Though the finance ministry expects the economy to grow at 8.6 per cent this year, the Prime Minister’s Economic Advisory Council (PMEAC) has lowered the growth forecast to 8.2 per cent from nine per cent earlier. Chairman C Rangarajan told Vrishti Beniwal the revenue target might remain at the budgeted level and the focus should be on expenditure. Edited excerpts:
What factors led you to revise the growth target?
Subsequent events have led us to revise our target growth rate downwards to 8.2 per cent from 9 per cent in February. The global situation has deteriorated since then and the environment is not conducive for rapid growth. The industrial production has also showed a decline.
What are the risks to the GDP growth this year?
It is dependent upon a reasonable monsoon. We think it will be a good monsoon this year. The other is the international economic situation. If it deteriorates further, we may have a problem. Otherwise, we think the target will be met.
What are the immediate areas of concern for the government?
Bringing inflation down to a comfortable level and maintaining the fiscal deficit are the major short-term challenges. These should be addressed well so that the growth rate in industrial production and investment sentiments pick up.
Would it be possible for the government to meet its fiscal deficit target?
They should restrict the fiscal deficit at 4.6 per cent of gross domestic product. It is a difficult task, but appropriate policy decisions have to be taken.
When do you see inflation coming down?
By November, we should start seeing a decline in inflation. It also depends upon whether the trend has started or not. I mean the inflation may remain at a high level till November and then start declining.
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What prescription would you offer to keep the current account deficit low?
We have projected a current account deficit of 2.7 per cent. I think that is a reasonable level of current account deficit, which can be financed by promoting foreign investment flows. Given our growth needs, a moderate trade deficit and current account deficit are inevitable.
Do you think the budgeted limit for expenditure might be breached due to a rise in subsidies?
They have certain expenditure pattern and we have to see whether that pattern can be maintained or not. There is some element of subsidy. (But) the rest of the expenditure should be maintained at the budgeted level. Also, some expenditure will come in future or the last quarter of the year. It may not necessarily be meant for the full financial year such as food security.
Should the government look at augmenting its revenues from different sources to compensate for any increase in expenditure?
I think they will meet the revenue target. Some expenditure may shoot up and to that extent, revenue augmentation will become important. We adjusted downwards excise duties in the wake of the slowdown. But a decision will be taken only when the fiscal deficit cannot be maintained at the budgeted level. In the medium term, introduction of the Goods & Services Tax and the Direct Taxes Code will help. GST can add to revenue growth if rates are properly chosen.
What should be the government stand on diesel decontrol and increase in petroleum prices?
We should go for diesel decontrol as a matter of policy, but whether it should be raised or not would depend on international prices. So long as crude prices do not show a rise, further adjustment in petroleum prices may not be necessary.
Have interest rates peaked or the Reserve Bank of India (RBI) may continue with a tight monetary policy?
RBI action will depend upon behaviour of inflation. We believe until such time when inflation shows definite signs of decline, the present tightening policy should continue.