New Delhi, Sep 22 (IANS) Attributing the fall in economic growth to demonetisation and GST, former Reserve Bank of India Governor C. Rangarajan said on Friday the government’s proposed package to revive the economy should partly raise capital expenditure and tackle problems that prevented private investments from rising.
“The package in my opinion should be partly to raise capital expenditure of the government but suited in a way in which it will stimulate private investments,” he told reporters on the sidelines of the 10th International Gold Summit organised by Assocham.
He said the fall in growth rate was also accompanied by a fall in investment rate.
“More critically, it is the private investment rate that has fallen. In fact public expenditure on capital has shown some slight rise. Therefore, the most important thing is to address the problems that may be preventing private investment from rising,” Rangarajan said.
He suggested that two things can be done. “There are a number of stalled projects. The low hanging fruit is to ensure that these stalled projects are activated. Secondly, the banking system needs to be recapitalised so that it can provide additional credit for investment as well.”
“Right now the need of the banks is to be able to provide credit.”
Rangarajan, who was also former Chairman of the Prime Minister’s Economic Advisory Council, attributed fall in GDP growth to demonetisation and newly-introduced Goods and Services Tax regime.
“Some of the reasons for slowdown are temporary and transient factors like introduction of GST or perhaps demonetisation. Therefore, I believe that if you look at it the fourth quarter and the first quarter have been more or less same – 5.6 per cent and 5.7 per cent. To me it looks, it has bottomed out. Now it will pick up.”
“But even to get 6.5 per cent for the year as a whole, the economy needs to grow at 7 per cent in the next three quarters. So my own estimate is that for the year as a whole, probably rate of growth will be around 6.5 per cent.”
Talking about GST he said it is a good measure, adding there would always be initial problems after introduction. “It is a major step in terms of tax reform. I do not think the government should delay it at all.”
But regarding the demonetisation to drive out black money, Rangarajan felt the authorities should have been well prepared before launching such a massive drive.
“What comes out is that had authorities been better prepared, the results would have been different. If authorities had enough supply of currency at the time when demonetisation was announced, much of the problems that people had experienced would not have been there. The pain was essentially because of inadequate preparations for the scheme.”
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