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Continued policy logjam may pull down economy to 5 per cent, says PM

A day after the government announced a raft of new policy initiatives to reignite the economy, a tough-talking Prime Minister Manmohan Singh said a continued policy logjam could pull down the country’s economic growth to barely 5 per cent.

Published: 16th September 2012 12:20 PM  |   Last Updated: 16th September 2012 12:20 PM   |  A+A-

Montek-Singh

A day after the government announced a raft of new policy initiatives to reignite the economy, a tough-talking Prime Minister Manmohan Singh said a continued policy logjam could pull down the country’s economic growth to barely 5 per cent.

Prime Minister Singh made these observations at the full meeting of the Planning Commission here on Saturday. He explained the situation in three easy-to-understand steps: “Under scenario I, called ‘Strong inclusive growth’, one can expect a number of virtuous cycles to start operating leading to positive results on both growth and inclusion. This is the scenario we should aim for.”

Scenario II, called ‘Insufficient action’, describes a state of partial action with weak implementation. In this scenario, the virtuous cycles that reinforce growth in Scenario I will not kick in and growth can easily slow down to 6-6.5 per cent. Singh said inclusiveness would also suffer. “This is where we will end up if we make only half-hearted efforts and slip in implementation. It is my sincere hope that we do not do so,” said the Prime Minister. 

Terming Scenario III a ‘policy logjam’, the Prime Minster said it reflected a situation wherein most of the policies needed to achieve Scenario I were not implemented, for one reason or another. “If this continues for any length of time, vicious cycles begin to set in and growth could easily collapse to about 5 per cent per year with very poor outcomes on inclusion,” he said.

“I urge everyone interested in the country’s future to understand fully the implications of this scenario. They will quickly come to an agreement that the people of India deserve better than this,” the Prime Minister said, unleashing the animal spirit in the India economy. While strongly advocating the case for higher foreign direct investments (FDI) and foreign institutional investors (FII) to step up the investment inflow in the country, Singh said it would take courage and some risks to break the policy logjam.

Justifying Thursday’s hike in diesel prices by `5.62 paise per litre, Singh termed it an important step in the right direction. “Rational energy pricing was critical and our energy prices are out of line with world prices,” the Prime Minister said. The big ticket reforms announced in the last two days by the Cabinet Committee on Economic Affairs, which is headed by the Prime Minister, include the  hike in diesel prices, limiting of the supply of subsidised cylinders to six per family in a year, FDI in multi-brand retail and civil aviation, and disinvestment in four public sector undertakings.

Regarding the growth prospects in the 12th Plan, Singh said: “We must also recognise that the 12th Plan is starting in a year when the world economy is experiencing difficulties and our economy has also slowed down.”

Referring to scaling down of the target in the 12th Plan from the original estimate of 9 per cent to 8.2 per cent,  he said, “Some downward revision is realistic given the state of the world. Also, the ratings can be reviewed yearly which provide SMEs opportunity to grow their strengths and take corrective measures towards their weaknesses.” He added, “the economy has gained many strengths. Our immediate priority must be to orchestrate a rebound in the second half of the current year. We should then try to accelerate growth to reach around 9 per cent by the end of the Plan period.” 



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