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Journalism of Courage
Prime Minister Manmohan Singh on Thursday virtually laid out a roadmap for achieving 9 per cent growth in 2012 and 10 per cent in the 2012-17 period and also bringing the economy back to a fiscally sustainable path with a call to bring down inflation and cut fiscal deficit. In a clear signal to the monetary and fiscal managers of the country,he said they must ensure that inflation is kept under control since it hurts the common man the most and also distorts economic signals as we pursue our objective of achieving rapid and inclusive growth.
Singh who was the RBI govenor in the early 1980s,and the finance minister in the early 1990s also called for reversal of the high fiscal deficit. We allowed a large increase in the fiscal deficit in the past two years as we responded to the global economic crisis. I compliment my colleague and friend Pranab Mukherjee for this. This must now be reversed. We are therefore,firmly committed to bring the economy back to a fiscally sustainable path. This involves a reduction in the fiscal deficit from 6.8 per cent of GDP in 2009-10 to 5.5 per cent in 2010-11 with a further reduction in the next two years reaching 4.1 per cent in 2012-13, he said while addressing the Platinum Jubilee Function of the Reserve Bank of India here in the presence of both Reserve Bank govenor D Subbarao and finance minister Pranab Mukherjee.
We must return as quickly as possible to a high growth path. I believe we can get back to 9 per cent growth path by the end of the Eleventh Plan and do even better thereafter. I have therefore asked the Planning Commission to explore the feasibility of achieving 10 per cent inclusive growth in the Twelfth Five Year Plan, Singh said. These higher rates of growth will occur in an economic environment in which India will remain open to the world and Indian companies will operate globally. Management of foreign currency risk will be an increasingly important concern in future and the financial system must provide our companies with the instruments they need to manage these risks at reasonable cost,he reminded the regulators.
The Prime Minister also called for the development of a corporate bond markets. Rapid growth requires massive investments in infrastructure and much of this will have to be funded through long-term debt. Banks are not ideally suited to provide long-term debt and this underscores the need to develop a domestic corporate debt market. This too requires a conscious plan of action, he said.
He also advised caution on opening up of the capital account. Caution in the pace of opening the capital account has been a conscious feature of our policy,and there are good reasons to continue with this approach. In an economy open to capital flows,monetary discipline in the face of fiscal imbalances can lead to a rise in interest rates triggering excessive capital inflows,which in turn put pressure on the exchange rate,making the task of macro-management that much more difficult. This is the well known problem of the impossible trinity or trilemma. In an economy with capital mobility you cannot simultaneously have exchange rate stability and an independent monetary policy, he said.
