Feb 27, 2013, 10.12 PM | Source: CNBC-TV18
Reiterating what most believe, Naina Kidwai, president, FICCI believes fiscal consolidation is the key to the Indian economy’s growth.
Kidwai believes there is capital locked up in unproductive assets in the country. "So, if we can work to ensure that the projects that we started actually kick in, it is going to be very important to bring these investments back to life. The money has been spent. It is a case of making this money now work for us," she adds.
On the Union Budget to be announced tomorrow, Kidwai believes that though the GST may not kick in enough to give a huge kicker for the whole year, but it might help contribute a total of two percent to the gross domestic product (GDP).
Below is the edited transcript of Kidwai's interview to CNBC-TV18.
Q: The fear is that on one side while the market is saying that the government needs to get its act together as far as fiscal consolidation is concerned, now there is a sense and a fear that perhaps in the quest for fiscal consolidation and austerity, we are going down the road of sacrificing growth. Now, the onus is on the Reserve Bank to actually jump-start growth and fiscal policy is shifting now to fiscal consolidation and austerity?
A: I have absolutely no doubt that embarking on this course of fiscal consolidation is key. We have to be able to contain this. Infact, if we don't, it is a very big price that we are going to have to pay going forward.
If you look at some of the near-term gains, the capital output ratios, which are standing at 5 percent where until recently, even last year and year before they were at 4 percent. The Economic Advisory Council to the Prime Minister has suggested that 3 percent is the ideal. What this tells us, is that there is capital locked up in unproductive assets. We have to work and probably not have to work too hard to ensure that these projects kick in. So, if we can work to ensure that the projects that we started actually kick in, it is going to be very important to bring these investments back to life. The money has been spent. It is a case of making this money now work for us.
The other is the goods and services tax (GST). GST may not kick in enough to give us a huge kicker for the whole year next year, but it should come in some stage in the course of next year. It will help because our estimate is that it kicks in two percent to the gross domestic product (GDP) after it is in, in full form. So, maybe some part of that benefit could be available to us next year.
Monetary easing, lowering of interest rates, bringing investment back, bringing industrial production back are going to be very important measures. The world is a better place too going forward this year, better than it was last year.
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