In a queer bout of proposal disposal, India Inc., on Monday, saw its persistent demand for an economic stimulus package, including a rate cut by the Reserve Bank, run aground as Prime Minister’s Economic Advisory Council (PMEAC) Chairman C. Rangarajan sought to negate both on account of limited scope for fiscal sops and the inflationary situation.
At their meeting with the PMEAC chief here, even as apex industry chamber representatives reiterated their demand for a revival package and sought to impress upon him the need for such incentives to tide over the difficult situation, Dr. Rangarajan happened to pre-empt all the lobby group’s arguments at another event earlier during the day saying that such a booster dose would not be possible in view of the high fiscal deficit as well as the changed economic scenario when compared to 2008.
Speaking on the sidelines of a function organised by National Housing Bank (NHB) here, Dr. Rangarajan had said: “We must reallocate expenditure in such a way that there is emphasis on capacity creation, there is emphasis on capital formation. Therefore, the direct answer is that the kind of stimulus that we provided in 2008, scope for that is not available”.
While that argument appeared to take the wind out of India Inc.’s sails, the PMEAC chief followed it up saying, “we have to make an effort to contain fiscal deficit at the budgeted level. That itself is a very big task. Therefore, we need to look at government expenditure”.
In effect, the question of any stimulus does not arise. As for the demand for a cut in rates by the RBI during its forthcoming monetary policy review on July 31, Dr. Rangarajan pointed out that the apex bank’s decision on this count would depend on the trend of inflation, which unfortunately had remained at an elevated level.
Apex chambers’ plea
While the answers were given even before the demand for revival package and interest rate cut were made by representatives of three apex chambers — Confederation of Indian Industry (CII), Associated Chambers of Commerce and Industry of India (Assocham) and PHD Chamber of Commerce and Industry (PHDCCI) — they also pressed for further liberalisation of the FDI (foreign direct investment) regime and expeditious implementation of the Goods and Services Tax (GST).
Speaking to the media after the meeting with the PMEAC chief, CII President Adi Godrej said: “...there is an urgent need to create conditions for revival of private investment by...further reduction in repo (short-term lending) rate by 100 basis points, and reduction of Cash Reserve Ratio (CRR) by 100 basis points”. The government, he said, should work out an economic revival package in consultation with the RBI to contain the slide in GDP growth.
Assocham President Rajkumar Dhoot felt that the process reforms were significant to address the current challenges facing the economy and these must be fast-tracked. “Fall in the GDP (gross domestic product) growth to 6.5 per cent during 2011-12 from 8.4 per cent in the previous year is one concern, but an acute fall in quarterly growth rates to a level of 5.3 per cent which is the lowest quarterly growth rate in past seven years, reflects the actual magnitude of this issue,” he said.