Further nudged by the Reserve Bank of India, Finance Minister P Chidambaram has set a target of October-end to lay out further fiscal consolidation roadmap.
He expressed hope that the central bank will come out with more supportive measures in its October-end policy.
He welcomed today’s cut in banks’ cash reserve ratio but termed it as a “small step”.
However, he said is not disappointed with the central bank’s action today.
Clearly, the government, industry and markets were expecting the RBI to cut policy rate in response to sudden reform measures announced by the government over the weekend.
In fire-fighting mode against a looming sovereign rating downgrade from rating agencies, the government allowed FDI in sectors such as aviation, retail and broadcast, increased diesel prices and also capped sale of subsidised LPG cylinders.
However, these steps are not likely to bring about a major change to the economy. The under-recoveries of oil companies will be at a record high despite the Rs 5 increase in diesel price, Crisil Research said in a note.
“Mitigating the growth risks and taking the economy to a higher sustainable growth trajectory requires concerted policy action across a range of domains, a process to which last week’s actions made a significant contribution,” the RBI said in its policy review. The RBI is clearly expecting more such moves from the government.