India will see signs of recovery from the economic recession in the second half of this year and a distinct improvement in growth will be witnessed in 2010-11, according to Rajya Sabha member and economist C. Rangarajan.
Speaking at a symposium on ‘Global financial crisis — impact on Indian economy’, organised by the Department of Economics of University of Hyderabad here on Wednesday, Dr. Rangarajan said that it was false to contend that the country escaped from a serious impact of the crisis due to economic reforms.
The financial reforms were intended at improving efficiency and the global crisis would have a ripple effect on the structure of capitalism. “Acceptable capitalism would require more regulation,” he said.
He underscored the need for cut in excise duty and enhanced public spending, especially in infrastructure development. The revised estimates of total expenditure by the Union Government for 2008-09 were 20 per cent more than the budget estimates. As a result, the fiscal deficit was estimated at six per cent of the GDP, he observed.
Dr. Rangarajan said the capital inflow, which was put at $100 billion last year, would not be as much and exports would be impacted due to global slowdown. He said the huge current account deficit in the U.S. and surplus in China and few other countries needed to be balanced.
The crisis had its roots in the sub-prime lending crisis which was a result of housing loans obtained beyond their capacity by borrowers. Dr. Rangarajan said the rating agencies in the current crisis were irresponsible in creating a booming market in suspect derivative products.” Regulatory failure was another cause for the global crisis.
Former RBI Governor Y. V. Reddy said regulatory capture by the regulated, moral and intellectual failure contributed to the economic crisis. Only 15-20 institutions, which received maximum bailout packages, had a role in this as they did not do business with one another due to mutual distrust.
