The finance ministry’s chief economic adviser (CEA) Arvind Subramanian emphasised that the economy needs policy support to boost private investment and kick-start stalled projects.
Arvind Subramanian said while the rate of stalling of projects has gone down, there has not been a pick-up in fresh projects. “The private sector is not investing as a legacy of the boom period,” he said while pointing out that going forward the focus areas of the government would be railways, roadways, irrigation and creating rural assets.
The CEA said the RBI can ease interest rates in view of lower inflation and tamed fiscal deficit, but the country also needs to initiate action to keep the Indian rupee competitive in view of the aggressive rate cuts by various nations including China.
Pitching for a rate cut by the Central bank, Subramanian said inflation is going to be lower than the RBI target. “Looking at the analysis of what is the inflation forecast, what is the fiscal consolidation, what is the international environment…and how monetary policy should respond, I think there is scope for monetary easing,” he argued. RBI is slated to announce its bi-monthly policy on June 2 in which it is expected to soften the rates.
The Centre is expecting inflation to remain under control as it has adequate stocks to deal with foodgrain shortage in the event of a poor monsoon, CEA said. “Because we do have adequate stocks, we will be able to contain inflation even if monsoon does not turn out to be as good,” he pointed out.
But, India needs to act upon maintaining the competitiveness of its currency in view of aggressive rate cut policy of China and other countries, he cautioned and cited how China is buying dollars to build reserves and simultaneously cutting interest rates to keep its currency competitive.
“It is not that everything that China does should be imitated but that’s a lesson we need to learn from … Remember China is now cutting interest rates quite aggressively to respond to its growth slowdown and that’s going to make its currency more competitive… So we need to respond accordingly,” Subramanian said. He suggested keeping the rupee competitive if the government wanted to ensure success for its Make in India campaign.
The government needs to reconsider levying one per cent additional tax by states over and above Goods and Service Tax rate as it could make intra-state movement of goods expensive and hurt the Make in India campaign, the CEA reasoned.
For Updates Check Economy News; follow us on Facebook and Twitter