Jalan said that India should not be dependent on the services sector and the manufacturing segment is something that the Indian government should be promoting.

“The main sort of negative feature is what's happening around the world and that’s something that we cannot predict just now but on the whole I believe that 2009-2010 should be much better than 2008.” However, he said that the Indian economy was somewhat insulated from the global downturn given the fact that our domestic investment rate is higher and the India’s balance of payments is in surplus now.

"I don’t believe in the word 'stimulus'," Jalan said. “In our situation where the fiscal deficit is already high, there is no problem of either liquidity or fiscal deficit or credit demand.”

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

Q: Let’s start with the state of the economy. On the one hand, we have had better than expected Q4 figures. The economy itself over the last year grew at something like 6.7%. On the other hand, exports have fallen steadily for seven months in a row, manufacturing growth is just 2.5% compared to 9% a year ago. We could have lost perhaps as many as 15 lakh or maybe even 20 lakh jobs. What is your considered view of the state of the Indian economy as the Finance Minister gets ready for the budget?

A: I think the position today is much better than 3-6 months ago. Although these figures do show some declines, the confidence in the economy is returning, the expectations are positive. The main sort of negative feature is what's happening around the world and that’s something that we cannot predict just now but on the whole I believe that 2009-2010 should be much better than 2008.

Q: That’s an interesting answer. If things are better than they were three-months ago and yet the international situation continues to be negative, how have we isolated ourselves from the impact of the depression outside the country?

A: It is not isolation – exports, imports, capital flows – they are all sort of linked and this whole decoupling thesis is not correct in that sense but what happens in the Indian situation for example, agriculture is important from our point of view, roughly in terms of the share in output, it is very high compared with the rest of the world. The industrial growth is much lower than services and it is the service sector which can grow fast and has been growing fast. Our savings are high – much more 35% or something. Our domestic investment rate is high and most important as compared to our past, our balance of payments is strong although you see downturn in capital flows or in current account deficit but our reserves are high.

Q: Within that broad picture that you sketched out from me, let us try and focus on one or two specific aspects of it. Let us start with manufacturing. In quarter four manufacturing actually dipped into the negative. It fell by something like -1.4% and if you look at the year as a whole manufacturing growth was just 2.5% compared to 9%. Are you worried about the state of Indian manufacturing?

A: Of course, everybody is, in the sense that what people say is that our manufacturing, over the long run if you are looking at say 10 years down the line or 8 years down the line and not only 2009-2010, that the manufacturing sector should be contributing much more in terms of both employment and output than it does and it should not be so dependent on services sector. So yes, the manufacturing is something that we should be promoting. We should be helping and the downturn that you talked about just now that’s temporary in my view. You must accept the cyclical dips as well as some structural stagnation and so on.         

Q: What about agriculture? It is a sector that may be limited to contributing somewhere between 17-19% of GDP growth but it does actually involve 65-67% of the Indian population. Last year agriculture grew at just 1.6% compared to far more robust 4.9% the year before and now we have delayed and deficient monsoon and we still don’t know even if the reduced and expected performance will actually happen – it could end up much worse. So what does the agriculture prospect look like?

A: As of now I don’t know in the sense that the monsoon predictions have been variable. We are now getting the monsoons. How intensive it is we don’t know but assuming that say the monsoon is 93-94% of what it was predicted of what it was last year then I should think that agricultural production would not be as effected as badly.

Continued on next page ...