The Government and the RBI may not launch any stimulus measure in the coming months to reverse the economy from registering one of the lowest growth rates in the last ten years. Both of them are trying to make their position safe.
Finance minister P Chidambaram at the state finance ministers meeting has asserted that the government will stick on to the fiscal deficit target of 5.3% for the current year. This means that the next budget will launch expenditure compression measures and strong tax measures to tap revenues. Already, the trend on the revenue front shows big shortfalls. Disinvestment proceeds are meager. The 2G spectrum auction was a catastrophe. On the taxation front, major direct and indirect tax revenues are short of target. In essence, the government’s best effort is to avert a fiscal crisis rather than going for any stimulus.
The worst policy performer on the macroeconomic front is the RBI. Over the last couple of years, the economy is simultaneously reeling under the pressure of high inflation and high interest policy. Inflation is not showing a declining trend despite the central bank’s unlimited extension of the tight monetary policy. In a recent policy review, the RBI Governor has indicated that it may continue with the high interest rate policy which so far has emerged as the major growth depressant. The central bank may to continue with the policy, expecting that a random decline in inflation in the future can be credited to its account as a policy success.