Rate Cut Not the Only Panacea for Economic Ills: Subramanian

With rising expectations of a rate cut by RBI, Chief Economic Advisor said it is not the \"only panacea\" for the problems plaguing the economy.

Published: 08th March 2016 10:02 PM  |   Last Updated: 08th March 2016 10:02 PM   |  A+A-


MUMBAI: With rising expectations of a rate cut by the Reserve Bank, Chief Economic Advisor Arvind Subramanian today said it is not the "only panacea" for the problems plaguing the economy.

"I think no one policy lever is a panacea for us. You have to work on all fronts...It's one useful input in kick-starting the economy. But is it the only lever? By no means. Lots of other things need to happen," Subramanian told students at the Mumbai University.

Finance Minister Arun Jaitley's Budget announcement to abide by the fiscal consolidation roadmap has heightened expectations of a rate cut by the central bank, which on the very next day after the Budget last year had done so.

At the same time, reviving growth continues to be a priority for the policymakers and traditionally, an easy money policy is seen as a tool to achieve the end.

The RBI has cut its key rates by a cumulative 1.25 per cent since January 2015, when with the ebbing of inflation worries, it switched to an accommodative stance.

The Economic Survey presented by Subramanian before the Budget had pegged GDP growth at 7-7.75 per cent in 2016-17, while international rating agency Fitch yesterday lowered its estimate to 7.7 per cent from the earlier 8 per cent.

Meanwhile, the CEA also stressed on the need to have strategies to protect against future financial crises, even though he said there is a remote likelihood of that now.

"There is a very small probability that we could have a very major financial crisis. This is partly linked to the fact that there are so many vulnerabilities around the world...

"One possible trigger is something happening in Asia, especially in some of the bigger economies, which could be very different from previous crises. In fact, it could be a crisis like what happened during the 1930s," he said without naming China, which is feared to be heading for a hard-landing.

"When such a crisis happens, it would involve money fleeing some of the big Asian countries. What would then happen is that Asian currencies would depreciate, which will affect countries like us too...So, we could have a very serious financial crisis going forward, and we need to be prepared for that," he added.

He reiterated his call for "recalibrating" our growth expectations, given the "increasingly grim" world economy. In the post-Budget media interaction too he had called for such an approach.


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