new wave of reforms, its implications and what more needs to be done to ensure more than 9% growth by end of the 12th plan.
The Supreme Court on Thursday said that auction is not the only option available for the government to use natural resources. How do you think it will help in its policy to utilize natural resources to foster economic growth?
The Supreme Court has definitively pronounced that auction is not a constitutionally mandated requirement for disposable of natural resources. There are other ways which could be justified in the context of the broader objective of policy serving the public good. In effect, this means these issues must be decided by Government as a matter of policy. Of course, in many cases auction may indeed be the most preferable method, but other methods could also be chosen. Of course, every specific decision can be subject to normal judicial review.
It is believed that policies at present are not favourable towards investor sentiment. How does the government plan to change the perception and what are other reforms in the pipeline? How does the government plan to resolve the GST issue, a major tax reform?
I think several recent actions of the Government have produced a more positive investment environment. The recommendations of the Shome Committee on taxation issues and the Rangachary Committee have generated a new mood. The emphasis being placed by the government on accelerating implementation of projects by streamlining the process of granting clearances has been widely appreciated. If a National Investment Board is created which is empowered to grant statutory clearances for large infrastructure projects, it would be a major change. Problems of fuel supply to power plants are in an advanced stage of resolution. The Cabinet has cleared a package for restructuring the debt of discoms conditional on steps to be taken by state governments to improve the functioning of the discoms and enforce rational tariffs. This is an important new initiative. The GST issue is one of the most important items in the pipeline. Of course progress in this area depends on a political consensus, since it requires an amendment of the Constitution, but I believe we are moving towards a consensus on GST. I hope it can begin to be implemented soon. The government is also considering important new steps such as shifting the disbursement of benefits electronically through the banking system based on the Aadhar platform. Such a move will greatly improve efficiency and reduce leakages. All these are major initiatives which I hope will change perceptions.
India will require an estimated $1 trillion ( Rs. 55 lakh crore in current prices) to upgrade its infrastructure. Considering the bottlenecks for infrastructure projects such as slow environment and forest clearances, investments in such a scale may not happen. What is the way out?
The estimated investment of about $1 trillion in infrastructure depends critically on a revival in investor sentiment which depends on accelerating project implementation. I have said we are trying to do this. We have done quite well in promoting projects based on PPP in the eleventh plan which suggests that the policy framework is broadly acceptable to investors. Now the global financial system is beginning to stabilise, I hope we will be able to finance projects of the magnitude required over the next five years.
Food inflation remains to be an area of concern. How does the government plan to tame inflation which can also provide space to RBI to ease interest rates?
Inflation has indeed been a problem. It has come down compared to a year ago, but I agree it remains too high. Our aim is to bring it down to between 5 to 6%. Bringing the fiscal deficit under control will make a big difference in reining in inflation.
Despite good crop, around one-third of India's population, who are poor, do not get adequate food. There is an issue of leakages in the present Public Distribution System. How does the government plan to address these issues?
Insufficient food consumption in the bottom 30 or 40% is primarily due to insufficient income to purchase more food. We have to tackle this problem through multiple means. As far as PDS is concerned, Government intends to put in place the Food Security Act which will guarantee a certain quantity of food at very low rates to a substantial percentage of the population which would certainly cover all the needy. But this is only part of the problem. We need to ensure inclusive growth so that employment opportunities and incomes of the poor rise fast enough to ensure that people can buy the food they need. Focusing on employment and income generation is the only sustainable way of overcoming insufficiency of access to food.
Which are the immediate steps that India needs to undertake to reduce mounting subsidies and rein in the fiscal deficit? Trigger happy bureaucrats and economists may love shooting down subsidies because it bloats the fiscal deficit and burdens the government but the simple fact is that in a one billion strong nation, in which nearly one in every three live below the poverty line, how can one find an effective and efficient method through which privileged tax payers can support the poor?
Some subsidies are justifiable and should not be cut by what you call "trigger happy bureaucrats". However, this does not mean that all our subsidies, on the scale they exist today are justified. Subsidy on diesel for example is not targeted at the poor. Kerosene is meant to be targeted, but at least half the kerosene supplied through PDS goes into the black market. The bulk of LPG is consumed by the non-poor. Putting a cap on the LPG entitlement was absolutely the right thing to do. The fertiliser subsidy is also untargeted. Actually, if we were to use the money currently spent on the fertiliser subsidy to help agriculture through other means, including especially investment in water conservation, our farmers, especially the smaller farmers would probably be much better off and the small farmer would gain. This is also true of free or very cheap power which is a state subsidy.
The parallel black economy has been one of Indian economy's biggest challenges. Is an amnesty scheme such as VDIS to legitimise a part of the black economy a good idea at this point in time?
The black economy needs to be tackled at the root by reengineering systems to reduce the scope for black money to be generated and punishing offenders effectively. I am not a great admirer of schemes to legitimise black money. They are really much less effective than is commonly believed.
12th plan aims to give a huge impetus to rural economy. It can happen by taking industry to rural areas. But, pro-industry land acquisition legislation has remained mired in a maze of political differences. Unless industries reach the rural areas, agriculture will continue to be characterised by high unproductive disguised unemployment. How do we get out of this?
Land acquisition for infrastructure development and also for industrial development is indeed important if we want a rapid growth of industry which can produce the employment needed to reduce labour pressure on land. The ministry of rural development is working on a revised Bill taking account of comments made by the Standing Committee and also the views of other stakeholders. I think it strikes a good balance. We hope to introduce it in Parliament soon and it will be a much better and fairer mechanism for acquiring land when it is necessary.
Private sector seems to be interested in only making profits and not social regeneration. The 12 plan talks about the need for private sector to invest in quality school education, skill up-gradation of employable youth, innovation and health sector. How do you think the government can usher the private sector in making fruitful investment for future of India?
Social regeneration is not the principal task of the private sector. The private sector should primarily do its own dharma which is to expand business by competing vigorously and by following the law and most importantly paying taxes honestly on the profits it makes. The task of social regeneration is the responsibility of government and society in general. Of course the private sector has a role in this via corporate social responsibility and many of them are doing a good job. They could do more.
As for health and education, the private sector is involved in both. My view is that these sectors are areas where the government has to do a great deal more and it should not use the private sector as an option to abdicate its role. However, there is role for creative partnership. PPP has not taken off in health and education as yet although some efforts are being made. They should be encouraged.
Which, according to you, are the key concerns affecting India's economy today? What is the way to resolve them?
It is difficult to give a short answer since we have made a very comprehensive analysis of what needs to be done in almost every sector in the twelfth plan which will go to Cabinet shortly. However, I would say that the immediate concern should be to get the economy out of the present low growth situation back to a high growth path. Growth in the first quarter of 2012-13 was only 5.5%. We don't know what the second quarter numbers will be, it is unlikely to show a rebound. However, in the next two quarters we could do much better.
The most important thing government can do to bring about a revival in the second half of the year is to accelerate implementation of infrastructure projects. I have already said that several initiatives are in the pipeline. These should be made a reality.
India's macro-economic balance obviously needs attention. The fiscal deficit is too high and the current account deficit is also too high. We need to take credible steps to bring the fiscal deficit under control not immediately but over a three year time horizon. If we can achieve credibility in this objective, over the next 12 months, we will have created an environment in which investment will revive and growth will pick up. It will then be time to take up the many sector specific policies listed in the Plan.
Do you think it is about time to fully decontrol petroleum products--petrol and diesel particularly?
We do need to bring the prices of the major petroleum products - petrol, diesel, LPG and Kerosene in closer alignment with global market prices. This is necessary not just to limit the fiscal deficit but also to send the right signal to consumers and producers. We cannot expect consumers to economise on energy, or producers to invest in energy if the prices they face are too low to encourage economy and to incentivise investment.
The price adjustments required are substantial. Immediate decontrol may be too big a shock. We should put in place a policy whereby the subsidy if any is brought to a sustainable level and is targeted.
India's GDP has grown 5.5% in the first quarter of this year (April to June). What's your forecast for the current year's GDP growth?
We don't make short term forecasts and there are a number of alternative estimates floating around. I have already said that the growth in the first half remains subdued. I hope the second half will be much better so that we can say the economy has begun to turn around. Over the longer term, if we do what we have outlined in the twelfth plan, we can get back to 9% growth by the end of the Plan period. Of course if we don't we will face worse scenarios.