"I feel that the existing monetary policy of reigning in inflation may not have to be extended... If the monetary policy is extended, there will be an overall impact on the growth scenario," finance minister Pranab Mukherjee said
Kolkata: Finance minister Pranab Mukherjee on Sunday expressed hope that the Reserve Bank of India (RBI) may not continue with its tight monetary policy as it may have implications on economic growth, reports PTI.
"I feel that the existing monetary policy of reigning in inflation may not have to be extended... If the monetary policy is extended, there will be an overall impact on the growth scenario. I am optimistic that the present monetary stance will not have to be extended," Mr Mukherjee said at a CII event here.
In its bid to tame inflation, RBI has hiked policy rates 11 times since March 2010. The overall inflation, which crossed 9% mark in December stood at 9.22% in July.
However, with higher cost of borrowing and slowing project investments, gross domestic product (GDP) growth for the April-June quarter (Q1) slipped to an 18-month low of 7.8%. In the corresponding period last year, it was 8.8%.
Referring to slowing of GDP growth in the April-June quarter, the finance minister said, "It is disappointing but not totally unexpected... If the monsoon is good, then GDP will be better."
Mr Mukherjee further said that good monsoon would help bring down food inflation to 6%-7% by March end. After a gap of over five months food inflation jumped to double digits. It was at 10.05% for the week ended 20th August as onion, fruits, vegetables and protein-based items turned more expensive.
"I hope good monsoon and elimination of seasonal factors will bring down food inflation to single digit. By the end of the year, it should be around 6% to 7%," Mr Mukherjee added.
Further, Mr Mukherjee said that the Indian economy should come back to the path of fiscal consolidation, after expansionary policy stance of the fiscals 2008-09 and 2009-10.
He also sought cooperation of opposition for passage of the several financial sector reform bills pending in Parliament. Several important bills like increasing foreign direct investment (FDI) cap in insurance sector and Goods and Service Tax (GST), are pending in Parliament.
"Other political parties will have to cooperate so that the legislations are passed. Legislation concerning economic reforms could not be passed in Parliament as it did not function," the finance minister said.
Trying to allay fears about high fiscal deficit (FD) in the first quarter, he said it was nothing unnatural.
"While FD in the first quarter was 55%, it was around 58% on average for the last five years in the similar period. It always happens. For the current year, FD would be 4.6% of GDP," he said.
The finance minister said that there had been considerable buoyancy in direct tax and indirect tax collections during the first four months. "It is quite satisfactory".
"I have fixed a target of 10% more resource mobilisation for the current year," he said.
The finance minister said that the department had taken a decision to refund I-T refunds upfront. "This has lead to some cash management problems, but we'll be able to tackle it and in the later part we will have nothing to pay," Mr Mukherjee said.
On the expenditure side, the finance minister said that expenditure pattern of key ministries would be monitored on a quarterly basis. "I am telling the ministries to go on making expenditure but not to park resources somewhere and claim that expenditure has been made."
In order to boost urea output, the government has decided to revive the closed units of Fertiliser Corporation of India and Hindustan Fertiliser Corporation, minister of state for chemicals and fertilisers Srikant Jena informed the Rajya Sabha last week
New Delhi: Production of urea, a key fertiliser, is expected to increase by 4.2 lakh tonnes to 223 lakh tonnes this fiscal, reports PTI.
India produced 218.80 lakh tonnes of urea in 2010-11, minister of state for chemicals and fertilisers Srikant Jena informed the Rajya Sabha last week.
Consequently, imports of the essential crop nutrient are estimated to decline by 4.1 lakh tonnes to 62 lakh tonnes in the 2011-12 financial year compared to 66.10 lakh tonnes in the last fiscal.
"In the financial year 2011-12, the projected demand and indigenous production of urea is 285 lakh tonnes and 223 lakh tonnes, respectively. The gap is met through imports," Mr Jena said.
In order to boost urea output, the government has decided to revive the closed units of Fertiliser Corporation of India (FCIL) and Hindustan Fertiliser Corporation (HCIL).
The government has decided to revive the Sindri, Gorakhpur, Talcher and Ramagundam units of FCIL as well as the Barauni and Durgapur units of HCIL. All the units were shut down in 2002 by the government.
The Cabinet Committee on Economic Affairs (CCEA), in its meeting held on 4 August 2011, decided to revive the four units of FCIL and two of HCIL, Mr Jena informed the House.
The minister added that the list also included two non-commissioned fertiliser units at Korba and Haldia, which were set up by FCIL and HFCL, respectively.
Urea is the only fertiliser subject to partial movement, distribution and statutory price controls. It is imported for direct use on the government account to bridge the demand-supply gap.
A proposal for a Nutrient-Based Subsidy (NBS) for urea is under the government's consideration.
Conventional wisdom is that the recent global crisis was caused by developed countries and that many emerging markets were barely touched by the recession. On the contrary many of these economies have not only been expanding, but also overheating, and the amounts and the extent of debts they have piled up in the process are only just beginning to be realised
The US Department of Labor announced its monthly job report last week. Economists had hoped that the report would announce 68,000 new jobs had been created in the United States in August. Instead they got zero. Not really a good sign concerning the health of the US economy. It is even worse if you look at the global economy. In a recent report on purchasing managers' indices (PMI) for 17 countries, only Japan, Poland and the Czech Republic saw rising new orders. Many of the indices were at 2009 levels.
What has happened to the economies in the developed world? Carmen M Reinhart, a senior fellow at the Peterson Institute for International Economics, and Kenneth S Rogoff, a professor of economics at Harvard University, have an answer. According to Ms Reinhart and Prof Rogoff this recession is different.
Most recessions are part of a normal business cycle. Business cycle recessions are usually short-lived. There is a quick contraction followed by rapid growth. This recession is the result of a financial crisis. Financial crises are caused by too much debt. When economies accumulate too much debt during a boom, they have to get rid of the debt during the bust. When you have too much debt, it is impossible for the economy to grow.
Getting rid of the debt is difficult. There are two ways. First, the debt gets restructured, but this is a long and difficult process. In game theory a debtor's best move is not to pay a creditor back. During a boom it is easier to finance a house at an inflated price, than to foreclose on the property after the bust. It is easier for a consumer to run up a credit card debt, than for the bank to force them to pay the debt back. It is easier for a country to sell sovereign bonds than to force the country to raise taxes on its citizens to pay the money back.
The second way to get rid of a debt is to make money and pay it back. But if there is too much debt hindering growth of an economy, or the debtor is unemployed, it is difficult to find the cash to pay off the creditors. The problem becomes acute when the debtor's failure to pay inevitably leads to revelations about the magnitude of the problem. The result is that recovery from a financial crisis can be long and painful.
The conventional wisdom is that the recent global crisis was caused by developed countries. Many emerging markets were barely touched by the recession. On the contrary, as I pointed out in my column at the beginning of the month, many of these economies were not only expanding, but also overheating. According to the The Economist's emerging markets overheating index, the economies of Argentina, Brazil, India, Indonesia, Turkey and Vietnam have real issues. In order to control the inflation created by the rapid growth, almost every economy with the notable exception of the US and Japan, have recently raised interest rates to slow growth.
As I pointed out in my previous column, the booms in the emerging markets have also resulted in very large debts. The amounts and extents of these debts are just beginning to be realised, but they are substantial throughout the emerging markets and especially in the BRIC economies. So the stage is set for a major contraction, and it has happened before.
In the mid-1970s, both the US and Europe went into recession. The US problems ended in stagflation and the economy did not achieve sustained growth until 1983. The emerging markets (then known as Less Developed Countries or LDCs) did not immediately feel the stress of the recessions due to a flood of recycled petrodollars from the oil shock. When the investment boom ended like all major investment booms, LDCs suffered the "Lost Decade" of the 1980s.
According to Prof Michael Pettis, "Every single case in history that I have been able to find of countries undergoing a decade or more of 'miracle' levels of growth driven by investment (and there are many) has ended with long periods of extremely low or even negative growth-often referred to as "lost decades".
Why the aftermath of a financial crisis in an emerging market is worse than that in a developed market, has to do with debt. In a developed country liquidating the debt is difficult and time-consuming. In emerging markets, it is impossible. For the average OECD country, a bankruptcy takes 1.7 years and returns 70% of the original amount loaned. In emerging markets the process can take over four years and return less than 20%. So when the stench of debt rises, it stays around for a long, long time, because the legal plumbing necessary to wash it away doesn't exist.
(The writer is president of Emerging Market Strategies and can be contacted at [email protected] or [email protected].)