Finance Minister Pranab Mukherjee on Wednesday sought to dispel the impression of a policy paralysis hurting the economy, citing legislative initiatives for reform in areas like mining, food security, taxation, infrastructure and the financial sector, but ascribed the tardy progress of work to ?processes that cannot be overstepped?.
There was some sort of cynicism that ?nothing is moving… that we have given up?, the minister admitted, but sharply questioned the rationale for the same.
In an interaction with a group of journalists here, he listed out the economic Bills that have either been tabled in Parliament or are about to be introduced, such as those on pension reforms, GST, Direct Taxes Code, mining (MMDR Bill) and the effective mechanism of the groups of ministers (GoMs) to press his point. He expressed the hope that Parliament would ratify at least two important economic Bills in the monsoon session.
He drew a comparison between the Indian economy, which he said was poised to grow at 8.6% this fiscal ? the same level as last year ? with the US economy showing ?renewed weaknesses? and Europe, which is unable to lift the euro. The GDP growth for 2011-12 was originally projected to be in the 9 (+/- 0.25%) range. The revised growth projection is still much more optimistic than that of most non-government forecasters and relied on strong exports and ?a substantial improvement in private consumption?, albeit the investment rate being seen at last year?s level of 34-35%. Although there was a slowdown in corporate investment due to input cost escalation, infrastructure invest-ments remained robust.
To strengthen his argument that the economy was not doing all that bad, he cited the pick-up in coal production despite the ?go, no-go? controversy, improved performance of the power and national highways sectors and the increase in FDI inflows in the first quarter to $7.7 billion as against $4.3 billion in the corresponding period last year.
Mukherjee said the year-on-year inflation based on the wholesale price index would remain ?relatively sticky?and ?persistently high? during August-December but would moderate thereafter to 6-7% by March 2012. WPI, the key gauge of inflation, stood at 9.44% in June ? even as analysts said it must not have factored in the full impact of May?s fuel price hike ? as against 9.06% in May and an upwardly revised 9.74% in April. Since March 2010, the RBI has increased key policy rates 10 times to rein in inflation, which is one of the highest in emerging economies.
Pertinently, the minister stressed that any attempt to push growth beyond potential would only lead to higher inflation, but added that India was capable of faster, sustained growth of 10% or more. He maintained that the UPA-I and UPA-II governments? ?overall track record? in containing inflation was ?satisfactory? given that last decade?s average inflation of 5.5% co-existed with high growth and financial stability.
Stating that other emerging economies were also facing similar challenges on the inflation front, he sought to take solace from a ?declining trend? in food inflation, although he conceded that the sources of inflation had switched to non-food category, in part due to ?imported inflation.? There was no long-term trade-off between growth and inflation, the minister said. The ?delayed impact?of the now-mostly-withdrawn fiscal stimulus (3% of GDP) and a change in consumption pattern ? read higher demand for sundry food and non-food items from rural India that has benefitted from higher minimum support prices for farm goods ? were adding to inflationary pressures.
On fuel price hike and its impact on inflation, Mukherjee said that if a part of the increase in crude oil price was not passed on to the consumers, fiscal deficit would go up, causing higher general inflation, which would be a worse outcome.
Dwelling on the issue of black money, Mukherjee said double taxation avoidance agreements (DTAAs) and tax information exchange agreements were being actively used to deal with this menace. Thanks to the G20 Pittsburgh summit, DTAAs with as many as 87 countries were being reworked and negotiations completed on 57 of them. This would help synchronise domestic policies with those of other countries. On receiving information on black money allegedly stashed away by Indians in Swiss banks, he said the legislative process in Switzerland to facilitate this would be over by September-October and ?they would communicate to us? immediately thereafter.
Commenting on the perceived conflict between the government and judiciary on tackling black money, he said ?distortions could emerge? unless the three wings of the government strictly confined to their assigned roles.
On the Budget numbers and their tenability, he said the target to reduce fiscal deficit to 4.6% of GDP for 2011-12 would be achieved even though it was a difficult task. ?We cannot sustain high fiscal deficit.? he said. ?Revenue buoyancy is there. I?m also confident of meeting the disinvestment target of Rs 40,000 crore,? he said, adding the names of PSUs to hit the market would be revealed in due course, so as to keep market expectations alive.
He said the appointment of Bihar finance minister Sushil Kumar Modi as the chairman of the empowered committee of state finance ministers would help resolve the differences between the Centre and states on the structure of Goods and Services Tax. ?The fear that GST would hit states? revenue is baseless,? he said.