The government is readying a four-pronged action plan to halt the embarrassing slowdown in the economy and is likely to roll out corrective measures over the next few weeks.
“The action plan will have four broad pillars — boosting investor confidence, reducing inflation and reining in fiscal and current account deficits,” said a source. Steps will also be taken to boost the rupee.
Sources said the first of these policy announcements can be expected in the next 10 days.
A clarification on tax policies was round the corner amid mounting pressure from investors, who are waiting for cues from the Centre on controversial tax proposals, such as the empowering of income-tax officials to scrutinise older corporate transactions like the Hutch-Vodafone deal of 2007.
The immediate objective of the measures was to boost investment and reassure anxious industrialists.
Controlling fiscal deficit — a measure of government borrowing — will be a big challenge for finance minister P Chidambaram as an economic slide will hit tax revenues.
This and the widening current account deficit — the gap between export earnings and import payments — are also among government’s priorities.
The rupee, which had hit a record low of 57.32 against the dollar in June and is hovering around 55, has slid 12% since March. A weak rupee has stoked inflation by knocking up prices of most imported goods, including crude oil.
India’s economy slowed down to a growth rate of 5.3% in the last quarter of 2011-12, the slowest since 2003-04. Patchy rains are threatening to affect food output and raise prices even higher. Persistently high inflation – 7.25% in June – has prompted the RBI to raise interest rates to suppress prices.
“It’s a matter of serious concern and calls for immediate measures to stimulate investments in the economy,” said RV Kanoria, president of industry chamber Ficci.
Economists said falling revenues and the need for fiscal prudence offered little elbow room to the government and the RBI to offer a stimulus package.
“The July inflation data (expected next week) should confirm the persistence of price pressure. This should reinforce the reality that the RBI is boxed in, with room for stimulus strictly limited,” said Mole Hau, economist at BNP Paribas.
Downgrade, but PM still hopeful
Prime Minister Manmohan Singh on Saturday played down the downgrading of India’s growth forecast by rating agency Moody’s and said he was hopeful the economy would do better than last year’s 6.5% GDP growth rate.
Moody’s had Thursday downgraded India’s growth forecast to 5.5 %, to which Singh said: “It (economy) is a cause of concern but one shouldn’t draw unwarranted conclusions.”
“The fundamentals of the Indian economy are strong. We have the highest savings and investments rate in the world.”
The BJP accused Singh of “living in denial” on the economic situation.