ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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NEW DELHI-Limits of Reflation

NEW DELHI Limits of Reflation B M ECONOMIC policy-makers in government and planners in Yojana Bhavan .seem to be on the horns of a dilemma. The mid-term review of the Sixth Plan is taking longer than was anticipated, evidently because it is difficult to arrive at any conclusions about the corrective measures needed to cope with the shortfalls in Plan implementation and the imbalances that they have created. , The conventional response in such circumstances always is to concentrate on what is called the 'core' of the Plan and let the rest take care of itself. The resource stringency aggravated by mounting defence expenditure is, however, so acute that even the 'core' is not easy to safeguard. A big disappointment in official circles in this context is that the 'liberalisation' measures have not helped to stimulate private enterprise to make any significant contribution to stepping up investment and growth. On the contrary, the concessions and the relaxation of controls and regulations have only whetted the appetite of big business for more incentives, even as it sits pretty and is reluctant to carry out the enlarged responsibility cast on it for stepping up investment, accelerating economic growth and raising production and exports. The recessionary tendencies in some industries have only compounded the problem. Another disappointment is that there has been no spurt in foreign capital inflow so far. Manmohan Singh, just before he relinquished charge as Member Secne- tary of the Planning Commission and assumed office as Governor of the Reserve Bank, publicly canvassed in favour of what might be termed a guarded reflationary policy. He said, in an interview, that if there is a general slack or under-utilisation of capacity, "we do not have to wait for a prior increase in domestic savings to increase public investment''. He did not straightway concede that .such a situation had already arisen but went on to .suggest that "a more liberal view both of safe limits to deficit financing and expansion of bank credit" could be taken. Indications are available that Manmohan Singh was not articulating just his personal opinion. He was probably canvassing for an adjustment in fiscal and credit policy which is believed to be gathering some support in government as against the earlier official hang-up with so-called deflationary measures to control inflation as the overriding concern of government policy. Already, however, selective relaxation of credit policy has been effected and the Federation of Indian Chambers of Commerce and Industry has promptly moved forward from a clamour for relaxing the 'credit squeeze' to lowering interest rates. The question is whether a switch to a generally reflationary policy is now in the offing. The answer will be available by and by, and will be probably completed when the next budget is presented.

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