The Hindu : National : `Initiate reforms to speed up growth'

Online edition of India's National Newspaper
Thursday, Jun 09, 2005

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National

`Initiate reforms to speed up growth'

Special Correspondent

PM's advisory council plans special paper Traditional constraints on growth such as food, foreign exchange or savings are no longer a binding factor

NEW DELHI: The Prime Minister's Economic Advisory Council has asked the government to initiate reforms in the labour and infrastructure sectors to ensure that the country achieved at least seven per cent growth in the current fiscal. In its latest monthly report, it has taken note of the sluggishness in the manufacturing sector in recent months and cautioned that steps need to be taken to perk up investment and improve business confidence in the economy.

The panel headed by C. Rangarajan is also planning to prepare a special paper on financial sector reforms with the focus on improving the efficiency and strength of this sector. It has not taken up issues related to the financial sector in the latest report, according to the ICRA chief and panel member Saumitra Chaudhuri who told The Hindu that the government was also preparing a detailed paper on financial sector reforms.

He said the projection of less than seven per cent growth — 6.7 per cent — for the current fiscal had been made in the monthly report for April this year which has been incorporated into the latest report to the Prime Minister. It had thus urged the government to move forward with policy initiatives to bring about higher investment by the private corporate and public sector. The dip in the manufacturing growth rate at the end of 2004-5 appeared to be deepening at the beginning of the current fiscal. The numbers indicated that a slowdown in manufacturing is under way, he said despite the overall 8.9 per cent recorded for 2004-5.

The advisory panel has also pointed out that the traditional constraints on growth such as food, foreign exchange or savings are no longer a binding factor. Instead, policy initiatives in labour reforms and easing of infrastructure bottlenecks are needed.

The panel does not have high expectations from agriculture this year, given the high base of last year. The assessment is that a normal monsoon could lead to a 1.8 per cent growth rate. In case reforms are initiated, a 2.2 per cent growth rate is feasible. The panel has also warned that global petroleum prices are unlikely to soften significantly and hence could impede the growth process. Prices for the crude mix that India buys will continue to rule in the range of 45-50 dollar a barrel. If the dollar gains significantly against Euro, the price might drop marginally to $43-48 a barrel, the panel has pointed out.

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