It’s Just Policy at Work

THE SLOWDOWN IN economic growth in the last quarter of 2010-11 must be seen as policy at work rather than dissipating growth calling for a salvage operation. Policy action to rein in inflation by restraining demand, through a cutback in fiscal deficit and hike in interest rates, has hit growth. In particular, investment growth has been almost flat, last quarter of 2010-11 over the last quarter of 2009-10. Since inflation continues to be high, the government's focus should be on restoring investor confidence in its ability to deliver governance, and on changing the composition of government expenditure, moving away from subsidy (deregulate diesel) to investment (build a new capital for Andhra Pradesh), rather than on reversal of fiscal or monetary discipline.