Suggests increasing output and improving marketing arrangements
Manufacturing sector growth, which has been disappointing so far this fiscal, is expected improve in the second half due to a host of reasons, including the serious effort being made to remove the bottlenecks in the clearance and implementation of large projects, well-known economist C. Rangarajan said on Monday.
Other factors that will spur growth, besides the full impact of the growth-friendly measures in the last six months such as liberalising of FDI norms, include the emphasis laid on achieving production and capacity creation targets in key infrastructure sectors and a strong pick up in exports in recent months, he said.
Dr. Rangarajan, who is the Prime Minister’s Economic Advisory Council Chairman, said the current fiscal might be better compared to the previous two fiscals, and the growth rate could be between 5 and 5.5 per cent. “The Council had projected 5.3 per cent [growth] and that will hold,” he said, delivering a special lecture on ‘Indian Economy – Challenges Ahead’ here. The lecture was organised by The Triplicane Cultural Academy, which is celebrating its diamond jubilee, and The Kasturi Srinivasan Library.
The major macro-economic concerns were inflation, current account deficit (CAD) and fiscal deficit. Food inflation, he said, was the main factor for pushing overall inflation and that it was not rise in prices of grains, as in 2009-10, but soaring vegetable prices that were fuelling inflation. The answer lies in increasing output and improving the marketing arrangements – archaic in the case of vegetables.
Noting that high growth does not warrant a high level of inflation, Dr.Rangarajan said price stability is a pre-condition for sustained high growth. On CAD, he said the Indian rupee is well corrected for inflation and if the present trend in exports and imports continued, it may be even below the estimated $ 70 billion. “Capital flows will not only be adequate to cover the deficit but may even add to reserves, he added. With regard to fiscal deficit, the former Reserve Bank of India Governor said there is a need to raise the revenue-GDP ratio and contain expenditure, more particularly subsidies which need to be pruned, well-focussed and prioritised.
“Government has to decide which subsidies must take preference over others. What is needed is to have a fix on the quantum of subsidies to be provided as a proportion of GDP or of government revenue,” he said, adding several policy actions that may be not popular were needed.
In terms of sectoral constraints, Dr.Rangarajan underscored the need for improving agricultural production and address the issue of electricity. He also stressed the importance of good governance, which essentially would be efficient delivery of services and ideas with actionable projects, and inclusive growth.
Noting that growth by itself is not everything unless it happens to be inclusive, he said achieving inclusive growth is a mark of economic statesmanship.
The Academy president G.Narayanaswamy and former bureaucrat B.S.Raghavan spoke.