The problem is limited flexibility in labour laws. This cannot lead to fast growth of labour-intensive mass manufacturing. However, the semi-skilled-labour manufacturing can go on if education is improved. Take Bangladesh. The garment industry is labour-intensive there whereas in India it is fragmented and nobody wants to employ more than 10 people. This is part of the larger structural issue where most labour still goes to agriculture in India. In this scenario, contract labour is a win-win solution as the laws will apply to the contracting agency and not to the employer. Moreover, labour will not get affected completely if there is, for instance, a slowdown in one sector, say, exports.

The government has already given a fiscal stimulus of almost 3.5 per cent of the GDP to the economy. Is there a case for continuing with this?

The interim Budget has already stated the plan to return to fiscal deficit targets. The economic analysis suggests that it is necessary to maintain fiscal stimulus as we are still in the midst of global crisis. Fiscal deficit is a constraint to growth but we need to make choices necessary in the short term. As of now, I think we require fiscal stimulus as the problem of low demand is still evident in the data.

On the monetary policy front there has been a lot of easing since September 2008 but transmission of liquidity has not happened…..

Tightening of monetary policy seems implausible as the Index of Industrial Production growth is close to zero. Policies need to be consistent with the economic climate and therefore, both, monetary and fiscal policies have to focus on generation of demand. Our domestic concern is food-price inflation but the larger issue is linking liquidity to commodity speculation, especially oil.

... contd.