‘Budget must provide an anti-inflationary stance, give RBI room to lower rates’

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Chief economist of Aditya Birla Group, Ajit Ranade.  Chief economist of Aditya Birla Group, Ajit Ranade.
SummaryBudget 2013-14 must have an anti inflationary stance as it would give the RBI headroom to lower interest rates. In an interview with The Indian Express

Budget 2013-14 must have an anti inflationary stance as it would give the RBI headroom to lower interest rates. In an interview with The Indian Express, chief economist of Aditya Birla Group, Ajit Ranade says he believes that gold imports that are blamed for the rising current account deficit are also a hedge against inflation. Excerpts:

What are the pressure points that Budget 2013-14 should focus on?

The priorities for the next Budget is to provide growth impulse, especially in the manufacturing sector, keep an anti-inflationary stance, reduce the fiscal deficit and revive investment spending. The pressure on the twin deficits, as well as on inflation will act as overarching constraints.

Is the fiscal deficit target of 5.3 per cent attainable? Can the government afford any fiscal sops in Budget 2013-14 — the last year before elections?

The need to rein in the fiscal deficit is paramount. This calls for, among other things, reducing or at least rationalising subsidies. Just interest payment eats away almost one third of all current revenues. A reduction in 0.25 per cent in interest rate burden can lead to a saving of about Rs 15,000 crore.

That reduction in turn could take some pressure off the borrowing requirement, which in turn can have a virtuous cycle impact on interest rates. With a judicious mix of revenue and expenditure measures it is possible to reduce the deficit to 5.3 per cent of GDP. This will call for resisting temptation for purely populist measures with an eye on the 2014 elections.

It will also require a conscious anti-inflationary stance, so that it leaves room for the RBI to be able to reduce interest rates further. A significant part of the inflation is caused by administered prices (such as coal linkage, electricity tariff, railway fares, diesel prices, entry taxes and road tolls, MSP for agriculture). But some price increase is inevitable as we reduce subsidies. This calls for a tightrope balance between fiscal correction and keeping inflationary pressure in check.

Should Budget 2013-14 consider measures such as a re-imposition of a commodities transaction tax or a tax on

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