The mandate of central bank must be seen as part of larger mandate which includes price stability, growth and maximising employment, Chidambaram said. (PTI/File photo)
A day ahead of RBI's monetary policy review, Finance Minister P Chidambaram said on Monday the mandate of a central bank is not only to ensure price stability but also to promote growth and generate employment.
Stating he did not expect any hike in interest rates by the commercial banks, the Minister said they had enough funds to meet credit demands and that the onus of coming up with large investment projects rests with the industry.
"All over the world thinking in changing. The mandate of a central bank must not only be price stability. The mandate of central bank must be seen as part of larger mandate which includes price stability, growth and maximising employment," he said.
Chidambaram's statement comes on the eve of Reserve Bank's first quarter monetary review in which the central bank is expected to address the several conflicting concerns including volatile exchange rate, liquidity crunch and slowing growth.
RBI Governor D Subbarao had last week met Prime Minister Manmohan Singh and Chidambaram and is believed to have discussed the current macro-economic situation.
"I have tried to argue that while I acknowledge that the central banks mandate is price stability, price stability must be seen as part of larger mandate of growth and employment," said Chidambaram while speaking at a function here.
Admitting, the world over governments and central banks have not been on the same page, he said, "in fact this antagonism between central bank and government is very functional antagonism, a healthy antagonism. I am not saying it is unhealthy, it is perhaps healthy".
RBI has been maintaining a tight monetary stance overlooking the pressure from the government as well as the industry for a steep cut in interest rate to promote sagging growth.
"Tomorrow, the RBI Governor will make a quarterly review policy statement. So let us wait for the Governor statement which will throw more clarity on the subject," Chidambaram said.
The Minister, however, sounded confident that interest rates of commercial banks will remain stable.
"I do not expect these (RBI) liquidity measures to result in an increase in the bank lending rates. In fact bank rates have been stable and all chairperson of banks have told me that they have no plans to increase lending rates.
"So the current interest rates will remain. I can't say whether they will come down. But I am almost certain they will not go up, " the Finance Minister said.
Chidambaram assured the industry that their credit needs would be met by banks.
Observing that there is enough money in the system, he said banks are not getting big ticket demands.
"Industry must come to banks and make big demands for credit. I want you to talk about big industries and where you would come and demand credit of Rs 300-400 crore. That's not coming. If it comes, banks have assured me that enough credit will be provided," Chidambaram added.
To a query on rupee, he said, the depreciation was because of speculations and not due to any radical change in the Indian economy.
He said the measures taken by the RBI on liquidity front had a "a good effect" on the domestic currency.
On the current account deficit (CAD), Chidambaram said in 2012-13 it was fully financed by the government.
"I am going to do my best to ensure that we fully finance it (CAD) without drawing down reserves," he added.
Admitting that in the past, government did not clear projects expeditiously, Chidambaram asked industry to come forward and invest.
"I agree we are at fault. We did not clear projects quickly. A large number of bottlenecks came up, but since the last year, I have candidly said we must get over these bottlenecks...," he said.
The Finance Minister said the Cabinet Committee on Investment (CCI) and a 24X7 project monitoring group (PMG) have been set up to get the stalled projects off the ground.
He said while the PMG has cleared projects worth Rs 63,000 crore, CCI cleared Rs 1.6 lakh crore worth of projects.
"Ignore me, ignore the government. Industries business, industries dharma is to invest and make the country grow, irrespective of who is in the government and who is not in the government," he said.
Asserting that UPA government is industry friendly, Chidambaram "when we return next year, we will be more friendly".
To a query, whether more concessions could be given to the industry in the wake of slowdown, he said incentives have already been given and more sops, if any, would depend upon the fiscal space available to the government.
"I can't now tell you what fiscal space is available for more incentives. But as we go along, depending upon how the economy performs, how my revenue collections are, how certain industries do well or not do well, we can look at that.
"But I can't make a general statement that we will give more incentives without knowing what is the fiscal space available to me,' he added.
Chidambaram also said the full impact of the Direct Benefit Transfer (DBT) scheme would be felt in about six months when the bulk of the LPG consumers come under it.
"Its only when LPG is rolled out, which is big ticket item, you will feel the impact. And when MNREGA is brought under DBT, you will find the impact even greater," he said.
He said DBT has huge benefits, like economic gains and lessening of corruption.