New Delhi: It looks like that the RBI Governor Raghuram Rajan's working style has been putting the NDA government under a lot of pressure - resulting in an open tussle between Finance Minister, Arun Jaitley and Rajan.
It all started when earlier this month when Rajan suggested that the government should focus on “Make for India” or shape manufacturing that is targeted at the domestic market rather than the global market where demand was growing limp.
Dr Rajan had cautioned against "picking a particular sector such as manufacturing for encouragement, simply because it has worked well for China". "India is different, and developing at a different time, and we should be agnostic about what will work," Dr Rajan said.
However, yesterday Finance Minister Arun Jaitley rebutted Governor Raghuram Rajan's critique of Narendra Modi's `Make in India' initiative, saying it is about manufacturing of quality products at low cost, whether they are sold in India or abroad.
"Whether 'Make in India' is made for consumers within India or outside is not so relevant. The principle today says that consumers across the world like to purchase products which are cheaper and are of good quality. They hire services which are cheaper and of good quality," the finance minister said.
Speaking at a high-profile workshop on the government's Make in India programme, Jaitley said manufacturing sector will continue to face challenges unless it transitions itself while keeping the quality and price in mind.
In a subtle criticism of the RBI's monetary stance of maintaining policy rates to curb inflation, Jaitley also described the Reserve Bank of India's insistence on keeping high interest rates as the "singular factor" responsible for the slowdown in the manufacturing sector.
"The cost of capital and, I think, in recent months or years, is one singular factor which has contributed to the slowdown of manufacturing growth itself," Jaitley said.
“The credit offtake is slow, infrastructure creation becomes slower, the manufacturers find it difficult to afford costly capital, because it is going to add to each one of their costs. And, therefore, this is one area where each one of us has to be concerned about," he said.
The RBI has maintained the benchmark repo rate (the rate at which banks borrow from it) since January this year.
"We have to put the house in order... The entry point into the manufacturing sector itself has to be eased. Our initial barriers have to be lowered and perhaps even removed. If we keep the doors closed investments won't come in," he said.
Jaitley's statement on interest rates comes ahead of the Bankers' Retreat over the weekend where he, Modi and Rajan are scheduled to work out a roadmap for healthier state-run banks.
On September 25, Prime Minister Narendra Modi launched ‘Make in India' with an intention to boost manufacturing which in turn will also create more and more jobs. It has identified 25 sectors under the mission. Now, the Government is working to prepare a short term (one- year) and medium term (three-year) action plan to make this mission successful.
Rajan, who has kept the key policy rate at 8 per cent since January, has a tough task in hand. For now it is tough to predict what the RBI governor will do next.
(With Agency inputs)
