'No silver bullet' for all woes, slump should fuel appetite for reforms

Written by fe Bureau | New Delhi | Updated: Feb 28 2013, 10:29am hrs
Terming the economic slowdown as a wake-up call for accelerating reforms to bring growth on track, the Economic Survey has listed several policy initiatives, including faster and fairer land acquisition for projects, easing labour laws, deepening corporate the bond market as well as eliminating curbs on foreign investment in accountancy and legal services.

Though the survey did not have any out-of-the-box solution for bringing the macro-economy back into balance, chief economic advisor Raghuram G Rajan defended it during a press conference, saying there is no single silver bullet to solve all the problems.

He said the aim now should be ensure that investor confidence is restored, in turn, creating more jobs. Rajan added that the government through the recently set-up Cabinet Committee on Investments (CCI) should find ways to restart and complete the increasing number of big projects that are stalled due to lack of environment and other clearances, difficulties in land acquisition, coal linkages and mining bans.

Stating that falling savings, without a commensurate decline in aggregate investment, have led to a widening current account deficit (CAD), the survey added: Given soaring energy and transportation needs, since there seems to be little we can do to temper oil imports, gold is the component that needs to be contained to bring the CAD back to a comfort zone.

On the long-term solution to the rising gold demand, it said: Curbing inflation, expanding financial inclusion, offering new products like inflation-indexed bonds and improving saver access to financial products are all of paramount importance.

To ensure that the government meets the targeted fiscal deficit of 4.8% of the GDP for 2013-14 and further 3% of the GDP in 2016-17, the survey said, Controlling the expenditure on subsidies will be crucial. It then suggested: Domestic prices of petroleum products, particularly diesel and liquefied petroleum gas, need to be raised in line with the prices prevailing in international markets.

The survey also highlighted the need for long-term finance for infrastructure projects, especially due to the limitation of banks to finance such projects. It mooted a structural shift from a bank-dominated financial system to a more diverse financial one where top-rated corporates access finance from capital markets, and relaxation of investment guidelines for pension, provident and insurance funds to enable the participation of long-term investors in corporate bond market.