The economy is in a difficult situation but a recovery is not impossible, says Raghuram Rajan, chief economic advisor who presented his maiden economic survey on the eve of the Union Budget.
The survey expects growth to pick up in FY14, pegging it between 6.1-6.7 percent. The survey also expects the finance minister to meet the fiscal deficit target of 5.3 percent in the upcoming Budget and 4.8 percent for next year. The survey projects cutting of subsidies to prioritize expenditure and increase the tax to gross domestic product (GDP) ratio as a key to fiscal consolidation. Many sees growth range figure of 6.1-6.7 percent, which was metioned in the survey as too optimistic.
Saumitra Chaudhuri, member of the Prime Ministers Economic Advisory Council (PMEAC) and former chief economic advisor Arvind Virmani share their view as to what we should pick up for the Budget which will be unveiled on Thursday.
Below is the edited transcript of his interview to CNBC-TV18.
Q: What is your view on the growth projection given the fact that in the previous economic survey the projection that was held out by Kaushik Basu went horribly wrong? The chief economic advisor very clearly said that one cannot anticipate the uncertainties. So, what is your view on 6.1-6.7 percent growth range because the street senses it too ambitious and optimistic?
Chaudhuri: Based on the disappointment which was witnessed in every quarter, every new monthly data release and whole year, it is difficult to forecast growth for next year. My only quarrel around the 6.1-6.7 percent range is that, how 6.1 percent number is arrived. Would it not have been simpler to mention somewhere between 6 percent and 6.7 percent or 6.8 percent. A wide range is a judicious choice, there will be lot of uncertainty, and as the market said that it could be wrong.
Last several years have shown us that extreme tail behaviours is quite common, we get very disappointing outcomes, who would have ever had thought that in 2010-2011, we grew by 9.3 percent. So, on both sides we get lot of extreme volatility and it is very difficult to get a fix today.
Q: What has been the highlight as far as this economic survey was concerned, how would you link what Raghuram Rajan put today and what we can expect from P Chidambaram tomorrow. What do you think will be the theme?
Virmani: As far as the economic survey is concerned, I was quite interested in chapter II. I started the chapter II as an analytical and forward looking chapter in the traditional economic survey. The rest of the chapters are backward looking and more a statement of fact historically. Many people told me that those facts are useful across the country. In cities like Delhi and Bombay, we discuss these issues everyday but people across the country look forward to that as a factual statement.
I am confident that growth will pick up over the course of the year. In my mind the uncertainty is more about the pace, speed of recovery and I feel confident and in that sense I disagree with the growth projections.
I am 50 percent confident to see growth rate at 6 percent but that doesn’t mean a higher growth is not possible. There are 30 percent chances of growth being above 6 percent and 20 percent of less than 6 percent. So, I do believe that the economic survey is a little optimistic on the growth side.
On fiscal and monetary policy we need a macro pivot which is a re-balancing of fiscal and monetary policy. Certainly, if there was only a sharp contraction in fiscal policy and nothing happens then even 6 percent figure would be in doubt. However, what I expect and what is needed definitely is this pivot to have a much tighter fiscal policy and a loosening up equivalent and simultaneous loosening of the monetary policy.