India should continue with the pending reforms in many sectors to get the economy back on track and take it to a high growth rate, says Arvind Virmani, chief economic advisor to the government, in an interview with Business Standard. Excerpts:
You are projecting the GDP growth rate at 7 per cent in the current fiscal but with a wide range of + or – 0.75 per cent. Does it indicate continued uncertainty?
We are reasonably confident that the growth rate would be around 7 per cent, but global uncertainty has not gone completely and the Indian economy is dependent on global factors to fully recover. This growth rate is based on the assumption that the US economy would hit bottom by September this year. The range of 0.75 per cent on either side is an indication that global uncertainty has not fully ended. However, fiscal measures taken in the past would bring back domestic consumption.
The survey has many recommendations. What is the message you’re trying to convey?
The punchline is that neither should one rest on past laurels, nor should the present setback weaken our determination to return the economy to a high growth path at the earliest. High growth is critical to generate the revenues for meeting our social welfare objectives on a sustained basis and ensuring inclusive growth. All reforms have played a role, which include tax reforms. The challenge now is to let reforms help the economy get back to a higher growth rate and maintain it.
There have been many high growth economies in the world that get knocked off in times like these. There have been only 10 per cent or fewer economies that are able to respond to the shock. The biggest challenge for the Indian economy is to get to a high growth and stay there. It is in that context that policy reforms are given in the survey. There’s a need for fiscal reforms, energy reforms, investment reforms, etc, along with the problem of finances.
How feasible are suggestions for reforms in the energy sector like limiting subsidised cooking gas for domestic consumers to 6-8 cylinders per year?
Some of these measures are contradictory to the Congress manifesto, which means that as long as this is the policy, it will not happen.
The survey talks about examining the possibility of a new FRBM target of zero fiscal deficit on a cyclically adjusted basis.
This is a suggestion in the survey but who will examine is referred to the 13th Finance Commission. I am saying it is worthy of examination. If you have automatic stabilizers (revenues going up when the economy is doing well and increased social security payments when growth slows down) and fixed targets, there is total contradiction.
In India, what is the typical economic cycle?
We have not had cycles. There were supply cycles. We had only a demand-based economic cycle. There are constraints, so that is why the economic survey clearly says, examine the possibility. It is not easy to define trend growth and variations, as there are so many issues.
With headline inflation WPI in negative territory, how will it perform from now?
Keeping in mind the international problems, including oil prices, WPI inflation would be between three to four per cent by March-end next year. The food inflation is currently higher than overall inflation and it is difficult to explain why food inflation is high, compared to the rest.
