Sceptical about the efficacy of a bailout package to Indian industry, Chief Economic Adviser K Subramanian said any such step will be a “moral hazard” and an “anathema” to the market economy.
Echoing similar views, Power Secretary Subhash Chandra Garg said the reduction in interest rate and availability of credit to private sector are better tools rather than providing fiscal stimulus which crowds out money from the market. Garg, who was the finance secretary till last month, said the first quarter growth numbers are likely to be lower than the same quarter last fiscal due to general elections impact on the economic activity. The first quarter number is likely to come on August 31. It might come around 5.5 to 6 per cent. People might treat it as another evidence of a big slowdown. Actually it is not, he said.
“I think the sentiment will change, we need to take a very careful decision. Is the fiscal stimulus based on additional borrowing in the market and cutting down the excess to the private sector of the fund?... We have a problem with the rate mechanism.
“If we further borrow, the rate transmission will not take place efficiently. What works better is faster transmission of rate reduction and availability of credit to private sector is a better way rather than a stimulus,” Garg said. On improving private investment, Garg said there is a need to get into specific sectors. “Investment is going to be key to the growth.
“... let me illustrate with an example, we have a lot of coal in the country. Our annual target is 1,000 million tonne, but we produce 600 million tonne. We import a lot of coal today. What is required to be done is to ensure that we produce 1,100 million tonne,” Garg said. Noting that increasing coal production would require a lot of investments, he opined that it would not come until Coal India has the monopoly.
“Probably what needs to be done in my judgement is to award 100 million tonne annual mining capacity to five big companies. This is the way. Now we have a law... all that is required in the sector is to make sure that we award,” he said.
This is the kind of reform that is required to promote investment in specific sectors. Subramanian too said that the second generation reforms, including pushing disinvestment and labour laws, would help promote investment in the country.