Finance Minister Pranab Mukherjee has resigned preparatory to his running for the office of President and Prime Minister Manmohan Singh has taken up his portfolio. But it signifies little. The booster packet for the economy announced by the Government on Monday proved a disappointment. Measures have been taken to liberalise limits for foreign investments in the Indian debt market and overseas borrowing for Indian firms. But these can provide only a short term prop for the rupee. These will not result in the quantum of investment which can harm arrest the slowdown in the economy and stimulate growth. Downside risks have only increased. The slowdown threatens budgeted tax collection targets. Besides, monsoons look to be weaker than usual. There has been a significant fall in the country’s crude oil basket from an average of $1.14 last year to $89.
The daunting challenge facing the Government is how to boost business confidence and step up investments. The Reserve Bank has to avoid loosening its monetary policy keeping inflation in mind. The Prime Minister as Finance Minister or his successor must bolster up business sentiments by announcing far-reaching moves. It will be a great help if retrospective taxes are withdrawn as they dampen investors’ spirit. This should be followed by measures to increase foreign investments. Opening up of multi-brand retail and the civil aviation sector to FDI will be a step in the right direction. Sectoral caps should be raised in sectors such as pensions, insurance and defence. The solution lies in offering a supply side package.