What is the thinking in EAC-PM about the impact of a global downturn on India?

Firstly, to state the obvious, compared to many countries, India is in a safe position. However, it is not an insulated country, so whatever is happening globally, whether on economic or geopolitical front, will affect both the real sector and financial sector. Part of the impact will be direct and part (due to) volatility it causes. At EAC-PM, we think Indian economy will do 7-7.5% GDP growth. That's the ball park. Is that enough? No.

It is estimated that 8-8.5% growth is needed to achieve the $5 trillion GDP target by FY27. Is that unlikely now?

Given what is happening globally, there is no chance of 8-8.5% growth. There is an issue with prices of oil or energy in general. And energy is something we cannot diversify overnight. We can have a transition over a period. The impact of current levels of oil prices on balance of payments is not that serious. We have enough (forex) reserves to handle it. However, it is showing in high consumer prices. That becomes partly a political issue.

Going back to economy, there is growth, and there is inflation. Inflation is clearly going to be higher than what one might have hoped. Higher does not mean alarmingly high. This kind of imported inflation is not amenable to monetary policy (interventions). I am not talking about food inflation, which is a periodic thing that will pass. So, we are in for a slightly higher rate of inflation.

The more serious issue is that we are in a situation where fiscal position (of Union government) should have been at pre-Covid levels. This government has always been fairly conservative in terms of managing fiscal consolidation but Covid has disrupted that pattern.

The way we see it is that the next Budget is extremely important because (after that) we get into the political (election) cycle. There are certain things that are exogenous. You cannot do much about the external world. Which means you cannot do much about exports as a (growth) driver. All you can do is (boost) consumption, investment and government expenditure of the capital kind. Consumption and investment get delayed if there is uncertainty. So, at EAC-PM, we think it is important to clearly articulate the medium-term plan in the Budget.

How can the Budget make a difference?

What the Budget can do is to assure you that this is the medium-term plan and persuade you (to invest and spend). Yes, there is uncertainty, there will be uncertainty because no government can make uncertainty go away, but this is what the government's plan is. So, the portfolio investor knows that this is the extent of government borrowing, and it doesn't come as a shock to him. On global front, nobody can say what's going to happen, otherwise I would have said that if you gave it another six months, some of the uncertainty will go away.


How do you see the 'freebie' debate? You talked about post-Covid increase in subsidies. Will that be considered a freebie? Where do we draw a line?

I hate this expression freebie. I wish judges had some economic training. I can understand the word subsidy. And subsidy is providing anything at lower than the market price. You may decide I still need to subsidise as it has merit, which is what the FM said (about essentiality of health and education subsidies). The last time someone systematically quantified all the subsidies — Union, State, production, consumption, implicit, explicit —was National Institute of Public Finance and Policy (NIPFP), and if I remember correctly, all subsidies put together were coming to 10% of GDP. So, if you want a debate on so-called freebies, let us first recognise the quantum of freebies we are talking about. If a retired Supreme Court judge can have a peon after he is retired, that can also be considered as a freebie. This is going to be a debate. Philosophically, the Socio Economic Caste Census should be the basis of identifying people who deserve subsidies.

There are a lot of concerns about the kind of promises that are made by political parties before elections. How do you assess its impact on states and nation as a whole?

The trouble with these is that they are sticky — sticky downwards. Once introduced, you cannot withdraw. The reason I referred to NIPFP study is that, as a citizen, I need to recognise that any subsidy has a cost. If I am giving you this, then you are not going to get that in return. Now, whichever the state, it is up to voters to recognise this. If you don't, then this will continue. Politically, if I am a (political party running a state) government and I don't think I am going to come back, I won't care about the freebie, because I am not going to be around. It is only when I am reasonably certain that I will continue that this promise becomes serious. And if you look at the track record of chief ministers across parties, those who have served two-three terms are much more prudent.

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