Although Mr Montek Singh Ahluwalia the deputy chairman of the Planning Commission expects the economic deceleration to continue in October-December quarter he believes that India has the potential to grow between 8 to 9%. He added that “If we have the political will to do what is necessary, we can do 8 to 9%.”
According to him, economic policy requires a lot of tough decisions. He said that “When external environment deteriorates, those decisions have to become tougher. So, I am making a conditional forecast. If we can do what needs to be done, which is in my view tough, but not impossible then I think your potential would definitely be between 8 to 9%. We can do much better than 7%.”
There has been a lot of noise over the government's Food Security Bill and how much it would burden India’s fiscal deficit.
In an interview with CNBC-TV18's, Mr Ahluwalia says that it will not worsen the country's fiscal deficit and will add only INR 20,000 crore to the food subsidy burden.
According to him, the Food Security Bill is not a sudden development. “It’s a political commitment of the government. So, every sensible investor knew that the Food Security Bill was coming."
He further said that "The additional expenditure of INR 21,000 or even if its INR 25,000 crore is not going to make any significant difference. That can be accommodated. I think the fiscal deficit is a problem but I don’t think we should make the Food Security Bill the focus of attention. There are already other factors. We certainly need to look at that.”
Below is the edited transcript of his interview on CNBC-TV18. Also watch the accompanying videos.
Q - You raised the issue of Food Security Act. It looks like a very onerous task. Seventy five percent of the total rural population and 50% of the local urban population, inspite of it you expect the coverage will increase the amount of subsidy only by INR 20,000 crore?
A - I think you have got to count in the fact that the existing system is already quite expensive. So, that subsidy is already being incurred. The additional amount on the Public Distribution System side of the operation, estimates vary and it also depends on whether you have 100% offtake or not, would be somewhere around INR 21,000 to INR 25,000 crore.
Q - Isn’t it going to become politically another monstrous problem, especially because it’s targeting is so poor? Its actual implementation is so poor, given the slippage in the system, that you would add on the money, but not really get to the benefit.
A - Quite obviously if you are expanding the system, the intension and effort must be to make sure that this becomes more effective. Yes, there are leakages to the PDS. But this varies across states. There are many states that are running very efficient systems.
When you start something, you find some leakages. You try and lock those leakages. We are thinking of using the Unique ID number. Now, there are ways of creating a platform around the Unique ID number that will hugely reduce leakages. So, a lot of the hope is that by using technology we will be better able to deliver the subsidy.
Q - UID guys themselves say that they can only give a unique identity, but they can’t really distinguish between who is the correct targeted person.
A -Absolutely.
Q - So, you are really getting around the problem of possibility of misspending.
A - No, you can never get rid of the problem or the possibility of misspending. The question is how much misspending. Now, I think as far as identifying the poor is concerned, that has to be a decision taken by the state government.
The problem with leakages is that even if you have identified the poor, there is a huge amount of leakage. Certainly if you deny someone who deserves to be poor, the benefit and give it to someone else, that leakage cannot be avoided by the ID card. But I think many of the other leakages can be greatly reduced.
Q - The Food Security Act in the current session of Parliament has exacerbated fears of where the fiscal deficit might head. Even without this, look at our numbers. Up until the Lehman year, our market borrowing or fiscal deficit was around INR 100,000 crore, INR 1 trillion. FY09, just even after the crisis hit, we increased to INR 3.3 trillion or INR 330,000 crore. FY10, it went up to INR 4 trillion, FY11 INR 4.3 trillion and this year could well be INR 5 trillion. This is a huge growth from FY08 to FY12. In just a matter or four years, five fold increase in the fiscal deficit and then with the Food Security Bill god knows what’s going to happen next year.
A - First, the Food Security Bill is not a sudden development. It’s a political commitment of the government. So, every sensible investor knew that the Food Security Bill was coming. Second, the additional expenditure of INR 21,000 or even if it is INR 25,000 crore is not going to make any significant difference. That can be accommodated.
I think the fiscal deficit is a problem, but I don’t think we should make the Food Security Bill the focus of attention. There are already other factors. We certainly need to look at that.
When you look at the borrowing, I think it’s best to quantify the fiscal deficit as a percent of GDP because prices rise, nominal incomes rise. So, these money values don’t make that much sense. I think in 2008-09 or something like that the central fiscal deficit had come down very sharply. Since then it has increased hugely.
The initial increase in this is because of the stimulus. I think that was the rational given. A logical stimulus is you must phase it out. That’s very clear. That’s what the government has said.
Source - CNBC-TV18
