Economic measurement standards need upgrade: Rangarajan

While the Indian economy is growing by leaps and bounds, so is inflation, which hits the average person (and hence the government's vote bank) more directly. In an obvious attempt to contain soaring commodity prices, the Reserve Bank of India on Thursday once again hiked its repo and reverse repo rates by 50 and 25 basis points respectively.

While inflation for August was 8.5 per cent (under the new series with 2004-05 as base year), food inflation was at a high of 15.10 per cent for the week ended 4 September. "Inflation remains the dominant concern in macroeconomic management," RBI said while raising rates. But how far will this help? CNBC-TV18 tried to find out from chairman of the prime minister's economic advisory council (PMEAC) and former RBI governor and C Rangarajan in an interview.

According to Rangarajan, it is necessary for the central bank (RBI) and the government to join hands in fighting the crisis. The financial stability development council, headed by the prime minister, can play a key role in this. ''The council is set up as a mechanism for bringing about closer coordination among the various institutions which have the responsibility for managing the financial system. It's a good thing,'' he said.

He added, ''I would emphasise that in whatever we do, we do not undermine the authority of the central bank or any of the other regulators. They should have the freedom to be able to operate in their respective spheres without interference. But if there is a need for coordination, that coordination can be perhaps achieved through this council.''

On deregulating the savings deposit rate, he said, ''This is one rate which has remained and administered rate for a long time. From my time onwards we have been discussing from time to time how to deregulate it. But somehow the decision was not taken. I believe the time has come to deregulate the savings rate.

It may rise to some extent, but that is something that one can take in one's stride. After all, we have deregulated many other interest rates, and we should be able to do this - letting the savings rate finds its own level is a good idea.''