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Stimulus should look at raising capital expenditure: Rangarajan
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SME Times News Bureau | 22 Sep, 2017
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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