ICRIER's Acharya says element of disarray in government

Below is an edited transcript of the interview on CBC-TV18. Also watch the accompanying video.

Q: What did you really expecting from this meeting?

A: The situation is so grave in the country that specifics were expected, from project implementation to removal of bottlenecks, tackling fiscal deficit and making price adjustments for diesel, LPG and fertilisers. Now is the right time to send out signals to investors by bringing in anti-avoidance rules and announcement on reform in FDI.

Q: With the absence of the finance minister, Manmohan Singh couldn't have talked about reforms in GAAR?

A: Okay, fair enough, but petroleum is part of infrastructure. The government could have actually gone ahead and done something realistic. But the real point is that making a general statement at this stage of intent and then saying look we will get back to 9% growth at a time when growth has slipped from 9% to just over 5% in the course of a year, leaves something to be desired.

Q: Is this another economic report card or appraisal exercise?

A: The element of disarray has been there for a quite some time. Ministries have operated at cross-purposes without being pulled up. Just look at the last Budget.

The only highlights are the passing of the Finance Bill and the retrospective taxation in various forms, GAAR or general anti-avoidance rules which were held in abeyance only for reintroduction as part of the DTC in the July or monsoon session.

That Budget was framed against the background of an economy which was already suffering substantial stress. Growth in the previous quarters had already come down to 6.1%, inflation was still high, the balance of payments clearly showed a current account deficit of 4%.

So, the government has been in denial; for some months at least.

Q: I just want to quickly get your thoughts on the cabinet that's likely to take place tomorrow and our sources suggests that the PFRDA Bill is on the agenda and the government could actually look at 49% FDI cap for that.

The Bill doesn't specify a number, but it's said to be aligned to the insurance cap and the Finance Minister himself, when they deferred taking a decision on the Insurance Bill, said, 'What's the point of 26%, let's do 49%'. So the hope now is that both PFRDA and insurance could be 49%. Do you see that as being a game charger in that sense from a revival of reform point of view?

A: From the point of sentiment, I think that Insurance Bill is probably more important, but I think far more important than either of these two bills that you mentioned is something like the FDI in retail because finance is always a sort of indirect thing and the aam aadmi has difficulty relating to it.

Whereas something like foreign investment is allowed into certain sectors such as multi-brand retail or reform towards Goods and Services Tax (GST).