Headed by Modi, the committees on investment and growth as well as employment and skill development, underline the political significance attached to the twin issues.
New Delhi: The broad contours of the economic thrust to be pursued in the Modi 2.0 are now becoming more and more visible, indicating the BJP-led NDA government’s big agenda to drive growth and jobs.
The announcement of 25 bps cut in the repo rate to 5.75% by the Reserve Bank of India (RBI) in the monetary policy is aimed at making credit available at manageable cost to the entrepreneurs. It is the third successive rate cut announced by the apex bank and it needs to be seen whether the lenders would pass on the reduction to the borrowers in the coming days.
“The monetary policy committee (MPC) notes that growth impulses have weakened significantly as reflected in a further widening of the output gap compared to the April 2019 policy. A sharp slowdown in investment activity along with a continuing moderation in private consumption growth is a matter of concern.”
“The headline inflation trajectory remains below the target mandated to the MPC even after taking into account the expected transmission of the past two policy rate cuts. Hence, there is scope for the MPC to accommodate growth concerns by supporting efforts to boost aggregate demand, and in particular, reinvigorate private investment activity, while remaining consistent with its flexible inflation targeting mandate,” RBI said outlining its decision to cut key rates .
The RBI move comes close on the heels of Prime Minister Narendra Modi government’s decision to set up ministerial panels to address the issues plaguing the economy. Headed by Modi, the committees on investment and growth as well as employment and skill development, underline the political significance attached to the twin issues.
Finance minister Nirmala Sitharaman is expected to outline in the Budget on July 5 the government’s path for boosting growth without compromising on the path of fiscal prudence, another pillar of government’s commitment to long-term sustained growth. Welfarism, the bedrock of government policies, will not be at the expense of missing fiscal and revenue deficit target.
The Cabinet Committee on Growth and Investment will have five members including Modi. Home minister Amit Shah, road, transport and medium and small and micro enterprises minister Nitin Gadkari, finance minister Nirmala Sitharaman and railways, commerce and industry minister Piyush Goyal are the other members of the team.
The 10-member cabinet committee on employment and skill development will include ministers representing various sectors such as agriculture, infrastructure, construction and manufacturing. The two committees have been formed at a time when the economic growth has slumped to five year low of 6.8 percent. The new government faces a challenging task of reviving both investment and consumption demand.
Private investment has remained low for the past several years now due to poor credit offtake and the liquidity crisis in the non banking financial companies has begun to severely impact the consumption growth. Employment data released recently showed unemployment touching 45 year high.
The government faces the prospect of monsoon emerging as another trouble spot as it has been delayed and pre-monsoon showers have been far below the usual level, adding to lack of water supply and rural distress.
“Risks around the baseline inflation trajectory emanate from uncertainties relating to the monsoon, unseasonal spikes in vegetable prices, international fuel prices and their pass-through to domestic prices, geo-political tensions, financial market volatility and the fiscal scenario,” the RBI statement on monetary policy observes.
Interest times ahead for the world’s second populous nation.