Three top government officials have pitched for further stimulus packages to boost economic demand in the country. This comes a day after the Reserve Bank of India (RBI) governor said there was a cost involved for any further deficit-financed spending by the government as it would adversely affect the credit markets.
“The new government that takes over in May after general elections will need to take steps to try and maintain the current year’s economic growth,” said Planning Commission Deputy Chairman Montek Singh Ahluwalia while speaking at the annual conference organised by the Confederation of Indian Industry (CII) here today.
Describing the current crisis as the worst in 60 years, Ahluwalia said it would push Indian economy off the 9 per cent plus growth rate. “Calendar 2009 would be significantly worse than last year, but we would see recovery around second quarter (July-September) of 2009-10,” he added.
By the second half of calendar 2009, he expected uncertainty to ease and steps taken by the government would also begin to yield results. He predicted a growth rate of 6.5-7 per cent in the next fiscal (2009-10).
On the question of fiscal deficit, Ahluwalia said the additional government borrowing would not crowd out private sector from the credit market.
| SOME IMPROVEMENT Index of six infrastructure industries, February 2009 | |||||
| Sector | Weight in IIP (%) | Feb 2008 | Feb 2009 | Apr-Feb 2007-08 | Apr-Feb 2008-09 |
| Crude Oil | 4.17 | 2.30 | -6.20 | 0.50 | -1.70 |
| Petroleum Refinery Products | 2.00 | 5.80 | 0.50 | 7.20 | 3.00 |
| Coal | 3.22 | 11.60 | 6.00 | 5.60 | 8.70 |
| Electricity | 10.17 | 9.80 | 0.30 | 6.60 | 2.10 |
| Cement | 1.99 | 12.80 | 8.30 | 7.90 | 7.20 |
| Finished Steel (carbon) | 5.13 | 2.30 | 3.60 | 5.60 | 2.40 |
| Overall | 26.68 | 7.00 | 2.20 | 5.80 | 3.00 |
| Source: Ministry of Commerce and Industry | |||||
Increased market borrowing by the Centre has already pushed up the yield, which is the return to bondholders, on government securities (G-Secs). The Centre is projecting a fiscal deficit of 5.5 per cent of Gross Domestic Product (GDP) in the next fiscal, which would mean borrowing a record Rs 3,62,000 crore from the market.
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Supporting Ahluwalia’s view on additional stimulus measures, Chief Economic Advisor Arvind Virmani said it was needed because private sector borrowing has reduced, which is affecting investment that drove bulk of India’s growth in the last three years up to March 2009.
| Core Sector Growth | ||
| Month | 2007-08 (Growth %) | 2008-09 (Growth %) |
| April | 5.9 | 3.9 |
| May | 7.8 | 3.7 |
| June | 5.2 | 3.7 |
| July | 7.2 | 4.6 |
| August | 9.5 | 2.7 |
| September | 5.8 | 4.7 |
| October | 4.6 | 2.8 |
| November | 5.1 | 1.8 |
| December | 3.2 | 1.6 |
| January | 3.6 | 1.5 |
| February | 7.1 | 2.2 |
| March | 3.4 | - |
| Source: Ministry of Commerce and Industry | ||
Finance Ministry Economic Affairs Secretary Ashok Chawla was the third government official who also echoed the same view. “The government and the RBI would continue to take measures to revive growth,” he said.
Headline inflation to hover around zero
All the three government officials dismissed the notion that headline inflation would stay below zero per cent for a long time.
“Inflation in the next fiscal year isn’t likely to drop below zero,” said Virmani, adding that wholesale price index, the key inflation benchmark, would average “zero, plus or minus 2 per cent” in the next fiscal year.