Focus stimulus package on raising capex, says Rangarajan

He also made a case for recapitalisation of PSBs, so that they could provide more funding to the private sector

The economic stimulus package being contemplated by the government should focus on raising of capital expenditure, to catalyse private investment, said former Reserve Bank governor C Rangarajan.

At an Assocham conference here, he estimated 6.5 per cent economic growth in 2017-18, from 7.1 per cent the previous year and lower than the 6.75-7.5 per cent range in the official Economic Survey.

He also made a case for recapitalisation of public sector banks (PSBs), so that they could provide more funding to the private sector.

Even to achieve 6.5 per cent growth, the economy would need to grow by at least seven per cent in the remaining three quarters of the current financial year. Growth hit a three-year low of 5.7 per cent in the June (first) quarter.

On demonetisation, he said adequate preparation by the central bank could have reduced the pain which people had to undergo on account of the ban on high value notes last November.

"It looks like it (growth) has bottomed out; now, it will pick up," he said.

To questions on the stimulus package, he said it should focus on increasing of public expenditure, with the aim to reinvigorate private investment. "Two or three things can be done. First, there have been a number of stalled projects. The low hanging fruit is to ensure these are activated and those stalled projects which are viable must be immediately made operational."

"Second, the banking system needs to be recapitalised, so that it can provide additional credit for investment as well," he added.

Rangarajan cited temporary factors like the introduction of the goods and services tax or demonetisation as reasons behind the slowdown. The government is working on additional measures to bolster the economy, Finance Minister Arun Jaitley said earlier this week. An announcement on the additional steps will be made after consulting Prime Minister Narendra Modi, he'd added.