New Delhi: Chief Economic Advisor Raghuram Rajan Monday suggested a three-pronged strategy, including a confidence inducing Budget, to push growth which is estimated to decline to 5.7-5.9 percent in the current fiscal.
"We can not be satisfied with this (5.7-5.9 percent) rate of growth. So, we are not at the end of set of steps we need to take... We are at the end of the beginning.
"Further steps include a good confidence inducing budget, speeding up clearance for projects, and further steps in capital market reform," Rajan said.
He was briefing reporters on the Mid Year Economic Analysis which was tabled in Parliament today.
The mid-year analysis lowered the growth projection for the current financial year to 5.7-5.9 percent from 7.6 percent estimated earlier. Economic growth had fallen to a nine- year low of 6.5 percent in 2011-12.
The growth, Rajan said, was likely to show improvement in the second half to around 6 percent from 5.4 percent in the first half (April-September) driven by factors like improved business confidence, corporate profitability, better industrial output numbers and moderating inflation.
"Strengthening of financial infrastructure is important. Improving corporate bond market is also what we need to do. Number of measures we need to take including the vibrancy of equity market, ability of equity market market to finance infrastructure requirement needs to looked at," he said.
Replying to a query on tax collection, Rajan said low corporate profitability is impacting revenue realisation.
"Corporate profit earnings are not growing at pace, it was growing in past. We hope we will start picking up once again and that should add buoyancy. (If) people are not making money as much as they were then clearly it is going to impinge on that kind of revenue," he said.
As per the mid-year analysis, achieving Budget targets in case of corporate tax and customs and central excise would be "somewhat difficult given the trend so far".
The government, Rajan said, will have to find ways to boost growth so as to improve corporate profitability and tax collection.
"Given the tight Budget situation, perhaps structural reforms can be made (to boost industry), instead of fiscal sops," he added.
As regards the disinvestment, Rajan said the recent pick up in PSU stake sale process will have some positive impact on receipts, but meeting the fiscal deficit target of 5.3 percent of GDP will be "difficult".
"5.3 percent is a tough target. It would be a difficult target to reach. The focus is meeting target. It would add confidence ... The investor community sense that the path the Finance Minister has laid down on fiscal consolidation is also achievable," he said.
Replying to a query on government expenditure, he said: "We have to be as careful as we can to avoid damage to growth. We have a fiscal envelope that is not going to increase and we have to stay within that. So, we have to find out in which way to achieve that".
On the scope for more reforms, he said the government has to first get the fiscal right and the implementation right. "I would like to see some changes in the business environment... Creating a better business environment for small and medium enterprises," he said.
Rajan said there are signs of beginning of stabilisation.
"Corporates are sitting on lot of liquidity. If profitability is increasing, then that gives them the signal that it is time to invest some more.. Lot of projects can be unveiled if they find more confidence in the economy," he said.