Rajan links future rate cut to sub-6% inflation | Business Standard News

Rajan links future rate cut to sub-6% inflation | Business Standard News


6, 2015
the (Draft) Code
This refers to the report
“Rajan links future rate cut to sub-6% inflation” (August6). Having accepted an
inflation target with an upper limit of 6%, RBI Governor’s expression of
intention to consider measures, that he considers may have an adverse impact on
inflation, only when he is sure about inflation remaining within manageable
level/s, should not surprise anyone.
This season, media and
analysts are going round and round on ‘rate cut’ and a couple of proposals in
the (Draft) Indian Financial Code(IFC) circulated by GOI.
In this context, RBI
Governor Dr Rajan’s observation that as these need legislative changes, it may
take years to materialise is a studied one. While the (Draft) IFC(now in
circulation) has 94 chapters in over 200 pages, the major public controversy
and debate surrounds only the composition of Monetary Policy Committee and
setting up of Public Debt Management Agency(PDMA). Minister of State (Finance)
in another context mentioned that MPC issue forms only 3% of IFC(perhaps by
word count!). He is right. IFC is an aggregation of duties and responsibilities
of several agencies which have statutory functions in the financial sector.
Now, the only way to handle it with responsibility would be to disaggregate it
into manageable pieces covering different areas hitherto covered by different legislations.
E. g. the areas covered by Reserve Bank of India Act, 1934 could be taken up
first. The other ‘political’ option would be to rush through some procedures
and pass a wholesale legislation without much deliberation, on a convenient
day. But that would be perilous for the country’s financial sector and the
Indian economy.

G Warrier,


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