Former chief economic adviser Shankar Acharya, a member of the board of governors, Indian Council for Research on International Economic Relations, spoke about fiscal consolidation and missed opportunities in an interview, part of CNBC-TV18’s coverage in the countdown to the Budget. Edited excerpts:
When do you think the government will look at withdrawing the stimulus measures it granted? How strong a move on fiscal consolidation do you expect from the Budget this year?
I think you are being too complimentary to call it a stimulus. It was more a case of—if you go back to 2008-09—most of it was good old populist things like just happened at the right time and then we called it stimulus, but, still, I think it was important, and helped us.
Rising deficit: Shankar Acharya, former chief economic adviser.
I think, in terms of looking forward, if you recall the finance minister himself, when he placed the last budget in Parliament in July, had said that for this year, coming year, fiscal deficit of the Centre should come down to 5.5% of GDP (gross domestic product).
My own take on this would be that this coming year we have to have a little bit of fiscal consolidation; otherwise, there is a serious problem with our credibility—internationally, domestically as well—it is going to create problems for management of the macro economy if the fisc continues to be at a consolidated deficit of 10-11% of GDP; then to try and expect RBI (Reserve Bank of India) to take care of everything is somehow just not on.
In terms of missed opportunities, you have already spoken about two areas where you think the government could have done a much better job in terms of managing. But in terms of missed opportunities, what would you regard as the most significant?
I think this whole area of 3G services auction, I mean, it’s been going on for years now. (The auction of spectrum for so-called 3G, or third-generation, mobile phone services has been stalled.)
And we must be looking a bit foolish. I can see that if I were in the finance ministry today advising the minister, I would say, let’s make something good out of a bad job, which is to say we are not going to get the revenues this year but next year we will look better because it will slip into next year.
I think that’s not the right way to look at it. The right way to look at it is—here is an area where we are talking about going to 3G for two-three years and we haven’t yet done it. And there isn’t a clear comprehensible reason why we have not. The other area where I have been more than a little disappointed is on the whole area of petroleum pricing.
Do you think the Kirit Parikh committee report (recommending freeing up fuel prices) is going to do any better than the predecessors, the Rangarajan and the Chaturvedi committee reports?
I certainly hope so.
We have got the Parikh committee report but the signals that one is getting from the political front certainly don’t look like these will be accepted at least anytime soon.
I guess I’d have to agree with you. I am not completely pessimistic on this. I guess my take would be that if the general price indices, particularly the commodity, food prices, essential commodity indices of prices, they come down because of cyclical factors or because of measures taken in the next couple of months, then around April or so there maybe some chance that you will see some adjustments of petroleum prices.