It has been, quite predictably a very busy day for Dr V Anantha Nageswaran, chief economic advisor. While the Economic Survey that he and his team put out gives an insight into the year gone by, there are many questions that many hope the budget will address and hopefully also layout a clear roadmap on fiscal consolidation.
Taking time out from his busy schedule, Dr Nageswaran discusses the Economic Survey and the road ahead. Here are some pointers from the interview:
On the gross fixed capital formation
It is today at about 30 per cent and we look at this in the chapter 2 of the economic survey. It suffered in the second decade because of the balance sheet stress and after this was fixed in the financial and corporate sector, we faced multiple shocks – the pandemic, commodity price shock, interest rate increases etc. My sense is that in the remainder of the decade, both the capital formation and credit cycle will look up. Barring global uncertainties, we do expect that from the coming financial year itself, capital formation by the private sector will start to show noticeable improvement, It is difficult to pinpoint a number but the direction is expected to be better than the previous years.
On the challenges or priorities, as he likes to say, that need attending in the days and months ahead
I won’t call them as challenges but would call them as priorities to be focussed on for the longer term. There could be several areas but I am focussed among them on aiding administrative reforms, enforcement of contracts, dismantling of the license, inspection and compliance environment. This is because if you want to grow micro, small and medium enterprises, we have to free up their bandwidth to address their management, marketing and financial issues for they cannot be bogged down in licence, inspection and compliance. Therefore, I have put that as an important aspect to make sure that everybody has a fair shot at economic prosperity. Then there are also the elements of skilling, education and health that are also important because the knowledge base that is required for the 21st century is going to be quite different from what was needed in the 20th century and this needs to be addressed as well.
The pandemic reminded us that healthy population is also an economically productive population and that much of it is in the hands of not just the government by also with ourselves in terms of proactive health management and preventive care. That apart, affordable, reliable and viable power supply is also important for the producing and distributing companies and these would be in the realms of the state governments.
In fact, many of the reforms in the health, education and power supply are all predominantly within the realms of state governments.
On fiscal consolidation and the worries since the fiscal deficit levels are almost double the comfort levels
I am not worried, In Chapter 3, we do talk about the fiscal sustainability. Compared to 2005 and 2021, public debt in India has gone up far lower than what has happened in several other countries and in the last three to four years, we have had to naturally increase debt and deficit ratios because the denominator went down and the numerator had to be ramped up because of the pandemic response. We have also shown that if the nominal GDP growth runs at about 10 per cent per annum on an average for a few more years then the debt and deficit ratios will come down meaningfully.
On the cost of borrowing
The rates are not too high compared to historical averages and interest rate cycles do go up and down.
On investment rate
We don’t have a model to predict and give you quantitative estimates. The point that we are saying is that in the last decade investment rates were held up because of balance sheet repair and the same thing happened in the first decade of the millennium and one they were repaired, global conditions became friendlier and investment rates picked up. Similarly, now the balance sheets were under stress and were repaired but then the one-off shocks followed – terms of the pandemic and commodity prices.
Now if they are out of the way, then slowly investment rates will automatically begin to pick up.
On savings rate
Savings rate rises when incomes rise and incomes rise when economic activity picks up and that is what we are expecting.