Govt should focus on manufacturing sector: Bimal Jalan

Excerpts from India Tonight on CNBC-TV18 Watch the full show » Nifty BSE | NSE 09/02/12 Are Mutual Funds betting on Nifty?

Q: Suppose instead of 93% it ends up at 89% because it is a 4% knock - would 89% worry you?

A: There is uncertainty but our food stocks are very high, so in terms of  availability of food there is no problem but yes some agriculture incomes would decline.

Q: Demand would decline.

A: Demand for what?

Q: Demand for consumer goods would decline if agriculture income declines wouldn't it?

A: But presumably and hopefully with all your schemes that you have in place you can boost it up.

Q: So do we need special focus in the budget that the Finance Minister is now giving his final touch as to boosting up rural demand with a view to the possible fact that the monsoons may be bad?

A: There are two separate issues. One is whenever you have monsoon which is bad then the drought affected people lose incomes and you need relief measures and that is an extremely important factor.

Q: And that needs to kick in now?

A: Yes that would need to kick in if the agricultural incomes fall but the second equally important thing is capital expenditure. So when you are spending in the agriculture area it is not to boost consumer demand per se. What you are trying to do is to make sure that there is poverty elevation and that the impact of drought on the living of the agricultural population is contained but the more important thing from a longer run point of view is capital expenditure, which would also receive a priority I hope in the budget.

Q: Let's try and knit all this in with a question that I suppose in a big way the Finance Minister is grappling with or has grappled with and he already has his answer but he is hiding it from us, in this situation what stimulus is possible or maybe I should say necessary because side by side you have a fiscal deficit that some people say could be as large as 8-8.5% this year for the center, if you add the state deficits it could go to 11.5%, so given that size of deficit and given the challenges the economy has, is there need for a stimulus and if so then of what sort?

A: I don't believe in the word "stimulus". In our situation where the fiscal deficit is already high, there is no problem of either liquidity or fiscal deficit or credit demand. What one is essentially saying is that there is on the capital expenditure side a lot of schemes which we are going to finance agriculture for example the NREGA scheme on which we have done some work.

Q: It now has to be come nationwide if they have to stick to their manifesto commitment?

A: Yes and so there is no lack of expenditure in the system, it is where it is going and you have to spend on some of these schemes that we have announced and that's not bad because it will reduce poverty.

Q: If it were to at one go expand NREGA from rural, below poverty line households to urban as well then you could be talking about a further expenditure of anywhere between half and 1% of GDP and given that the fiscal deficit is already teetering at margins of 8% would it be sensible and advisable to push it further?

A: I haven't studied this problem, but the problem in our system is that you may announce the schemes and so on and your expenditure never keeps pace with what is budgeted. Let me concentrate on 2009 where inflation is not a problem, price index is high, so in 2009-2010, fiscal deficit is not the area where you should be concentrating on to reduce expenditure. If this continues like this and what happens in the government is that once you have did this fiscal deficit balloon etc then it keeps going up and up and up because you can't cut in any expenditure that is going on if somebody's interest was affected, so we have to keep a watch on that side.

Q: So you are saying this year fiscal deficit is not a problem but next year it could be so even though this year I am not worried I would be worried if a bad habit created this year continues to proliferate the year after?

A: Yes and the answer to this are essentially not to cut down on projects but to make them more efficient.

Q: The President of the CII speaking to the Business Standard on May 30, and I don't think he has revised his views since he is out of country, he said given the current situation, our country cannot afford another stimulus, the focus should be on bringing the fiscal deficit down and you would disagree with him would you?

A: No I don't want to take on a disagreement or an agreement who means different things with different words. What I am saying essentially is that in India you don't have to create money to try and stimulate demand.

Q: So your message to the finance minster is that don't let the present fiscal situation put you off creating capital assets and don't let it put you off funding projects and don't let properly and comprehensively elevating poverty because all of that is good for the economy apart from being good to the politics.

A: Yes but you cant defend your inefficiency, if your project of one or two years takes eight years that means the expenditure has been twice as much as you have planned and that you have to cut.

Q: So spend money you need to but make sure you spend it effectively and efficiently and quickly, are that what you mean

A: Yes.

Q: Let us come to some of the reform measure the government has hinted at. First is disinvestment - they have mentioned it in the President's address, Montek Singh Ahluwalia in an interview said that a) it will be extensive b) the government he says should come up with 3-4 year schedule and c) in his eyes the only limit is 51%. That's ends up being the government's polices as well and not just Montek's own personal view - how would you respond?

A: Positively certainly. In a situation where we have public sector undertaking they can remain public sector but you can disinvest and disinvestment here simply means more people's participation. If you want that it should be retail investments and retail share purchase rather than big firms and big cap corporate sector - that can also be done.

Q: What if the money is used to bring down the fiscal deficit rather than for some of the projects etc that you believe are so essential - would that worry you?

A: One or the other is the same thing in the sense that supposing you have money, the only thing is that disinvestment is a one time thing. So it is a one time receipt of money so it is not something that you can finance your fiscal deficits with over and over again except through new disinvestment. So I think you need a policy whether or not a critical sector - either defense or security where there may be other issues and you can design a disinvestment policy which continues to give you the majority. But I think more important than disinvestment in the public sector is to put the government at an arm's length, if you permit me to elaborate on that for just one minute. I think in our system you must have noticed that what happens to a particular public sector unit or a particular sector in so many areas depends on who the minister is.

There is a sigh of relief because a minister has changed - why? The government is the same, the people like us have voted and Parliament is the same, so why should there be this problem that it depends whether the country moves forward or doesn't move forward or whether your highways are built, whether education is good or not or whether your projects are implemented in telecom or not or disinvestment happens or not - depends on who the minister is - why?

The whole concept of parliamentary democracy collective responsibility where is all this? I have spoken about this in Parliament by the way.

Q: So you are saying the vagary of ministers needs to be done away with - all ministers should accept they will operate at an arms length from the public sector and not interfere.

A: Why should the public sector chiefs be changed? Give me one good reason why the minister should decide who the public sector chief should be.

Q: Of course this is advice you are giving ministers not specifically with the budget in mind but with their performance and their behaviour in office in mind.

A: As a larger issue of parliamentary democracy that it must be responsible behaviour and not an individual's deterministic behaviour and that all of us breath a sigh of relief that after ten-years two ministers have changed therefore education system would boom.

The audience in addition to hearing this they should press for it.

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