That more money will be swirling in the economy soon is news well taken. More heartening is the fact that our economy’s crisis managers are drawing up plans to push demand alongside. Pieces of the package being put together have measures to address the woes of industries savaged most by the global meltdown — exports, real estate, infrastructure and automobiles. Tax breaks and subsidised credit for them are necessary, but nowhere near sufficient to push the economy back on the trajectory it was on for nearly half the previous decade. That would necessitate a larger vision of economic management that stays ahead of the curve as more parts of the world slip into recession.
Two of the proposals under deliberation merit inclusion in the latter category. The Prime Minister’s task force dealing with the crisis has reportedly discussed this week deep cuts — up to 2 percentage points — in the rates of overnight money that banks borrow from and lend to the central bank. This will signal a more realistic alignment of India’s interest rates — the 7.5 per cent at present is incongruous when short-term US rates are approaching zero — with the rest of the world. And the proposal under consideration for a $10 billion splurge in infrastructure investment is a small step (China plans to spend $586 billion) in the right direction. But who makes this investment? If it is to be the State, our policy-makers need to factor in the inefficiencies inherent in our public expenditure.
The timing of the stimulus package is vital. Official figures show economic growth has slowed to 7.6 per cent in the three months to September and to 7.8 per cent in the first six months of the fiscal year. Outside analysts, however, reckon the picture will deteriorate in the coming quarters with the Reserve Bank’s projection of 7.5-8 per cent growth for the full year looking increasingly optimistic by the day. Although our policy-makers do not enjoy the degrees of freedom their Chinese counterparts do — China is a net exporter and can reasonably expect its foreign reserves to keep piling up — our $73 billion trade deficit till October is not as alarming as it looks because falling oil prices will snip our import bill. We can at this juncture afford to be creative with our own hoard of foreign exchange.