Chief statistician T C A Anant said on Tuesday better than expected receipts by the government from the sale of 3G and Broadband Wireless Access spectrum will lessen pressure on the Reserve Bank of India to manage liquidity in its fight against rising inflation.
"It (spectrum money) reduces the pressure on the government to borrow. Secondly, they can actually maintain government development expenditure. They might use this money to reduce to some extent their debt overhang. . . Both of which have an effect of freeing RBI's hands on conducting monetary policy," Anant told PTI in an interview.
Anant, who took over from Pronab Sen on July 1 as chief statistician, said the government can use the money it got from the spectrum sale to either reduce current borrowings or buy up past debt.
"Which way they (government) do it, they will be looking at the profile of debt. On RBI, it reduces the pressure," he said. The government got over Rs 1 lakh crore (Rs 1 trillion) from the sale of spectrum for high speed telecom and broadband services against the projected Rs 35,000 crore (Rs 350 billion) in the Budget.
The government is scheduled to borrow Rs 4.57 lakh crore (Rs 4.57 trillion) from markets this fiscal and it maintains that this level of debt would be raised.
The chief statistician said the Reserve Bank has to be careful in its monetary actions, since there is a risk of food inflation spilling over and there is evidence that it might have already gone into generalised inflation.
He said since India's threshold for inflation is low, the RBI can try to curtail monetary policy, but at the same time, take some mitigating steps to maintain liquidity, as cash is currently tight in the system.
"They (RBI) could do a mixture, they could tighten on one and give a little on the other. . . it works to maintain a balance," he said.
In fact, last week, when the RBI announced an unscheduled hike in short-term lending and borrowing rates (repo and reverse repo) by 25 basis points, it also extended the special facility for banks to take money from it by 14 more days to July 16.
Asked whether the RBI may go for raising short-term rates and cut the cash reserve ratio, he said, "They (the central bank) could try that," but clarified that he was giving this view as an economist and not as secretary in the Ministry of Statistics and Programme Implementation.
Anant said the link between monetary policy and inflation is indirect. "The direct effect of monetary policy will be on the core set of manufacturing activities, where inflation is modest."
Inflation has already entered double-digits at 10.16 per cent in May.
However, much of the inflation is confined to food, while the rate of price rise in manufactured items stood at 6.41 per cent.
But, gradually inflation is spilling over to some manufactured items like metals and textiles. Food inflation, which stood at 16.9 per cent in early June, declined considerably to near 13 per cent in the third week of the month.
However, RBI said food price inflation remain at elevated levels.
"There has been some moderation in food price inflation, but the price index of food articles continues to increase," it had said while announcing monetary action last week. The government's decision to hike prices of petroleum products are also likely to add to inflationary pressure, even though Finance Minister Pranab Mukherjee had said it would be less than 1 per cent.
The cascading effect of these prices, particularly diesel, is likely to further add to the rate of price rise.
"Although entirely justified in terms of long-term fiscal and energy conservation objectives, the recent increase in fuel prices will have an immediate impact of around one percentage point on WPI inflation, with second round effects being felt in the months ahead," the central bank had said.
The RBI is scheduled to conduct its monetary review on July 27.
