The domestic situation continues to be fragile. There are several problems at hand – slowdown in growth, sharp fall in the rupee value, sizeable current account deficit and a stressed fiscal situation. The stock markets have also reacted adversely and there are signals coming from global rating agencies that the policy makers have to be in a watchful mode.
While both the RBI and the government have taken a series of measures to bring confidence back in the economy, it will be a while before the impact of these measures is felt and the situation starts ameliorating.
We would only urge that the government continues to move forward on the reforms path and be ready to take more measures in conjunction with the RBI to ease the pressure on the rupee, reverse the growth trajectory and shore up business confidence.
We feel the Cabinet Committee on Investments should review various rules and procedures followed by various ministries or departments to grant or refuse clearance. Such faster procedures used for specific projects as identified through this process should be universalised and not remain limited to a few projects.
Further, the projects which have already been cleared should be implemented expeditiously on the ground. Also, looking at tools like enhancing government procurement and using surplus cash with PSUs for undertaking fresh investments will give a boost to the manufacturing sector. In addition to this, quick decisions on large FDI projects would also instill a sense of confidence. A sense of urgency on the reform front should continue to prevail.
The steep plunge in the rupee value has aggravated the current account deficit (CAD) problem and is fuelling inflation as well.
While prices may not be much of a concern this fiscal, it is important to find solutions to the current account deficit problem from a long-term perspective. We need to work on reducing our oil dependence. We also need to economise on imports of coal, capital goods and electronics.
On the export front, India needs to re-establish its competitive edge with innovation and R&D as the foundation for productivity improvement. This, along with the weakening rupee, will enable export growth and help the CAD in the long run.