New Delhi: The Congress party-led United Progressive Alliance (UPA) government completed the first year of its second tenure in office on Monday. Planning Commission deputy chairman Montek Singh Ahluwalia discussed its performance and India’s economic prospects in an interview. Edited excerpts:
How do you assess the first year of the UPA’s second tenure?
Personally, I think they have done quite well. If you look at the economic side anyway, when the government’s second term began, we were in the middle of a deep international recession. In this situation, the first priority of any government had to be to bring the momentum of growth back to the economy, to create a positive feeling about economic prospects, without which employment growth would not have taken place.
Optimistic view: Montek Singh Ahluwalia. Rajkumar/Mint
So if you look at it from that point of view, there is absolutely no doubt that we began with being pulled down from a 9% growth rate to 6.5%, we improved to 7.2% last year, and now we are well set for 8.5%. Manufacturing is back into double-digit growth. I would call it very good going. There are problem areas, like inflation is higher than we want, but I think that is also coming under control.
The Prime Minister spoke on Monday of 10% annual growth in the medium term, and 8.5% in the current fiscal. Do you agree?
I certainly agree with the 8.5% (growth projection) this year. I think the Prime Minister has said that we should target 10% in the medium term. My perception is that the underlying growth potential of the Indian economy, if the world economy is normal, is around 9%. I think we will get back again to 9% in the last year of the 11th Plan, that is 2011-12. So what the Prime Minister is saying is looking beyond that, and saying let us try and target 10%. Going from 9% to 10% is not impossible. But obviously, it has to be based on what global conditions are like, how quickly will the world get back to normal, etc.
How much will the European financial crisis affect India’s prospects?
I think Greece is in very substantial difficulty and many people are speculating whether Greece will be able to retain confidence of markets. But I do not think if they don’t there will be a global spin-off.
But we were not counting on rapid export growth in order to get back to high growth in the next few years. We had already factored in that global export growth is going to be poor or weak. Maybe if Europe is in deep trouble, it will be a little weaker.
In our thinking, the dominant concern was that we should stimulate the supply-side factors that lead to rapid growth. We need to make a special effort to ramp up investment in infrastructure. That would provide domestic demand, which would to some extent offset the fact that export demand is lower.
If you stimulate investment demand and export demand is low, obviously export industries will still bear a bit of the brunt. But the economy as a whole may benefit from other demand that is put into it. That is the thinking behind it.