Pitching for a rate cut by the Reserve Bank, Chief Economic Adviser Arvind Subramanian today said there is a need to boost investments to achieve the potential economic growth rate of 7-8 per cent in the next few years.
He also hinted at "other measures" to generate additional revenues if it appears difficult to meet fiscal deficit targets this fiscal with planned Rs 60,000-80,000 crore expenditure cut.
With inflation declining significantly, there is "room to make monetary policy loose", he said, adding a call will have to be taken by the Reserve Bank.
The Reserve Bank of India (RBI), which is keeping interest rates high at 8 per cent since January, said that it could lower them even before the next policy which is due on February 3.
While government has been pitching for a rate cut for quite some time, this view has not found favour as yet with RBI Governor Raghuram Rajan who himself was CEA before moving to the RBI as its Governor in September 2013.
Referring to concerns facing the economy, Subramanian said it would be a challenge to restrict the fiscal deficit to 4.1 per cent in the year ending March 2015.
He also hinted at some additional revenue measures, in case the expenditure cuts of around Rs 60,000-80,000 crore were found insufficient to meet the deficit target.
"The revenue shortfall is between Rs 80,000-1,00,000 crore to the government. Rs 20,000 we are going to raise through diesel (excise duty hike). We have to cut (expenditure) between Rs 60,000-80,000 crore," he said in an interview to Doordarshan.
"At this stage we feel confident that we can meet it with expenditure cuts. If that's not going to be possible we will look at other measures," he said.
The government, he added, is "absolutely committed" to achieving the fiscal deficit target.
Stressing the economy has turned around and the inflation has come down significantly, Subramanian exuded the confidence that the current fiscal will end with a growth rate of 5.5 per cent, up from 4.7 per cent in the previous year.
"We should be growing no slower than 7-8 per cent, that is the potential rate of growth we can grow for next 20 years. We should be able to get back to that in couple of years provided we do reforms and take some other action," he said.
On investments, he said the private sector is facing high debt problems and hence it was imperative to boost public investment to improve the business climate.
Subramanian said economic indicators have improved enormously as inflation is coming down, current account deficit is under control and stock markets are booming.
"There has been an improvement in economic growth as well. We were growing slow and slow for 12 quarters, that has bottomed out. And we seeing early signs of recovery, but it's not durable it hasn't taken hold yet," he added.
