Integrate monetary and fiscal measures to insulate economy

In the backdrop of the latest crisis that has enveloped major economies in Europe,chief statistician of India Pronab Sen has advocated the need to integrate monetary and fiscal policy measures to insulate the economy and ensure a consistent rate of growth of more than 9 per cent for the country.

Addressing an event at the PHD chamber,Sen said that domestic demand and consumption could help India grow at 8 to 8.5 per cent every year. I think we need to start thinking on insulating our economy from volatile capital flows accruing from an uncertain global environment. RBI can play a limited role through its monetary action. Therefore,the process needs to be entwined with the fiscal measures as well… We do not have to worry about global markets and exports in case we wish to grow at 8 to 8.5 per cent. However,if we wish to grow at more than 9 per cent,we need to insulate our economy to make sure that growth is not affected by any other global economic crisis. And this can only be done through a change in our approach.

Commenting on the revision of the exchange rate regime,Sen said the country has to evaluate the public policy towards management of exchange rates as the context has changed and today financial flows have overtaken real flows. We need to look closely at the kind of capital or financial flows required to spur investment. Once this is done,we have to identify the gaps and then see how to fill in the gaps. In doing so we have to recognize the dangers of such flows and take enlightened decisions. The concern about rupee appreciation is greater today as the options of increasing efficiency in the system are limited unlike in the past, he added.

The Indian financial sector,according to Sen,is beset with two kinds of weaknesses. One is that of weaknesses in equity and the other is weakness in long term debt market. Such weakness has been there for a while except that the equity market has somewhat improved. However,one cannot take equity markets for granted as it is a thin market and hence not very stable.