Sixth Pay Commission: Pay panel award to put pressure on Govt finances, says RBI

Sixth Pay Commission: Pay panel award to put pressure on Govt finances, says RBI

4 Sep, 2008, 2120 hrs IST, PTI

NEW DELHI : The RBI on Thursday warned that the government finances will come under pressure due to the Sixth Pay Commission, as also farm-loan waiver and subsidies, and said it will continue tight monetary policy even as inflation eased for the second successive week to 12.34 per cent.

"The finances of the Central Government may come under pressure during 2008-09 on account of implementation of the Sixth Pay Commission award including payment of arrears, higher oil subsidies, increase in fertiliser subsidy due to a sharp rise in the price of raw materials and fertiliser in the international market," RBI said in its report on Currency and Finance 2006-08.

In addition to this, the RBI further said that volatile food and energy prices are other causes of concern that call for attention on urgent basis.

Projecting an eight per cent economic growth, the bank said that the overall stance of monetary policy would be to ensure a monetary and interest rate environment that accords a high priority to price stability.

"It is critical at the prevailing juncture to demonstrate on a continuing basis a determination to act decisively, effectively and swiftly to curb any signs of adverse developments in regard to inflation expectations," the RBI stressed.

The Reserve Bank has gradually raised the Cash Reserve Ratio (CRR) and reserve repo rate to nine per cent to tame rising inflation.

While sounding a word of caution on going ahead with fuller capital account convertibility of rupee by 2011, the report said "the banking sector requires to develop appropriate capabilities to manage the varied and enhanced risks".


Source: http://economictimes.indiatimes.com