FM, RBI keen to continue stimulus

FM, RBI keen to continue stimulus


MUMBAI: The finance ministry and the Reserve Bank of India (RBI) are on the same page on the issue of continuing pandemic-era stimulus.
Finance minister Nirmala Sitharaman said in an interview to Bloomberg in New York that the stimulus will continue. “The emphasis on building health infrastructure will continue” and so will government spending on capital expenditure and infrastructure, she said. Meanwhile, the state of the economy report prepared by RBI staff led by deputy governor Michael Patra called on the need for continuing with policy support for a longer period to ensure a sustained and inclusive recovery.
The simultaneous statements indicate that even as stock markets test new highs every week, neither the government nor the central bank is keen to take the punch bowl away. While globally there are concerns over inflation, the central bank is of the view that the outlook concerning prices has improved and the central bank is not keen on acting too early and causing damage to the economy.
“Premature tightening could bring about the stagflation that all fear, quashing growth just as the economy is recovering. In an influential view, history is thick with examples of central banks under-doing it — underestimating the need for continuing stimulus,” the state of the economy report said.
However, one issue where the government has not paid heed to the central bank is on easing fuel prices through a reduction in taxes. “The challenge I will face, and the teams are also watching in the ministry, is the way the fuel prices are leading to a big crest,” Sitharaman said. “This uncertainty is a big element for me,” Sitharaman said.
The report published by the RBI said, “On inflation, the MPC’s call has turned out to be correct, with the softer than expected food prices providing the impetus for a further disinflation of the headline to a closer alignment with the target. On the other hand, the economy may be healing, but it is still digging out of one of the deepest contractions to hit any major economy.”
Last month, in his policy statement, RBI governor Shaktikanta Das called for a reduction in taxes on petrol and diesel. “Efforts to contain cost-push pressures through a calibrated reversal of the indirect taxes on fuel could contribute to a more sustained lowering of inflation and an anchoring of inflation expectations,” Das said.
On the disinvestment programme, Sitharaman said that the government is pushing to get the initial public offering of Life Insurance Corporation by next March and any delay won’t be due to a lack of political will. “We are pushing to have it done,” Sitharaman said. “The problem is not that we don’t want it or we are pussyfooting on it now, it is more a question of doing the due process,” she added.





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