Former Finance Minister Yashwant Sinha flays Rajan's policy stance, demands 150 bps rate cut - Alternative Media Forum


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Wednesday, 13 May 2015

Former Finance Minister Yashwant Sinha flays Rajan's policy stance, demands 150 bps rate cut

New Delhi(PTI): Questioning RBI Governor Raghuram Rajan's monetary policy strategy, senior BJP leader Yashwant Sinha today pitched for 150 bps rate cut to wriggle out of the present growth sluggishness.

"Food inflation is down to under 5 per cent, Wholesale Price Index (WPI) is in the negative zone and the factory production numbers are also down. This is a classic case where a significant reduction in the policy rates should take place," Sinha said here late this evening addressing a function by consultancy Dun & Bradsheet.

Former Finance Minister Sinha said the RBI should go in for 150 basis points cut in the repo rate to 6% rather than tiny two 0.25% each cuts that Rajan effected earlier this year.

Saying he respects professionalism, Sinha added that "professionals aren't the preserve of the RBI alone" and competent officials in the Finance Ministry and the newly-created national planning body NITI Aayog should listen to their convictions and persuade the Governor to shift to being accommodative.

Sinha was apparently referring to Rajan keeping the policy rate unchanged earlier in April, despite a majority of seven external advisors to the RBI board favouring a cut of up to 0.5%.

"When four people say let's cut the rates, why does one person say that I am on top of all and goes for a status quo? Is this professionalism?," Sinha quipped in remarks which come days after release of the minutes of a consultancy committee on monetary policy which said Rajan had overruled the majority opinion and held the rates steady at the April 2 policy announcement.

Without naming the Governor or the RBI, he also criticised ending of the loan recast process. Defending the loan restructuring process, which Sinha started as the finance minister, he said this process is needed as there are many cases where the viability of a borrower has turned around after getting a breathing space to service the loan.

Stating that interest rate cuts and loan recasts are necessary for improving the economic climate, Sinha said the government should act on both the fronts and people will not wait for "eternity" for a change in their outlook.

With some people questioning the efficacy of the government on the economic front, Sinha said people will definitely assess the changes on the ground on occasions like the first anniversary and a government in a democracy should respect the same.

"The government has to move and create investment demand by getting the interest rates reduced," he said.

The RBI is scheduled to announce the second bi-monthly monetary policy on June 2 amidst falling rates and inflation coupled with weakening equity markets.

Action on the infrastructure, housing and real estate sectors is necessary to create investment demand and when coupled with a rate cut, would act as an enabling factor for corporates to start the investment activity, he said.

He also alluded to his time in the finance ministry, where the economy was able to clip at over 8 per cent following interest rate cuts from 14 to 6.5% in spite of difficult factors like the Asian financial meltdown of 1997-99 and many terror attacks which led to a lot of volatilities.

The former minister also asked the economic policymakers to desist from making changes in the models of growth computation, saying they should "not play with the models as it creates lots of confusions".

He, however, did not elaborate on his concerns with regard to method of computing.

Against the repeated calls for "big-bang" reforms, Sinha made a case for reforms being continuous as the challenges are also so.

On Prime Minister Narendra Modi's China visit, he said we should not celebrate overtaking the Communist neighbour in growth rates, saying, "it will take long time for us to catch up with the Middle Kingdom even if we are growing faster."

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