Suman Bery, director-general of Delhi-based think tank NCAER, was special consultant to the Reserve Bank governor in early nineties when the country took baby steps into liberalisation. Currently, a member of the Prime Minister?s Economic Advisory Council, Bery in an interview with FE?s Anto Antony talks about further trajectory for fiscal and monetary policy formulation.
The policymakers seem to be crossing the river by feeling the stones. In light of recent data points, how do you see the fiscal and monetary policy unfolding?
My perspective on the policy measures is an evolving one. Recently many signals have started to move from green to amber whether it is data coming out of the US or a bias towards tightening that is emerging in China. And now there is the grain crisis. I am not saying that these concerns are right. I am just talking about the sentiments.
Today my stand is that if we have to choose between fiscal and monetary tightening, we should go for the fiscal although it is more sluggish and political. At the same time monetary authorities should strongly show their concern about inflation as they are doing now.
The latest data points give room for rolling back both fiscal and monetary accommodative measures. What is your view?
If you accept the Keynesian framework, which people including myself do, either private consumption or domestic corporate investment has to take the place of roll back in stimulus. The month-to-month figures, which policymakers keenly watch suggest that there is no reason to be confident on consumption or investment front. PMEAC also flagged this in recent outlook.
One good thing about the country today is that through rhetoric and other means we have anchored growth expectations at 8.5-9% although we have seen this growth rate for just 3 years. This is very important for animal spirit of private investors as the private fixed capital formation is going to pick up only if the people really believe that the existing capacities are inadequate. Anyway with share of investment in national GDP and share of savings remaining as high at it is now what can go wrong.
Many commentators believe that RBI is behind the curve. Are you saying that the central bank is doing that intentionally?
I don?t agree to the overseas commentators who believe that RBI is well behind the curve. They look at the headline inflation, repo rate and reverse repo rate and flags the gap between policy measures and the data point. I would rather look at real indicators. For instance, the GDP deflator that can be calculated on basis of figures that comes out every quarter. This figures show that the underlying inflationary pressures are much less frightening than headline inflation figures. That is why I believe that we are not going into out of orbit on inflation.
In the growth inflation trade off do you see central bank taking any side?
The monetary authority has an interest in rapid economic growth. If the central bank is worried about fiscal dominance, the monetary authority is left with no choice but to finance the fiscal deficit. Growth will be given precedence. In Greece or some part of Europe we are currently seeing this fiscal dominance.
I think that we should privilege growth over everything else. One important way for us to dig our self out of fiscal hole is growth. The 13th Finance Commission have already given a trajectory for fiscal consolidation. To achieve this we have to work on denominator or numerator.