Planning Commission Deputy Chairman Montek Singh Ahluwalia today said there was need for more government spending and further rate cuts to boost the economy.
Though Ahluwalia did not elaborate on a fiscal stimulus package or its timing, he told reporters on the sidelines of a conference on small and medium enterprises that he would wait for Finance Minister Pranab Mukherjee’s response to the Budget speech in the next couple of days before commenting on the issue.
He, however, said that the plan panel had proposed a fiscal stimulus equivalent to 1 per cent of India’s gross domestic product (GDP) in the full Budget that would be presented after the general elections.
“We are hopeful that at the time of the full budget, an additional expenditure stimulus can be given and we are working on what will be the best form of that stimulus… We have proposed that in the full budget, extra stimulus should be 1 per cent of GDP, meaning Rs 60,000 crore. If it is introduced in the full Budget, I expect the second half of 2009-10 to be better,” he added.
In the Interim Budget, Mukherjee had talked about the need for an additional Plan expenditure of 0.5-1 per cent of GDP. Already, he has budgeted for an additional spending of Rs 52,278 crore during 2009-10,which would take the total expenditure to Rs 9,53,231 crore, as against Rs 9,00,953 crore in the revised estimates for the current financial year. Compared with the Budget estimates of Rs 7,50,884 crore for 2008-09, the government has seen its total expenditure rise by over Rs 1,50,000 crore due to a host of measures announced during the course of the year.
On Thursday, Mukherjee had told Parliament that he would discuss the possibility of another set of fiscal and monetary measures with his team and the Reserve Bank of India (RBI) to counter the economic slowdown. He had said that fiscal corrections and monetary policy go side by side for the impact to be felt.
Asked about rate cuts, Ahluwalia said he agreed with RBI Governor D Subbarao’s observation that there was room to cut interest rates but the question was when and by how much. “I think we should now wait for RBI to make up its mind,” he said.
While acknowledging that the extra government borrowings proposed in the Interim Budget were putting pressure on liquidity in the banking system, Ahluwalia said there was a “lot of room” to manage it by the end of March.
He said the growth rate this year would depend on the impact of the measures already announced by the government. “We have not given any target but probably from the second half of the current fiscal year, the growth rate would have been 6.5 per cent or somewhere around that,” he said.
The Central Statistical Organisation, which is due to release the third-quarter GDP numbers at the end of the month, has projected 7.1 per cent growth this year. The government expects the economy to grow around 7 per cent next year.
“Every day is a challenge for any government. The challenge for us is restoring growth momentum. Depending on the fiscal stimulus we can give in the coming year, I hope we can do better (in terms of growth),” Ahluwalia said.
At the conference, Ahluwalia said since January, there had been an improvement in loan flow to small and medium enterprises. He exhorted banks to take advantage of the opportunities thrown open by the global financial meltdown and said that Indian banks should venture into areas hitherto dominated by foreign lenders.
“It is a wonderful opportunity for Indian banks to occupy the space. These fellows (foreign banks) are broke at home,” Ahluwalia said.
