The Hindu Business Line : Stimulus package inadequate, says expert

Chennai, Jan. 6 The ‘stimulus package’ of the Government does not address the fundamental issues and the extent of help is not also adequate, according to prof T.N. Srinivasan, Samuel C. Park, Jr. Professor of Economics, Yale University, US.

Other than the direct intervention of offering money to State transport undertakings to buy buses, the stimulus package does not have anything that will “induce people to buy more,” Prof Srinivasan said, in a conversation with the journalists of The Hindu group of publications, here today. Prof Srinivasan favours direct demand creation in the short run, while for the long term he advocates fundamental changes in reforms, such as allowing consolidation of agricultural lands, private investment in agriculture, creation of a market for land and flexible labour laws to attract investments in export-oriented sectors too.

In the case of the problem in the US, liquidity support by the government to the financial sector is the answer. “But in our case we have to address the fundamentals,” he said.

Answering a question, Prof Srinivasan said that measures such as cuts in excise duties, that hope that the prices of final products will come down as a consequence and hence spur demand, may at best address a small component of demand, viz., household demand.

Further, the frequent policy rate cuts by the RBI creates an expectation of a further rate cut as a result people tend to postpone borrowing hoping for a lower rate of interest—not something that will help boost demand.

On the investment side, he said that private investments will happen only when there is a prospect of making profits. That leaves the public sector and government sector to lead investments, but there is not enough fiscal headroom for that, he said.

Reacting to a view that the Indian public sector should embark on a massive infrastructure development programme, Prof Srinivasan expressed scepticism. “This presumes that the public sector has a shelf of projects that it could take up,” he said.

On another issue, he said that India need to have inflation indices built on producer prices, rather than a range of consumer prices (such as WPI and a plethora of CPIs), as recommended by a committee headed by Dr C. Rangarajan.

More Stories on : Economy | Financial Performance

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page