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Tight monetary policy may impact growth :Pranab

Posted on 20 June 2011,    
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Tight monetary policy may impact growth: Pranab


Admitting that the Reserve Bank's anti-inflation monetary measures may impact growth, Finance Minister Pranab Mukherjee on Friday said the major challenge right now is to contain price rise.


"The monetary policy has been gradually tightened... Monetary measures may end up moderating the growth if they have to be persisted for an extended period of time," Mukherjee said at an Assocham meet in New Delhi.


However, he said in the short-term, moderating aggregate demand is critical to check inflation, which is "our major challenge".


The RBI on Thursday hiked key policy rates for the tenth time since March, 2010, in a bid to tame inflation, which crossed the 9 per cent mark in May.


Inflationary pressures persist both from higher global commodity prices and domestic structural demand-supply imbalances in several commodities.


Mukherjee said while inflation has implications with respect to sustaining the growth momentum, the drivers of economic expansion remain intact.


"... The growth drivers of the economy remain broadly intact," he said, adding, "I am so far hopeful that we should be able to repeat the growth performance of 2010-11 in 2011-12 as well," he said.


In 2010-11, the country's GDP is estimated to have grown at the rate of 8.5 per cent.


Mukherjee said as the government gears itself up for the task of preparing the 12th Five-Year Plan (2012-17), "We need to aim at a GDP growth of 9 to 9.5 per cent for the Plan period."


For this much expansion in GDP, the country's economy must grow at an average rate at least one percentage point higher than the 8.2 per cent rate likely to be realised in the XII Plan.


On the financial inclusion required to promote the agenda of inclusive growth, Mukherjee said it is a major challenge before the banking sector and financial system at large.


"Newer perspective and strategies toward financial inclusion are needed to reach the un-banked and the under-banked sections of our country," he said.


While applauding the banking sector on their performance with respect to growth in deposits and net profits, Mukherjee expressed concerns on their "asset quality".


During 2010-11, non-performing assets (both gross and net) increased from the levels witnessed in the previous year.


"It is important for the banks to constantly monitor and bring down the NPA to the previous level," he said.


He also asked the banks to go for more innovation and come up with value-added offerings to meet the growing needs of customers.


He further said the government was in the process of deepening policy reforms in the financial sector and addressing gaps in overall economic regulatory architecture.


A Financial Sector Legislative Reforms Commission has been set up to re-write financial sector laws.


He also sought the support of all political parties for passage of the Direct Taxes Code (DTC) and Goods and Services Tax (GST) Act, considered to be the most important tax reforms in the country, in Parliament.