Tough Time Ahead for Indian Economy: RBI

Expenditure Policy

RBI report said that there is only limited fiscal and monetary space available to provide a stimulus for the Indian economy in the immediate future. In this juncture the government should revise the expenditure policy; it should, for instance, reduce the revenue spending by cutting subsidies and should use the resources so saved to step up public capital expenditures. But this alone is unlikely to bring about effective change.

The report analyzed the macro-economy of the 2011-12 financial year and pointed that the government may exceed its budget-deficit target because of higher spending on petroleum subsidies and a weak economic growth outlook that could lead to a tax shortfall.

Investment

The report, which is released at the end of the central bank’s accounting year, says the investment in infrastructure has slumped 52 percent to 1 trillion from 2.2 trillion of the previous year, with power and telecom accounting for most of the drop. The country needs to revive investment in public works to help counter the weakest expansion in the nine years, the report said.

The fall in corporate investment in large projects also had a ripple effect on the country’s economy, says the Central Bank’s Annual report, which is a review of the previous fiscal year’s macroeconomic conditions and outlook for the current year.

New investments have considerably slowed down and the existing ones are at risk with elongated gestation periods. The total number of fixed investment by large firms in new projects which were sanctioned financial assistance during 2011- 12 has dropped by 46 percent to about 2.1 trillion from the previous years’3.9 trillion. This would also result in reduced job creations in respected areas.