Montek Singh Ahluwalia, re-appointed by the newly elected government as Deputy Chairman of the Planning Commission, is interviewed on the economy by Karan Thapar on CNN-IBN’s ‘Devil’s Advocate’ programme. Edited excerpts:
Performance in Quarter 4 was better than anticipated and the economy itself over the last year has grown by 6.7 per cent. But exports have fallen steadily for seven months in a row, manufacturing has dipped into negative figures and perhaps as many as 1.5 million jobs have been lost. What’s your view of the state of the economy?
It is going through a difficult time. This is conceivably the worst year the world economy has had in 60 years or so. Given the external circumstances, the economy has done well and its inherent strength is very good. It will be able, with the right set of policies, incentives and stimulus, to recover very quickly to high growth.
In the current year, maybe in the second half; I think you will see the economy rebound. The main reason is the fiscal stimulus measures taken after December. Most of that stimulus the government introduced in the previous fiscal year will impact on production in the current year.
But in the meantime manufacturing in Quarter 4 dipped into negative figures and even if you look at the full year, it was down to just 2.4 per cent growth, compared to 8.2 the year before.
Everyone in this government is concerned about the state of Indian manufacturing. The extsernal adverse developments, on exports and the slowing down of investments, both impact manufacturing. That’s going to be an area the government needs to look at very hard.
And, agricultural growth was 1.6 per cent over the last year, compared to 4.9 per cent the year before.
Agricultural growth does fluctuate; you need to look at it over a three or four year period. In the previous four years, there is absolutely no doubt there is more momentum in agriculture than earlier. That needs to be maintained, strengthened. Manufacturing is an area of much greater concern.
Do we need another stimulus package?
It is precisely this issue that we and the finance ministry will look at.We in the Planning Commission have said we need more stimulus in the current year. But it has to be in a framework of medium-term fiscal sustainability. Those discussions have to take place with the finance ministry.
With India’s debt to GDP ratio around 81-82-83 per cent, what level of fiscal deficit do you think is acceptable in these circumstances?
I wouldn’t focus on the deficit in the current year. We should make up our mind what we want it to be five years from now and what’s the fiscal deficit we need today and can we bring it down over the next five years sufficiently to reach a target debt to GDP ratio.
Personally, what would you like the debt to GDP ratio to be five years from now and what then, should the fiscal deficit be?
That’s what we are actually doing in the Planning Commission right now. I would say a very substantial reduction in the ratio of the deficit, five to six percentage points of GDP lower, maybe more over a five-year period, will be very desirable.
So, you would like to bring the debt to GDP ratio to around 75-76 per cent?
Yes. But, more important, it’s the trend that counts. If people sense that the ratio is going down and the fiscal deficit is going down, the concern on fiscal prudence will be met.
And that’s the most important thing. As long as perception and confidence is there, the absolute numbers don’t really matter so much?
They matter less. If you had a fiscal deficit of seven per cent in the current year, objectively that’s high. But if you can set it in a set of policies which lets people know that it will be five per cent and then four per cent and then three per cent... (then) I don’t think people care too much.
Provided you stick to the five, four and three?
Yes. The credibility of that transition needs a very hard-headed look.
Okay. Let’s come to some of the measures enunciated or at least hinted at in the President’s address to the Lok Sabha. The government seems to have put a lot of stress on disinvestment. Is this intended to tackle the fiscal deficit or to send a signal of reform, as well as to reinvigorate the PSUs affected?
I think all of these will happen and I wouldn’t say the President’s address has put a lot of emphasis. There are many, many other things in the President’s address...
Let’s stick with disinvestment for a moment. Are you thinking of just three or four token companies or actually planning disinvestment across a range of companies?
In my view, it is more important to lay down a clear programme for the next three years... not be worried so much about how much disinvestment you are going to do this year. You have got to do it at the right time. The signal we should be giving is, ‘are we willing to do a significant amount of disinvestment over a three to four year period?’ The only limit in my view is that government equity cannot go below 51 per cent. I would hope that is what will come out of the current deliberations.
Let’s now come to other matters referred to or hinted at in the President’s address. First, about pension, banking and raising insurance caps. These are things the government has talked about before.. This time, people are looking to see if these are once again promises you will resile from.
The Address lays out a very clear agenda and the Government is very serious about implementing that agenda. That does include the steps you have mentioned and I hope it will be possible to do that. It does also depend on Parliamentary support.
The Address also hinted at targeting subsidies better, so that they reach the needy.
This issue has been on the agenda for a very long time. One of the ideas there is that the Food Security Act, for example, has to be targeted. It is meant for the BPL population. We need to find ways of making sure these desirable subsidies actually get to the target group. And that we don’t set up mechanisms where you have low-priced items with huge leakages.
What about deregulation of petrol, diesel and cooking gas prices? You have a fairly small window of opportunity before the price itself goes so high that it becomes a frighteningly difficult thing to do.
The price reform the petroleum minister has spoken about is a very important part of the agenda. We had approved the integrated energy policy. A key element is linking petroleum prices to international prices. Anything else, quite frankly, is not economically sustainable. It’s true that oil prices are going up. It is unlikely that for the year as a whole they will get out of line. This will be a good time for that rationalisation.
I know you believe the single biggest bottleneck to growth and development is the poor state of India’s infrastructure. This time, what guarantee can you give that delivery and execution will match up to promise?
In the last three years or so, we have spent a lot of energy in getting the process issues right, whether you look at roads or power. I think all these issues have got resolved, we know how to do it, there is inter-ministerial agreement. So, I think in the coming year, you will see a very significant improvement in the pace of implementation of these kind of things — ports, roads, power plants, all of them.
CII have suggested a single-window agency for clearance of fully researched, designed proposals which have the clearances, which are then auctioned to the highest bidder. Does that make sense?
I think it does. It’s not really a single-window clearance. What they are saying is that, for example, if you want to build a power plant or you want to build a road with public-private partnership, what they are saying really is, set up a shell company which remains with the public sector, go through the process of getting all these clearances and when the clearances have been got for the project, bid out the company. I think it can be done. But remember, what this means really is that all the time taken will be on the government’s watch. When you bring in the private sector, you will have had the clearances. It’s a separate issue to make sure the clearances themselves are done very quickly and that is equally important.
But that is the real test, comprehensive and quick clearances. Can the government do its bit?
I think, better than in the past. My personal view is that we should certainly experiment with this type of approach.
One quick question and give me a quick answer. Montek Singh Ahluwalia is in favour of this, I am sure the prime minister is in favour of this, but will the babus help you or will they be an obstacle?
We exaggerate the extent of obstacles put in by officials. If the government is clear that this is what we want to do, it is perfectly possible to get the administration to be supportive. Yes, objections may be raised, they have to be addressed and a clear decision taken.
