Q&A: C Rangarajan, PM's Economic Advisory Council

'Scope for stimulus is very limited'

Industrial growth has entered the negative zone in October, two years after the global financial crisis. But Prime Minister’s Economic Advisory Council chairman C Rangarajan pins hopes of a revival in the fourth quarter. He tells Dilasha Seth of Business Standard that a stimulus is not advisable at this time of worsening fiscal situation, and the RBI will watch out for the inflation numbers before deciding on the demands for a pause of its monetary tightening. Edited excerpts:

GDP projection of 7.5 plus, minus 0.25, pegged by the finance ministry’s mid-year analysis looks too optimistic in front of the actual numbers of industrial production coming up for October. What is your take on that?
I think while the numbers are disappointing, we should see some recovery in the Index of Industrial Production (IIP) in the last quarter of 2011-12. I also see GDP growth ranging between 7.25 and 7.5 per cent. Agriculture will do better, services is performing well. It is manufacturing that is really the problem right now. But I am hoping for a revival in the fourth quarter of this fiscal.

With fiscal deficit target running higher than the projected 4.6 per cent of GDP and growth numbers muted, what options does the government really have to deal with the issue?
The scope for fiscal stimulus is very limited, as the expenditure has moved beyond the budgeted levels. There is no scope to provide fiscal stimulus like what we saw in 2008-09. The one direction I can see is to ensure that targets set for infrastructure sector are fulfilled. Mining sector has been negative, therefore action needs to be taken to ensure that coal output goes up, besides targets for capacity utilisation in power and rails among others are fulfilled.

What do you expect the RBI to do in this situation at the monetary policy meeting on December 16?
The primary concern of the monetary authority is inflation. The RBI has already given the indication that given the certain trends in inflation, there will be a pause. That is something that is likely to happen. But whether or not going further action is required depends on what happens with inflation. As inflation subsides, there might be a pause. We will have to see what inflation numbers we get.

(Inflation numbers for November will be out on Wednesday)