New Delhi: The government needs to focus on a calibrated approach of using monetary measures for returning to high economic growth at the earliest, a survey by the finance ministry said on Thursday.
“The objective is to restore the economy to a high growth path consistent with price and financial stability,” the Economic Survey for 2008-09, presented in Parliament, said.
Excess liquidity currently in the banking system might be sowing the seeds for the next inflationary cycle, it said.
“It would be important, therefore, to ensure that once economic growth picks up sufficient momentum, the excess liquidity is rolled back in an orderly manner.”
Government data showed on Thursday the wholesale price index (WPI) based inflation fell 1.3% in the 12 months to 20 June.
It had fallen 1.61% in early June, dropping below zero for the first time in three decades, but analysts have said this did not signal a weakening economy and would not prod the central bank (Reserve Bank of India) to cut rates further.
Since October, the Reserve Bank of India, or RBI, has cut its key lending rate by 425 basis points (bps) and infused liquidity to protect growth.
But commercial banks are yet to match those rate cuts. Small savings rate are also firm.
“The credit market suffers from structural rigidities, for instance on account of small savings deposit rates which are often sticky in their downward movement,” the survey said.
Also, high interest rates offered by banks on deposits are coming in the way of cutting lending rates consistent with the current inflation and investment scenario, it said.
“The growth in credit for meeting the critical needs of the productive sectors are high on the agenda.”