Pranab Mukherjee talks about new challenges before the Indian Economy

New Delhi, Nov.3 : In his address to the Economic Editors Conference here on Tuesday, Finance Minister Pranab Mukherjee said that the country faced many challenges ahead during the coming months.

Disclosing his assessment of the impact and progress of some measures taken by the Government in the last few months, Pranab Mukherjee said on the domestic front, the impact of the sub-normal Southwest monsoon is yet to be felt, though it is likely that the Government may fare better than the initial estimates of the decline in food production and agriculture GDP.

“The recent information on the non-farm credit off-take continues to be an area of concern. No doubt that credit off take has been impacted to some extent by the vagaries of nature, but now an all out effort is being made to ensure that credit off take to the employment generating sectors, especially agriculture, and micro and small enterprises picks up. Banks have been asked to take advantage of upcoming busy season and enhance credit flows.”

Pranab said to facilitate the financial inclusion, banks have been advised to rapidly scale up their efforts to reach banking to the inaccessible regions of the country through Banking Correspondents and other technological and IT measures.

“While there are good reasons to believe that the immediate policy response to the global slowdown through a deliberate fiscal expansion, may have been effective in moderating the decline in GDP growth, there are some concerns on the medium term prospects of the economy. Indeed, there is some anxiety about the sustainability of fiscal correction achieved since the institution of FRBM Act,” said Pranab.

The Union Finance Minister said for the time being the fiscal stimulus needed to continue.

“For the present I maintain that the fiscal stimulus will have to continue, to allow its impact to fully run through the economy. It is, however, an imperative to come back to the path of fiscal prudence, as soon as the current economic circumstances permit us to do so. We cannot lose sight of the fact that much of our recent success in raising our growth trajectory has come about due to adherence to FRBM targets, both at the Central and State levels. Fiscal prudence is critical for maintaining a stable balance of payments, moderate interest rates and steady flow of external capital for corporate investment.

Pranab said: “We are on track to achieve the targets on fiscal consolidation indicated in my medium term fiscal policy statement. The fiscal deficit is expected to come down from 6.8 per cent of GDP in 2009-10 (BE) to 5.5 per cent in 2010-11 and further to 4.0 in 2011-12. Correspondingly, the revenue deficit is expected to decline from 4.8 per cent of GDP in 2009-10 to 1.5 per cent in 2011-12.”

He said there are a number of factors that will make this possible: (a) the Sixth Pay Commission arrears would have been paid out in 2009-10 with no further liability on this account in 2010-11; (b) the increase in plan spending as a part of the implementation of the fiscal stimulus has been in the nature of front loading of the plan expenditure approved for the Eleventh Five Year Plan. With some effort we should be able to align it with our future requirements; (c) much of the decline in business and corporate tax collections is cyclical and will tend to be reversed with growth picking-up from the second half of the current year; and (d) the introduction of GST in 2010-11, which is also on track is expected to bring a sustained rise in indirect tax revenues.

On Debt management, Pranab said serious concerns were voiced on the implications of the Government’s borrowing programme, to fund the increased fiscal deficit in 2009-2010, on the cost and the availability of funds for private investment. He said he had clarified that these concerns were misplaced.

“Notwithstanding the increased borrowings in the current year over the last fiscal, the cost of borrowing has been significantly lower so far. Moreover, the government borrowings have been largely front loaded with nearly two-thirds of the borrowing requirement have been completed by end of September 2009, before the anticipated pickup in private credit demand. The RBI has taken several steps to improve liquidity in the market for supporting the public borrowings.”

On Disinvestment, Pranab said: “We have made considerable progress in the last three months. In the recently concluded public offering of NHPC and OIL, it has been observed that the market capitalization of these companies, post-listing, has increased from Rs.18,280 crore and Rs.9,844 crore to Rs.37,702 crore and Rs.27,220 crore respectively, an increase of 106% and 177%.”

“The market capitalization of residual share holding of Government has increased by 78% in NHPC and 121% in OIL, after accounting for the disinvestment of 5% equity of NHPC and 10% in OIL. Few other public sector undertakings have been identified for sale of small portions of Government shareholding in the domestic market and for issue of fresh equities to meet their fund requirements, if required. This is in keeping with the stated policy that Government equity should not fall below 51 per cent and it retains the management control of the company,” Pranab said.

--ANI