'India has the potential for up to 10% growth'

'India has the potential for up to 10% growth'
Eight months ago, in the Economic Survey ahead of Budget 2015-16, Chief Economic Adviser Arvind Subramanian had said India was in a sweet spot because of a clear mandate to the government and a favourable external environment.

Today, there may be weaker cues on the external front leading to a shortfall in India’s economic growth, but the CEA believes that the sweet spot is not lost yet and with a faster pace of reforms, India is set for a healthy growth trajectory. In an exclusive interview with Deccan Herald’sAnnapurna Singh, he talks aboutgrowth, inflation and various other policy concerns.

Reserve Bank of India has done its job with a 50 basis point cut in the policy repo rate, now the government has to walk the talk. What are you doing to ensure inflation remains stable and economic growth picks up? 

When we talk of government steps, it is a whole host of things. There is an improvement in economic activity. Some of the macro numbers suggest so. The indirect tax revenues have gone up, government investment has picked up in the first quarter, and the number of stalled projects has come down. On the reforms side, the ease of doing business has improved. On the FDI front, we just saw two separate agencies have given a thumbs up in the sense that India has surpassed US and China as the top FDI destination in the first half of 2015. 

So, the cumulative effects of reforms are positive for growth and help inflation come down. Yes, there are problems on the export front and of course on supply side management, but we are continuously working to improve the logistics. 

In your Economic Survey, you had said India is in a sweet spot which is rare in history, thus set for a healthy growth trajectory. Eight months down the line, do you still see the sweet spot intact? 

I had based my assumption on two important facts. One, the government had a clear political mandate. Second, the external environment was good for India. The first factor remains constant and we are moving forward on reforms, but the external environment is not much supportive at this time. But other things such as soft oil prices and the kind of reforms that we are moving ahead with on the business front, the tax front, and the pace at which we are trying to improve the investment climate, are all growth positive. These things give me the confidence that yes we are still in a sweet spot. 

How much does the world growth scare, especially China slowing down, weigh on the sweet spot? 

Slowing global growth is a concern, but India has been doing better than its peers in the emerging economies. As far as China is concerned, its slowing economy is both a challenge and an opportunity for India. Opportunity, because the demand for commodities such as steel, cement and iron has slowed in China, and correspondingly the prices have come down. India needs these commodities to speed up our infrastructure building. It is positive for Indian industries. 

Prime Minister Narendra Modi during his just concluded visit to the US has said he wants to convert India into a $20-trillion economy from the current $2 trillion. This is a tenfold jump. How soon do you see it happening and what are your prescriptions as the chief economic adviser to reach the target? 

I do not yet know what the prime minister meant when he said $20 trillion dollar economy. Whether he meant purchasing power parity or otherwise. But the underlying desire is to achieve 8-10 per cent growth rate for the next 8-10 years. India has the potential for up to 10 per cent growth. Then the economic growth also has to translate into job creation for people. For that the reform agenda needs to continue at a faster pace. The Goods and Services Tax has faced some hurdle. 

It has the potential to add up to two per cent to the economic growth. The government is committed to it and we need to see some action on this front soon. The other issue is of private investment, and it has to pick up fast. I think it should pick up now after the RBI action. 

On inflation, the CPI has trended down fast, WPI has moved into the negative territory for which the government and RBI deserve praise but doesn’t the negative WPI for a long time now give you a scare? 

We have to tread carefully if the trend continues for long but I do not see any lack of consumption demand in the economy plus our economy is growing reasonably good compared with peers. 

The common man relates the ease in inflation to fall in prices. How to convince them when we say inflation is down but prices of pulses and onion are still up? 

The concern is right. But we have to see that inflation is change in prices of the basket of products. That basket may vary from people to people. Obviously for some people, the basket does not change more frequently, so they feel the pinch. But as I said, while calculating inflation, we have to monitor all products. Maybe certain other things in the basket like transportation cost has come down for people due to lower global fuel prices. Then the prices of rice and wheat are lower. So when prices of pulses are up, that of other commodities have come down. 

Your first Economic Survey was a hit. The JAM trinity was a catchword which the prime minister also mentioned during the US trip as to how useful it has become for linking people with essential government services and lift them out of poverty. What is the catchword you are planning for the next Economic Survey. Has the work begun? 

JAM trinity was catchy. It may have become a hit but I had emphasised on a more important issue that was public investment to kick-start the economy. I see that happening. In the first quarter of this year (April-June), public investment has increased significantly. For the next survey, we have begun work and are focusing equally on all sectors – agriculture, industry and services. 

There is a fear that the seventh Pay Panel award from next year is going to increase government expenditure significantly and that in turn may put pressure on the fiscal deficit target? 

The government is committed to 3.9 per cent fiscal deficit target and that is sacrosanct at this moment. The Finance Minister has said time and again that the target will not be missed. 
DH News Service 

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