Finance Minister Arun Jaitley is stepping up pressure on the RBI to cut rates as the economy struggles and price rises slow, with some bureaucrats working behind the scenes to argue for an immediate cut of as much as 50 basis points.
After another weak quarter of corporate earnings and July inflation that undershot the central bank`s medium-term target, Jaitley has made direct, public calls for faster easing, clashing with far more cautious comments from a conservative Reserve Bank of India governor, Raghuram Rajan.
Officials in Jaitley`s ministry, meanwhile, are encouraging economists and newspapers to lobby directly for further easing, senior government officials said.
The public stand-off between the finance ministry and the RBI comes at a time when the two sides are already at odds over key changes to the way India takes monetary policy decisions and the government`s say in such matters.
“Hopefully, the impact of inflation being under control is a factor which … the central bank, with all its wisdom, will take note of,” Jaitley told a gathering of bankers and executives in Mumbai earlier this week.
While India`s economic growth is outpacing China`s on paper, the picture is different on the ground, where government spending has been sluggish, consumption is weak and corporate executives fret a recovery is unlikely before 2016-17.
The government is also emerging from a bruising monsoon session in parliament, which delayed tax and land reforms seen as critical to accelerating growth.
It now worries that growth could slip below its target of 8 to 8.5 percent for the year to March, and sees the RBI`s caution as worsening the situation. Moody`s earlier this week lowered its growth forecast to 7 percent, from 7.5 percent.
“Going by the (consumer price) inflation numbers, and the global economic environment, the RBI should have cut interest rates by 200 basis points (this year) by December,” said one ministry official who works with Jaitley on this issue.
“It has done too little and too late.”
The RBI has cut 75 basis points since January.
