Deficit does not count, growth does: Ahluwalia
08 Jun 2009
The government's priority is on putting the economy back on the growth path and it does not matter much at what level does the fiscal deficit stand – it is all about the trend of growth and people's perception and concerns on fiscal prudence that matters, said Montek Singh Ahluwalia, deputy chairman of the planning commission.
Speaking to Karan Thaper in his Tonight show on IBN-CNN, Ahluwalia said the most important thing was the level of confidence - both consumer and business - and the absolute numbers don't really matter so much.
''If you had a fiscal deficit of seven per cent in the current year, objectively that's high. But if you can set it in a set of policies which lets people know that it will be five per cent and then four per cent and then three per cent... (then) I don't think people care too much,'' he said.
He also pointed to the President's speech at the opening session of parliament, where the government had put a lot of stress on disinvestment as a means of mopping up growth funds.
Divestment is a better way of raising funds to finance development projects, according to Ahluwalia.
''The signal we should be giving is, 'are we willing to do a significant amount of disinvestment over a three to four year period." The only limit in my view is that government equity cannot go below 51 per cent. I would hope that is what will come out of the current deliberations,'' he said.
''I wouldn't focus on the deficit in the current year. We should make up our mind what we want it to be five years from now and what's the fiscal deficit we need today and can we bring it down over the next five years sufficiently to reach a target debt to GDP ratio,'' he said.
India's deficit currently stands above 82 per cent of the country's GDP. He said with prudence in spending and funds from PSU disinvestment flowing to the government's kitty, it could fall to around 75 per cent levels.
Besides government divestment, he said there are other matters like pension reform and raising caps in banking and insurance sectors that have to be considered. The government is very serious about implementing that agenda, of course with parliament support, he added.
''We in the Planning Commission have said we need more stimulus in the current year. But it has to be in a framework of medium-term fiscal sustainability. Those discussions have to take place with the finance ministry,'' he said.
Ahluwalia also hinted at price reform in the petroleum sector and of an integrated energy policy. A key element is linking petroleum prices to international prices. Without that energy prices are not economically sustainable, he said.
He said the previous UPA government over the past three years had arrived at an agreement on how to get the right infrastructure for growth. ''We have spent a lot of energy in getting the process issues right, whether you look at roads or power. I think all these issues have got resolved, we know how to do it, there is inter-ministerial agreement. So, I think in the coming year, you will see a very significant improvement in the pace of implementation of these kind of things - ports, roads, power plants, all of them,'' he said.
He said, on a personal level, he favoured faster clearance of private sector projects. ''If the government is clear that this is what we want to do, it is perfectly possible to get the administration to be supportive. Yes, objections may be raised, they have to be addressed and a clear decision taken,'' he said.
The government is pinning hopes ona better-than-forecast fourth quarter performance of the economy and ab 6.7 per cent growth in the previous fiscal as whole.
Analysts, however, say the fourth quarter performance was only the result of extra government consumption and was not a reflection of growth or of the economy's strength - government consumption increased by 22 per cent in 2008.
Manufacturing growth turned negative and agricultural growth has fallen to 1.6 per cent levels. Exports from the country have also steadily fallen for the past seven months. Overall these have resulted ina loss of 1.65 million jobs across the country.
But, he said, India is still better off than several other countries in conceivably the worst year that the world economy has had for the last 60 years or so. Given the external circumstances, he said, the economy has done well and ''with the right set of policies, incentives and stimulus, it will be able to recover very quickly to high growth.''
He said everyone in this government was concerned about the state of Indian manufacturing. The external adverse developments on exports and the slowing down of investments have both an impact on manufacturing. That's going to be an area that the government needs to look at very hard to see what we can do in the current fiscal year to put in a much better performance, he said.
