India Inc has, once again, approached the government for an “economic revival package”. However, Prime Minister’s Economic Advisory Council (PMEAC) chairman, C Rangarajan, ruled out a booster dose on the lines of the stimulus in 2008-09. He added monetary action would be subject to easing of inflationary pressures.
Confederation of Indian Industry President Adi Godrej, Associated Chambers of Commerce and Industry President Rajkumar Dhoot and PHD Chamber of Commerce and Industry President Sandip Somani on Monday met Rangarajan and sought hastening of pending reforms. They also sought implementation of the Goods and Services Tax (GST) from April 1, 2013, floating of infrastructure bonds (on the lines of Resurgent India Bonds) for non-resident Indians and people of Indian origin and cuts of 100 basis points each in the repo rate and the cash reserve ratio.
“I believe if the inflation rate, particularly that of non-food manufacturing inflation, shows a decline, there would be scope for the Reserve Bank of India (RBI) to adopt an easier stance,” Rangarajan said, adding, “There is no scope available for the kind of (fiscal) stimulus we provided in 2008.” He said the situation in India was somewhat different from that in other countries. “In other countries, the growth rate is low. But at the same time, inflation is also low. In our country, while growth is slowing, inflation remains at a high level," he said.
In the wake of the slowdown in 2008-09, the government had provided a stimulus package of Rs 1.86 lakh crore to spur growth. RBI is scheduled to announce its quarterly review of monetary policy on July 31. While it left key policy rates unchanged in the last review in June, the European Central Bank and the People’s Bank of China slashed their respective policy rates earlier this month.
In its mid-quarter monetary policy review on June 18, RBI had said, “Reduction in the policy interest rate at this juncture, rather than supporting growth, could exacerbate inflationary pressure.” Asked if the government could come out with a stimulus package to revive economic growth, Rangarajan said the scope for stimulus was limited, as fiscal deficit was high.
“We have to make an effort to contain the fiscal deficit to the budgeted level. That itself is a very big task. Therefore, we need to look at government expenditure,” he said, adding expenditure must be reallocated to emphasise capacity creation and capital formation. The industry chambers also sought foreign direct investment in domestic carriers and multi-brand retail, along with a rise in the cap on foreign direct investment in insurance.
Strong fiscal action in the form of divestment of government stake in public sector undertakings was also sought.