Reforms in, stimulus out: PM Economy back on feet; infra to get a booster

PUSHING AHEAD OF THE PACK

 THE government will start rolling back from next year the stimulus measures it announced to boost demand after the global economic downturn started affecting growth in the world’s fastest growing economy after China, just as it will give momentum to the stalled reforms in the financial sector. 
    “There are clear signals of an upturn in the economy... We resorted to a significant stimulus and we will take appropriate action next year to wind this down,” Prime Minister Manmohan Singh said in his keynote address at the India Economic Summit on Sunday. 
    The prime minister also reiterated the government’s resolve to push ahead with reforms, indicating that the global crisis is unlikely to derail the process of opening up of financial markets. 
    Mr Singh said the broad agenda for reform was driven by the thinking that the country’s financial system should be able to provide the finance needed for infrastructure development. 
    “We need to develop a longterm debt market and deepen the corporate bond market. This, in turn, calls for strong insurance and pensions sub-sectors,” he said, adding the government will strive to build political consensus needed for legislative changes in these areas. 
    The United Progressive Alliance government in its previous term could not effect reforms such as further opening up of the insurance sector and dilution of its stakes in public sector firms due to pressure from its Left allies. The government in its second term looks more confident on the reforms front as it no longer needs the Left’s support. 
    “All these issues will be addressed through gradual but steady progress in financial sector reforms to make the sector more competitive...,” Mr Singh said. 
    Mr Singh’s statement on stimulus comes even as the G-20 finance ministers on Saturday resolved in Scotland to continue with stimulus measures as they found the current recovery uneven and “dependent on ”. 
MEASURES ON HIS MIND 
THE PM THINKS INDIA NEEDS TO: 
Develop long-term debt markets Deepen corporate bond markets Strengthen insurance and pension sectors Improve futures markets for better price discovery and regulation Accelerate the sale of stakes in state-run companies 
GROWTH FORECAST 
Growth in the next fiscal year, assuming a normal monsoon season, was expected to be more than 7% compared with a 6.5% forecast Domestic demand to drive growth 
THE US has made it clear that it will not withdraw fiscal stimulus, though the world’s largest economy emerged out of recession in the September quarter with a 3.5% growth in GDP. 
    The Reserve Bank of India (RBI) has already signalled an exit from the expansionary monetary stance in the policy update last month. Rising inflation and fear of possible asset bubbles, particularly in Asia, have imparted more urgency to the debate over the exit strategy. 
    The October 27 monetary policy review had hiked the central bank’s inflation estimate at the end of March 2010 to 6.5% from 5% in the July review. Despite the government having already completed the bulk of its Rs 4-lakh-crore borrowings for the fiscal, there is excess liquidity in the system, as is evident from the large funds parked with RBI by banks. 
    The government had cut taxes and hiked expenditure to stimulate the economy following the global financial meltdown. Because of the measures, India’s fiscal deficit is pegged at 6.8% of the GDP in the current financial year. 
    The government now plans to use the funds raised through the sale of its stake in public sector firms to finance social schemes over the next three financial years, a move that will help it bring down the fiscal deficit. 
    With a normal monsoon expected next year, the country hopes to achieve a growth rate of over 7%. But, with global recovery looking uncertain, India will have to rely on strong domestic demand to return to the high growth path. 
    “We seek to achieve this through a large increase in investment in infrastructure,” the prime minister said. He said the government was keen to rationalise and simplify procedures to make the country more attractive for foreign investors and improve the futures markets for better price-discovery and regulation.

 

 

 

 

 

 

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