 "Our take can't be the same: Saumitra Chaudhuri")
Regarding the report on our economy by International Monetary Fund staffers, Saumitra Chaudhuri, member of the Planning Commission and the Prime Minister's Economic Advisory Council, tells Sanjeeb Mukherjee, he does not concur with the view that the Reserve Bank must keep tightening its policy rate to check inflation. Edited excerpts:
The IMF Staff Report for 2014 says two-third of India’s economic slowdown is due to domestic factors, including uncertainty on policy.
The main thing here is to understand the source of slowdown. One reason is surely domestic factors, such as lack of clearances and corruption charges which made government functioning difficult, high inflation, etc. But, I don’t think there was any policy paralysis. Of course, international factors had a role but a larger contribution was domestic factors, which started from the end of 2010. This damaged business confidence and, eventually, consumer confidence. Whether it is two-third or any other portion is a matter of opinion.
The report says RBI should keep tightening policy rates to check inflation. Do you think this is right?
No, this is not appropriate. RBI’s mandate is not only inflation targeting. Even the US Federal Reserve does not have the mandate to target only inflation. In India, RBI should maximise growth while ensuring price stability. The government should decide this mandate; RBI itself can’t do this. Of course, while working on this path, you have to prioritise. Growth in India is very low as demand is very low. There is need to shore up demand through easing of monetary policy. At what pace is an altogether different argument.
Well, while calculating the fiscal deficit, IMF does not take in consideration some things, such as revenue from telecom spectrum auction and disinvestment proceeds. Their method is different; hence, not reconcilable (with ours).
Finally, the IMF paper also says growth recovery in India will be very gradual. What are your views?
Growth recovery will be a slow process but there is also a possibility that growth recovers sooner than expected. There is a problem but it is not insurmountable. I also believe if the general elections throw up a verdict which is muddled, the agony will prolong. A clear verdict in favour of any party or formation will end this soon. Also, the IMF did much of the consultation for this paper before the interim Budget; hence, all the details might not have been captured.
The IMF Staff Report for 2014 says two-third of India’s economic slowdown is due to domestic factors, including uncertainty on policy.
The main thing here is to understand the source of slowdown. One reason is surely domestic factors, such as lack of clearances and corruption charges which made government functioning difficult, high inflation, etc. But, I don’t think there was any policy paralysis. Of course, international factors had a role but a larger contribution was domestic factors, which started from the end of 2010. This damaged business confidence and, eventually, consumer confidence. Whether it is two-third or any other portion is a matter of opinion.
The report says RBI should keep tightening policy rates to check inflation. Do you think this is right?
No, this is not appropriate. RBI’s mandate is not only inflation targeting. Even the US Federal Reserve does not have the mandate to target only inflation. In India, RBI should maximise growth while ensuring price stability. The government should decide this mandate; RBI itself can’t do this. Of course, while working on this path, you have to prioritise. Growth in India is very low as demand is very low. There is need to shore up demand through easing of monetary policy. At what pace is an altogether different argument.
Well, while calculating the fiscal deficit, IMF does not take in consideration some things, such as revenue from telecom spectrum auction and disinvestment proceeds. Their method is different; hence, not reconcilable (with ours).
Finally, the IMF paper also says growth recovery in India will be very gradual. What are your views?
Growth recovery will be a slow process but there is also a possibility that growth recovers sooner than expected. There is a problem but it is not insurmountable. I also believe if the general elections throw up a verdict which is muddled, the agony will prolong. A clear verdict in favour of any party or formation will end this soon. Also, the IMF did much of the consultation for this paper before the interim Budget; hence, all the details might not have been captured.