Business Standard: May 16, 2019
New Delhi: Chief Economic Advisor Krishnamurthy Subramanian, busy in preparing the Economic Survey, projects India’s gross domestic product (GDP) growth for 2019-20 to be around 7 per cent. In an interview to Arup Roychoudhury & Indivjal Dhasmana, he says the next government should focus on capital, labour and land reforms, and that the debate on the accuracy of the official data is misinformed. Edited excerpts:
There has been a lot of talk about a slowdown in consumption, rural wages and private investment. What is your take?
A significant decline in private investment till last year was because of two reasons: building up of capacity and excessive leverage because of the twin balance sheet issue. That happened over a period of six to seven years. Unwinding that has taken its time. When corporates were doing that, investment could not happen as much. In a complex economy like ours, the effects are felt with a lag. The current situation is an overhang of that. A good part of that unwinding has already happened. If you look at capacity utilisation, averages are now getting close to 74-76 per cent in some sectors. There is an important change because of the Bankruptcy Code, as it alters the way investment gets done. What one can say is that there have been important structural reforms. One will have to wait for the benefits to start showing. Hence, I am not as pessimistic as some of the narratives.
How do you explain the slowdown in rural wages and consumption?
An economy is a sum of several parts, and the whole itself is different from the sum of parts. I like being a little bit careful when I am looking at three to four parts. I would focus on the fact that there have been important steps taken to reduce cronyism in the economy. Let’s recognise that cronyism impacts the economy. I look at the long run. There is the effect of lowering of investment. But we will get over this phase.
How many quarters this slowdown is expected to last?
I tend to be very careful about such crystal ball gazing. I still maintain my 7 per cent or thereabouts projection of GDP growth for this year. Given some of the narratives that you are talking about, 7 per cent is pretty healthy. It is also a healthy base for clocking better growth once the full effects of structural reforms start showing. I do expect things to get better. Another point I would like to make is that the world over, whenever there is an electoral cycle, it brings uncertainty, and people adopt a wait-and-watch mode. Once that uncertainty dissipates, you will see activity picking up.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.