Kumar, who has taken over the reins at the government think tank recently, expects growth to rebound in the quarters ahead, but wants the government to reassure investors by removing policy uncertainties. Excerpts :
There is intense debate about the health of the economy. Is it all gloom and doom?
I completely disagree with this formulation of gloom and doom, economy in a tailspin and so on. The reason is very simple. You don’t have an economy in gloom and doom where automobile industry has grown by 8%, civil aviation has grown by 13%, where you have cement sales rising, and commercial vehicles sales – which is supposed to be a leading indicator – showing a growth of 13% or 14%. This downswing, I think, is bottoming out.
When do you see quarterly growth rebounding? How much of an impact did GST and demonetisation have on growth?
A mild recovery should begin in the third quarter itself from 5.7% to around 6%. I want to make it clear that any impact of demonetisation is by far over and done with. You stop talking about it because demonetisation was over in some sense in December. My take is: Yes, the demand has been affected. But the economy should afford that much cut in demand because you have cleaned it up. Demonetisation was the pragmatic way of cleaning it up, but the only thing that I want to say is that don’t chase it too much now.
Are you referring to what some critics say `tax terrorism’ in the aftermath of demonetisation?
That word is anathema to everybody. The reform of the Central Board of Direct Taxes (CBDT) is long overdue.That now should be the next step for this government.
There is talk of providing a fiscal stimulus. What are your views on this?
I have always been very firmly on the side that fiscal deficit target is a mug’s game.The target that you should achieve is the revenue deficit target and the revenue deficit should be zero and sooner the better, because if the revenue deficit is zero then that implies in itself that whatever you are spending extra is going for productivity, supply enhancing activities. The government must have the instrument to act in a counter-cyclical manner and, if it is today, the fact that the recovery is beginning and is mild, I think it’s time for us to do whatever is needed to strengthen this recovery rather than continue to bleed.
And the best example in my view is the NPA situation. Why should you not catch the bull by the horn and clean it up in a stroke by sending it through the insolvency process. If that implies a larger fiscal deficit, so be it.
Are you advocating a write-off?
No. Not a write-off at all, but recapitalisation. Not by Rs 10,000 crore. You need to do your numbers well. This should have been done in the July 2014 Budget. You should have done that and not carried this agony.
How do you think the government should reassure investors about the strength of the economy?
The India story is still very good abroad, as reflected in the strong FDI inflows in the last three years. The domestic investor is not sure about the rules of the game, due to GST, demonetisation, Aadhaar. The government should consider removing this uncertainty from the atmosphere and, ma ybe, make some announcements which will tell the investors, `Look, we know what our path is. We are telling you this is what the government intends to do in these particular sectors and these are the clear rules of the game and these will not change.’ You have to boost confidence and communicate the goods news much better. You have not done it. The Cassandras and the tailspin-wallahs are having an upper hand because there is no counter available. The government could announce large big-ticket investments. Not in PPP, not in hybrid equity -simple EPC contracts. Regulatory uncertainty should now be stopped.
How do you see the RBI and the government working together?
I can only say one thing, that the RBI and the government should work together. They are part of the same team.Being autonomous does not mean you can’t collaborate.You should not be saying that you won’t listen to the department of economic affairs. You have to take their views on board.
Should the RBI be fixated by a particular inflation target?
At least, they should change from headline (inflation) to core, because headline is about food and fuel included -both of which are not amenable to demand management and have supply side problems. You cannot reduce the demand for eating bhindis (lady’s finger), and wheat by raising interest rates.Given where the repo rate is, why should lending rates be where they are?