The stringent monetary measures taken by the Reserve Bank of India to rein in inflation could hurt growth, finance minister Pranab Mukherjee said. He said that the major challenge was to control price rise.
“The monetary policy has been gradually tightened, the monetary measures may end up moderating growth if they have to be persisted for an extended period of time,” Mukherjee said at an Assocham function on Friday.
With a view to controlling inflation, which was at 9.06% in May, the central bank on Thursday increased the key policy rates for the tenth time since March, 2010.
Mukherjee, however, said that in the short-term, moderating aggregate demand was critical to curb inflation, which was a major challenge for the government.
The minister also said that while inflation could impact the growth momentum, the other drivers of economic expansion remained intact and the growth drivers of the economy remain broadly intact. “I am so far hopeful that we should be able to repeat the growth performance of 2010-11 in 2011-12 as well,” he said.
Mukherjee said that the government was also in the process of implementing policy reforms in the financial sector.
While complimenting the banking sector on its performance with respect to growth in deposits and net profits, Mukherjee said that it must also ensure that the "asset quality" is not diluted.
"It is important for the banks to constantly monitor and bring down the non performing asset (NPA) to the previous level," he said. The banking industry witnessed a rise in the NPA level in 2010-11.