New Delhi: India’s new government has promised fresh rounds of economic and financial reform, a focus on infrastructure creation and continued emphasis on inclusive growth.
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Outlining this in his first press conference after taking charge as the new finance minister, Pranab Mukherjee reiterated that the government would strive for balance. “I have no hesitation in saying that along with reviving the momentum of growth and employment creation, our government will strengthen the various ‘inclusive’ elements in the coming budget.”
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Mukherjee said that economic growth holds the key to the government’s ability to fulfil its promises of enhanced spending on social sectors and working for the benefit of the so-called aam aadmi (common man). According to Mukherjee, who as finance minister in early 1980s presented three budgets, India would not have been able to pull off the around Rs65,000 crore farm loan waiver in 2008 without the economic expansion of the preceding years when the country’s economy grew by at least 9% a year. The farm loan waiver was India’s largest ever single-shot income transfer scheme.
The stock market reacted positively to the statement of intent by the finance minister. And analysts say that they expect the government, unencumbered by the Communist parties that supported it for much of its previous tenure, to press ahead with economic reform. The Bombay Stock Exchange’s benchmark Sensex index ended the day at 14,109.64 points, up 3.8% from Tuesday’s close.
Mukherjee said the budget for 2009-10 would set out the United Progressive Alliance (UPA) government’s vision for a short- and medium-term growth strategy that will be pursued over the next five years. “Sustained stimulus to growth can be harnessed by the next round of economic reforms.”
Infrastructure, he added, is another area of focus. “The pipeline of infrastructure projects will be reappraised and made more robust. Where necessary, policy and procedures will be calibrated to give a boost to infrastructure spending.”
Mukherjee plans to present a full budget in the first week of July and is hopeful that Parliament would help pass it by 31 July, by when the vote-on-account taken in March authorizing Union government spending comes to an end. The budget will spell out the UPA’s five-year economic strategy as well immediate priorities. He declined to answer questions related to the budget.
Pranab speak: Finance minister Pranab Mukherjee in New Delhi on Wednesday at his first press conference after taking charge. Harikrishna Katragadda / Mint
The finance minister also maintained that the government would not eschew fiscal prudence. “We are hopeful that an early return to our recent growth performance will help us come back to our preferred path of fiscal prudence. We are equally committed to the process of fiscal consolidation over a period of say two-three years.”
Separately, finance secretary Ashok Chawla stated that while the total amount the government plans to borrow this year remains unchanged at Rs3.08 trillion, it could borrow more than it is scheduled to in the first half of the year.
There’s no change in the nation’s borrowing plan for the fiscal year ending 31 March as of now and the government may revisit its debt sale programme when the budget is presented in July, he said. Government bonds slipped on concerns that rising supply will reduce demand for existing paper.
Mukherjee said finding the balance between policies that spur growth and those that create deficits would be demanding. “That is a big challenge to any finance minister.”
The government had, in 2008-09, announced three separate stimulus packages to offset the economic slowdown, and the fiscal deficit is forecast to be 6% of the gross domestic product in 2008-09 and 5.5% in the current year. “I hope to stick to it,” Mukherjee said, referring to the current year’s fiscal deficit target.
The minister plans to meet bankers to figure out ways in which lending rates can be lowered and finance be made more easily available. “I expect they (banks) will take advantage of (the) monetary policy Reserve Bank has announced from time to time, and I will have to see how credit is being made available quickly and to what extent it can be made cheap.”
Since 20 October, India’s central bank has cut its policy rate six times. This rate now stands at 4.75%.
Mukherjee was quick to dispel any notion that the finance ministry would micromanage public sector banks, which control about 70% of banking operations in India, to fulfil the government’s aims. “I cannot make any comment unless I understand their (banks) problems, too.”According to RBI data, for the year up to 8 May, the prime lending rate of five top banks declined slightly from a range of 12.25-12.75% to 11-12.25%.
Graphics by Sandeep Bhatnagar / Mint
Bloomberg also contributed to this story.