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economy | IST

Q&A: Watch data rather than certifications; Negative views on Indian economy proven wrong, says Sanjeev Sanyal

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We would maintain a significant amount of fiscal flexibility in order to be able to accelerate the economy as and when the opportunity arose. Capital expenditure on infrastructure remains our primary mode of both ramping up growth as well as managing demand, said Principal Economic Adviser, Government of India, Sanjeev Sanyal.

Global rating agency Moody's has improved its rating outlook on India from negative to stable. That is an important step in recognition of the recovery in the economy. CNBC-TV18 discussed the ratings and other issues with Sanjeev Sanyal, Principal Economic Adviser to the Government of India.
Here are the edited excerpts from the interview today:
Q: What are your first thoughts on Moody's improving India rating?
A: Well, it's merely a recognition of the obvious that some of the more hysterically negative outlooks and analysis that we saw a few months ago, has clearly proved to be wrong, you know. I wasn't too thrown off when they put us on a negative watch and I am not going to be wildly exuberant, because we have been put on stable or even if we move into a positive watch. I think what we need to do is to watch the data, rather than get too excited about certification by various agencies.
Q: For growth, Moody’s looking at the medium term, real GDP growth average of around 6 percent. It's come off from the 7 percent that we had gotten used to, is that a worry?
A: I am not going to comment on an agency's views of what they think long-term GDP growth forecast. They are willing to welcome to have their own opinion. I think it is low. But you know, that's the view. That's all right.
Q: On the issue of bond inclusion, the FTSE Russell meeting is over and we are still on the watch. Do we have to wait for the next meeting or is there a possibility of inclusion? Anything you would like to share?
A: I can't comment on how they go about their internal meetings. But I can say that we take the matter seriously and that many of the minor, sort of technical issues that are left are being worked out. So we intend to stay the course and iron out whatever issues that now remain, such that we can move to inclusion in the not too distant future.
Q: Any idea of the other indexes when are those meetings? Can we expect it in this calendar or in this fiscal year?
A: I can't comment on a private agency's calendar. So what I can say is that there are some very small niggling issues, 99 percent of the issues have been already dealt with, there are some very small niggling issues and they will be worked out. And we are working with these bond index agencies to work those out. So we are serious about it and there are some issues on their side as well, which they will work out. So I think with a few iterations, we should be there soon.
Q: We have had very strong tax collections. And if you go by the April, August, fiscal deficit, Credit Suisse has put out a number that it is lower than the average of the past 28 years. It is an extraordinary low number, and that is reflected in the government also not borrowing, the GST part in the second half borrowing calendar, what may be the thinking — is it that the extra money will be spent, or the government may strive towards a 6.3 or a 6.2 percent deficit?
A: We intend to stick to our fiscal numbers. Now, if you are saying that we are getting more revenues than, had been anticipated, let me say that we do intend to ramp up expenditure in various areas, particularly in the medium term to long term on capital expenditure on infrastructure. This is something the Prime Minister has committed to and we have always stated that throughout this entire episode, we would maintain a significant amount of fiscal flexibility in order to be able to accelerate the economy as and when the opportunity arose. So we remain committed to this sort of capital expenditure-driven approach and we intend to spend it on basically creating assets for future generations.
So capital expenditure on infrastructure remains our primary mode of both ramping up growth as well as managing demand.
Q: Is it best we work with a fiscal deficit of 6.8 percent as the budget estimated?
A: Yes, by and large, we will stick with that, obviously, on a year-to-year basis, there will be variations. There is always a possibility there will be the third wave, for example, I cannot rule that out, I just don't know when and if it will happen. But, we did when we did the fiscal exercise earlier in the year, we had been quite conservative with various numbers, including our fiscal numbers, our growth numbers, and so on. So as a result of which, even despite the disruptions caused, by the second way, we remain on board to be able to achieve the GDP growth rates, for example, that we had assumed in the budget, and perhaps even exceed the one that we had in the economic survey.
Q: You have pointed out about the third wave and have tweeted about the worries in Singapore and in Harvard, where despite vaccination, there have been cases. So is that the way to interpret the tax numbers? If you look at the tax collections — revenue receipts are 44 percent of the full year, but total expenditure is 36.7 percent of the full year. Clearly, the government is not spending as fast as the revenues are coming in. Is there any reason for this?
A: You have to realise that, you know, we can't predict exactly how the revenues will flow in, they are flowing in at a particular rate. If they surprise to the upside, then initially at least we just take it in, because this is always true but particularly in a period of uncertainty, you have to allow for certain amount of, the expenditure and revenue streams to do their own thing without each one infecting the other. Because otherwise, if you attempt to expend, deciding on how much money you're getting, it's not like an individual's income and expenditure. We have long-term commitments, whether it is salaries or large projects, we have to keep those going. So those continue irrespective of whether or not the revenues are coming or not. And you basically allow that variation on the deficit to borrow.
So sometimes the revenues surprise on the upside. That's great. We will take that into account in the budgeting exercise and in borrowing. But it gives us that much cushion, that should we need it for a third wave or if growth is slowing down, we need to ramp it up, whatever may be the need, we have that cushion, but it's not like oh, we have got this month a little bit more money, let us go and spend it. That is not how budgeting is done.
Q: Economists have been pointing the government is still thrifty and cautious. Is this caution because there could be a third wave? Why the expenditure is really not catching up with revenue?
A: So we are a conservative government in the sense that we have even during the first and the second wave, you know, we have by and large spent quite for what was necessary to provide a cushion for those who needed it, the poor and MSMEs and so on but we have not by and large gone and splurged even though there were many experts around the world, who thought that was what should be done and many countries also did that. We have always been quite moderate about the matter. We have iterated whenever necessary, we retain the cushion to be able to spend more. Now most countries in the world have perhaps exhausted their fiscal resources. The point we had made throughout is that we are in this looking at it as a marathon and not a sprint. So having gone through 18 months, you can see what we have retained significant fiscal resources to be able to ramp up growth should it happen.
Now obviously, we don’t want to press the accelerator too hard because there may be a speed bump in the form of the third wave. So that is something we do take into account. But it is not the case that we are reluctant to spend on things we think are worthy, especially things that create, genuine assets like, you know, infrastructure. So, the point we made, even last year, if you had asked me, I would have told you, we will spend, we will spend on things that create assets and that remains to be the approach.
Q: Should we factor — global energy shortage and Chinese slowdown — and what impact will it have on Indian growth?
A: I think the key thing to realise is that people ignore the supply side completely in their COVID response in most countries. We here in India, as you know, put as much attention on the supply side, as on the demand side, and we were criticised for that. But you can see what happens when you don't bother with the supply side, you have power outages, you have shortages of chips, you have shortages of containers.
Now, there are various countries in the world with other kinds of shortages coal has suddenly popped up as one. So, there are all kinds of disruptions that are happening. We even see shortages of truck drivers in Europe. So, the point being made is, exclusive attention to the demand side, which, I would say that 99 percent of experts seem to have done that during the last 18 months. This ended up leading us to a situation where demand is coming back, but the supply side cannot keep up with even basic things like supplies of chips, which we never thought was a problem.
So we have to always remember that you cannot have this entirely demand-oriented approach, you have to have a certain amount of supply orientation, which is what we maintained throughout these last 18 months. As I said, to a great amount of criticism, but I think it does show through. So as a result of which, by and large, our supply side is actually expanding. We are creating capacities, FDI is coming in. And wherever we find some disruption, we put in the effort to try and fix it. But we cannot fix the world's problem. I think policymakers around the world now need to pay some attention to the supply side, which is something we in India have been saying right throughout the entire episode.
For the full interview, watch the accompanying video