If govt has will, it can halt slide
There appears to be a flurry of assurances from both the Prime Minister and outgoing finance minister Pranab Mukherjee that some major steps will be announced on Monday to boost the rupee, which hit a new low Friday, and these will necessarily include steps to tackle the growing fiscal deficit (the revenue-expenditure gap) and current account deficit (cost of imports exceeding the nation’s export earnings). These will have to be such that they increase confidence among both domestic and foreign investors to put money into projects in India. It would also mean visible measures to tackle corruption, which all rating agencies complain is holding up growth.
Welcome as these assurances are, there is scepticism on what rabbits the PM and FM can pull out from their hats right now. Every time external agencies lower India’s rating or the Reserve Bank sounds yet another wakeup call, the PM and his office go into a huddle and announce measures as they did after the recent Standard & Poor’s downgrade. Mr Mukherjee has indicated that the finance ministry was in discussions with the RBI governor, so does one expect more of the same, such as an interest rate cut?
There are suggestions that some kind of India Millennium type of bonds could be announced and that interest rate on deposits by non-resident Indians could be enhanced further to add to the dollar supply and thus boost the rupee. But can history repeat itself? The situation today is vastly different from 1998, when the Resurgent India Bonds were announced. The inflation rate then was around 6.7 per cent, but the current account deficit was only one per cent, compared to four per cent now. And even if the money does pour in, it will be really high-cost money, as the government will probably have to pay around nine per cent interest. It will have to be deployed at 12-13 per cent at least, and where are the projects that can absorb such high-cost funds?
The need of the hour is to get off the ground at least 50 to 100 of the 300-plus major projects that have been stalled in various sectors like roads, ports and other infrastructure areas; to permit foreign direct investment in civil aviation as there are no takers for the security bogey; break the impasse over the Goods and Services Tax; stop subsidies on diesel for all but some essential areas; hike taxes of diesel cars and, most of all, stop the leakage of crores of rupees in PDS, NREGA and the distribution of LPG cylinders. Unnecessary subsidising of the rich must stop. The possibilities of cutting the fiscal deficit and boosting the rupee are immense if only there is political will.
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