Prime Minister’s economic advisor C Rangarajan said policy environment now is not less conducive than in the 2005-06 level. It has not worsened and what is required is a continuation of reforms where they require legislative nod.
Rangaran, in an interview to CNN IBN said, “policy environment has not deteriorated from when we had rapid economic growth. We need governance in fundamental sense, in terms of delivering what has been committed.” He said there was no need to underestimate the policy changes that have happened over the last few years.
Referring to the 3.5 percent decline in IIP in the month of March, he said, a number of things can be done to revise the growth for manufacturing in the current fiscal. First, the base effect will be low for this year as manufacturing had grown at a very slow pace last year. So this fiscal, manufacturing will show better growth rate this yer.
Second, “I expect the fiscal deficit will be contained at the budgeted level and will have a positive effect on the prospects of the manufacturing sector.”
Third, inflation will come down this year. Inflation was running above 9 percent for most of last year and this year will lead to easing monetary policy.
Regarding what RBI’s next step could be in cutting policy rates, he said, RBI will see both IIP and inflation. Decline in industrial growth rate will have a bearing on policy but they cannot overrule how non food manufacturing inflation behaves, when the data is out next week.
For immediate priorities, he said, the government must look at three things: tame inflation, ensure budget deficit is maintained, and see that key infra sectors in public domain must move to fulfill production and capacity utilisation targets.