Raghuram Rajan's strategy for growth

Chief Economic Advisor Raghuram Rajan has proposed a three-pronged strategy and the proposition of a bold budget to put the economy back on high growth track. He briefed the reporters on the Mid-Year Economic Analysis which was tabled in Parliament on Monday. The analysis presented a bleak projection of growth for the current financial year at 5.7-5.9 % as opposed to 7.6% earlier. This would be the slowest growth rate in nearly a decade. Rajan said that growth is likely to improve to 6% in the second half from 5.4% of April-September first half on factors like improved better industrial output numbers, corporate profitability, business confidence and moderating inflation. "We can not be satisfied with this (5.7-5.9 per cent) 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," he said. "Further steps include a good confidence inducing budget, speeding up clearance for projects, and further steps in capital market reform," 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. On tax collections he said "Corporate profit earnings are not growing at pace, it was growing in past. We hope we will start picking up once again and that should add buoyancy. People are not making money as much as they were then clearly it is going to impinge on that kind of revenue," He was of the opinion that achieving budget targets in case of corporate tax and customs and central excise would be "somewhat difficult given the trend so far", as per mid year analysis. According to Rajan, the government would have to find new ways to boost growth so as to improve increase corporate tax profitability and tax collection. He added "Given the tight Budget situation, perhaps structural reforms can be made (to boost industry), instead of fiscal sops," On meeting fiscal deficit target of 5.3%, he said it would be difficult to achieve the same while on the disinvestment he said that the recent pick up in PSU stake sale will have positive impact on the receipts. "5.3 percent is a tough target. It would be a difficult target to reach. The focus is meeting target. It would add confidence ... The investor community sense that the path the Finance Minister has laid down on fiscal consolidation is also achievable," he said. On government expenditure he said "We have to be as careful as we can to avoid damage to growth. We have a fiscal envelope that is not going to increase and we have to stay within that. So, we have to find out in which way to achieve that". He said," I would like to see some changes in the business environment... Creating a better business environment for small and medium enterprises," .On further reforms he said the government should first fix the fiscal situation and ensure proper implementation. He said that there are signs beginning of stabilization, "Corporates are sitting on lot of liquidity. If profitability is increasing, then that gives them the signal that it is time to invest some more.. Lot of projects can be unveiled if they find more confidence in the economy," he said