Centre’s stimulus package should focus on activating stalled projects: C Rangarajan

The Centre’s stimulus package, if any, should focus on activating stalled projects and recapitalising banks so that they can extend additional credit, former RBI Governor C Rangrarajan has said.

“The package in my opinion should be to partly raise public expenditure but suited in a way that it stimulates private expenditure as well,” he said in response to a query on the sidelines of the 10th international Gold Summit, organised by industry body Assocham here on Friday.

Rangarajan, who is also former Chairman of the Economic Advisory Council to the Prime Minister, said the low hanging fruit is to ensure that the stalled projects that are viable are immediately made operational. Second, the banking system needs to be recapitalised. “In the early 1990s, we gave money to banks but they were asked to invest in bonds. What is important is that banks should be recapitalised so that they can provide additional credit,” he said.

Rangarajan further said the GDP slowdown has bottomed out, and will pick up in the coming quarters. “Some of the reasons for the slowdown are temporary and transient factors like introduction of GST or perhaps demonetisation,” he said.

For the current fiscal, Rangarajan sees the economy growing at 6.5 per cent. In the March quarter and the June quarter this year, the economy grew at 5.6 per cent and 5.7 per cent, respectively. To get to GDP growth of 6.5 per cent for FY18 as a whole, the economy needs to grow at 7 per cent in the next three quarters.

On demonetisation, Rangarajan said: “What comes out is that had authorities been prepared, the result would have been different. If authorities had had enough supply of currency at the time when demonetisation was announced, much of the problem that people experienced would not have been there.”

Rangarajan said the current level of import duty on gold and GST are reasonable. Gold dealers must come to accept it.

To succeed in containing the demand for gold, there is a need to ensure that the financial products give an “adequate return”, he said. Financial products in this context should cover a wide range, from banking deposits to mutual fund products.

“Demand for gold depends on multiple factors such as income, taste and custom, return on gold, inflation and return on financial products. While efforts must be made to reduce the basic attraction of gold to the people of India, at least in the short run, we can start acting to reduce the demand for gold as an asset,” he said.

Taming inflation and enhancing the real rate of return on financial products are fundamental prerequisites for containing gold demand in India, he added.

Asked if the Centre should have avoided introducing GST given that demonetisation had just been implemented, Rangarajan replied in the negative.

“GST is a good measure. Whenever it was introduced, there would have been initial problems. It is a major step in tax reform. I don’t think the government should have avoided it,” he said.

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