We need to be more responsible in our spending

Updated: Feb 28 2013, 10:27am hrs
Chief economic adviser Raghuram G Rajans maiden effort at the Economic Survey comes at a time when Indias growth has fallen to a decade-low. However, he presented a fairly optimistic scenario of a 6.1- 6.7% growth in the coming fiscal. Excerpts:

Why did the survey choose to give such a wide range of growth forecast for 2013-14

We chose a wide band due to the wide range of uncertainty, both internally and externally. There is a lot of uncertainty in Europe. But, in India, there is not much uncertainty over the policies. I think the growth forecast should be generally given in a band; wide or narrow, we can debate. The problem with fixation about point forecast is that, mostly, it will be missed. I want everyone to focus on whether government brings out policies to turn around the economy, rather than growth numbers in point terms.

How will government ensure 6.7% growth for the next fiscal

We have to first turn around the investment, then turn around the government savings and, thirdly, increase household savings. If we do this, we will make a dent on inflation, which will, in turn, allow RBI room to be more accommodative on monetary policy. To create better condition for investments, you need to re-start big projects and ensure that the stalled ones moved forward. A range of policies need to be put in place. We need to revive confidence among industry players to invest in financial and real economy.

Will excessive cutting down of government expenditure to meet fiscal deficit target hurt growth

You are referring to the austerity vs growth debate going on in the rest of the world. The answer to whether cutting fiscal deficit is beneficial or not depends on what you are cutting. If you are cutting distortionary subsidies, then, perhaps, it is better than cutting key government services.

Bringing fiscal responsibility at this point does not mean cutting muscle, but only cutting the flab by being more responsible in our spending. The key number we need to worry is the current account deficit. A large fiscal deficit means the government is borrowing. So, increasing government savings by reducing the fiscal deficit will help bring down CAD. Bringing down dependence on foreign financing, especially when you are a growing emerging market, is probably the most important thing you can do to sustainability of growth.