Even as Union Budget is presented on February 29, Manasi Phadke, a consultant economist, tells Namrata Devikar about the current state of the Indian economy.
What should the government do to tackle problems like inflation and price rise?
Well, technically, inflation has been soft in the last one year as compared to before, a gain that has primarily come in from the oil price reductions. However, food prices continue to be high, which is a cause of concern for the policy makers because it is these prices that are the most closely linked to welfare of the disadvantaged sections. Government needs to do more in food management. Food subsidies can be delivered much more effectively through the DBT mode and more coverage under DBT will be crucial as we go ahead.
How would you view the Indian economy at present?
Indian economy could well be described to be in ‘snooze-mode’. While it has clearly snapped out of the political logjam and economic stagflation, it is somehow yet to rise to the occasion. The growth has shown a revival at 7.6 per cent for 2015-16. However, this creates a GDP level that is nonetheless much lower than the potential output we can produce. The economic survey of 2015-16 has hinted at a long-term potential growth rate of 8-10 per cent and so there are clearly issues. As I see it, there are certain issues that are created externally and certain others, which are rather structurally and culturally Indian. The former includes a slowly growing global GDP, which affects export outlook, climate changes and monsoon vagaries, volatility in perceptions connected to emerging markets, etc. These do create problems, but it is the latter structural and cultural factors that are really tricky.
Structural factors pertain to the woeful levels of infrastructure and farm investments that have been witnessed in India. It takes time to cure such neglect. Again, the slowdown in revenues that was witnessed in India from 2011 onwards has contributed to a corporate sector that is by now debt-burdened. Even if revenue growth happens now, companies divert their earnings towards debt servicing, as a result of which investments suffer. The toughest to change however, would be the cultural factors. Everyone talks about the steep pendency rates in judiciary. However, our bureaucratic pendency is equally steep and creates a slower movement down the line from policy to implementation. While the Government has been changing things through a policy platform, structural and cultural roadblocks take time to clear and that is perhaps the greatest challenge right now. Given the political mandate that the government enjoys, it does seem to be a now or never time for these issues to be resolved and I am hopeful that they will stand resolved soon.
What should be the thrust and focus of the budget and why?
Clearly, agriculture has to be the focus point for the budget. It not only is a huge source of employment, but also can swing the price stability balance fairly sharply. Monsoon vagaries this year too have contributed to low production and high food prices. Add to that a burgeoning middle class with higher demand for protein foods, and you have a recipe for food inflation. The budget will have to allocate funds towards micro-irrigation systems, cold storages, crop insurance and financial inclusion. More allocations towards smart cities, education programmes, women and child programmes, re-capitalisation of banks will all be equally important. These allocations can only be supported provided the tax collection increases. Tax reforms should also be a thrust area, else we risk moving away from the fiscal consolidation path, with consequences for interest rates, exchange rates and inflation. Econometric results suggest that fiscal deficits can promote growth in the short run, which is tempting, but tend to be inimical for growth in the longer term perspective. Hence, another thrust area for the budget is to make sure that fiscal discipline is maintained.
The reader may view the interview directly at http://www.sakaaltimes.com/