India Inc's demand for an economic revival package and rate cut to boost growth may hit a roadblock with the PMEAC chief C Rangarajan maintaining that there is limited scope for fiscal sops and RBI's decision to cut rates will depend upon inflationary situation.
Although the leaders of Indian industry in their meeting with the Chairman of the Prime Minister's Economic Advisory Council (PMEAC) pressed for a revival package, Rangarajan at a different function earlier in the day opined that the scope for a booster dose was limited in view of high fiscal deficit.
On the issue of interest rate cut by the Reserve Bank in its forthcoming monetary policy review on July 31, Rangarajan, a former RBI Governor, said that things would depend upon the inflation, which unfortunately has remained at an elevated level.
The demand for revival package and interest rate cut were made by the representatives of the three apex chambers CII, Assocham and PHDCCI to boost economic growth which hit a nine-year low of 6.5% in 2011-12.
Besides, the industry chambers also pitched for further liberalisation of FDI regime and implementation of the Goods and Service Tax (GST) regime.
"...there is an urgent need to create conditions for revival of private investment by...further reduction in repo (short-term lending) rate by 100 basis points, and reduction of Cash Reserve Ratio (CRR) by 100 basis points", CII president Adi Godrej said.
The Reserve Bank opted for status quo in its last policy in June.
Rangarajan, a key aide of Prime Minister Manmohan Singh met the industry chambers to help the government firm up steps to boost growth.
As the Prime Minister himself had assumed the charge of Finance Ministry following exit of Pranab Mukherjee, the onus of taking initiatives to arrest falling growth will be on the Prime Minister.
Talking to reporters on the sidelines of a NHB function, Rangarajan said, "we must reallocate expenditure in such a way that there is emphasis on capacity creation, there is emphasis on capital formation. Therefore, the direct answer is that the kind of stimulus that we provided in 2008, scope for that is not available."
He further said that the government will "have to make an effort to contain fiscal deficit at the budgeted level. That itself is a very big task. Therefore, we need to look at govt expenditure."
Lower tax revenues and poor disinvestment receipts pushed up the government's fiscal deficit for 2011-12 to 5.9% of the GDP, as against the target of 4.6%. The government proposes to bring it down to 5.1% in the current fiscal.