The government must take decisive policy action on subsidies to contain the fiscal deficit and revive growth, says PM’s Economic Advisory Council Chairman C Rangarajan. In an interview with Surabhi, the PMEAC chief says that the economy is likely to fare better in the current fiscal but the government needs to bridge the infrastructure deficit to rev up private investments. Excerpts:
Was the 5.3 per cent GDP growth in the fourth quarter expected?
The GDP data for the fourth quarter at 5.3 per cent is disappointing. Industrial production has been steadily declining and the negative growth in manufacturing in the fourth quarter was on expected lines. But the decline in the services sector of ‘trade, hotels, transport and communication’ was completely unexpected. These two factors contributed to the downward revision in GDP growth to 6.5 per cent for 2011-12 also as compared to the advance estimate of 6.9 per cent.
What is your forecast for the economy in the current fiscal?
The 6.5 per cent growth in last fiscal was not bad in the current world economic situation, though it was lower than the CSO forecast. I expect the economy to grow at between 6.5 to 7 per cent in 2012-13. The farm sector will do well as the expectation is for a normal monsoon and services should also grow at a strong pace. Manufacturing will fare better due to the low base effect. Investments should also start picking up, as can be seen from the fourth quarter data.
What fiscal and monetary actions are needed to better GDP growth?
The RBI would have greater maneuverability in terms of rate cuts as inflation will be lower. More importantly, the government needs to make strong efforts to fulfill infrastructure deficit in areas such as coal, power and roads. This will act as a stimulant to private sector investment and help revive growth.
How much of a threat is the fiscal deficit to economic growth?
The budgeted deficit of 5.1 per cent can be maintained if some policy action is taken on subsidies. Some steps have been taken on petrol, but the government needs to take