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The monetary policy is in the “right direction”' in ensuring the availability of credit but it is also important to stimulate demand and push production up, according to C Rangarajan, former Chairman, Economic Advisory Council to the Prime Minister, and former RBI Governor.
There is no dispute on the ‘correctness’ of the RBI's monetary policy stance with regard to its approach to key policy rates, but it is also important to examine if the monetary policy alone can give the desired results, Rangarajan said.
“If availability of credit is alone a constraint for growth, it will help, but it goes beyond that,' Rangarajan said while hinting that more measures, such as higher public expenditure, were needed to make monetary policy fully effective in pushing the demand and production.
Rangarajan was speaking at the inaugural session of the 13th Doctoral Thesis Conference on ‘Economy, Finance, Well-being and Some issues in Methodology’ organised by Icfai Business School (IBS), Hyderabad jointly with the Indira Gandhi Institute of Development Research, Mumbai.
Both the Centre and the States are ‘some what slow’ in increasing public expenditure, he said adding that public expenditure in the first quarter was expected to be higher than what it was in view of spending on Covid-19- related measures, but it was not so.
Referring to the first quarter data on public sector expenditure, he said: “This segment should have been positive but it was not so. The Government is not actually spending as much as it has been put out.”'
In today's economic crisis, which has been triggered by the non-economic factor of the pandemic, bankers should also be cautious. “They should not be too timid to lend, but not adventurous as well,” Rangarjan said.
When one talks about accelerating demand, one needs to think about inter-linkages in the industry. “I think this is something that has been ignored when we think about activating demand,” he said.
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