Govt, RBI need to stimulate economy to prevent recession

Mumbai, Nov 18 (UNI) Time has come for the Reserve Bank of India and government to shift from fighting inflation and train its sights on supporting the economy to prevent it from sliding into a recession, leading bankers and investors said here today.

The panel discussion on ''The Financial Crisis&The way Forward'', organized by the All India Association of Industries (AIAI), was unanimous in the need for the government and RBI to implement incentives to stimulate the economy.

V R Bhansali, managing director&Chairman, Enam Financial Consultants, said reduction of excise duties, focus on agriculture, consumers and exports could keep the economy from being drawn into a recession. ''We need strong stimulus to to pull us out of this looming recession. A 20-25 reduction in the incidence of excise taxes would cost the exchequer Rs 30,000-Rs 35,000 crore, but that is a fraction of the subsidies given to the Petroleum and fertilizer industries. A proper implementation of VAT at state levels will also help'', he said.

He said the RBI could also intitiate measures to stimulate the financial markets by providing more liquidity support to mutual funds (MFs), liberalizing regime for Foreign Direct investments (FDIs) and Foreign Insitutional Investors (FIIS).

Former economic advisor to Tatas, S S Bhandare said that India was vulnerable to external investors' sentiments and a burgeoning external debt and shrinking foreign reserves of USD 65 billion from USD 315 billion in May. ''We need to maintain domestic industry and maintain export levels. Small Meduim Enterprises (SMEs), especially in the textiles industries, are finding it difficult to raise capital. The government and RBI need to encourage capital inflows and simplify formalities'', he said.

He said the government should also need to gauge the social impact of the economic slowdown. Job losses were bound to create discontent especially after expectations had been raised. A growth of seven percent will only create four to seven million jobs when 10-12 million are added into the labour pool every year.

''The government should strenghten its employee guarantee schemes and vocational training'', Mr Bhandare said.

Economist Minoo Shroff said that the country could learn from the present crisis on what not to do and how to react and respond in similar situations. ''Unresticted deregulation, unrealistic and lack of transparencies in ratings and creating hype in the market were key elements that brought forth the situation. However, the quick response and the way the bailout is being handled should also be noted. ''China and India can emerge as leaders post crisis. What we need is action and panic will not help us. We won't be going under'', he observed.

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