the UPA candidate for the Presidential elections due next month, Mukherjee listed slow growth, high fiscal and current account deficits, inflation and negative sentiments as challenges facing the economy.
The government, he said, is taking fiscal measures to ensure that the central finances remain strong in wake of "difficult times" and expects the RBI to take monetary steps.
On Eurozone crisis, Mukherjee said, India is as concerned as others whether Greece will remain part of the currency union, as the developments are also impacting value of rupee. Rupee has lost against dollar by about 20% in the last one year.
On concerns over fiscal deficit, he said, "we are taking steps, not sitting idle...if federal finances become weak, nobody will be able to bail out Indian economy."
As regards the apprehensions expressed by global rating agencies, he said, "as finance minister I cannot ignore ground reality, apprehensions of Indian industry and credit rating agencies".
His comments follow warning by global rating agency, Standard & Poor's that India's credit rating may be downgraded to below investment grade.
Mukherjee said that the government is working on managing its finances and reducing subsidies.
"We shall have to reduce our subsidy... What I projected that it must be below 2 per cent of GDP, we cannot afford to have it. We shall have to improve delivery mechanism for reaching subsidy to targeted beneficiaries. And we are taking steps we are not sitting idle," he said.
The government targets to bring down the subsidy bill to below 2% of GDP in the current fiscal and 1.75% in the subsequent years. The government has budgeted the amount for major subsidies including food, fuel and fertiliser at Rs 1.79 lakh crore for 2012-13, lower than the Rs 2.08 lakh crore in the last fiscal.
Pointing out that the country is in a difficult economic situation and uncertainties over eurozone crisis, Mukherjee said, "...the devaluation of Rupee, which is closely linked with the eurozone crisis, is a matter of concern".
He said the global economy is facing turmoil with growth in advanced countries not coming up to expectations, Italy in recession and the UK on the brink of recession.
Saying that the country can benefit from the lowering of crude oil prices, Mukherjee said, "We can reduce our import bills to some extent". Crude oil prices have softened to USD 90 a barrel, from over USD 120 a barrel earlier this year.
In order to provide relief to customers, Mukherjee said he has written to Chief Ministers to consider temporarily lowering of duties on petroleum products. "I have suggested to them (State CMs) if you agree to
"When situation is difficult, burden has to be shared by all stakeholders, it should not be passed on to only one stakeholder," he said. The oil marketing companies had hiked petrol prices by Rs 7.50 a litre in May.
Later in June it had rolled back the price hike by Rs 2 a litre.
Also watch the accompanying video for the full speech.
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