The Finance Minister said in no unambiguous term that economy needed more boosts to arrest the slowdown and he would provide an additional package in his first budget.

Mukherjee said the government would make every effort to insulate the economy from the current global financial crisis and slowdown. The new government will substantially step up spending on infrastructure. Indications are that the additional package could be worth up to Rs. 5,00,000 crore to be spent over a period of time. Obviously, public borrowing will play a part, though not the entire part, in the exercise without, of course, indulging in “fiscal profligacy.” A large government is bound to firm up interest rates and cause discomfort to industry. Such a possibility is worrying the RBI Governor, who had indulged in the luxury of successive rate cuts in the last 60 days just to benefit existing industry and business to spruce up their year-end balance sheets. The interest rate cut is the easiest and the most populist action to cheer up the business community. Other options such as cost cutting through better waste management, chopping off unnecessary functions or departments, curtailment of travel and entertainment, suspension or compression of perks, etc are tough to implement. Any well-meaning government would take these tough steps to fight economic slowdown. The RBI itself could show the way by cutting its size by at least half and shutting down its useless departments, a baggage from the central planning and control-permit raj.

A judicious PSU divestment measure could take good care of additional fund requirement. This is the least the government may want to do to bring back the much needed feeling of vibrancy into the economy. The UPA government's economic revival package in two instalments, offered just before the announcement of the Lok Sabha election, covered investments and benefits worth only around Rs. 1,00,000 crore. Its impact is slowly being felt. Economy needs much more. India's long-neglected social and physical infrastructure needs urgent overhauling. The infrastructure development is hungry for funds. It can absorb any amount of investment. Not one, two or even 10 per cent of GDP. Much more.

Compare India's recession-fighting measures with the People's Republic of China's double dose economic booster to fight the impact of global slowdown on the country's export-led economy and employment, which amounted to over $ 800 billion or Rs. 40,00,000 crore. The majority of the proposed Chinese public investment would go to bolster the physical infrastructure in the less developed regions of the country, health and social services and technical skills of its workforce. The investment target is time-bound. It is to be completed within two years to ensure that the country's huge idle workforce engaged earlier in the export industry is rehabilitated in other jobs as soon as possible. For the Chinese government, the capacity to raise funds for development works is, however, enormous and much less painful. The country is sitting pretty over a free foreign exchange reserve of nearly $1.5 trillion. India's position is different. Its huge external borrowing, internal debt and yawning trade gap have greatly weakened the government's borrowing strength. The gap between the RBI's forex assets and liabilities has alarmingly narrowed. As a result, its economic growth is getting increasingly dependent on foreign direct investment and a very high rate of public saving.

To provide a minimum boost, sustainable over the next two to three years, the Indian government should be able to garner additional resources to the tune of at least two to three per cent of its GDP per year to pep up the economy towards a double-digit growth path. The lowering of the interest rates of banks is not a substitute for the government's own public investment programmes. Actually, the lower interest rates in a developing economy could be counter-productive. Low interest rates mostly help existing industry and low-growth economy in a demand-saturated market. They do not necessarily push fresh investment in new ventures as the experience of many developed countries such as Japan, Germany and France would show. On the contrary, low interest rates affect public savings as they have been witnessed time and again in India, especially in a situation of high inflation in the prices of mass consumption goods and food products.

Fortunately, Pranab Mukherjee had earlier held the finance portfolio at a time when the economy was more regulated and functioned under a high tax and interest rate regime. Despite these constraints and insignificant inflow of foreign direct investment, the government under Mrs. Gandhi helped build a strong domestic industrial infrastructure until the mid-980s. Few will deny that this helped the country and its economy react fast and positively to the process of reform initiated by another economist Finance Minister, Dr. Manmohan Singh, in the early 1990s. Although Mukherjee like Dr. Singh belongs to the old school, both have always been keen followers of the current-day dynamics and quick learners. He certainly does not need to be advised on the very first day of his office as the Finance Minister in the re-elected UPA government by the RBI Governor, a retired IAS officer, on the fiscal and monetary policy he and his government should immediately follow.

It is another matter that the RBI Governor has been the least diplomatic to deplore the previous UPA government's actions such as the loan waiver package to farmers, higher salaries to government employees, to which he had an indirect contribution as a PMO staff member then, and the nation-wide rural employment guarantee scheme as main reasons for a sharp rise in the fiscal deficit in the 2008-09 budget. Ironically, the think-tank in the Congress party believes that all these measures had helped the party consolidate its position in the last Lok Sabha election to steer the UPA government with greater strength and authority.

During the last five years, the RBI was the least effective body in its role as the country's central bank to control monetary expansion due to sudden rush of hot money into the stock market, inflation management and exchange rate regulation. The RBI has been obsessed with fiddling with interest rates more to suit the interest of industry and business than the common man. The RBI would do well to perform its own function and resist external pressure on monetary policies and forex control and leave the Government and the Finance Minister do their own job and use their knowledge and experience to push the country's economy forward. (IPA Service)