“The Green Shoots Are Visible”

The Narendra Modi-led NDA government has alleged that it has inherited an economy in the doldrums from the UPA. Dr C. Rangarajan, chief of the PM’s economic advisory council under the UPA, tackles this and other economic issues in an interview with Lola Nayar. Edited excerpts:

RBI governor Raghuram Rajan had recently voiced apprehensions about the possibility of yet another financial crisis ahead. Do you share this concern?

If the apprehension is about the possibility of another financial crisis in the global markets, it is a wise cautionary remark. If low interest rate was one of the triggers of the 2008 financial crisis, low interest rate was also prescribed as a remedy for the problem. The Western central banks need to understand how far they can push on with a low interest rate policy without provoking excessive risk taking. The lesson from the 2008 crisis should not be forgotten. As far as India is concerned, the rise in the NPAs is to a large extent the consequence of the slowdown. As the economy picks up, some part of this problem will be taken care of. However, Indian pub­lic sector banks and other financial institutions must go hard on wilful defaulters.

How does the shape of the economy look to you?

After two years of slowdown, the economy has started showing some signs of revival. A decisive mandate in the recent elections is itself a positive factor for investment sentiment. Some of the measures announced in the budget, such as a lower threshold for investment allowance, will result in larger investments. The green shoots are definitely visible. I expect the overall growth rate of the economy to be around 5.5 per cent in the current fiscal year.

There is considerable criticism of the NDA government for carrying on with most of UPA policies.

There is always continuity in policy. It is good that well-tested policies are being continued. Good governance has two dimensions. One is an appropriate policy framework and the other is implementation of policies. The new government should focus on both. Greater clarity is needed with respect to policies related to environment and land acquisition.

The RBI is continuing to keep its focus on containing inflation. Is the RBI target of six per cent consumer price inflation by 2016 achievable?

The Reserve Bank of India and government should bring the inflation down to a much lower level as early as possible. In fact, I think the eight per cent target for retail inflation set by RBI for January 2015 is liberal. We should get it down to a lower level so that the task of achieving the six per cent target by January 2016 becomes easier.

On the Krishna-Godavari basin gas-pricing issue, your formula has been junked...

Our committee, in suggesting a formula for the pricing of gas, followed in principle what is being done for crude oil. In fact, the committee did not even suggest import parity price. It looked at the net-back price, as far as imports are concerned and the home price in major centres. The average of the two was taken as an appropriate price. Even today, more than 40 per cent of our requirements of gas are being imported. This proportion will go up if domestic production does not increase. The price that is offered must be such as to attract investors, both domestic and foreign, to come in and undertake further exploration.

Finally, your recent poverty rep­ort has been criticised for being too close to Prof Suresh Tendul­kar’s controversial estimates...

The poverty ratio for 2011-12 as compu­ted by our committee comes to 29.5 per cent as against 21.9 per cent computed by Tendulkar committee. The big jump was in urban ratio—from 13.7 per cent to 26.4 per cent. In the case of rural areas, the increase is from 25.7 per cent to 30.9 per cent. Recent numbers clearly indicate that the ratio is coming down, even if the level may be high. Growth has had an impact. Obviously, policymakers must continue with a twofold strategy of letting the economy grow faster and at the same time directly attack poverty through pove­rty-reduction programmes.