Planning Commission member Saumitra Chaudhuri says that the narrowing gap between investments and savings indicates the economy?s ability to sustain 9%-plus growth in medium term. Chaudhuri, who is also a member of the Prime Minister?s Economic Advisory Council, spoke to FE?s Anto Antony and KG Narendranath on the state of the economy. Excerpts:
The PMEAC forecast for India?s GDP this fiscal looks a bit conservative against the IMF projection of 9.4% growth.
I feel the IMF projection is a bit too optimistic. But of course there could be higher growth than the 8.5% projected by the council if the agriculture rebound is above projected 4.5% and exports overshoot our forecast. I agree that there is some room for potential upside. Maybe, it could be as high as half a percentage point above our projections. But it will not touch 9.5% either. The narrowing gap between investments and savings hints that we will be able to sustain the 9%-plus growth in the medium term. The aggregate investments rate is expected to be at 37% of GDP this year and more than 38% in the next, making the growth sustainable. This increase is largely on account of surge in private investment which we have seen in recent months. Capital formation in the economy is back on track.
Which factors will help farm output?
If there are enough rains and no floods, we can get 4.5-5% growth. Spatial and temporal distribution of rains also matters. If everything goes well we might get a growth as high as 6%. It may be recalled that agriculture output grew at reasonably high levels for three years starting 2005-06, the year in which the growth was 5.2%. The growth was coming on a strong base also.
Given the uncertainties in the global economy, do you think that $216 billion export target is achievable?
Exports have been doing well in the first quarter. I think export growth may show slight decline in the second half. Inventory restocking cycle is one of the reasons for high growth in exports now. Uncertainties in various geographical regions across the world will impact us as we cannot suddenly redistribute our exports. Next year, we expect exports to do much better.
The council has said that the fiscal gap will narrow to 5.5% or even a tad lower. Will this mean a reduction in government borrowings also?
You might see a reduction in the borrowing in the second half of the fiscal. A final decision will be taken on the basis of liquidity in the system and other factors. We got some windfall gains from auction of 3G airwaves and broad band spectrum. The proceeds from this were around Rs 70,000 crore above budgeted estimates. But we have not budgeted for fuel subsidies. The government is subsidising sale of 90 crore LPG cylinders and 1,000 crore litres kerosene per year. Diesel prices, too, are be deregulated. So there will be un-budgeted outgoes on account of this.
While inflation is high, income levels too have gone up. Has this not helped the relatively low-income families also to withstand double digit food inflation for more than nineteen months?
The margin of accommodation that people have, has gone up on account of rising income levels. Most of the middle class households have benefited from the rapid liberalisation. The dependency ratio in the households has also come down. Number of families depending on a single working person is much lower now. Looking at it in another way, the increase in income levels is one reason for the rise in prices of wheat and rise as people who so far used cheaper cereals like millets began to use rice and wheat.