The government is set to complement the Reserve Bank of India’s bold step to cut the repo rate to revive growth. Minutes after the monetary policy announcement, Finance Minister Pranab Mukherjee said while the 50-basis-point cut in the key policy rate would help revive investment, the government would do everything to bolster economic growth.
“Growth, which has weakened in past months, should now improve. In the coming weeks, we will take some additional steps to further reinforce the focus on growth,” he told reporters. The statement comes at a time when the government is under severe criticism for not being able to pursue many policy and economic reforms. Foreign direct investment in multi-brand retail and insurance sector, introduction of the Goods & Services Tax and the Direct Taxes Code, the PFRDA Bill for retirement savings and decontrol of diesel prices top the unfinished agenda of the government.
To correct the perception of a ‘policy paralysis’, the government may take steps to fast-track the clearance of infrastructure projects and boost investment in the sector. The government has given its nod to the country’s first infrastructure debt fund to be set up by ICICI Bank and others. Other such funds are also in the offing.
“There are some downside risks (to the FY13 growth target of 7.6 per cent), in particular the implications of the continued stickiness in global oil prices. We will have to take the necessary steps to minimise their impact in the coming months,” he said at a Confederation of Indian Industry event earlier in the day. He expressed concern over the current phase of slowdown in industrial production.
During April-February 2011-12, industrial output has grown by a mere 3.5 per cent, compared with 8.1 per cent during the corresponding period in the previous year. “It is, therefore, clear that we need to boost investment and spend more on creating productive assets,” Mukherjee said, while he sought the industry’s cooperation to come forward and step up investment.
The Prime Minister’s Economic Advisory Council has said, with a return of price stability, appropriate supportive policy and administrative measures, there would be an improvement in the investment rate, notwithstanding the difficult conditions in the international financial markets.
However, the challenge before the government remains as to how to impress upon allies and states for reforms such as those in multi-brand retail and petroleum.
Inflation, another major challenge for the government, was a tad lower at 6.89 per cent in March. Though food inflation declined from 20.2 per cent in February 2010 to 5.9 per cent in February, 2012, it has risen again in March 2012 to nearly 9 per cent.
Mukherjee said it would remain around six-seven per cent in 2012-13, which was on the higher side, but the economy should learn to stay with it. The government had been making all efforts to address demand and supply-side problems, he said.
The finance minister also tried to allay fears about the fiscal deficit target of 5.1 per cent for the current year. “Let me assure you the budgetary exercise has been done with due diligence and I would do my best to restrict the government expenditure to the budgeted figures. The government will not compromise on funds towards the schemes targeted to achieve the UPA government’s agenda of inclusive growth,” he said. Acknowledging that moderation in FII inflows had resulted in a decline in the equity indices and a sharper depreciation of the rupee in the forex markets, he said the volatility in flows reflected global uncertainty and was broadly in line with indicators in other emerging economies.
“However, complacency can turn out to be our worst enemy. We need to be ever ready to confront external shocks and respond on a real-time basis,” Mukherjee added.