Speaking at the JRD Tata memorial lecture here on Tuesday, organised by the Associated Chambers of Commerce and Industry of India (Assocham), former governor of the Reserve Bank of India, C Rangarajan, said it would also have a positive psychological effect on the economy which has been hit by a low confidence level.

Rangarajan pointed out that if these measures are supplemented with adjustment of the industry to moderate import tariffs and 4.5 per cent growth of agriculture, the economy can be catapulted to a seven per cent growth trajectory.

Rangarajan expressed concern over the slowdown in export growth since 1996-97. Export growth decelerated from a robust rate of 20 per cent in dollar terms over the three-year period -- 1993-1996 -- to 5.3 per cent in 1996-97 and further to 2.6 per cent in 1997-98.

Calling for restructuring government expenditure in favour of capital outlay, particularly in infrastructural products, Rangarajan said this would be required to trigger off a chain reaction of increased demand in the economy.

In order to achieve the desired levels of investments in the infrastructure sector, it is essential that the issues of appropriate pricing and cost recovery be tackled soon with transparent and explicit subsidisation wherever needed, he said.

Deregulation of infrastructure sector is a must and the process should be supplemented by the establishment of statutory and regulatory authorities for ensuring fair competition among public and private operators and protecting consumer interests, public safety and environmental concerns.

The scenario could be changed by removing procedural and other hurdles, besides carrying out a destination and commodity-wise analysis of exports, he said.

Over the medium term, he said a greater integration of the Indian economy with the rest of the world will require that domestic firms must be able to compete more or less on equal terms with the rest of the world.

Whatever be the justification for some level of protective tariff at the present moment, there can not be a continued justification over time for such high levels of tariff, he said.

Rangarajan said overall economic growth hinges on the crucial agricultural growth. A high growth rate in agriculture in the long run can be sustained only by broadening the regional base of agriculture.

To absorb the growing labour force and reduce the backlog of the unemployed, strong growth in agriculture becomes almost imperative. In fact, all calculations indicate that 50 per cent increase in employment opportunities will have to come from agriculture.

Reclaiming degraded land has to be part of any programme designed to accelerate agricultural growth.

However, this can not result in any increase in the net sown area. This requires enhanced crop intensity. As such, the irrigation potential will have to be increased. This should be supplemented by a more efficient and judicious use of existing irrigation facilities.