)
Wide range of forecast:
Reason for the wide band is the wide amount of uncertainty that prevails in both the Indian economy as well as the external world. There is lot of uncertainty in Europe as a result of elections in Italy. In India it’s not so much the uncertainty about the policy as it is that we are at a turning point in the economy. Growth forecasts generally should be in bands. I’m also trying to get away from fixation about point forecasts. Broader issue I want people to focus on is does the government have the set of policies that will turn us around in the directions that we all want. Economic forecasting is more an art rather than science.
Growth drivers:
What we have to do is turn around investment, turn around government savings, and increase household savings. Those are the three pillars on which any kind of revival will stand. If you do this, you hopefully will make a dent on inflation which will allow RBI room to be more accommodative on monetary policy. One of the factors that will help is that the headwinds that are coming from outside I’m hopeful will diminish this year. Certainly, US will see stronger growth this year, possibly China (too), and perhaps Japan has started changing macro policy to get growth. Europe may still be in the balance.
Current Account Deficit:
The key number we have to worry about is the current account deficit (CAD), how much we depend on the external world to finance us. This we have to shrink. Increasing government savings by reducing the fiscal deficit will help marginally in bringing down CAD. We also need private sector savings to bring it down. Bringing down your dependence on foreign financing, especially when you are a growing emerging market is probably the most important thing you can do to assure sustainability of growth. CAD has two parts—size which we need to bring down and financing which we need to do as safely as possible. About 2.5 % is what we should not exceed.
Subsidies:
If you see government policies you will see a pattern over the last few months, which is basically more fiscal responsibility and consolidation coupled with measures to reaccelerate growth. As far as items that you want to subsidise is concerned, food is most important because having malnourished people when we have plenty of food is not jest economically short-sighted, it is morally problematic. We could definitely have a debate what the right way to roll-out food subsidies might be. Even in the US food is subsidised for the poor.
Fiscal consolidation vs growth:
There are trade-offs across the board. We need growth and growth itself will help stablise finances. One of the reasons why tax to GDP ratio has come down is because the growth has slowed. But ultimately we have to do a bit of everything (including curtailing expenditure) to get fiscal stablisation.
Box on ‘Mauritian Miracle’:
It is meant to prompt debate. I think what you want to take away from the ‘Mauritian Miracle’ is that they manage to employ the entire labour force in a very productive way with substantial increase in per capita GDP. Mauritian is a small island, we are a big country. It doesn’t mean we follow the same policies they do, but it’s important to learn from a variety of experience. We need to have a debate on jobs. Agriculture is not going to create jobs.
Accommodative monetary policy:
Clearly there is an economic rationale for that (easing monetary policy stance) as aggregate demand is contained through fiscal consolidation.
Expenditure control:
Every expenditure has to be examined very carefully to see if we need it. In some situation because of the rapid increase in expenditure, or at least the Budgeted expenditure of the past years, we haven't been able to spend that much or spent as carefully as we might have wanted. So there is a possibility of shrinking allocation in those areas.
