Need new policy initiatives to revive slowing growth and control inflation: FM

15 Dec 2011 Evaluate

Worried over the current economic environment, Finance Minister Pranab Mukherjee stressed on the need of new policy initiatives to revive slowing growth and control inflation as fiscal and monetary options are increasingly limited.

The policymakers are under pressure as the traditional policy tools of fiscal and monetary policies has failed to deal with the ongoing slowdown in economic activities. As per the latest official data, India’s economic growth in second quarter in 2011-12, stood at 6.9% compared to 7.7% in the first quarter 2011-12, as a result India’s economic growth in the first half of current financial year stood at 7.3%. The economic growth is the coming month is also expected to decline as the Index of Industrial Production (IIP) declines from last few months.

The IIP in October stood at -5.1% as compared to 2% in September 2011. And in first seven months India’s industrial production stood at 3.5% from 8.7% achieved in April-October 2010. Along with the decline in industrial production, Indian rupee also registered record decline, and touched all time low level of around Rs 54 per American dollar.

Pranab Mukherjee said, 'Options for fiscal steps as well as monetary measures are increasingly limited. However, there is potential for policymaking in other areas. Sharp increases in interest rates were hurting growth and India needed practical solutions to address its economic slowdown, such as building political consensus to open up sectors to foreign investment, he added.

The government, earlier this month, was forced to hold its plans to open India’s $450 billion multi-brand retail for Foreign Direct Investment. The government had faced stiff opposition from opposition parties.

However, the Reserve Bank of India (RBI), which has increased its repo and reverse repo rates for 13 times since March 2010, is expected to take pause at its scheduled monetary policy review on December 16, after the sharp decline in industrial production and moderation in headline inflation. The headline inflation measured by wholesale price index (WPI) stood at 9.11% in November compared to 9.73% in October. The RBI expects inflation to moderate to 7% by the end of the current fiscal year. However, finance minister quoted that the headline inflation at 9.11% is unacceptable.

'Slowdown in industrial growth is of particular concern and its impact on employment. There are also immediate concerns relating to fiscal deficit and the current account deficit' Mukherjee said.

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