 "Robust democracies seldom have big-bang reforms: Arvind Subramanian")
Chief Economic Advisor Arvind Subramanian highlights the need to strike a balance between fiscal consolidation and the economy's need for fiscal discipline. The author of the Economic Survey for 2014-15, along with his team, told mediapersons the country needs quasi judicial systems and institutions to get stuck projects going. Edited excerpts:
Last year, you were pitching for fiscal expansion and huge public investment. Now, it is about fiscal consolidation and prudence - meeting the fiscal deficit target. Has settling in the finance ministry changed your stance?
What the survey outlines is whether it is possible to balance the need for extra investment with fiscal discipline. In India, the ability for public investment has a limited scope.
What we said is maintaining the fiscal deficit at 4.1 per cent for 2014-15 was a challenging target, as growth was lower than
the forecast and the government will be able to do that. What we are saying is in the medium term, the fiscal deficit target should be conditioned by a lot of other factors. The interest rate is for the Reserve Bank of India (RBI) to decide but our analysis suggests inflation is going to be moderate and would be lower than the RBI forecast so that gives space for a rate cut.
You said Rs 8.5 lakh crore worth of projects are stuck. What do you think needs to be done by the government?
We need additional quasi judicial systems and bodies to get these projects going, starting with a good bankruptcy code, so that the burden of a failed project is shared by all. It is easier said than done but extra-legal assistance is needed.
You are admitting you are puzzled with the new GDP numbers, saying India is not a tiger and a surging economy. Are we giving a wrong impression, that our economy is surging and can achieve 8-8.5 per cent?
Going forward, we will have only one number and by and large we all have to figure out why they are and what they are. Meanwhile, we have to go by the new numbers. The projected growth rate of 8.1-8.5 per cent should be viewed as how much higher it is than the previous year's. There is reasonable room to say the next year would be better than this year. By how much it would be, that is something we have to wait for.
Do you expect big-bang reforms from the government to put India on the double-digit growth trajectory suggested by the Economic Survey?
Post-war cross-country evidence suggests that big-bang reforms occur during or in the aftermath of a major crisis. Big-bang reforms in robust democracies with multiple actors and institutions with the power to do, undo and block are exceptions rather than the rule. A bold policy shift in areas under government control, plus a persistent, encompassing and creating incrementalism, in other areas can cumulate to a bang.
Is it possible that the Budget for 2015-16 would assume different economic growth numbers from the projections in the Economic Survey?
It is possible but it is likely to be relative to our projections.
What is the real reason to change the format of Economic Survey?
I cannot offer you a good answer to that. Every individual has his own thoughts and idiosyncrasies. I have worked globally and worked with different formats. One good format is something that looks back and something that looks forward, something that is prescriptive and analytical. In total, it makes for a more rounded picture of the economy.
Last year, you were pitching for fiscal expansion and huge public investment. Now, it is about fiscal consolidation and prudence - meeting the fiscal deficit target. Has settling in the finance ministry changed your stance?
What the survey outlines is whether it is possible to balance the need for extra investment with fiscal discipline. In India, the ability for public investment has a limited scope.
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Is there a possibility of the Centre deviating from a target of reining in the fiscal deficit at three per cent of gross domestic product (GDP) in the medium term? What is your outlook for interest rates?
What we said is maintaining the fiscal deficit at 4.1 per cent for 2014-15 was a challenging target, as growth was lower than
the forecast and the government will be able to do that. What we are saying is in the medium term, the fiscal deficit target should be conditioned by a lot of other factors. The interest rate is for the Reserve Bank of India (RBI) to decide but our analysis suggests inflation is going to be moderate and would be lower than the RBI forecast so that gives space for a rate cut.
You said Rs 8.5 lakh crore worth of projects are stuck. What do you think needs to be done by the government?
We need additional quasi judicial systems and bodies to get these projects going, starting with a good bankruptcy code, so that the burden of a failed project is shared by all. It is easier said than done but extra-legal assistance is needed.
You are admitting you are puzzled with the new GDP numbers, saying India is not a tiger and a surging economy. Are we giving a wrong impression, that our economy is surging and can achieve 8-8.5 per cent?
Going forward, we will have only one number and by and large we all have to figure out why they are and what they are. Meanwhile, we have to go by the new numbers. The projected growth rate of 8.1-8.5 per cent should be viewed as how much higher it is than the previous year's. There is reasonable room to say the next year would be better than this year. By how much it would be, that is something we have to wait for.
Do you expect big-bang reforms from the government to put India on the double-digit growth trajectory suggested by the Economic Survey?
Post-war cross-country evidence suggests that big-bang reforms occur during or in the aftermath of a major crisis. Big-bang reforms in robust democracies with multiple actors and institutions with the power to do, undo and block are exceptions rather than the rule. A bold policy shift in areas under government control, plus a persistent, encompassing and creating incrementalism, in other areas can cumulate to a bang.
Is it possible that the Budget for 2015-16 would assume different economic growth numbers from the projections in the Economic Survey?
It is possible but it is likely to be relative to our projections.
What is the real reason to change the format of Economic Survey?
I cannot offer you a good answer to that. Every individual has his own thoughts and idiosyncrasies. I have worked globally and worked with different formats. One good format is something that looks back and something that looks forward, something that is prescriptive and analytical. In total, it makes for a more rounded picture of the economy.