Date:31/10/2007 URL: http://www.thehindu.com/2007/10/31/stories/2007103157081900.htm

Business

Growth will beat RBI projection, says FM

Special Correspondent

Large capital flow worries Chidambaram

Policy emphasises on expenditure control
Rising food and fuel prices

NEW DELHI: Backing the measures announced by the Reserve Bank of India (RBI) to curb surplus money supply, Finance Minister, P. Chidambaram, on Tuesday hoped that economic growth would beat the central bank’s projection of 8.5 per cent for this fiscal.

Talking to newspersons, Mr. Chidambaram said RBI’s mid-term monetary policy was in continuation of its policy announced last time, except that it has realised that there was excess liquidity and raised the requirement for banks to keep cash with the central bank by 50 basis points.

“I am sure the banks will draw correct message from the policy. The RBI has said we are ready to respond with short- term, medium-term and long-term measures, if there are domestic or global developments,” he added. He said the measures announced by the RBI would be able to suck out excess liquidity from the system.

Asked about RBI’s economic growth projection, Mr. Chidambaram said if the RBI had projected 8.5 per cent growth, he expected it to be slightly on the higher side.

The Finance Minister said the RBI had emphasised on two important measures — the need for being vigilant on the expenditure side and being ready to respond with appropriate short and medium-term measures in the event of global shocks.

On the question of whether the monetary policy would be able to contain rising food and fuel prices, the Finance Minister said food and fuel prices were not amenable to monetary policy changes, they were more a function of demand and supply.

The Ministry of Food and Consumer Affairs would take appropriate action to ensure that there was no mismatch between demand and supply of food articles, he added.

Earlier, addressing the captains of industry at the Fortune Global Forum here, Mr. Chidambaram said India was facing the problem of enormous capital inflows and indicated that the Government might take steps to monitor and regulate portfolio investments by foreign entities. “Today in India, we face a problem of enormous capital flows.

“This is completely a new situation for us. We welcome capital but we must learn how to manage capital, how to absorb capital. We need to put in place appropriate regulations. We have to put in place risk management systems,” he said.