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Informist, Thursday, Jan. 30, 2025

 

HYDERABAD – Former Reserve Bank of India governor D. Subbarao Thursday said the upcoming Union Budget for 2025-26 (Apr-Mar) should focus on creating jobs. "It is jobs... jobs and only jobs," Subbarao said after delivering the third B.P.R. Vittal Memorial Lecture at the Centre for Economic and Social Studies.

 

Pressure on the Indian government to revive economic growth has increased rapidly in recent months after the GDP grew just 5.4% in Jul-Sept, the slowest pace in seven quarters. The RBI subsequently slashed its full-year growth forecast to 6.6%, from 7.2%. The government's first advance estimate of growth for FY25 was further below that at a four-year low of 6.4%.

 

A few days after the Budget is presented, the RBI's Monetary Policy Committee will announce its interest rate decision. With the policy repo rate unchanged at 6.50% for two years, the rate-setting panel is seen finally lowering interest rates on Feb. 7. Ahead of the meeting, the central bank has acted to ease the liquidity conditions that had tightened sharply following the RBI's massive dollar sales in the foreign exchange market to support the falling rupee.

 

"I heard that there was a liquidity constraint," Subbarao said. "But over the last one week, the Reserve Bank has done a number of things to ease liquidity. What else must be done? I have no idea. They also have to take care of exchange rate management." The RBI late Monday announced plans to inject up to INR 1.5 trillion of liquidity by the third week of February, starting with the open market purchase of INR 200 billion of government bonds Thursday.

 

Commenting on co-operation between the Centre and the states, Subbarao said working together is a must if the goal of becoming a developed nation by 2047 is to be achieved. "Implementation of GST (Goods and Services Tax) has become another fault-line in our fiscal federalism," the former central bank governor said. "States have tended to see the GST as a central initiative in aid of which they have been forced to make compromises. This is short-sighted." Subbarao said GST is a win-win for the Centre and the states and there is already sufficient evidence that the indirect tax reform has lived up to its promise.

 

The former finance secretary also warned that freebies by states to win votes was not a viable strategy and said a dialogue is needed to evolve a code of conduct on the issue. "Freebies have an opportunity cost," he said. "The money spent on them could be spent on roads, education, and health, which arguably would aid growth and welfare on a more sustainable basis than would mere hand-outs."

 

As for dialogue between the Centre and the states, Subbarao said India needs a different platform for these consultations so that the context is apolitical and non-confrontational. "The meetings should be conducted around a specific and limited agenda," he said. "All prepared statements should be taken as read, the decision should be business-like and results-oriented to iron out differences and arrive at a consensus."  End

 

Reported by Narayana Krishna

Edited by Rajeev Pai

 

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