Don’t want to overstate bad loan crisis:FM Jaitley

MUMBAI(PTI): Describing the index of industrial production (IIP) numbers as “disappointing”, Reserve Bank Governor Raghuram Rajan today said the economy is recovering, but the process of recovery is volatile.

Union Finance Minister Arun Jaitley, with MoS for Finance Jayant Sinha (L), RBI Governor Dr. Raghuram Rajan during the RBI board meeting, in New Delhi on Saturday. Photo: Shanker Chakravarty

Union Finance Minister Arun Jaitley, with MoS for Finance Jayant Sinha (L), RBI Governor Dr. Raghuram Rajan during the RBI board meeting, in New Delhi on Saturday. Photo: Shanker Chakravarty

Reserve Bank Governor and Finance Minister Arun Jaitley were speaking to the media after Reserve Bank’s Board Meeting here attended by the Finance Minister as a post Budget tradition, in which they discussed the need to clean up the banks balance sheets.

“We are in recovery. That’s broadly what we said before and by and large, we would stick to that. There is volatility in this recovery process. So, it’s not a strong (and) sustained recovery where all the signals are exactly in the same direction,” he said.

The RBI chief described the index of industrial production (IIP) numbers released yesterday as “certainly somewhat disappointing, though he did observe that the economy is broadly moving in the “direction of strengthening growth”.

The declining industrial output prompted India Inc to press for a rate cut by RBI, which is scheduled to announce its monetary policy on April 5.

Jaitley on bad loan crisis

Amid outrage over Vijay Mallya’s massive default on loans, Finance Minister Arun Jaitley cautioned against overstating the bad loans crisis in the banking system lest it hampers the entire lending operations and growth.

However, Jaitley said individual misdemeanors will be “looked into differently“.

“We don’t want to create a situation where we overstate the crisis and in the process, the whole activity of lending for growth itself starts suffering because people become extraordinarily defensive. We don’t want to reach that situation.

So its that limited category where there is some kind of a prima facie misconduct or misdemeanor, which has taken place by the individual. Its those areas which will be looked into differently,” Jaitley said.

Echoing similar views, Mr. Rajan said “we have to be careful as we go forward” that one hand criminal actions are penalised.

“But at the same time we don’t indulge in a broad fishing expedition which then becomes a reason for banks to get worried about making loans which then hamper the recovery as well as hamper the absolutely important investment in infrastructure that have to take place.

“So as a country, as a system, we have to draw that balance very carefully and we are hopeful that we can manage that,” he said.

‘Possibility of cyclically-adjusted fiscal deficit target’

On whether RBI would take into account the government’s resolve to stick to the fiscal consolidation path and ease the monetary policy to boost growth, Mr. Rajan said the headline number of 3.5 per cent fiscal deficit target is a firm indication of government’s intent for fiscal consolidation.

“Both the markets and RBI are comforted by that. How that feeds into monetary policy, you have to wait and watch. I have said before that it is contingent… I don’t comment on the direction of monetary policy before the policy date or whatever dates we take action. We explain our actions at that time,” he said.

Mr. Jaitley decided to keep the fiscal deficit target at 3.5 per cent of GDP for 2016-17, overlooking the suggestion for greater public spending to boost growth.

Mr. Rajan also said the government could explore the possibility of moving to a cyclically-adjusted fiscal deficit target.

“There are ideas that have been floated, for example, moving to a cyclically-adjusted fiscal deficit rather than a fiscal deficit that does not take into account ground condition.

This is something that a number of countries also do. My guess is that all these issues will also be explored by the commission that is looking at this,” the governor said.

The government has decided to set up a committee to review the Fiscal Responsibility and Budget Management (FRBM) Act and look into the feasibility of setting a range for fiscal deficit targets rather than a fixed figure.

Posted by on March 12, 2016. Filed under Nation. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.