Finance secretary Arvind Mayaram with Arun Jaitley in New Delhi on Tuesday. (PTI)
New Delhi, May 27: India’s new finance minister Arun Jaitley has teamed up with RBI governor Raghuram Rajan to fix inflation while trying to pep up growth.
Jaitley, who met Rajan soon after signing in at the North Block today, told reporters: “We have to restore the pace of growth, contain inflation, and obviously concentrate on fiscal consolidation itself.”
Many had been fearing a tug-of-war over monetary policy between Rajan, an appointee of former Congress finance minister P. Chidambaram, and Jaitley, who had criticised the conduct of economic policy by the previous government.
However, sources said the new minister and the RBI governor were on the same wavelength during talks held on the state of the economy and monetary policy imperatives.
The RBI is, as Rajan had reminded an audience in Switzerland earlier this month, in charge of monetary policy, while fiscal policy is the prerogative of the finance ministry. However, tradition demands that the two meet regularly to coordinate policy.
India Inc, which was present in large numbers on Monday at the swearing-in ceremony of Narendra Modi’s cabinet, has long been complaining that industrial and GDP growth had been sluggish because of a tight money policy which was hurting their plans of setting up new factories. They have been seeking a cut in interest rates and more money flows to business, which they complain is being sapped up by heavy government borrowing to fund its huge subsidy bill.
India’s GDP grew just 4.7 per cent last fiscal after falling to a decade low growth rate of 4.5 per cent in the year before. With inflation still raging high, the country’s central banker had favoured the continued use of high interest rates to combat price rise in the past one year.
After today’s meeting, Rajan admitted that it would also be his aim to strike a balance between curbing inflation and propping up growth. “Absolutely, the RBI has always maintained the balance between growth and inflation,” he said, adding that the central bank would continue to do so.
Jaitley will also have to quickly put together a budget and bring in two key bills – an all-India Goods and Services Tax and a Direct Tax Code.
He will have to help to create a framework to ease rules bringing in foreign direct investment, including in defence, a charge he is also temporarily holding.
“The mandate which our government has received has an inbuilt hope in it, and I’m sure that a political change itself sends a strong signal to the global community as well as domestic investors,” Jaitley said.