Economic Survey: Shows an upward growth trajectory, says Soumitra Chaudhuri

With the survey stating that FY16 GDP growth seen at 8.1- 8.5 percent clearly indicates that the growth is on an upward trajectory, is the word coming in from Saumitra Chaudhuri, former member, Planning Commission. The growth trajectory also implies that the government would likely move away from subsidies and toward more investmentsFurthermore with regards to medium-term fiscal deficit target, the survey has stuck to the earlier trajectory of 3 percent going forward which was also reiterated by the 14th Finance Commission.

According to him growth will stablise at higher levels once the private corporate balance sheets start looking good.

Below is the transcript of his interview on CNBC-TYV18Latha: What are your first thoughts?A: I will start with point that withdrawal of fiscal stimulus is primarily through lower petroleum subsidies. I think the fact that this compression is going to happen through reduction on petroleum subsidies we cannot draw the same inference regarding growth. As far as the headline number of growth is concerned, accelerating to 8.1 to 8.5, good if it happens. However, basically what they are saying is that the economic growth is on the trajectory which is moving upwards, which is quite consistent with the statement that they expect certain degree of switching to investment away from consumption subsides. So, these things do make sense. As far as the medium-term fiscal deficit target is concerned, the 14th Finance Commission has reiterated that. It will not be convenient to having accepted the 14th Finance Commission report two days ago to have a different Medium Term Fiscal Plan (MTFP). So, basically they are going by the old trajectory which is 3 percent going forward. Latha: 14th Finance Commission also said 13.5 percent nominal GDP growth when they were distributing the numbers. A: If you have to look at the fiscal deficit targets then you can argue everything else has changed but that doesn’t work. That is what the target that you want to meet, you have to meet that target.Latha: Also this year’s current account gap has been estimated at 1.3 percent of GDP?A: We know that the Q3 current account deficit is very small and Q4 is probably surplus so that makes sense. A lot of people who are projecting a possibility of a surplus next year, they have projected 1 percent deficit, I think that also makes a lot of sense.

Latha: The statement about the boost to public investment is in this context, private investment must remain the engine of long run growth but in the short to medium-term public investment especially by the railways will have to play a catalytic role. From the Railway Budget one gets the impression that actually capex has not gone up by 52 percent, resources have been found only for 25-26 percent increase. The other 26 percent is a hope, some Rs 17,136 crore is left to be found from an infra fund which will hopefully raise money through some kind of venture capital or some contingent liability we do not know. If the government were to have such a scheme of an special purpose vehicle (SPV) at the project level and then they are able to raise money to put equity into projects, you think by the raising of contingent liabilities we will be able to maybe give a push to railways, give a push to roadways and that can provide the trigger to jump start growth? A: I think growth will stabilise at a higher level once you are private corporate balance sheet starts looking good and the consumer has confidence to spend. However, returning to the issue of railways I think that Rs 17,000 crore maybe found in Japan either through direct official development assistance (ODA) or through Samurai bonds and so on. So, I think they have a prospective target where they can raise this money and it has not been done so they can all perhaps share it till it is all done.