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We love conspiracy theories: FM on rift with RBI

Arun Jaitley in Mumbai

Mumbai : Finance Minister Arun Jaitley denied any rift with the Reserve Bank today and attributed the reports about his officials not being on the same page with their Mint Road counterparts as a result of “our national love for conspiracy theories”.

Stating that he has “a good professional relation” with Reserve Bank Governor Raghuram Rajan, Jaitley said, “I think India by and large loves conspiracy theories.”

“I think whether it is North Block or whether it is the Mint Street, these are responsible institutions. There are a lot of people who are level-headed and who work with a sense of propriety because their priorities are clear,” the Minister told Shekhar Gupta, former editor of the Indian Express, and TV journalist Barkha Dutt who have launched a media start-up ThePrint, here late this evening.

Jaitley, however, parried a question on whether Rajan will get a second stint at RBI after he completes the term on September 3, saying “it is not proper to comment on it”.

In the run-up to the setting up the monetary policy committee (MPC) and the budget, there have been many reports that the North Block wanted to clip the Governor’s wings by taking away his veto power on rate setting. But when the composition of the MPC was finalized, everything was settled with the six-member MPC having equal representation from the government and RBI and the Governor retaining the veto.

To a question whether it is the right time for rate cut by the RBI, Jaitley avoided direct answer but pointed to favourable factors like under-control inflation and the last week’s move to align small savings rates to overall interest rates.

“The RBI is an experienced institution. After all, the RBI has no particular interest in keeping rates high. The RBI would also love to bring them down, provided they are sufficiently cushioned on the fact that inflation is low. The other steps are taken by the government,” he said.

But the Finance Minister was quick to reel out dataprints which favour lower interest rates, saying, “for almost one-and-a-half years, we have inflation well under control; 16 months in a row, WPI is in the negative; 16 months in a row the consumer price index almost hasn’t gone beyond 5-5.5 per cent. It has always been below that.”

“One of the deterrents in banks transmitting the rates itself was the small savings rate which were partly subsidised by the government. Therefore, they are being made more realistic. Hopefully next few weeks are worth watching,” Jaitley said.

He also indicated that he would be sticking to the fiscal deficit roadmap set by his predecessor at 3.9 per cent this year and an ambitious 3.5 per cent next fiscal.

“If you have fiscal deficit under control, if the small savings rate are moving to a more reasonable level, if inflation is under control, then the time is ripe to move in that (rate cut) direction,” Jaitley said.

Interestingly, the Finance Minister sympathised with his predecessor P Chidambaram for fighting the triple enemies of high inflation and higher interest rates and lower growth.

“If the rates are low, you won’t have a sluggish economy, you will have a more efficient economy. I sympathise with my predecessors because they had to deal with 10-11 per cent inflation and high interest rates. However competent you are, the economy will remain sluggish under those circumstances,” Jaitley concluded.

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