时间：2022-09-01 05:56:39
At the press conference held to announce the Reserve Bank of India(RBI) decision to reduce the repo rate– the rate at which it lends money to banks– by 50 basis points, RBI Governor Duvvuri Subbarao faced a tricky question. Did he feel RBI had done its bit, and it was now up to the government to respond adequately to revive the economy? At this, the other senior RBI officials sitting alongside Subbarao burst into knowing laughter. It was apparent the answer was in the affirmative. But obviously Subbarao could not say so. The RBI Governor lost none of his cool. “A monetary easing is a necessary condition, but may not be sufficient for investment sentiments to revive,” he said.
The hint, however, was clear. It was policy bottlenecks rather than high interest rates that were responsible for the current slowdown. A second question followed: what should the government do so that the monetary policy easing Subbarao had announced made a tangible difference to the economy? Again, there was laughter. “We have indicated in the policy document what the government should be doing,” said Subbarao.
The repo rate has been lowered for the first time in three years, from 8.5 to eight per cent, after being repeatedly raised by a total of 375 basis points since March 2010, in a bid to combat inflation. But most economists agree that the roots of the current phase of high inflation – at nearly nine per cent against the projected 6.5 per cent – lie in fiscal policy rather than in monetary policy.“The large fiscal deficit and focus on consumption (rather than on investment) spending has fuelled demand, triggering high inflationary pressures,” according to a report by rating agency CRISIL Research. Thus the lowering of the repo rate alone is unlikely to boost growth and investment.
Gross domestic product (GDP) growth has slumped from 8.4 per cent in both 2009/10 and 2010/11 to 6.9 per cent in 2011/12. The government has projected GDP growth at 7.6 per cent in 2012/13, but it is doubtful if this will be achieved. External agencies have set the figure lower – the Asian Development Bank, for instance, putting it at seven per cent. Will the government now respond to RBI’s move and make its own projected figure more achievable?
Industry believes a dual approach is required. “To kick-start investments, there is work to be done on the policy front at one end,” says Ajay Srinivasan, CEO, Aditya Birla Financial Services.“At the other end, the government should spend more of its budget on capital expenditure rather than on revenue.”Rajesh Mokashi, Deputy Managing Director, Care Ratings Ltd, too, stresses the second point. “We need the government to spend more on projects so that a big push can be given,” he says. “The government is the only entity which can borrow at 8-8.5 per cent and hence has the ability to push investment in infrastructure.”
RBI’s monetary policy document also notes that main reason for decline in growth is the emergence of significant supply bottlenecks – in infrastructure, energy, minerals and labour. “A strategy to increase the economy’s potential by focusing on these constraints is an imperative,” it says. A major cause of food inflation, for instance –which was at an average of 8.1 per cent between April and December last year, fell to negative in January, only to hit 9.9 per cent in March – is supply side bottlenecks for various items in the food basket, such as eggs, fish, meat, milk and pulses.
Again, RBI has been warning against the government’s unwillingness to pass on the increase in global crude oil prices to consumers by raising the cost of diesel, kerosene and LPG. The price of Brent crude has been rising steadily for some time: it jumped, for instance, from $111 a barrel in January to over $120 in April. Yet, the last increase in domestic diesel prices was in July last year.
The government also needs to trim its own expenditure. In 2011/12, the fiscal deficit ballooned to 5.9 per cent against a targeted 4.6 per cent. In this year’s Budget speech, Finance Minister Pranab Mukherjee maintained the current year’s deficit would be contained at 5.1 per cent. But will it? “Any slippage in the fiscal deficit will have implications for inflation,”says the RBI document. “Even though the Budget envisages a reduction in the fiscal deficit, several upside risks to the budgeted fiscal deficit remain.” Mukherjee has also promised to cap subsidies at below two per cent of GDP. Yet, the government’s budgeted net market borrowings this financial year are pegged at `4.8 trillion (one trillion equals one lakh crore), higher than last year’s `4.4 trillion.
Experts also say the much discussed yet much delayed reforms like the introduction of the Direct Tax Code and the Goods and Services Tax, as well as reduction of the cap on foreign direct investment (FDI) in retail, defence and insurance, and reforms in land acquisition and mining laws would make a big difference to growth. Some of the measures, such as allowing FDI in retail, may be controversial, but the others at least should be pushed through quickly. “The low hanging fruit need to be plucked first,” says Care’s Mokashi.