MUMBAI, Nov 23: Chakravarthy Rangarajan, till recently the RBI governor, has come out strongly in favour of raising the government's capital expenditure and paring revenue expenditure to trigger industrial growth.

The government's capital expenditure, according to him, plays an important part in the economy. "It is still a major partner in the economy even in terms of direct expenditure." Therefore, additional capital expenditure by Centre and states will have a favourable effect (on industrial growth), he said.

Rangarajan's views are significant against the backdrop of new RBI governor Bimal Jalan's professed concern over the industrial slowdown. At a meet-the-press function on Saturday, immediately after taking over as RBI governor, Jalan, former member-secretary of the Planning Commission, said the central bank would facilitate investments in the core sector to overcome industrial deceleration.

In an exclusive interface with The Financial Express (see Page 6)-- his last as RBI governor -- Rangarajan said: "Capital expenditure as a proportion of total expenditure must improve and revenue expenditure must come down." He also urged the finance ministry to give the Reserve Bank of India the mandate to make price stability the dominant objective of monetary policy.

Jalan has already committed himself to continuing with the twin objectives of the Rangarajan-pursued monetary policy: price stability and availabilty of bank credit for growth.

"I think we have reached a point at which if the government of India and various other agencies are in a position to put together necessary capital expenditure in areas like power, they can be financed and they will be financed," Rangarajan said. The prevailing low interest rates, according to him, should prompt the corporate sector to take the plunge. "Given the falling interest rate situation, it should be possible for the private sector in the system to respond to the new situation," he said. Admitting that there is overcapacity in some sectors like steel, cement and automobiles, Rangarajan said the low interest rate regime should prompt the industry to invest in other areas which don't have overcapacity problems. "We have created a situation where projects which were not worthwile earlier can become viable now as interest rates are low," he said.

Emphasising the need for clear objectives in monetary policy, Rangarajan said: "If we are all convinced that price stability plays in important role in achieving certain growth rates then that must be made very clear. It is this clarity which will make the autonomy of the Reserve Bank of India really purposeful."

The objective of price stability, according to him, does not counter growth. Price stability is, in fact, a means to achieving sustained growth.Monetary policy, Rangarjan emphatically said, is the responsibility of the Reserve Bank and not that of the finance ministry. But successful conduct of monetary policy also "depends upon... the ability of the Reserve Bank governor to...prevail upon the government on what things need to be done in monetary policy," he said.

"I wish to state very clearly that monetary policy is the action of the Reserve Bank of India and I see a consistency in the way in which we have constructed the monetary policy (so far)," Rangarajan said.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.