'SMEs hold the key to higher economic growth in future'

‘The prospects of India’s economic growth in the next fiscal (2012-13) depends largely on how the murkier European economy shapes up. For now, however, fiscal deficit needs to be brought down. This is crucial to contain inflation without having to rely on tight money,’ says Pronab Sen, the country’s first Chief Statistician and currently principal adviser to the Planning Commission in an interview to Annapurna Singh of Deccan Herald. The economic woes have only worsened as the latest government data shows the fiscal deficit in the first eight months ballooning to 86 per cent of the full year target. Sen, who is playing a key role in shaping country’s 12th five-year plan, also believes that SME sector holds the key to India achieving high economic growth in coming months. Excerpts:
 
Year 2011 was bad for India’s economy as industrial growth slumped and investor confidence evaporated. So, what is the overall prospect for economic growth this fiscal and the next?
Given the way the inflation (food) is coming down, we will probably end this year (fiscal) with around 7.5 per cent growth, but there is no bet on FY13 (financial year 2012-13). If the European banks are in trouble, then the problem can be very serious. As of now, the uncertainty level in Europe is quite high. If Europe goes wrong, India’s economic growth can slip to the level of 2008-09 (6.7 per cent). This time, we are looking at the dangers of countries like China getting affected. The whole emerging markets getting affected along with the others. That’s why the uncertainty is huge.

What about our own macro-economic indicators? They too are not showing any encouraging signs?

Basically, we need to worry about the fiscal deficit. If you really want to contain inflation, fiscal deficit needs to come down, otherwise you will constantly rely on tight money, and that is not a very good strategy.

What is your sense of fiscal deficit at the year end? Will it be bove 5 per cent?

Can’t really say. But, there is scope for cutting down government’s expenditure and my sense is that towards the end of the year, they are going to heavily rely on it. Then, there is a scope for further improvement in tax collection. That accounts for almost one to one-and-a-half per cent of the gross domestic product.

What about government borrowing? It has already announced a second tranche. Probably, the third is in the offing, signalling a squeeze in credit space for private investors...

The bulk of government borrowing is because of much lower collection in small savings. But, now you may say that the government is borrowing directly from the market. But, that too does not make any difference at the end of the day. The supply of funds in the market has gone up. If the supply was constant and only the demand went up, then it would have affected the borrowers. But, if both, supply and demand have gone up, there is no problem. Why corporate borrowers are not borrowing is their problem. You look at the banking data; it no where shows squeeze in credit. Still, their borrowing is going down month-on-month. They are not borrowing, at the same time they are pointing fingers at the government saying it is borrowing too much.

Investor sentiment is also very low. They are not investing...

Whose sentiments are we talking about? If we are talking about the corporate sentiments, yes, they are down. But the SME small and medium enterprises) sector actually invested more this year than what they did last year. We need to look at their sentiments also. Our entire economic system is banking on corporate sector. If corporates do badly, we think entire economy is doing badly. We forget that we have a vibrant SME sector, which is contributing as much as 40 per cent to the economy. How can you ignore that? We really need to keep track of what is happening in the country and not just be driven by the corporate sector. The real entrepreneurship is in the SME sector. They are exposed to the vagaries of outside world. They will not stop production if Europe or the US goes wrong. They hold the key to higher economic growth in the future.

What is your view on the Food Security Bill? It might become a law soon. But, do we produce enough to sustain such lavish provisions of the bill?

Production is not an issue in itself because the entire requirement of foodgrain to meet the provisions of the bill will be roughly 60 per cent of our production. So, at the moment production is not a problem. The real problem lies in procurement. If your procurement is not enough then it will lead to a situation where the government has to buy from the open market. Even today, very large chunk of our foodgrain is consumed by the farmer himself. He does not bring it to the market. Now, if you are providing him cheap foodgrain, he may actually sell his entire produce and buy it from the public distribution system. So, improving procurement has to be looked into.