Where the entire modi government is applauding their own by claiming that entire economy is on growth pattern , however the RBI governor has its own contrary views on it. The tragedy is that if everything is alright , why the RBI governor is not enough convinced to lower the interest rate. Rumors are in the market is that governor is also not happy with the reconstruction of the figures to show that nation in on the growing platform. But if we really analyse the data in the absolute way , the figures are showing that India could be the potential victim of "Liquidity Trap"
When the unhappiness of Governor came in to the public domain , Jaitely was literally very furious over Raghuram and later on decide to intervene in the independence of RBI . Its quite surprising , within two days of such news came , Jaitely visited the prime minister house seeking refuge and then this news came that government is planning to compromise the independence of RBI through more intervention in its policy making.
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India’s finance minister urged the Reserve Bank of India to lower interest rates even as the two finalise delicate discussions over the future of the central bank’s independence.
Fears that the RBI could come under institutional pressure to toe the line have been raised by a proposal to establish a seven-member Monetary Policy Committee in which Delhi would have a controlling majority.
However, Arun Jaitley, in an interview hinted that a compromise had been reached and that the government might not have the deciding vote after all.
“The government and the bank are on the same page as far as this is concerned,” he said, adding that India’s proposals were in line with many other countries. Raghuram Rajan, RBI governor, has also sought to play down concern that proposed changes could threaten the bank’s independence.
Some analysts say a compromise is under way in which the committee would consist of six members with the casting vote going to the bank governor. Mr Jaitley refused to confirm details, saying parliament must be informed first.
Speaking 10 days before the next scheduled meeting of the RBI, a confident-sounding Mr Jaitley said: “Common sense says the rates should come down.”
He said that while he would not normally comment on central bank policy, it was obvious that inflation was “very much under control”. India was better prepared than most emerging economies to weather the turbulence caused by uncertainty over the US Federal Reserve’s on-again, off-again policy stance, he added.
“If oil is selling at half the normal price, commodity prices are low, and we have stocks and stocks of food grain, then inflation is the least of our worries,” he said. As the world’s third-biggest importer of crude oil, India is a big beneficiary of low petroleum prices.
The finance minister also pointed to what he said was India’s improving fundamentals. He highlighted a fiscal deficit that he said was on track to narrow from last year’s 4 per cent of gross domestic product and a current account deficit of 1.2 per cent.
Growth, he said, was running at 7-7.5 per cent, a strong performance given adverse international conditions in which investors have scampered from emerging markets. Still, he said, if India’s interest rates were lowered, the economy could grow still faster.
India’s central bank governor seeks to allay fears of New Delhi curbing its powers.
Mr Rajan has kept rates relatively high at 7.25 per cent despite pressure from the government to cut. The governor is committed to keeping inflation, as measured by consumer prices, at 6 per cent or below, although analysts say a 50 basis point cut is likely in coming months.
Mr Jaitley fended off criticism that Narendra Modi’s government had failed to implement reforms, saying it had achieved a lot in opening up sectors such as defence and insurance.
“The facts speak otherwise,” he said of suggestions that policies had stalled. “There’s been a series of changes and reforms,” he added, pointing to devolution of power to the states, increased spending on India’s “ramshackle” railways and greater transparency in the allocation of resources from coal to spectrum. “It’s on track, directional and going on very strongly,” he said of the government’s reform effort.
Mr Jaitley said the administration would eventually push through a national goods and services tax, seen by many as vital to improve business efficiency, after the opposition Congress party halted its progress in the upper house. He said states would establish their own policies on land sales, denying that the failure to pass national land reform was hampering Mr Modi’s ambitious industrialisation and job-creation plans.
The finance minister also promised fresh measures to improve economic efficiency, emphasising new laws on arbitration and bankruptcy. Foreign direct investment in India was up 49 per cent this year, he said, although he acknowledged that domestic businesses were not investing. That was because they had overstretched themselves and were still working through spare capacity, he said, not because they lacked confidence in India’s economy.
