'Privatisation plans to go unhindered; not yet time to pull back liquidity'
Finance minister Nirmala Sitharaman made it unambiguous on Thursday that economic growth was the first priority of the government right now and thanked the RBI for the allegiance it was extending to the cause by not pulling back liquidity. Stating the government wouldn’t hesitate to do whatever was required to revive the economy, she said fiscal and monetary policies were being judiciously commingled to push growth.
All indicators were suggesting that “the economy is buoyant and recovery is taking place post lifting of Covid-19 restrictions by states”, she said at the annual meeting of the Confederation of Indian Industry. She, however, cautioned that the economic growth revival hadn’t reached a level where the central bank could begin to suck out liquidity from the system.
Sitharaman said that the government was an “active participant” in the economic recovery, alluding to stepped up budgetary and other public spending during the pandemic that not only was giving to fillip to the infrastructure and core sectors of the economy amidst the pandemic but was also encouraging consumption.
The finance minister noted that foreign direct investment had been flowing into the country in an uninterrupted manner, having grown 37% in the first five months (of 2021). Referring to structural reforms, including the contentious and now-suspended farm laws and the labour codes passed by Parliament, the minister urged the industry to come forward and invest in the economy. “The Narendra Modi government has shown commitment to reforms even during the pandemic,” she said.
On Wednesday, listing out a series of reforms undertaken by his government, including the corporate tax cut, Prime Minister Narendra Modi called on the industry on Wednesday to awaken its animal spirits and boost investments. The latest move to junk a 2012 retrospective tax amendment would correct a ‘historical blunder’ and boost investors’ confidence in the country’s tax regime, he said.
During the latest monetary policy review last Friday, the RBI iterated that it would retain its accommodative stance for as long as required to “revive and sustain growth on a durable basis”. RBI governor Shaktikanta Das had earlier opined that the current rise in inflation was transitory in nature and warned that “any hurried or hasty action could completely pull down the economy, at a time when the revival is nascent and hesitant”. Retail inflation, meanwhile, eased to 5.59% in July, after staying above the central bank’s tolerance level (2-6%) for two months, as food inflation moderated sharply to 3.96% from 5.15% in June.
Sitharaman said the government was going ahead with reforms agenda which was evident from passage of some key economic Bills, including amendment to insolvency code, LLP Act and general insurance law (to aid privatisation), in the just-concluded Parliament session. With tax revenues improving and disinvestment plans on track, she said the government won’t have much difficulty in funding budget programmes in infrastructure and other areas.
“Growth will be pushed both by the RBI and by us. It’s not growth versus inflation. We shall attend to inflation and keep it contained,” she said.
“The indicators are very clear that the economy is buoyant… in the sense of recovery time buoyancy… the recovery is very clear,” Sitharaman said. The recent core sector growth was driven largely by public sector expenditure and the government was constantly monitoring public capex, she said.
The Union government has estimated to invest Rs 5.54 lakh crore in FY22 via budget, an annual rise of 30%. She noted exports started to pick up (up 48% in July, continuing the momentum seen in last few months). The industry’s main issue with regard to availability of credit was being addressed through an outreach since 2019, she said.
On disinvestment, Sitharaman said, “our commitment to disinvestment and privatisation is firmly ingrained in policy. There is no discretion and there is a calendar.” She said the government is on track to complete privatisation of retailer-cum-refiner BPCL and Air India in the current fiscal, among other transactions. She said buoyancy in goods and services tax (GST) would help in releasing compensation to states for shortfall in revenues in a timely manner in FY22.