New Delhi: Finance minister Pranab Mukherjee said on Friday he would decide when to withdraw the fiscal stimulus, put in place by his ministry to support faltering economic growth earlier this year, only after the release of the third quarter data on economic growth, which is expected towards end of February.
He was speaking on the first day of the two-day annual Hindustan Times Leadership Summit organized by HT Media Ltd, which publishes Mint.
The finance minister’s statement comes two days after the Reserve Bank of India began to exit from its year-long loose monetary policy on the back of a tentative recovery in growth, threats of resurgent inflation and fears of new asset bubbles.
Policy man: Finance minister Pranab Mukherjee at the summit. Ken Cedeno / Bloomberg
In his speech, the finance minister described consumer price inflation as being “reasonably high”. He also said it may not be possible to adhere to the 1 April deadline to bring in the goods and services tax, or GST. “I will not be surprised if there is a delay of a few months,” he said.
GST is a nationwide tax to be paid by consumers on their purchases and is to replace the current patchwork quilt of state levies that prevents the emergence of an integrated national market in India. The tax will be introduced only after a much-delayed deal between the Union and state governments gets finalized.
Earlier, at the same venue, Prime Minister Manmohan Singh said India would play a “responsible” role in global negotiations on climate change. This statement comes in the wake of a heated national debate on whether India should voluntarily agree to limit carbon emissions despite fears that such a move could restrict growth and slow poverty reduction. India’s traditional position has been that the rich nations, which have the largest per capita emissions, should bear the burden of mitigating climate change.
He reiterated his view that the “challenges in nation building are primarily at home”. In response to a question, he said the government will push ahead with economic reforms. They are more important than financial sector and labour reforms, and increased emphasis on education, health and rural infrastructure is of greater importance, he added. “There has to be a mixture of both types of reform commitment. That’s our challenge.”
Maintaining that states have a critical role to play both in maintaining internal security as well as in developmental activities, Singh said: “India cannot be built from Delhi alone.”
He added: “With the growth of the market economy and with individual talent and enterprise being unleashed, no agenda for building a new India can any longer be imposed from Delhi. India lives in states.”
Earlier, Singh, who had offered to resume peace talks with Pakistan during his two-day visit to Jammu and Kashmir earlier this week, provided it successfully contains terrorist elements operating from its territory, on Friday extended a “helpful and supportive hand” to India’s troubled neighbours. “We need a leadership in our region that can take a long-term view and has the courage to take bold decisions. We must not allow our past to limit our future.”
Responding to a question on recent developments that have led to fears of renewed friction in India’s relationship with China, Singh said: “Both India and China have immense opportunities to work together because there’s ample space to accommodate growth ambitions of both.”
In a surprising disclosure, Mukherjee said he proposed to retire from politics at the end of the second tenure of the United Progressive Alliance. “When this tenure will be over, I will be 79 (years) and perhaps that is the time for having little bit rest.” He has been a key decision maker and trouble shooter of the two UPA governments.
He was confident India would return to a 9% trajectory of growth in around two years. The International Monetary Fund (IMF) said in a statement on Thursday that India along with China and Australia are leading the world economy out of recession. Professional forecasters surveyed by the Indian central bank cut their estimate of economic growth from September through December from an earlier estimate of 6.9% to 5.7%.
For the moment, the finance minister felt, inflationary pressure posed a challenge. “There is inflationary pressure,” he said, clarifying it was not totally within the control of domestic policymaking. Inflationary pressure in India has been driven in the recent past by rising food prices, which has kept the four consumer price indices at a level he described as “reasonably high”. The consumer price indices are currently in double digits.
Pushing reforms: Prime Minister Manmohan Singh addressing the Hindustan Times Leadership Summit in New Delhi on Friday. Harikrishna Katragadda / Mint
Mukherjee agreed with the recent assessments of the Prime Minister’s economic advisory council and Reserve Bank of India that inflation, according to movements in the Wholesale Price Index, would end the current fiscal in the 6-6.5% range.
In the interim, in a meeting in Scotland next weekend, along with finance ministers and central bank governors of the Group of Twenty, or G20, countries, Mukherjee is scheduled to discuss the timing of the proposed exit from stimulus measures.
According to a member of the team that would accompany Mukherjee to Scotland, IMF economists are to make a presentation there on the current state of the world economy. It would come on the heels of the US economy recording growth in the quarter ended 30 September, the first time in four quarters.
Mukherjee said at the summit that the performance of developed markets such as US and Japan are critical to India’s economic growth. The European Union (EU), Japan and the US account for 62% of its exports.
In a separate select media interaction, Marco Buti, director general for economic and financial affairs at the European Commission, said India may have to exit from its expansionary macroeconomic policy before European economies, with prospects of growth acceleration coming to India earlier than the EU.
“India is more advanced in the growth cycle than EU. The Indian central bank has also signalled monetary tightening due to inflationary threat, while there is no threat of inflation in EU as yet,” he said. Buti expects India’s growth going back to 6.5-7% next year. He is leading a EU delegation for the third India-EU macroeconomic dialogue.
Asit Ranjan Mishra contributed to this story.