Former RBI Governor C Rangarajan today said GST is an important step forward but the government should focus on reviving private sector investments. “I think on the reform side they have done a few things which are important…I think GST is an important step forward,” he said in response to a question on whether the government was doing enough to revive the economy.
On questions being raised about the implementation of GST, he said “implementation… that problem will be there when such a massive reform measure is being introduced”.
He opined that once these glitches and other issues are resolved, economic growth would resume. “But I think the point is that the investment rate is coming down, that is private investment. In fact, public investment is doing all right. So the focus should be on how to augment private investment, he said.
Rangarajan was speaking to reporters on the sidelines of the inauguration of the academic session of ‘Bengaluru Dr B R Ambedkar School of Economics’ here.
Former Prime Minister Manmohan Singh was the Chief Guest at the event. Asked about the steps that government needs to take, Rangarajan said the problems confronting stalled projects need to be addressed and then these have to be completed.
“Then even for a small investment you get a better benefit,” he said.
The other thing was to recapitalise banks as quickly as possible so that they start lending, he said.
Asked about his assessment of efforts being made for recapitalisation of banks, Rangarajan, also Chairman of Madras School of Economics, said the government probably would have to provide for more than what they had already done in the budget.
To a question on the economy, he said it needs to pick up very strongly to grow at 6.5 per cent for the whole year.
“The point really is it needs to pick up very strongly, because with one quarter at 5.6-5.7 per cent for the economy for the year as a whole at 6.5 per cent, you need to grow at 7 per cent for three quarters. So strong growth will be needed,” he said.
Earlier speaking at the event, Rangarajan said there is a lot of concern in the country today about slowing down of the growth rate.
Noting that the growth rate of an economy is equal to the investment rate of the economy divided by incremental capital output ratio, he said what was really important was the level of investment rate and productivity of capital.
He said the investment rate of the economy in 2007-08 when the economy grew at 9.4 per cent was 38 per cent of the GDP. Today according to the latest estimates, it is 27.4 per cent of the GDP, he said.
Speaking on the steps needed to be taken, he highlighted speedy implementation of stalled projects, quickening the pace of credit by commercial banks by appropriate capitalisation and discussion with industrialists on impediments to investments.
“It is often said investment is an act of faith in the future. For resurgence of industry we need to create a proper investment climate, which is not only a result of economic factors, but also non-economic factors,” he added.