Eco survey: Dream list or wishful thinking? Experts answer

Aziz said the government may actually push for FDI in retail and insurance — one of the reform items suggested in the survey. “There has been a lot of preparatory work done on that. In the previous administration, the government did not really have the space to push these through and right now it does,” Aziz said. “Perhaps insurance first and then follow it up with retail. So, I really don’t think that is just a wish-list. I think it is very doable.”

“Some of them are quite notable. Decontrol of sugar and fertiliser is worth mentioning here and also as you said, rationalising the fertiliser subsidy to change it from a part producer reimbursement to directly targeting to the farmer — end user-based on micronutrient or nutrient usage,” Ranade said. “If you read that along with this UID project, I think it is an eminently feasible idea and will hopefully cut down leakages to a large extent. In fact, there is a lot of mileage to be gained by just trimming subsidies or removing wasteful leakage of subsidies.”

Also read: Survey calls for more FDI, wants changes in sops, taxes etc

Here is a verbatim transcript of their exclusive interview on CNBC-TV18. Also watch the accompanying video.

Q: Let me begin by asking you, it seems very attractive on paper. But is it too good to be true and difficult to be implemented?

Seth: When I was reading the survey this morning, I was thinking: this sounds like an IMF document from the 90s. It has everything that the IMF would want a country to do, fiscal reforms, taxation reforms, disinvestment, deregulation, all of it.

Yes, I do think it is ambitious. Do I think it is all going to be reflected in the budget on Monday? Probably not. But is it good to have an ambitious agenda even if it is a broader agenda and one that cannot be implemented this year, perhaps not even in the next, perhaps not ever, I think [it’s good that] the policies that the government puts on the table are the right ones.

I’d just like to add that besides all this reform agenda, it also calls for social sector spending. So, it is not like the aam aadmi has been forgotten completely. I just want to put that on the table as well that the survey balances between what we think of is market reform and what is also pretty much trickle-up economics, putting money into the hands of the people at the bottom of the pyramid.

Q: The economic survey has put out a wish-list on paper that seems really attractive. But on particular areas for instance foreign direct investment in retail and insurance, the government has gone on record to say that this is on the backburner, specifically with regard to multi-brand retail and groceries, which is actually what the document talks about? What are your thoughts on that?

Aziz: Both FDI in retail and insurance had been on the cards for quite sometime, at least for the last five years. There has been a lot of preparatory work done on that. In the previous administration, the government did not really have the space to push these through and right now it does and I think the government will push [for FDI in both] both retail and insurance. Perhaps insurance first and then follow it up with retail. So, I really don’t think that is just a wish-list. I think it is very doable.

Q: The survey does talk about the fact that it wants to cut oil, fertiliser and food subsidies – those leakages and provide fertiliser subsidy directly to the farmer. Do you expect some concrete action perhaps in this budget?

Ranade: Yes, actually that was among the slew of reforms that have been suggested. Some of them are quite notable. Decontrol of sugar and fertiliser is worth mentioning here and also as you said, rationalising the fertiliser subsidy to change it from a part producer reimbursement to directly targeting to the farmer — end user-based on micronutrient or nutrient usage.

If you read that along with this UID project, I think it is an eminently feasible idea and will hopefully cut down leakages to a large extent. In fact, there is a lot of mileage to be gained by just trimming subsidies or removing wasteful leakage of subsidies.

The other notable thing I wanted to mention was the statement on 3G auctions where they say that spectrum should be auctioned and should be made freely tradable. That is quite a notable statement.

Q: We have seen statements being made on the divestment front. But do you think that will be carried through in the budget?

Aziz: If we go back to India’s history of divestment, it has always been done when the public finances were cash-strapped. It has never really been done because it is good for the country. It is good for the country; it is something that comes out of the divestment process. But it has always actually been undertaken when the public finance is cash strapped.

Right now, the public finance is cash-strapped. The political consensus will be forged because there is a financial reason as to why they need to bring up divestment rather than just for efficiency or having a level-playing field etc.

Those are all the ones that we economists would come up with. But at the end of the day, it is being pushed to the wall that has always forged political consensus on this issue. This time around, it is going to be the same. People will agree to have a divestment programme because I don’t really think there is any other alternative at this point.

Q: One of the other areas where they have asked for revolutionary changes is in terms of tax reforms. How optimistic are you about the tax reforms part of the prescription?

Sheth: To be perfectly honest, not very. I think that all of these proposals are good ones. Some of them, for instance the fringe benefit tax (FBT). There is a groundswell of opinion that now believes that the revenue positives from the FBT are far outweighed by the compliance negatives both on the corporate side as well as on the finance ministry’s side. That is one where you might see some action simply because that the logic of it is there.

But as far as the others are concerned, this is not a year where the government has ample revenue. So, cutting off revenue streams may not be the first step that they would take. Again, just having it back on the agenda and the fact that it has not been swept under the carpet is a positive in my mind. I think some of it might be implemented actually, but not all of it for sure.

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Q: In terms of the challenges and policy response, the survey calls for continued fiscal stimuli, which should have tax cuts and new expenditure as well. The sort of direction that seems to be coming in is: let the sops continue. All of it talks about reversal of what was announced in the earlier stimulus package, do you think that is sort of laid to rest?

Sheth: When I read the growth target and the general tone of the document, if you were to ask, is the government going to privilege fiscal discipline or growth, because it’s a trade-off — you could either have one of the two, you can’t have both — I think they are going in the way of fiscal stimulus. So that fiscal stimulus leads to growth and then that growth hopefully will lead to revenue, which will bring fiscal deficit down. It is certainly not going to be expenditure cuts, nor is it going to be tax increases in any way.

Q: On the monetary management front, the survey calls for calibrated monetary policy measures to stoke growth and proactive liquidity management. Is this likely to be the position of this government and in a sense what it expects from the RBI?

Aziz: I am not really sure. That is the view of the economic survey. I am not exactly sure what the view of the government would be come July 6 and what ultimately the RBI will do.

But if you just look at the way in which the economy has been evolving, we have been in this zone of mixed news of some positive or negative news for quite some time. We haven’t really seen a decisive breakaway towards a sustained recovery. We are hoping for one, we are expecting one but we really haven’t seen any concrete signs of it. Industrial production, credit growth, freight, PMI all seem to suggest that we are on the verge of a recovery but nothing really has happened.

So, what we really need is that monetary policy remains on an easy stance for a prolonged period of time. If you look at the FOMC meeting yesterday, two of its governors Janet Yellen and Glenn Hubbard, a monetary policy hawk, both stressed the need to have easy continued monetary conditions for an extended period of time. The RBI would do well to keep these easy monetary conditions for quite some period of time because I really don’t think that this economy can take a shift to a neutral or a tightening monetary stance.

Q: The GDP number that’s being thrown at is 7.75%. What would you think: conservative or realistic or workable?

Seth: I think it is terribly ambitious but that’s the job of the economic survey to throw out ambitions and targets. I think it is ambitious and I doubt it will be achieved.

Q: What do you think?

Ranade: This is definitely on the higher side. Among all the forecasts that I have seen, most of the consensus seems to be around 6.5% to 7% and even that is on the slightly higher side and this is mainly because of the global situation and still uncertain situations. Most people believe that in the second half of this fiscal, we will see much more robust growth, so 7.75% is on the higher side — not impossible — but aggressively optimistic.