Lower Inflation Not To Pull Rates Down: Rangarajan

CHENNAI: Prime Minister’s chief economic advisor C Rangarajan does not see lower rise in prices leading to softening of interest rates, even as he believes that the economy would grow at 8.5 to 9%.

In an informal chat with reporters in Chennai on Sunday, Mr Rangarajan, chairman of the Economic Advisory Council to the PM, said while wholesale inflation has slowed down, retail prices are still high. Inflation had slowed to 3.26% in the last week of September, close to a two-year low, according to latest government data.

However, this does not mean RBI would lower interest rates, Mr Rangarajan said. RBI would have to consider other factors as well. For example, it has been sucking out liquidity from the market using tools such as market stabilisation scheme, on the back of huge foreign inflows. “To reduce interest rate or cash reserve ratio (CRR) would be inconsistent. You cannot suck out liquidity, and at the same time reduce interest rates,” he said. RBI is to review monetary policy on October 30.

Mr Rangarajan was in Chennai to participate in a function to felicitate K Raghavendra Rao, MD, Orchid Chemicals & Pharmaceuticals, on his getting doctorate from Sastra University. Mr Rao was Mr Rangarajan’s student at IIM Ahmedabad in the late seventies.

Responding to reporters’ questions on the sidelines, Mr Rangarajan said he expected the country’s economic growth to continue. Asked if there were signs of a slowdown, he said even if it slows down, it would still grow at 8.5 to 9%.
Industrial production has picked up. According to the latest government figures, manufacturing output went up 10.4% in August from a year earlier. Agriculture is also doing well, Mr Rangarajan added.

Observers say the National Rural Employment Guarantee Act (NREGA), a legislation that guarantees 100 days of employment a year on minimum wages to anyone registered under it, is weaning labourers away from agriculture, and farm hands are harder to find. But that’s not a big concern, Mr Rangarajan said. The solution is to pay more wages. “If you pay more, they would come to you rather than going to NREGA,” he said.