The new government will face four big challenges — subdued growth, the fiscal and current account deficits and sticky inflation, RBI Governor Raghuram Rajan said.
“Growth, fiscal deficit, current account deficit and inflation — these are the four biggest macro-economic challenges and we have to work on all of them. They are all inter-related,” he said when asked about the main tasks for the new government.
The economy expanded 4.9 per cent in 2013-14 after slipping to a decade-low growth of 4.5 per cent in 2012-13. Growth in this financial year is estimated at 5 per cent. Inflation has remained above the Reserve Bank of India’s comfort level of 5 per cent. While inflation as measured by the wholesale price index eased to 5.2 per cent in April, retail inflation was high at 8.59 per cent. “We will do whatever we can on the inflationary front…Our best tool to control inflation is interest rates and the government also has tools like raising agri production and supply. Both need to work together and will work together,” Rajan said.
He also said the RBI is “wary” about excessive volatility in the rupee and will try to minimise the volatility in the currency. In May so far, the rupee has appreciated 1.74% against the dollar. Rajan said the central bank does not use rupee for managing inflation and does not focus on a level of rupee against the dollar. On the issue of blackmoney, he said the RBI is not directly involved in bringing back black money and it is primarily a function of the government.