The slowdown in industrial growth is of particular concern as it impacts employment

Finance Minister Pranab Mukherjee on Thursday advocated the need for ‘innovative remedies' to simultaneously tackle the double whammy of industrial slowdown and high inflation as the options in fiscal and monetary tools were getting limited to combat the twin challenges.

In his inaugural address at a conference on ‘Global economic situation: New order emerging?' at the Delhi Economics Conclave here, Mr. Mukherjee candidly admitted that the challenges facing India were many and daunting. The primary challenge, he said, was human development where the country ranked low in global terms in critical areas such as infant mortality, nutrition and literacy. “India cannot afford to relax on its efforts to promote growth and to leverage the fruits of that growth for fostering more equitable and inclusive development,” he said. Alongside was the struggle against inflation and tightening interest rate regime which has contributed to lowering of growth in demand and investment. “The slowdown in industrial growth is of particular concern as it impacts employment,” he said, while noting that inflation, though declining, was still at “unacceptable levels”. Also, apart from the immediate concerns relating to fiscal deficit and current account deficit, employment creation over the medium term was a key challenge. Besides, while financial inclusion, reforms and better infrastructure were high priority, land availability and environmental sustainability also posed challenges.

Options limited

“Innovative remedies would be required to address these challenges simultaneously. The options for fiscal steps as well as monetary measures are increasingly limited. However, there is potential for policymaking in other areas,” Mr. Mukherjee said and pointed to the government's efforts to unlock economic bottlenecks through initiatives such as the National Manufacturing Policy, permitting greater FDI in retail sector, Direct Taxes Code, Goods and Services Tax, and various legislations, including in the financial sector. “We hope that greater consensus on these initiatives will help speed up their implementation,” he said.

Macroeconomic management, in today's context, could no longer be confined only to economic issues. Economists must also be adept at addressing political and social outcomes of policy decisions. “In a complex and interconnected world, it is no longer enough to merely state the desirable steps – we need to go beyond the ‘what' to also lay out the ‘how'. The success of our navigation through a complex multi-layered environment is what will determine future economic growth and development. We do hope greater consensus on these issues would help speed up their implementation,” he said.

On the global front, particularly when recovery in advanced economies has been stalling and slowing down in emerging economies, Mr. Mukherjee said it would be important to strike a fine balance between the short run and the long run policy issues and options to help restore market confidence. For, post-financial crisis, as the global recovery was taking root, attention was paid to rebalancing of the global economy, to make the recovery stronger and sustainable in the medium to long-term. “In retrospect, perhaps we did not pay adequate attention to internal imbalances i.e. shifting demand back from the public sector to the private. The present indicators show that both private consumption and investment sentiments have weakened. It is this weakening of sentiments that makes it necessary to shift some of our focus back to near term issues even as we recognize that some structural imbalances remain to be addressed,” he said.

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