Changes are required to boost growth

Wed, 8 Jan Pre-Open

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"This calls for several policy actions which may not be popular, but such actions are needed". These are the words of Mr. Rangarajan who is the Chairman of the Prime Minister's Economic Advisory Council. Here he is referring to the various subsidies.

At a recent talk, he spoke about efforts required to be made not only to up the revenue to GDP ratio, but also to check expenditures. Especially the unproductive ones such as subsidies! According to him, the same need to be prioritised; and it is up to the government to do so. All these efforts are required to bring down the subsidies to GDP rate to more controllable levels.

India, like most nations worldwide, is facing pressures from all sides. Growth rates have been on a decline, government expenses are way in excess of the revenues, the country imports a lot more than what it exports - all of these are applying pressure from all sides; which is why addressing each issue is important for sustainable growth levels over the long term.

As per Mr. Rangarajan, the focus has to be on upping savings and investments to boost growth levels. Also, stabilising inflation is the key for sustaining high growth. He is also of the view that gold should be made unattractive to dissuade people from buying the yellow metal, which is applying pressure on the current account deficit. The latter had increased to levels of US$ 78 bn in FY12 from US$ 46 bn earlier. Valued at US$ 54 bn, gold imports as such do form a significant portion of Indian imports.

As you would be well aware, to curb gold imports the government had levied a duty on gold. However, since gold prices have declined substantially - and in the process seem more attractive now, it is possible that the demand for the metal will increase over time. Also, the RBI mentioned recently that this duty levy is only a temporary measure to curb imports. As such, the country would be required to boost exports, which is the only sustainable measure in our view to bring the CAD to desired levels.

For long term growth, some major changes are required in the country. Sure, another ruling party may bring about some change, but will it make a difference? Because, in our view, structural changes are required. These would mean improving the country's business environment, developing the country's infrastructure and so on. If India wants the coming decade to see better economic progress, policymakers need to understand and address these real economic problems.