Experts call for fiscal direction
India's GDP growth rate might dip below the government estimate of 7 percent from its current 7.9 percent in the first quarter of 2009-10 unless the government makes some serious policy decisions and cuts down on its fiscal deficit, set cross 3.6 percent of GDP this year.
The deficit would cross 6.3 percent if the off-budget bonds are also added and 8.6 percent if the states budget are also included.
According to a study done by Indian Council for Research on International Economic Relations (ICRIER), Index of Leading Indicators (ILDs) project a growth rate of 7.9 percent for 2008-09 which would fall further to 7.0 percent in the first half of 2009-10. Rajiv Kumar, director & chief executive of ICRIER, pointed out in a seminar on global financial crisis organised by Indian Chamber of Commerce (ICC),
“The RBI move to inject liquidity in the financial system or repo cuts, CRR cuts might be a welcome approach, but there is a need for some major policy decisions by the government in order to balance its budget and expenditure in the schemes announced during bouyant times, be it the debt waiver scheme or fertilizers subsidy etc.” Sanjeev Goenka, vice-chairman of RPG enterprises, warned that the times might turn difficult particularly with high lending rates, soaring cost of production and under-utilisation of capacities.
Kumar admitted that the regulator's efforts, be it through repo cuts or CRR cuts or injecing more cash into the system might be noteworthy but there is a further need for more sophistication. "RBI needs to chalk out ways to reform the banking sector which holds the key to sustainable GDP growth," Kumar added. The current tightening of monetary policy is only aimed at reducing the increasing gap between the projected and actual GDP growth rate of the country, Kumar felt. “The government should not allow the rupee to go beyond the current level it has reached and this further down slide of the rupee should be prevented through indirect measures and not through government's direct intervention in the market," Kumar added.
Kumar highlighted the need to improve the investment climate in the country and address the investment climate issues in order to maintain and increase the FDI inflow rather than focusing on FIIs withdrawal and inflation.