Will adhere to fiscal deficit target to contain inflation: Arvind Subramanian, CEA

NEW DELHI: Welcoming RBI's decision to slash key interest rate by 0.50 per cent, Chief Economic Advisor Arvind Subramanian today said the government is committed to contribute its share by adhering to its fiscal deficit target so that inflationary pressures remain under control.

In its fourth bi-monthly monetary policy for the current fiscal, RBI cut benchmark repurchase (repo) rate from 7.25 per cent to 6.75 per cent, lowest in four-and-half-years.

"It's a really a welcome move by the RBI. It shows that inflationary pressure has fallen and is under control, we have to be vigilant about inflation always... and the government is also committed to contributing its share by adhering to its fiscal deficit target so that inflationary pressures are contained," Subramanian told reporters on the sidelines of an event organised by industry body CII.

As per the new roadmap, the government has pegged fiscal deficit target for 2015-16 at 3.9 per cent, 3.5 per cent for 2016-17 and 3 per cent for 2017-18.

Noting that 0.50 per cent rate cut by the RBI will be very good for the economy, the CEA said, "I think what this rate cut shows that it has opened up room for monetary policy support for the economy."

Subramanian expressed hope that the rate cut will boost investor confidence and bring down other market rates as well.

Stressing that it is not just 50 per cent rate cut now, he said, "RBI has signalled that stance is going to be more accommodating going forward and it gives us lots of good reasons to hope and see that the economy is getting all support that is needed."

When asked whether the government is still hopeful of achieving 8 per cent growth rate for the current fiscal, Subramanian said, "We are going to review that as data comes in."

Noting that parallel of North American Free Trade Agreement (NAFTA) and South Asian Association for Regional Cooperation (SAARC) is incomplete, Subramanian said, "Regional integration in South Asia is probability not first order priority for India from economic point of view. India's economic fortune is much more related to the rest of the world."

The CEA, however, added that there are exceptions like in the field of infrastructure, power, railways, there is lot India can benefit from integrated South Asian market.

He noted that for regional markets integration of South Asia, India will require to do asymmetric opening.

"I think we have no option but to work on all fronts with our South Asian neighbours simultaneously including trade, people to people contact, soft power, cricket anything that can improve relationship," Subramanian said.