High inflation and growth momentum are the two key concerns plaguing the Indian economy. Growth momentum, at the moment, needs to be observed on a month-on-month and a quarter-on-quarter basis, says Ajit Ranade, Chief Economist at Aditya Birla Group. He believes the momentum is in the right direction, though it is a little slow.
According to him, Prime Minister Narendra Modi’s comment in his maiden Independence Day speech on 'many government's within one government' assumes significance because if the prime minister can tackle this menace then decision-making will take lesser time.
Also Read: Planning Comm can be replaced by Productivity Comm: NIPFP
On scrapping the Planning Commission, Ranade says talks of revamping the Commission had been on since 1990s. The Planning Commission in its latest form had become just a de-facto Budget allocator, he adds, which was not the original idea. He believes that a separate constitutional body may be set up for capital grants.
Ranade says inflation continues to be the central challenge for macro policy.
Below is the verbatim transcript of Ajit Ranade's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.
Latha: What is the sense you are getting about growth, the macroeconomic number so far have not been encouraging but do you see a big bounce in the second half of the year?
A: Right now the thing to do is to observe the momentum on a month-to-month, quarter-to-quarter basis. So some leading indicators for example on the trade front are the non-oil, non-gold imports which signify economic activity, the purchasing managers’ index (PMI) for June was a little bit of a surprise. So I think we are seeing momentum, we are seeing slow month-on-month movement. As you said, it is not a big bang but things are moving in the right direction.
Some of the stuff, one particular statement in PM’s speech on Independence Day that he thinks that there are many governments working within one government and he wants to breakdown those silos. If that happens, the inter-ministerial coordination, the sorting out of issues, legal disputes, sorting out of clearance matters and approvals, all those things will start seeing some impact on growth.
Sonia: What is your view on the impact of the planning commission being scrapped and how this new think-tank can be cast?
A: The discussion about revamping if not scrapping the Planning Commission has been going on for quite some time. In fact, as way back as late 1990s, I remember, the outgoing deputy chairperson had said that Planning Commission should be shut down. So there has been talk on it, there has been discussion about it. The Independent Evaluation Office which was set up by the Planning Commission itself to evaluate all the centrally-sponsored schemes and the effectiveness and the outcomes, in its reports, I believe, also recommended that the Planning Commission as it stands should be scrapped. So that happened very recently. It should not be that big a surprise that the prime minister announced. Of course, the decision has been taken that was a big historic announcement.
Latha: Exactly what role does the planning commission perform in the Budget statement itself, in the Budget at a glance, you have the planned expenses and the budgetary sanctions for the planned element. Who provides that? The absence of that big entity, what kind of an impact will it have?
A: Historically, the Planning Commission was supposed to develop perspective five year plans, provide strategic inputs and provide vision documents and sort of theoretical background but it became a defacto fund allocator. So the planned portion of the Budget, which this year is about Rs 5.5 lakh crore was the conduit for disbursement became the planning commission. In fact it acquired a defacto allocator role and we had this routine annual exercise of state chief ministers presenting their capital expenditure plans, planned expenditure for the year and then the planning commission is to give its approval. I think that role was not what was the original intent.
Any such allocation if at all it has to happen, it has to happen on a constitutional basis and the planning commission had no constitutional basis. It is only the finance commission but finance commission only does the split of the current revenues. We don’t yet have a mechanism to have capital allocations especially to take care of backward regions. You want balanced growth across the country so we will have to develop a new mechanism where capital grants what is called infrastructure or long-term plan fund as we call it, this terminology itself will change, let us call it capex versus revenue expenditure. So we don’t yet have a constitutional process to determine how central funds can go towards states towards capex and this does not have to be like a formula driven thing, what the finance commission follows. So what is going to replace, we have to see. Currently, the contour seems to be like a think-tank, maybe separate constitutional machinery has to be set up for the capital grants and all the fund allocation roles will go back to the finance ministry for the time being at least that is the expectation.
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