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Time To Keep Watch On Pay Commission Impact On Inflation


While maintaining status quo on benchmark policy interest rates was on expected lines, RBI Governor Dr Raghuram Rajan's assertion that the central bank remains "in accommodative stance" is quite reassuring for the industry, ASSOCHAM President, Mr Sunil Kanoria said.


Time To Keep Watch On Pay Commission Impact On Inflation
He said the Credit Policy review has rightly raised a concern about the possible impact of the 7th Pay Commission on quality government expenditure.

"The industry is fully in agreement with Governor Rajan who has stressed the government to maintain the quality of the Budget while trying to keep the Fiscal Deficit intact, faced with the pressure of the Pay Commission resulting in additional cost of over Rs. 1 lakh crore," Mr Kanoria said.

The ASSOCHAM President stated the banks have not fully transmitted the earlier cuts in the policy rates and the RBI move to shift to the marginal cost for determining the bank base rate should be pursued to its logical conclusion.

"As pointed out in the policy document, vigilance of the top order is required to ensure that the retail inflation particularly of the items of common consumption does not increase again. Or else, the RBI would not be able to maintain the accommodative stance. The ball in now in the court of the government to see to it that inflation is kept low through better food management, banks are nudged to do more on transmission and the public investment is stepped up to spearhead the investment recovery," Mr Kanoria said.

The impact of the Pay Commission on the overall wage costs and rentals also needs to be monitored, added the ASSOCHAM chief.

He said the government, RBI and the banks must continue to work in the area of infrastructure financing which has remained subdued thanks to stalled projects, viability mismatch. "Governor's assertion on strengthening the Asset Recovery Companies is a welcome development since sooner the banks' books are cleaned of unsustainable level of debt, better it would be for the economy."

Story first published: Wednesday, December 2, 2015, 11:06 [IST]
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