Govt lines up plan to propel growth

With its strategies to defend the plunging rupee having worked fairly well last week, the government is now working on how to keep the economy growing in the backdrop of high inflation, slow industrial growth and fears of an enlarged fiscal deficit with a likely rise in expenditure ahead of elections.

It has thus lined up an action plan next week to propel the slow-moving economy.
 To begin with, Prime Minister Manmohan Singh is meeting industry captains on Monday to review the state of the economy and find ways to check the current account deficit (CAD) which has blown out to a record 4.8 per cent of gross domestic product in an economy whose growth has slowed to a decadal low of 5 per cent and where consumer inflation remains close to 10 per cent.

This will be followed by the Reserve Bank’s first quarter review of monetary policy on July 30, when it will have to strike a balance between providing financial stability and economic growth. Its recent measures to tighten liquidity has raised fears of an interest rate hike on Tuesday which can further choke the fragile industrial recovery and overall economic acceleration.

Although the Finance Ministry has allayed fears of rate hike in the forthcoming policy review, it admitted that the Central bank has its own constraints.

 A senior Finance Ministry official told Deccan Herald that RBI is as concerned about growth as anyone else in the government in the long run.

 “They (RBI) have constrains on what they can do but in the longer run, both the RBI and the government are concerned about stronger economic growth,” the official said, adding, stronger growth will solve many problems.

Industry, however, does not feel very sanguine about it. India Inc has expressed concerns about weak demand at home and overseas market, rising imports, poor infrastructure, high cost of credit, soaring raw material prices and rise in wage costs, which they say, are adversely affecting their business performance.

 “These are some of the points we will raise in our meeting with the prime minister,” according to an industrialist.

 To rescue the battered rupee, which fell to a all time low of 61.21 to a dollar on July 8, the RBI has raised the rates at which banks borrow short term funds from it and also reduced their borrowing limits. Besides, it took steps to discourage gold imports and encourage repatriation of funds by exporters.

On July 30, the prime minister has also called a meeting of different ministries to expedite the implementation of Direct Benefit Transfer (DBT) scheme. To be attended by Finance Minister P Chidambaram among others, the meeting is likely to discuss the contours of the scheme and streamlining the transfer of LPG subsidy through the Aadhaar platform.

The government is keen to hasten the DBT scheme ahead of elections and only last week shifted a key department overseeing its implementation from the Planning Commission to the Finance Ministry for "better coordination".

Besides, the government is also expected to move this week on gas allocation to priority sectors after the recent price increase to ensure that the fuel flows unhindered to crucial sectors.

The government has already modified the New Coal Distribution Policy in view of the presidential directive asking state-owned Coal India Limited to enter into pacts for assured supply of fuel to power firms ms 78,000 MW capacity.