The Government is not sitting idle but taking steps to re-ignite growth and contain subsidies, the Finance Minister, Mr Pranab Mukherjee, has said.
In the face of slow GDP growth, inflationary pressures and twin deficits — fiscal and current account — the Centre's strategy is to stimulate domestic demand, try to bring down subsidies on petroleum products, and improve supply-side response to tackle food inflation.
Referring to the negative sentiment in respect of investments, Mr Mukherjee, who was speaking at an Assocham seminar here on Saturday, said: “As Finance Minister, I cannot be removed from ground realties. I cannot dismiss the concerns expressed by the captains of industry and international credit rating agencies…We have taken note of their concerns and have tried to find out what needs to be done.”
To overcome the slowdown in growth, Mr Mukherjee said the basic strategy will be to stimulate domestic demand as India is a vast country with a huge population. Demand for various consumer goods and consumables is high.
Keeping this approach in view, the Minister elaborated that the Centre had structured a financial package for the textiles industry, come up with new manufacturing policy, and got banks to provide services in about 74,000 villages with a population of over 2000.
Mr Mukherjee said inflation arising out of agricultural products need not necessarily be controlled through monetary policy. Supply-side constraints have to be removed, which the Government is doing, he added. “The Reserve Bank of India is one of the most respected monetary authorities in the world and I am confident that keeping in view all these factors, it will adjust the monetary policy as we are adjusting the fiscal policy,” said Mr Mukherjee.
According to economists, to stimulate growth, the RBI is expected to cut the interest rate at which it lends funds to banks by 25-50 basis points in its mid-quarter monetary policy review on Monday.
Emphasising the need to reduce subsidy on petroleum products, Mr Mukherjee said: “We had projected that it will be below two per cent of GDP, which is not about to happen. We have to improve the delivery systems by ensuring that subsidies go only to the targeted beneficiaries. And we are taking steps, we are not sitting idle.”
Petro product prices
Pointing out that 50 per cent of the price which retailers pay for buying petrol is on account of State and Central taxes, Mr Mukherjee said he has written to the State Chief Ministers to reduce the tax burden temporarily till the crude oil prices come down to $90 a barrel. If they agree to this, the Centre is ready to follow suit.
“It will also provide relief to the consumers to some extent. When the situation is difficult, difficulties are to be shared by all the stakeholders. It cannot be passed on to only one stakeholder,” said Mr Mukherjee.
PTI reports
Rupee volatility, a worry: Speaking at the annual general body meeting of the Indian Banks Association (IBA), Mr Mukherjee said, “the volatility of the rupee is still a matter of concern. And, in the context of the current account deficit and going by the slow exports growth, (this) clearly demands that we must diversify our export destination and also our export basket.”