Having suggested some tough fiscal measures, the man behind it all, Vijay Kelkar, provides an insight into the whys and the wherefores of the situation. In an interview with Raghuvir Badrinath, the head of the panel that drew a road map for fiscal consolidation says there can be different ways for the government to correct its fiscal course but correct it must. Edited excerpts:
The government has raised diesel prices and limited the number of LPG cylinders per family in a year. How do you see these steps? And do you think these small steps can ultimately help meet the fiscal consolidation targets set out by the committee or should there be big-bang reforms?
What the government has done are indeed good steps and I am hoping the action will continue. What is not contestable is the need for fiscal consolidation. We have given one way of doing it and there may be other and better ways of doing it. But action is required and it has to be credible. I think it will be step by step and there is no need for a big-bang step. What steps are taken, they have to be sustainable. There can be some areas such as the aspects of divestment in CPSEs which can be in the form of a large step. At the end of the day there can be some large moves and some can be incremental steps. It has to be achieved through a combination of moves.
You have set out the year-wise road map for fiscal deficit reduction with targets for subsidy reduction and also revenue enhancement. Which are the three critical areas you think the government should target on priority?
All the recommendations are a priority and it is time the government moved firmly on fiscal consolidation. What the economy requires is greater private and public investment and the government has to create a platform towards that. Then the growth momentum will be back.
For CPSEs, the panel has suggested if disinvestment is not possible, the government should encourage them to invest in other areas and also give special dividends. This can only be a short-term measure for ensuring fiscal consolidation. Isn't it?
Once again, let us not get into an either-or situation. We can have both the measures, which would surely be good for the economy.
On both petroleum and food subsidy, which constitute a major part of the subsidy bill, the government doesn't seem to be amenable to a price increase suggested by the committee. How do you look at this scenario where what is required can't be done?
I do not think they are not amenable to the recommendations. The government has already started steps for fiscal consolidation. We had suggested an increase in the diesel price by Rs 4 a litre; they have done it by Rs 5 a litre. We had suggested an increase of Rs 50 per LPG cylinder and the cap the government is moving ahead on is much more than that. With regard to the fertiliser and food subsidies, what we have suggested are the proposals from the departments concerned. So, the issue of disconnect is not there. As said earlier, what we have said in the report is one way and certainly there can be other ways. But it is high time concrete steps were taken towards fiscal consolidation.
Do you think removing supply-side constraints could be the better way to sustain the reform steps required at this juncture?
Yes, there is absolutely no doubt. But once again, it is not about addressing just supply-side issues. We cannot stabilise the economy on just one step. The recent Supreme Court judgment is a beautiful one on natural resources and is a great way to move ahead. It is an extremely important judgment.
You have given two scenarios: one, if the required reform is done and the other when no reform is done. What is the basic objective behind this?
There are major problems related to the current account deficit and if these are not addressed adequately, there will be severe stability-related problems. It will start to look like the crisis of 1991. Last year, the current account deficit was 4.2 per cent and if no correction takes place this year it will be larger. There's a profound quote from one of India's distinguished policy makers, Dr I G Patel, which is apt in this situation: India does not have divine immunity against economic laws and it is high time we ceded to this.
The government delayed the release of the report. Do you think the recommendations of the panel are too difficult to implement?
All I can say is we gave our report to the Government of India on September 3, 2012 and I cannot comment on why the tabling was delayed.
The finance ministry is now optimistic of keeping the fiscal deficit in 2012-13 within 5.3 per cent of GDP as against the target of 5.1 per cent. How do you look at this in the backdrop of an improvement in investor sentiment and economic indicators in the last three weeks?
Some of the key measures taken during the recent past like FDI in retail and civil aviation are an enabling mechanism and no one is forcing it. You are better off with one more policy instrument. And I certainly think India can surprise the world by ensuring fiscal consolidation. We have overcome the previous crises -- oil, Asian and others -- and I am quite confident we can do it again. It can happen even within a short period.
How will the review of DTC (direct taxes code) help in fiscal consolidation?
We have said it should be deferred as we fear we may lose revenues, given how the current DTC has been structured. There are some areas where it can be improved but we have not made any specific recommendations.