New Delhi: As chief economic advisor, Arvind Virmani is the principal author of the Economic Survey. A key member of the government’s economic policy team, Virmani spoke to Mint immediately after the release of the 2009 survey. Edited excerpts:
What is the central message that the survey carries?
The...message which one has been trying to give out is that you cannot take growth for granted... There is nothing to despair (about) and there is nothing to rest on your (past) laurels. There will be things that you are going to have to do. That is the message I am trying to send out. ...So that’s the big message. If you want to go back to the high growth part and to maintain it, then there is an agenda of reforms for the next four-five years which must be followed. And if none of this is followed, I would be very surprised if growth is 9% five years from now.
Big message: Virmani is the principal author of the survey. Pankaj Nangia / Bloomberg
So it would be fair to surmise that you are cautious, but optimistic?
Yes. I am not very good with words, but it’s been well summarized in this chapter here... “A balanced perspective suggests that neither should one rest on the past laurels nor should the present setback weaken the determination to return the economy to the high growth path at the earliest. High growth is critical to ensure the revenues, needed for meeting our social welfare objectives.” So that’s another subtle social welfare message there. All these social welfare messages are very good, but if you don’t have the growth and you don’t have the revenues (to sustain them)....
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It also says that there is a possibility of acceleration in growth from the second half of this fiscal...
That’s right. That is basically since the end of the last fiscal year what one has been seeing and in some sense one is surer of it, that’s why we actually for the first time put (it) in a forecast.
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The overall growth scenario... You’re a little sceptical about green shoots and so on. Questions are being asked on whether asset prices have more to do with monetary loosening the world over.
The asset price we are really talking about (is) the oil price rise...actually commodity price rise. That’s the real concern than the asset price. And that is this issue of ...remember the oil price went down to $40 and now it’s come (back) to $70 plus. So I would read it more in the context of oil price, because that is what concerns us from the negative shock side.
Is it one of the factors that has made you increase the range for the growth forecast.
No, the range is because of the real economy. Remember, in all these discussions they haven’t disappeared... The L,W and V shape (of recovery). There are still...people who say it could be L or W. I would say perhaps a majority have shifted to the view that it would bottom out and not go back again (to its lows). And there are others who think there could be a double dip. So the basic uncertainty is coming from the global side. That’s the issue.
Another issue that you’ve brought up is the nature of the financial markets and how it’s all fragmented and a lot of work needs to be done. There is a strong emphasis on financial sector reforms in that chapter too.
That is an analysis of the transmission mechanism and the issue of non-integration of markets. That obviously is a medium-term concern and therefore linked to various reforms of the financial markets. And remember, to the extent that capital flows remain limited. Some of those concerns have eased a little bit, right, with some resumption of capital flows in the last couple of months...
Have the developments of the last eight weeks, especially in oil prices, made us a little more vulnerable to volatility in terms of growth?
Well, oil price remains a concern. Though some of this, which comes from my people—talk about speculation and other things—as far as the impact of all of this doesn’t make much of a difference. Only thing it can determine is the balance of whether it can be temporary or permanent, an issue that I have discussed in detail. The impact of that and the policies that should follow. The fact that it happens will obviously affect us negatively. It’s a secondary level of detail whether it’s happening because global demand has gone up or speculation in US market or less liquidity.
So as the survey points out, global growth and monsoon are the only imponderables that could take away growth in the second half?
That’s right. However it doesn’t mean that there will be negative fall in the U curve. If things don’t go well it will only mean that it will get more stretched out.
And now that you have the full year’s national accounts data, that you didn’t have last year, it’s a fair statement to make that the worst in the economy is over for now?
That’s implied in the U-shape, isn’t it? Because Q3, Q4 is over and Q1 is halfway through. It’s over, actually, but we don’t have the data.
You’ve said earlier that the welfare initiatives are presaged on your growth and tax revenues. There’s an interesting linkage.
That’s an interesting point...there are a huge number of kids who are malnourished and there’s a problem there. But it doesn’t get solved by saying we need more PDS (public distribution system) or food; it doesn’t serve any purpose. So the message isn’t that social things aren’t important. That’s not the message at all. In some ways, the Economic Survey is the only place we talk about growth... People forget how much revenue growth has depended on this huge shift in economic growth. The high growth has meant high corporate investment, huge increase in corporate profits and tax revenue. It’s very easy to get used to “Oh, we will always have this growth and we will go on increasing social spending permanently.” That’s not true. When it (growth) falls back to 6%, that will not be true.
So to take that logic further, pursuing high growth is no longer an option, it’s a necessity?
Yes, even for social purposes. I don’t know if want to use the word “necessary”, we have used the word “critical”. But necessity, yes, that word can also be used. You don’t need growth to maintain a level, you need growth to grow those levels to expand the agenda.
Even the President’s speech referred to this...
I think that view is understood within government. It’s not something that I have invented. But what we did want to do is emphasize it at this point.
So you are effecting a change in the mindset...
It’s not a change. The problem is people get used to a certain level. This is where they have been for the last five years and they get used to a certain thing. Those who have seen just the last five years...that’s not the normal (level). That’s not the normal (level) globally. Countries fall off. There’s nothing to despair, but don’t be complacent.
Jacob Koshy contributed to the story.