Innovation is Pranab's new mantra

A day ahead of the monetary policy review, Finance Minister Pranab Mukherjee on Thursday highlighted the limitations of monetary and fiscal tools, saying that innovative measures have to be taken to strike a balance between curbing inflation and boosting growth.

He cited increasing foreign direct investment in the retail sector as one such measure. “The options for fiscal steps as well as monetary measures are increasingly limited,” he said at a Confederation of Indian Industry event here on Thursday .

In the first seven months of 2011-12, the Centre’s fiscal deficit has crossed 74 per cent of the year’s target. Inflation has been over 9 per cent for a year, despite food inflation falling considerably. This poses a dilemma for the RBI, to choose between inflation and growth.

Mukherjee said innovative remedies would be required to address these challenges simultaneously, as there is potential for policy-making in other areas.

“In recent months, the government has sought to unlock economic bottlenecks through initiatives such as the National Manufacturing Policy, permitting greater FDI in the retail sector, Direct Taxes Code, Goods and Services Tax, and various legislations including those in the financial sector. We hope that greater consensus on these initiatives will help speed up the implementation.”

The government had to hold its proposal to let up to 51 per cent FDI in multi-brand retail after some UPA allies and the Opposition protested. Mukherjee had said that the proposal was good, but the government had to put it off as it did not want a snap poll.

The minister highlighted the importance of these measures to unlock India’s potential, and to provide employment to youth. “Over the medium term, employment creation is a key challenge, as some 250-300 million new entrants to the workforce are expected over the next decade or so,” he added. The Direct Taxes Code and the related Constitution Amendment Bill are being scrutinised by Parliament’s standing committee on finance.