Former Planning Commission member Bhalchandra Mungekar has been unanimously elected as the president of the Indian Economic Association. In an interview with Sanjay Jog, he spoke on various issues. Edited excerpts:
What are your views on the present economic scenario in India?
The Indian economy could successfully over come the 2008 global financial crisis mainly due the timely strong stimulus packages, as also our regulated public sector banks. It was the only economy after China to grow at the rate of about 7.5 in 2008-09. But immediately it had to face adverse consequences of the slow down of the US and European economy. Due to sluggish demand by these countries, rate of growth of India's exports is considerably lower than that of imports. As a result, not only our balance of trade is being more adverse, but the current account deficit is widening that almost three per cent of the GDP. That the food inflation is coming down is a consoling factor, but general inflation is still stubborn.
During the last 19 months, the RBI raised the repo rate 13 times, but failed to contain inflation. In fact, it stated affecting growth adversely, and the RBI is now taking a pause. FII is outflowing, that among other things, is resulting into fast depreciation of the Indian Rupee that is making our imports costlier and affecting industrial cost structure. Due to the fall in revenue collection, fiscal deficit would rise .In sum, the overall economic scenario, at least in the short run, is not comfortable.
Depreciation of the rupee is a major concern. How is it impacting the Indian economy?
As I mentioned above, depreciation of Rupee has all pervasive impact on the economy. It would raise cost of industrial production and help fuel inflationary pressures. Second, though exports would tend to be cheaper, during the last few years, due to growing import intensity of our exports, the cost of export goods would also rise. Third, the cost of education abroad would rise and, therefore, the Indian students studying abroad will be burdened. Fourth, certain crucial medicines and sophisticated medical equipment that has to imported shall become costlier and shall substantially raise the cost of some critical medical treatment. In view of this, I had sought in the Rajya Sabha RBI intervention in the forex market by selling some dollars. The RBI did it for some time that somewhat contained depreciation. Since we don’t have real forex surplus, the RBI cannot do that infinitely. But I appreciate the balanced and cautious approach that the RBI has all along adopted.
Controlling inflation and expediting growth are twin challenges before the government. How this can be achieved?
Achieving simultaneously, the twin objectives of price stability, or for that matter controlling inflation and securing higher rate of economic growth has always been a challenge before every Central Bank in the world, particularly in the developing country like India. Controlling money supply in the economy to contain demand pressures and that through that to control inflation, is bound to adversely affect growth. Our inflation has been mainly a result of gap between demand and supply. Along with short term measures, it will need both medium and long term measures.
What are short term and long term measures to overcome the present stalemate?
First, we will have start with effectively addressing the questions responsible for prolonged agrarian crisis that is primarily responsible for the demand-supply gap and also other structural bottlenecks. During the 10-15 years or so, investment in agriculture both as proportion of the GDP and and even that of the GDP originating in agriculture is declining. The "crowding-out" thesis of some economists proved to irrelevant. PDS has to be totally restructured. Outdated Agricultural Produce Marketing Acts need to be replaced by pro-farmer and pro-consumer laws. The policy of 51 per cent FDI in multi-retail brand 100 per cent in single brand has be very cautiously thought of keeping at the centre the impact on domestic employment. Efficiency of capital has been enhanced. Micro, small and medium enterprises need to be given all sorts of proportion and incentives as they substantially contribute to GDP, employment and foreign exchange.