Inflation, high fiscal and current account deficits, and a tepid industrial growth during the first four months of the current fiscal, have all but curtailed the country returning to the high growth path it traversed during the 11th Plan.
With the World Bank and the IMF providing grossly divergent estimates on India’s prospective GDP growth rate this fiscal, the growth conundrum at the inaugural year of the 12th Five-Year Plan needs to be unravelled.
How far the monetary policy, to be unveiled by the apex bank on Tuesday, would help promote growth by making available credit at affordable rate and in ample measure remains to be seen.
Asked about the RBI’s oft-made assertion that both the monetary and the fiscal policy should be undertaken in tandem so as to have meaningful relief by way of cut in policy rates to ultimate end-users seeking credit, the former RBI Governor said that the government has let its intent on fiscal consolidation clear by coming out with a medium-term fiscal consolidation plan.
Besides, the government has also signalled its intent to attract more foreign direct investment in areas such as multi-brand retail, domestic civil aviation, insurance and pension industry, subject to caps and riders. “It is up to the RBI to make an assessment of the impact of these measures,” he said adding that “much will depend upon the trends in the behaviour of inflation, since fighting inflation is its predominant objective”.
Growth projections
On growth projections, Rangarajan explained: “We had projected earlier a growth rate of a little over 6.5 per cent for this fiscal. While the performance of agriculture may turn out to be better as monsoon improved in the past two months, manufacturing continues to be of concern. However, as manufacturing growth during the second half of last fiscal was low, the base effect would be favourable. We think the performance of manufacturing in the second half of this fiscal will be better. There is also strong evidence of production pickup in important areas such as coal and roads and we can end the current fiscal with close to 6 to 6.5 per cent in GDP growth”.
Fiscal consolidation
On “the credible and feasible medium-term plan for fiscal consolidation” unveiled by the Finance Minister on Monday, Rangarajan said the government is committed to containing the fiscal deficit to the budgeted target of 5.1 per cent of GDP but there might be some marginal increase. “While revenue receipts may be close to budget estimates, expenditures, particularly subsidies, need to be kept under control. Some action has already been taken in this regard. It is expected that with appropriate action on the revenue and expenditure sides, we may be as close as possible to the target for fiscal deficit set in the budget for 2012-13,” he said.
Referring to the row between the Finance and Environment Ministries over the proposed National Investment Board (NIB), Rangarajan said that the idea of establishing such a body for clearance of all important projects in the infrastructure domain was mooted by the Council some time ago. “The idea that the NIB should clear the projects put up for approval does not mean that all other environmental and relevant factors could be ignored,” Rangarajan said. He said all the clearances, including those of environment and line ministries, need to be placed before the Board so that the project once cleared could go ahead without delay.