Economy in hard times,but can be overcome: Prime Minister

PMs honorary economic adviser Raghuram Rajan calls for review of retrospective tax amendments

Prime Minister Manmohan Singh on Saturday admitted the economy was facing difficult times but expressed hope these would be overcome,even as his key economic adviser spelt out a policy prescription for double digit growth that includes deregulation of fuel prices and certainty in tax policies.

There are difficulties. Life will not be worth living if there are no difficulties. I am confident with great determination,we will overcome (these), the Prime Minister said at the launch of the updated book Indias Economic Reforms and Development: Essays for Manmohan Singh edited by Isher Judge Ahluwalia,a noted economist and Chairperson of policy think-tank ICRIER,and IMD Little.

While the Indian economy registered a growth of 6.9 per cent in 2011-12,the fiscal deficit shot up to a massive 5.9 per cent of the GDP while headline inflation averaged at close to 7 per cent. High prices and an aggressive interest rate regime that is eating into investment plans,GDP growth is expected to pick up to a modest 7.6 per cent in 2012-13,while the deficit is estimated to be contained at 5.1 per cent of the GDP.

Story continues below this ad

The PMs honorary economic adviser Raghuram G Rajan called for implementing the second generation of economic reforms including raising of fuel prices quickly,resolving bottlenecks and treating foreign investors kindly.

Rajan,who is also Professor at the University of Chicago said that Budget provisions on retrospective tax amendments and General Anti Avoidance Rules (GAAR) must be reviewed.

We should avoid retrospective tax amendments and if necessary renegotiate double tax avoidance agreements with Mauritius and Singapore, Rajan said,while calling for a need to relook at the GAAR terming it a catch all provision.

Pointing out that foreign investors are not the enemy,Rajan said that the government must be more open to foreign direct investment as it is of a more stable nature. In this regard,steps such as providing a stable tax regime and clear and transparent policies should be endured.

Story continues below this ad

There is no reason why we cant go to double digit growth, Rajan said at the panel discussion on Challenges of Economic Reforms in India.

Meanwhile,RBI Governor D Subbarao expressed concern at large fiscal and current account deficits. The probability of an implosion (like the 1991 crisis) is low,but the economy is not on a roll, he said at the discussion,while describing the current downturn a short-term phenomenon. The structure of the economy has changed (since 1991). Our financial markets are more matured,more diverse and much deeper. They have the resilience to absorb shocks, Subbarao said.