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RBI Governor Raghuram Rajan has 'do-list' for UPA II

Thursday, 12 December 2013 - 7:46am IST | Place: Kolkata | Agency: dna

Reserve Bank of India governor, Raghuram Rajan, has listed a `do list’ for the UPA-II government in the run up to the Lok Sabha polls.

The governor has urged the government not to splurge money on populist measures, be active in passing all pending bills in Parliament and finally improve the fiscal situation.

‘’I think it will be overly complacent and dangerous for authorities to postpone necessary legislations with the idea that they will be passed post election”, Rajan said.

He was of the view that post election politics could become even more challenging no matter whoever assumes power. Similarly any additional fiscal slippage before the election will only amplify the challenges for the new government.

“I will emphasise the need to reduce poorly targeted subsidies, like diesel, in an attempt to create adequate fiscal window for the new government,” Rajan said addressing a gathering at a CII-hosted event.

Rajan, known for speaking his mind, said the spectre of an unstable government post election might make the current government all the more profligate, a scenario which has to be avoided.

‘’We can’t take it for granted that we will have a stable government post election,’’ he said.

Creation of jobs should be the key focus in the medium term, he said and “not through government subsidies or protecting labour-intensive sectors.”

According to a PTI report, the RBI focus remain on controlling inflation and keep rupee volatility in check to improve liquidity.

“It (inflation) is proving very costly to our economy in terms of savings, in terms of investment. We need to bring inflation down.... No single data or point or number will determine our next move, but our effort is firmly on controlling inflation,” Rajan said.

The RBI hiked key interest rates by 0.25% each in the last two reviews to tame inflation.

The next mid-quarterly policy review is scheduled for December 18.

Rajan further said the central bank will take steps to improve liquidity situation, especially in the government securities (G-Sec) market. “In the coming weeks, we will roll out more measures. We have rolled out some, such as interest rate futures but we will roll out more measures to improve the liquidity and depth of the G-sec market.

“In particular, we need to look at increasing liquidity across the spectrum of bonds that are traded not just for 10-year bonds.... We will also strengthen corporate debt market,” he said.

To check exchange rate volatility, the RBI had hike the MSF interest rates and eased norms for raising foreign funds by banks under the FCNR(B) scheme.

While the FCNR(B) scheme has ended, the interest rate on borrowing through the Marginal Standing facility (MSF), which is the overnight borrowing window of the RBI, is being lowered gradually.

While the wholesale price-based inflation (WPI) touched an eight-month high of seven per cent in October, the retail-based inflation for the same entered double digits, 10.09%.

The November retail inflation figures are scheduled to come out tomorrow and WPI figures on Monday.

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