Inflation data reflects economic improvement: Jalan

The January IIP (index of industrial production) data, released earlier this week, stood at positive 0.1 percent, highest since September 2013. Manufacturing sector, which comprises 80 percent of the total IIP, declined 0.7 percent versus a contraction of 1.6 percent on a monthly basis.

Even the consumer price index (CPI) for February, which is a precursor to the RBI policy on April 1, slowed to 8.10 percent from 8.79 percent in January – its lowest level since January 2012. February CPI food inflation eased to 8.57 percent versus 9.9 percent on a month-on-month basis.

Jalan does not expect food inflation to go as high as few months ago. He said that if the monsoon is not as good as expected then too, “hopefully we would still be able to contain food prices through imports as far as possible”. He said that fall in oil prices is also a positive.

On current account deficit, he said that under the present scenario, it will remain in a comfortable range.

“The government has acted well in trying to reduce our current account deficit. The RBI has instilled confidence in the market about our exchange rate. There’s stability and volatility is much less. Thus, I hope that as far as CAD is concerned we will remain in a reasonable bound. It is in a much better shape than what it was around 6-7 months ago,” he said.

The current account deficit narrowed to USD 26.9 billion (3.1 percent of GDP) in the first half (April-September) of 2013-14 from USD 37.9 billion (4.5 percent of GDP) in the first half of 2012-13. It was down to USD 4.2 billion (0.9 percent of GDP) in Q3 from USD 31.9 billion (6.5 percent of GDP) a year earlier as merchandise exports picked up and imports moderated, particularly gold imports, the RBI said on March 5.

Refusing to comment on the ongoing MCX-SX controversy, Jalan said that he was not involved in any individual MCX-SX case directly or indirectly and thus cannot comment on the CBI preliminary enquiry.

On Thursday, the Central Bureau of Investigation (CBI) registered an enquiry against former top Sebi officials CB Bhave and KM Abraham over the way in which equity-trading approval was granted to MCX-SX.

He said Bhave’s name cropping up in the enquiry and he being a part of the bank licences committee are not related.

Jalan said he respects the former Sebi chairman CB Bhave and does not see bank licence process getting impacted by CBI enquiry. “The licence committee was independant. That was connected with the RBI issues and all of us functioned as professionals,” he said. 

The Bimal Jalan-headed committee, after scrutinising the 25 bank licence applications, submitted its recommendations to the Reserve Bank on February 25.

The central bank on March 10 said that it will meet Jalan-led panel this week and will submit its decisions to the board. Post that, it will seek the Election Commission’s approval for the same.

Below is the transcript of Bimal Jalan’s interview with CNBC-TV18’s Shereen Bhan, Sonia Shenoy and Ekta Batra.

Ekta: We have seen WPI and CPI soften at this point in time and we have seen IIP still remain in very flat territory despite a little bit of an up tick. What do you expect the Reserve Bank of India (RBI) to do come April 1 and what should be the RBIs stand from a completely objective standpoint considering the macro data that we are working with at this point?

A: The position is clear. I can’t speak about what the RBI should do or should not do; that won’t be appropriate for me having being involved in this whole RBI policy announcements and so on in the past. However, what I can say is the situation is certainly much better than if you look back say two months ago in terms of prices.

Growth is still an issue, investment is an issue and I think that there is always a trade off between priority over inflation or growth but we are on the positive domain as it were, not yet where we should be on inflation but still better than what it was two or three months ago. On growth a lot needs to be done, on investment a lot needs to be done so as an onlooker or as a citizen what I expect is that we would give emphasis to growth just now and investment.

Sonia: Because of the heavy rainfall that we have seen there are expectations that this inflation relief may not last too long and in the months to come perhaps we may see food inflation accelerate yet again and WPI as well. What is your expectation going forward on what the course of the inflation trajectory could look like?

A: You mentioned a right point. It depends on the monsoon. If the monsoon is bad you will have food inflation which can get out of hand as it were but the most important point of view from the macro economic management is that food inflation is not something which can be affected by what you call monetary policy in the short run.

So, I hope the food inflation will not go up as high as it did. In case the monsoon, the kind of predictions that we are seeing in the papers, media and meteorological office if the monsoon is not as good as we expect it to be then hopefully we would still be able to contain food prices through the import side as far as possible because fortunately for us our balance of payments are very strong.

We can meet any problem in terms of import requirement and as you know we have been importing and oil prices being down is a very positive. So, on the whole I believe that the problem can be handled and that we should try and handle it in a way so it is appropriate from the overall inflation rate and it doesn’t cause an adverse sentiment in terms of either investment or growth.

There are other political issues which are much more important but on the pure economic side this is what I think that we have all the positives on the resources in our fundamentals and we can handle any problem which arises because the monsoon is not as good as we expected it to be.

Ekta: With regards to the rupee we have seen a lot of resilience come through now but just focusing on the current account deficit do you expect it to possibly stabilise come FY15 and are we in a position to even relax some amount of the gold import curbs at this point?

A: I don’t know about gold imports so let me leave that aside. That is a matter of policy and what the government decides. It is not an important essential item as it were.

However, on the other issue you can never tell so far as current account deficit is concerned. If oil prices go up, if something happens abroad that we are importing, the prices go up – we don’t know. However, so far as present situation is concerned and if you were to say that things would remain as they are then current account deficit and government has acted very well in trying to reduce our current account deficit. The Reserve Bank has instilled confidence in the market about our exchange rate and stability and volatility is much less.

So, I am hopeful that so far as current account deficit is concerned we will remain within reasonable bound. 0.5 percent here or there doesn’t matter; it is still under much better shape than it was six months ago or three months ago. It is a very positive development and we should maximize this development for our benefit of growth and investment.