Finance minister P Chidambaram took the unusual step of criticising the Reserve Bank of India's (RBI) hawkish policy after the central bank disappointed his government, consumers and industry by refusing to cut interest rates at its quarterly review.
"Growth is as much a challenge as inflation. If government has to walk alone to face the challenge of growth, then we will walk alone," Chidambaram said after the RBI withstood pressure from a government desperate to reverse a sharp economic slowdown by stimulating lending.
Relations between the finance ministry and central bank had been expected to improve after Chidambaram took over from Pranab Mukherjee in August.
But the RBI has continued to focus on controlling inflation, which rose to 7.81% in September from 7.55% in August, rather than on stimulating growth, which it expects to slow.
The central bank warned on Tuesday that the Indian consumer was set to feel the pinch of high prices well into next year, even as it took the knife to its economic growth forecast.
It expected wholesale prices-based inflation to touch 7.5% by March 2013, higher than the earlier forecast of 7%, hinting that it may not move on rates until then.
RBI kept the repo rate-its key lending rate-- unchanged at 8% and slashed India's GDP growth forecast to 5.8% from its earlier 6.5%.
It, however, cut the cash reserve ratio (CRR) - or the proportion of money that banks have to park with the central bank---by 0.25 percentage points to 4.25%.
This will unlock Rs. 17,500 crore of additional funds to banks for lending to consumers.
The finance minister's comments came barely hours after Subbarao emphasised RBI's commitment to price control.
"As recent policy initiatives by the government start yielding results in terms of revitalising activity, they will open up space for monetary policy to work in concert to stimulate growth," Subbarao said.
"However, in doing so, it is important not to lose sight of the primary objective of managing inflation," the RBI governor said.
Chidambaram on Monday had unveiled plans to reduce India's fiscal deficit to 3% of GDP in five years pledging fiscal discipline amid hopes that it would serve as a cue for the RBI cut rates.
A day later, the finance minister did not mince words in expressing his disappointment as the RBI stayed put.
"Government is doing its best to send the clear message that we are on the path of fiscal consolidation. It is my hope that everyone will read and understand the government commitment to path of fiscal consolidation," Chidambaram said.
"I have not read the last few paragraphs of the (RBI) statement but if it holds out hope for the future I look forward to that future. Sometimes it is best to speak, sometimes it is best to remain silent. This is the time for silence," the finance minister said.