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Ficci sour at policy paralysis, CEA Basu not impressed by 'over pessimism'

Dilasha Seth  |  New Delhi 

The country's chief economic advisor and industry chamber Ficci do not seem to share the business confidence in the economy. At a policy workshop organised by the newly-formed International Growth Centre, Ficci General Secretary Rajiv Kumar termed the current mood of the industry as sour.

“The level of uncertainty is very high and there looms fear of complete policy paralysis,” he said.

On investment, he said foreign direct investment (FDI) flowing out of the economy was greater than what was flowing in, and no one wanted to take up big projects at the moment. He said there were apprehensions about going back to the licence-raj days.

Finance ministry advisor Kaushik Basu, however, slammed the views as over-pessimism. On the contrary, he said, exports were increasing and FDI was picking up sharply this financial year with many big deals coming through.

Industry sectors, meanwhile are projecting a mixed view on the economic momentum. While industrial growth was down to nine-month low in May, exports, tax collections were upbeat. Kumar also called for the need to shift to consumer price index (CPI) from the present wholesale price index (WPI) to calculate inflation, but Basu said there was not much difference in these numbers this year. WPI inflation stood at 9.04 per cent in May, while CPI inflation for industrial workers was at 8.72 per cent and those for agriculture and rural labourers at 9.63 per cent. In June, WPI inflation rose to 9.44 per cent, while other figures are yet to be released.

About the Reserve Bank of India’s twin task of forecasting inflation as well as keeping inflation under control, Basu referred to it as the Heisenberg’s uncertainty principle.

“There is a huge dilemma whether to perfectly forecast or bring down inflation,” he said. He said there was a need to tame inflation. “Most industrialised countries work on two per cent inflation target. We should aim for below four per cent,” he said, adding that inflation-targeting concept is complex, as it involves thinking in terms of critical variables, unlike estimating fiscal deficit.

Kumar though said fixing inflation targets would not resolve the problems on the growth and employment front.

“Growth is not affected by inflation, but inflationary expectations and uncertainty,” he said.

First Published: Sun, July 17 2011. 00:28 IST
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