NITI Aayog Vice-Chairman Ashok Lahiri cautioned against knee-jerk expansionary policy on Friday amid rising global inflation and El Nino concerns. He said, "I think it's better to be safe than sorry." Lahiri noted that global food and petroleum prices are firming, making a cautious economic approach necessary for India.
NITI Aayog Vice-Chairman Ashok Lahiri cautioned against knee-jerk expansionary policy amid rising global inflation and El Nino concerns.
With global inflation showing signs of firming, particularly in food and petroleum products, and the threat of El Nino adding to price pressures, a knee-jerk expansionary policy response may not be appropriate, NITI Aayog Vice-Chairman Ashok Lahiri said on Friday.
Responding to a question on whether monetary tightening could lead to some slackening of economic activity and whether there was a need to step up efforts to boost private capital investment, Lahiri favoured a cautious approach.
Earlier in the month, the Monetary Policy Committee of the Reserve Bank of India unanimously voted to raise the policy repo rate by 25 basis points to 5.5 per cent.
Responding to questions from the media on the sidelines of the CII Banking Colloquium, Lahiri said the world was facing uncertainty, pointing to the Strait of Hormuz and uncertainty around when it would reopen.
"If you are implying whether the government in such a situation should have an expansionary policy, the Monetary Policy Committee (MPC) has increased the rate....I think it's better to be safe than sorry," he said.
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He added that inflation across the world was showing signs of "slightly stiffening", particularly in food and petroleum products. "And El Nino is also creating some concerns. So in such a situation, I don't think a knee-jerk expansionary thing is very useful."
Earlier in the day, Lahiri, who spoke on 'Banking Beyond Credit: Powering Eastern India's Industrial Growth' at the CII event, said banks could act as matchmakers, benefiting the state as well as themselves by tapping investment opportunities.
"Going beyond credit, what can banks do to improve the situation? First, banks have contact not only with entrepreneurs and prospective investors across the country, but also extensive knowledge of business opportunities in the state and of the state government. They can act as matchmakers, benefiting the state as well as investors, while benefiting themselves from the business opportunity of funding a part of the investment through credit," he said.
He also pointed to regional variations in the credit-deposit (CD) ratio, which stood at 93.6 per cent in the southern region in 2023, while the eastern region recorded the lowest ratio at 47.5 per cent.
In the eastern region, the five states of Bihar, Jharkhand, Odisha, Sikkim and West Bengal and the Union Territory of Andaman and Nicobar Islands had CD ratios between 32.6 per cent and 51.1 per cent.
Lahiri said West Bengal had missed out on technological improvements brought about by successive industrial revolutions.
"We need to make amends. We need to leapfrog and catch up with the most efficient producers of the world. That will automatically generate investment, income, demands of pay, an increase in credit flows from banks," he said.
He called for launching a couple of marquee projects to "announce the start of a new epoch of growth in West Bengal."
"The setting up of a state-of-the-art, deep sea port, and the launch of a modern industrial park in Singur provide those examples. In a state, where aspirations have collapsed because of the decades-long relative decay, such projects would serve as a wake-up call to investors, businessmen, bankers, as well as this general public," he said.
He also called for inviting and facilitating the setting up of a few new large-scale industrial units.
Banks find it cheaper and administratively more convenient to lend to one large unit than to hundreds of MSMEs, he pointed out.
However, banks have a major role to play in this journey, Lahiri said, adding that there was much to be done in microfinance, where West Bengal is a leading player.
"It is important to remember that the industrial stalwarts of today, like the Birlas and Ambanis, also began as small enterprises. Banks have a role to play in nurturing the MSMEs of today who are going to be big guns of tomorrow," Lahiri said.