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Govt banks on central bank to boost economy

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The Narendra Modi government, which is facing a slowdown in growth, will not be able to come up with a fiscal stimulus package ahead of the budget, top finance ministry officials said.

The government will instead depend on the Monetary Policy Committee to bring in measures to stimulate the economy. “We do not expect a major interest rate change from the RBI tomorrow (Wednesday) but monetary policy has other tools to increase liquidity to spur growth,” said officials.

The RBI monetary policy committee (MPC) kept key policy rates unchanged in October, citing a benign inflation trajectory, though the stance changed from neutral to “calibrated tightening”.

India’s GDP grew 7.1 per cent in the July-September quarter on the back of a contraction in mining and slower farm sector growth.

Besides, growth for the remaining two quarters is expected to be slower, which is a point of concern for the government.

The MPC, comprising top RBI officials and finance ministry nominees with the RBI governor as chairman, can increase or decrease money supply in the economy through a variety of tools ranging from tweaks in key interest rates to selling or buying of bonds and reducing or increasing the margins that banks have to keep with the central bank.

The government is looking at augmenting the money supply within the economy, so that businesses can get more loans and consumer demand perks up.

Private final consumption expenditure expanded just 6.9 per cent in the second quarter of this year down from a 8.6 per cent in the preceding quarter.

Officials said with indirect tax collection facing a shortfall of Rs 50,000 crore till November and an expected shortfall of Rs 90,000 crore for the full year, “we have little headroom for a fiscal stimulus of the kind which was evident during UPA years”. India had gone for two rounds of stimulus during the UPA period, which many economists say helped to prop up GDP growth.

The government has been trying to look at innovative ways to bridge the fiscal deficit, including an aborted attempt to raid the RBI coffers.

Option check

Fiscal stimulus package not on the agenda as growth slowdown has left govt with little headroom
Govt looks to monetary policy measures to raise credit flow to spur growth https://www.telegraphindia.com/business/govt-banks-on-rbi-for-steps-to-stimulate-economy-even-without-rate-changes/cid/1677689?ref=business_business-page

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