Chief Economic Adviser Raghuram Rajan on Monday suggested a three-pronged strategy, including a “confidence-inducing budget” as top financial administrators seek to halt the slowdown in the economy, which until recently was an engine for global growth.
The mid-year economic analysis, tabled in Parliament on Monday, forecast that India’s gross domestic product (GDP) growth would slump to a 10-year low of 5.7-5.9% in 2012-13.
“We can not be satisfied with this (5.7-5.9%) rate of growth. So, we are not at the end of set of steps we need to take... we are at the end of the beginning,” Rajan said.
“Further steps include a good confidence inducing budget, speeding up clearance for projects, and further steps in capital market reform,” Rajan said.
The manufacturing sector, barring October when it grew 8.2%, has remained flat confirming what most analysts had feared: The Reserve Bankof India’s (RBI’s) bitter medicine to raise interest rates to cure inflation has not tamed prices, but cast side effects on growth.
Slower industrial growth is resulting in lesser job opportunities and lower salary hikes as corporations, squeezed in by lower sales, are holding back planned investments and cut down on hiring.
Rising prices and sliding growth remain key worries for the government strung in a by a heavy debt burden.
The government is also worried about rising gold imports which is pushing up the current account deficit (CAD).
"The way to curb holding of gold is to create more attractive financial instruments. Some gold linked instruments have been talked about by the RBI but potentially there could be other financial instruments to attract investment," Rajan said.
"Strengthening of financial infrastructure is important. Improving corporate bond market is also what we need to do. Number of measures we need to take including the vibrancy of equity market, ability of equity market market to finance infrastructure requirement needs to looked at," he said.