PM EAC’s Tendulkar offers insight into REVIVAL STRATEGY

PM EAC’s Tendulkar offers insight into REVIVAL STRATEGY
The Economic Times, May 19, 2009, Page 15

The prime minister’s economic advisory council, a key think tank that works hand in hand with the government, had made ‘painful adjustments’ in the country’s growth forecast from its original projection of 7.7% for the last fiscal and 7%- 7.75% for this fiscal when the impact of the economic slowdown was unfolding in January this year. ET caught up with the PMEAC chairman Suresh Tendulkar for a brief chat on what could be done to revive the country’s economic growth. Excerpts:

Do you think that the recent poll results, which is a vote for stability, makes a case for revision in economic growth forecasts by EAC?

The EAC had forecast a growth of 6.5% to 7% for the 2008-09 fiscal. This fiscal year too, we expect that the economy will grow at least at the same rate due to strong domestic demand. The improved confidence in the economy (as reflected in the capital market movements) is a good sign, which I hope, should add to the momentum. The lagged impact of the fiscal stimulus and monetary policy measures taken to stimulate the economy will be evident in the coming days. India’s economy is likely to remain relatively weak in the first half of fiscal 2009-10 and will slowly pick up there after. It is expected to show a fairly strong recovery in second half of the fiscal.

Many independent research firms have started upgrading their growth projections for the fiscal... Your views?

Stability assures room to carry out policies that the leader believes in, and in this case, there are some crucial ones (reforms) that are likely to be rolled out fast. It is easier to roll out reforms, (especially in the pension and insurance sectors) if there is no pressure from coalition partners. The slowdown provides an opportunity to invest in technology and diversify both regionally and globally. I maintain that an overly pessimistic view of the Indian economy is not warranted as rural demand continues to be strong and banks are well capitalised and healthy.

What are the key areas that the government should focus on to achieve development goals?

I think the delivery of infrastructure services, including power and social sectors such as education and health, are the key areas requiring attention. Execution of the social and physical infrastructure projects in the pipeline should be accelerated in rural as well as urban areas. The authorities should also facilitate the flow of credit. This will help in spurring rural demand. International capital goods prices have come down now. Extending technology upgradation initiatives into other sectors should be considered. India is recovering from an economic slow down, not a recession. The forthcoming budget should aim at strengthening the nation’s recovery from the slow down.

Considering the fall in crude oil prices in recent times, don’t you think that it is an opportune time to dismantle the administered pricing mechanism for petro products?

It is. We haven’t had such an opportunity to do away with administered pricing of petroleum products in the last few years. Political resistance to such a move would be minimal now.

Is the high fiscal deficit a matter of worry? What will be your suggestions for the government in managing public finances?

It must be recognised that there is compelling need to adjust the fiscal stance to the exceptional circumstances through which the economy has been passing. There is an equally urgent need to bring government finances back on the track of fiscal consolidation once there is an improvement in economic conditions and before the exceptional ways in present times start to grow into a habit and create a fiscal crisis in the medium term.

This fiscal year too, we expect the economy to grow at least at the same rate (6.5% to 7%) due to strong domestic demand

The delivery of infrastructure services, including power and social sectors such as education and health, are the key areas requiring attention