NEW DELHI: Finance minister Nirmala Sitharaman on Saturday said that both the Reserve Bank of India (RBI) and the government have been working in coordination, whether it is inflation or growth, and that neither of them encroaches into each other’s territory. Sitharaman was addressing the media after attending the meeting of the Central Board of Directors of the Reserve Bank in New Delhi..
“There is good coordination between the government and the RBI, and the government will have similar coordination with the new governor (in future),” said the finance minister.
The RBI on Friday cut the repo rate for the first time in nearly five years, immediately after the announcement on income tax stimulus in the budget. The two together are expected to give a big boost to consumption growth.
The minister also expressed hope that the rate cut and the income tax announcements would give a boost to private investments. “…Going by the few inputs that I have had from some business leaders, orders for fast moving consumer groups for the period April-June are already getting booked, and the industry is clearly seeing the signs of a possible recovery of consumption. From these limited anecdotal inputs, we can safely see the triggers for a consumption-driven cycle are very clearly being helped by those who have to take the investment decisions,” said the minister.
On the possible timeline for rollout of the new Income Tax Bill, Sitharaman said there are still three critical stages for the bill to pass before it can be rolled out. “I hope to introduce it in the coming week. After that it will go to a committee, which gives its recommendation. The bill then comes back, and the government through the cabinet takes a call whether these amendments are taken in or more needs to be done. It is only after that the Bill again goes to parliament, which if passes then only the bill can be rolled out,” explained the finance ministry. Meanwhile, on the issue of rupee depreciation, the Reserve Bank governor said that there is no change in the stance of RBI on rupee.
“We don’t target any price or price band for rupee. Our only aim is to check excessive volatility, we are not concerned about the day-to-day changes in the value of rupee. The forex market is very well-developed in the country and efficient, and we have faith in the market efficiency. We allow the market forces to decide the rupee value,” said RBI governor Sanjay Malhotra.
He said the central bank is very mindful of the impact of rupee depreciation on inflation. “We are alert to all factors influencing inflation. As per our calculation and estimates, a 5% depreciation in the rupee leads to about 35 bps inflation. We have kept that in mind, and we will be watchful on that account,” said Malhotra pointing out that most of the rupee depreciation has been a result of global uncertainties, especially Trump-related tariff announcements.
“Hopefully, that should settle down, and that should help us in the downward movement of inflation,” says the RBI governor.
On liquidity concerns, the governor explained the various steps taken by the RBI to address transient and durable liquidity concerns.
“We have provided a pre-announced and assured one-day liquidity program for the transient liquidity. For durable liquidity, we have taken several measures. In the last MPC meeting, we had announced a 50 bps carsh reserve ratio (CRR) reduction. On 27th January, durable liquidity measures worth about Rs 1.5 lakh crore were announced,” said the governor, reiterating that the central bank is watchful, alert and nimble and agile in whatever are the requirements of the banking system to provide liquidity.