Growth rate of near 6% still possible: Rangarajan

Despite the unexpected fall in India’s Index of Industrial Production, C Rangarajan, chairman, Prime Minister Economic Advisory Council (PMEAC) believes that India can still manage to get a growth rate of close to 6 percent in current financial year.

"Very serious efforts are being made in the area of coal, power, roads and railways to achieve the production and capacity creation targets. I believe that the public sector investment and production, maybe the driver of economic growth in this current year," Rangarajan, said.
He stressed that frequent meetings were held to remove constraints that were coming in way of growth. India's industrial production unexpectedly contracted 1.6 percent in May from a year earlier. Manufacturing sector, which constitutes about 76 percent of industrial production, shrank 2.0 percent. Consumer Price inflation in June rose to 9.87 percent from 9.3 percent in May. Rupee has fallen nearly 9 percent in past three months, leaving no room for Reserve Bank of India for monetary easing.
Rangarajan agreed that while IIP number were disappointing, both inflation and rupee depreciation were not comfortable factors for RBI to consider monetary easing. Below is the verbatim transcript of the interview Q: The IIP for May has contracted by 1.6 percent but the consumer price inflation for June has risen to or speeded up to 9.87 percent from 9.3 percent in the previous month. Your first comments, are things looking extremely uncomfortable?
A: The numbers are not comfortable at all. As far as the IIP is concerned, one had expected that the May figures would be somewhat comparable to the April figures but they turned out to be very negative. It is seen in almost every sector. Both, mining and manufacturing have shown negative growth rates. Most of the segments have also shown negative growth rate. I only think that the impact of the various measures that we have taken will take some more time to get reflected in the industrial production. But as of now, this is not very encouraging. Q: Is there any policy space when the growth and inflation are pulling in opposite directions? A status quo on monetary policy would be inevitable you think?
A: Economic policy has different instruments. Monetary policy has price stability as a dominant objective, growth comes in but price stability is still a dominant objective and exchange rate stability or reducing the volatility in the exchange market is also important. So, all these factors will determine what the monetary policy is, but as far as fiscal policy is concerned, I think the direction is very clear. I think we need to maintain the fiscal deficit under budgeted level. If certain actions are required in terms of altering the administrative prices, we will have to do. Therefore that will send out the right signal. Therefore, fiscal policy must aim at ensuring that the fiscal deficit reminds of the budgeted levels. Q: Do you think that now that we have three months of data on inflation and two months of data on growth, the trajectory for growth is looking extremely uncomfortable, anything like 5.7 percent that the Reserve Bank of India (RBI) put out or the 6.1 percent on which the budget is predicated is looking increasingly tough?
A: On the agricultural side, we may do better than what is generally indicated. This is only the first quarter. I believe that we have taken a series of measures in the last six months. Their full impact will be reflected only in the subsequent months. Therefore, I still think that a growth rate close to 6 percent is still possible. Very serious efforts are being made in the area of coal, power, roads and railways to achieve the production and capacity creation targets. Frequent meetings are being held and effort is being made to remove the constraints that come in the way of growth. Therefore, I believe that the public sector investment and production, maybe the driver of economic growth in this current year. Q: Do you foresee any space at all in 2013 for the Reserve Bank to cut rates considering that we have actually seen an incline of inflation?
A: Let us wait for one more number which will come on Monday and then take a view. But certainly the price and foreign exchange front are not comfortable. I think that will be the key determinant in terms of what and what not policy can do. Q: You are a veteran of placing inflation as the main objective of the RBI. Recently, the finance minister was quoted as saying that growth is also an objective for the RBI. Would you think that that would not be the priority according to you?
A: I think in some sense, monetary policy is one of the instruments of economic policy and the economic policy has multiple objectives. In that sense, monetary policy has also multiple objectives in terms of price stability, growth, financial stability and so on. But if you have a hierarchy of objectives, I would place price stability as a dominant objective of monetary policy.