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Economy recovering, but needs demand and investment boost, says CEA Arvind Subramanian

Believes 'costly boom-time' stalled projects can be revived through a mechanism where liabilities are shared between promoters, banks, tax-payers and consumers

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Chief economic advisor (CEA) Arvind Subramanian on Tuesday said the government needed to address the boom-time legacy of costly stalled projects to spur private investments and boost consumption through supportive policies, cheaper financing and public investment to move to the next level of economic growth.

He said while the economy was recovering, policies to boost consumption and investment needed to be put in place to for sustained growth.

"There are some signs that it (economy) is picking up but it needs policy support to boost consumption through cheaper financing, public investment, implementation of what we have in the budget and measures to boost private investment and kick-start all the stalled projects," he said while interacting with the press on Tuesday.

Subramanian said it was imperative to put a mechanism in place to find resolution to stalled projects that were restricting private investment. "What is need is a mechanism, where liabilities (of the stalled projects) are shared between promoters, banks, tax-payers and consumers. Normally, you have legal process to do. In India, we need other mechanism. In the road sector, 2-3 projects have been cleared based on exactly this kind of resolution," he said.

In what was revealing and explained why GDP growth was not resulting in correspondent increase in employment generation, he said elasticity of employment with respect to GDP growth had declined over the last decade. "Broadly, for every 1% of growth, it (employment growth) used to be additional 0.4%, but in the last decade it has probably come down to 0.2% so employment elasticity (against GDP growth) seems to has declined substantially," said the finance ministry bureaucrat.

He said the government was looking to spend on railways, roads and irrigation, along with the capital expenditure at the state level, which could add 0.5% to the GDP growth.

Subramanian said even though the contribution of agriculture to GDP was going down, any hit on rural income due to deficient monsoon would be a cause of worry for the government.

He said the government would be looking at emergency assistance, policy supports like MSP (minimum support price) and NREGA (National Rural Employment Guarantee Act), crop insurance and investments on irrigation to address the problem of shortfall in rains.

"Our options or menu of options will depend on cost-benefit analysis. That will be more of political decision as to which option we choose," he said.

Even though he did not directly comment on interest rate, he said lower inflation levels were below RBI's target and fiscal policy was supportive too. The CEA also advocated competitive Indian currency and advised not to blindly follow strategies being followed by other countries.

"Most countries are trying to keep their currencies comparatively cheap. The question is how should we respond. I think, at the very least, we should not allow our currency to become uncompetitive. We want 'Make in India' to become a long term success. I think we have a very supportive (currency) policy," he said.

He said 'Make in India' was as much about import substitution as export promotion. However, declining exports should not impact it as it was basically about competitive domestic production. The finance ministry official said the full capital account convertibility had to be done in a calibrated manner.

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