March 7: The government has the right to set the inflation target and the Reserve Bank of India must take steps to achieve it, finance minister P. Chidambaram today said at a joint news conference with RBI governor Raghuram Rajan.
“The sovereign has the right to set the (inflation) target, and then the central bank has the mandate to take steps to achieve that target,” Chidambaram said with Rajan by his side.
His comment comes close on the heels of the suggestions made by a high-level panel that monetary policy decisions should be based on consumer price inflation. The RBI-appointed Urjit Patel committee had set an inflation target of 4 per cent in three years with a band of +/- 2 per cent, sharply below the current levels. Inflation as measured by the consumer price index stood at 8.79 per cent in January.
The emphasis on inflation targeting has led to apprehensions that the RBI would focus primarily on bringing down consumer prices at the exclusion of growth, though Rajan has repeatedly said he does not see a trade-off between them.
“The RBI is worried about growth as much it is worried about inflation. The key question is how we go about achieving high growth with low inflation,” Rajan today said.
On the easing of curbs on gold imports, Chidambaram said the government might revisit the norms only after the final current account deficit (CAD) numbers for the current financial year ending this month are known.
The final CAD data for the fiscal are unlikely to be available before May, which means a decision on gold duty will be decided by the new government as the poll results are scheduled for May 16.
Referring to the economy, Chidambaram said it was certainly “more stable today than what it was 18 months ago. That is reflected in the strengthening of the rupee, in heightened interest of investors, both FDI and FII”.
Chidambaram, who had taken over as the finance minister 18 months ago in August 2012, said the fiscal deficit target for 2013-14 would be met, while the CAD would be contained below $40 billion.