Issue is whether potential reforms agreed to will take place: Rajat Nag

Q&A with managing director-general of the Asian Development Bank

Rajat M Nag, managing director-general of the Asian Development Bank, says Manila-based multilateral institutions believe it is possible to proceed with meaningful reforms and boost growth. They, would, he tells Dilasha Seth and Indivjal Dhasmana, watch the implementation. Edited excerpts:

Why did ADB lower its forecast for India's GDP growth to 5.6% from the earlier one of 7% for 2012-13?

We expect India's GDP to grow 5.6% in 2012-13, rising up to 6.7% in 2013-14. Some headwinds are clearly visible on the economic side -- there was a delayed monsoon, the Euro zone crisis is yet to resolve, the investment rate is low, exports are low, private consumption is low. The fiscal deficit has been high and threats of downgrades haven’t helped.

Your take on the expected target of 8.2% average yearly growth for the 12th five-year plan (2012-13 to 2016-17), since the first year is expected to deliver just 5.6%?

It’s not the number that is important but the variables and assumptions you have made. If infrastructure deficit isn't handled, then it will be a problem. Otherwise, 8-9% (yearly) growth for India is achievable. Fiscal deficit and backlog of infrastructure investment needs to be handled. A huge number of projects in the pipeline have to move. That’s why the (proposed) National Investment Board and the land acquisition Bill are critical.

Does even the revised target set by Finance Minister P Chidambaram for the fiscal deficit, at 5.3% of GDP instead of the earlier 5.1%, seem credible? It has already touched 62% of even the new goalpost till September.

Cutting the fiscal deficit in one sense is difficult. It has to be either an increase in tax collections or cut in expenditure or both. It is certainly doable and we believe the government is very committed to it. The issue is squarely recognised by the government. They have laid down fiscal consolidation, which appears to be a credible commitment.

If the government comes out with the proposed food security law in the penultimate year to the general elections, will it not harm the fiscal deficit road map?

Those are balancing acts the government will have to deal with. Reducing fuel subsidies is an appropriate step. Doing so raises objections somewhere else. Targeted subsidies is something the government should look at.

You have given a $400-million loan to West Bengal, which is in debt and in the forefront of opposing the FDI (foriegn direct investment) reforms. Your comments.

We are an apolitical institution, so we are not going to get into any internal dynamics. We have given these $400 million as a Public Resource Management Loan to West Bengal, which was being designed way back in 2004, it is not something which just happened. There are some issues we have discussed with governments, both at the state and the central levels. We feel it is going to be very useful in the state’s fiscal consolidation. We looked at fiscal measures which the state will have to take in terms of streamlining revenue generation, expenditure and public resource improvement, the public debt situation.

Do these reforms include raising of taxes?

We have not laid any such condition. Rather, we are talking about public resource management. What the state government will do is entirely its political decision. We have worked with all governments. The issue is not which government, the issue is whether commitments made and potential reforms agreed to will take place.

How does the world look at the reforms, so called, by the government in retail, aviation, etc? Some analysts say these are cosmetic changes.

I feel we are too self-critical. If nothing happens, we say it's policy paralysis. When something happens, we say ‘What’s the big deal?’. These are fairly far-reaching reforms but the truth is going to be in implementation. So, I would take a much more positive view of the announcements made. These are steps in the right direction. Discussions are on for a long time. The outside world looks at it positively. But does it mean that everyone is saying everything is fine? No, until it’s implemented. Our GDP forecast for next (financial) year is 6.7%. When we do our next forecast, in April, we will have a better sense of implementation.