The Chairman of the Economic Advisory Council to the Prime Minister, Dr C. Rangarajan, has emphasised the need for a relook at subsidies, particularly those on petroleum products, and review of other policy aspects to keep the fiscal deficit under control.
Speaking to reporters after delivering the second foundation day lecture of the ICFAI Foundation for Higher Education, Dr Rangarajan said, “It is difficult to keep the deficit at 4.6 per cent as estimated in the Budget. It is sure to exceed. The roadmap to check it is to phase out subsidies.”
Referring to the stress on rupee, Dr Rangarajan said there was some squeeze on it during November-December 2011 due to mismatch between the current account deficit and capital inflows.
The process to ease it was on. Open market operations would improve liquidity, but the CRR (cash reserve ratio) cut could be considered for bridging large liquidity gap.
Improve LIQUIDITY
The noted economist felt that steps to improve liquidity were necessary to send out positive signals to markets and economy. Attempts should be made to keep the current account deficit under 2.5 per cent.
He felt that the exchange rate policy should normally let the market forces determine the exchange rate.
However, in times of large capital flows or for that mater outflows, the central bank can intervene to prevent undue appreciation or depreciation. The Indian exchange rate regime is classified as managed float.
World economy
Earlier, in his address on “India and the global economy,” Dr Rangarajan said the country could post growth rate of 8 per cent in the next two years primarily driven by the domestic demand.
“The objective to achieve 9-10 per cent growth will depend on how the world economy shapes,” he added.
The economic scenario in the western world would remain subdued. The prospects for growth in the advanced economies in the next two years were not bright.
There could be some respite for the European and US economies next fiscal.