New Delhi: India does not have a “god-given right” to get back to high growth automatically without addressing the problems thrown up by the economic slowdown on the fiscal, financial, energy and investment fronts, says chief economic advisor Arvind Virmani.
“Please do not be complacent ... even though we have survived the short-term shock fairly well, please do not assume that this is some kind of a god-given right that we will have high growth,” Virmani, who is the principal author of the Economic Survey that prescribed bold economic reforms, told the agency in an interview.
However, the economy will grow at 7%, plus or minus 0.75%, in the current fiscal if the US economic downturn bottoms out by September and monsoon is normal, he said.
But to sustain long-run high growth, certain problems need to be addressed, he added.
There are four issues that need to be attended to for the economy to return to a high-growth path for a longer period, say, some decades and not five to six years, he said.
On the fiscal front, he said there is no way out but to expand the fiscal deficit for filling the gap created by the fall in export and private demand in the local economy.
The stimulus packages by way of increase in government expenditure and cuts in taxes to boost private and investment demand widen the fiscal deficit, he said.
Though the fiscal stimulus has to be maintained in the short term, Virmani said in the long run the deficit had to be reined in.
The Economic Survey prescribed reviewing the possibility of having a target of 0% fiscal deficit with the flexibility to widen it at a time of downturn.
Virmani said the Survey had thrown up an idea and he is nowhere saying that it should be implemented. It is an idea and it is for the finance commission to consider it.
On financial sector measures needed, Virmani said the financial system had to be tuned to encourage the flow of domestic savings towards investment as the fall in global capital flows will have its impact on India.
He further wished for an energy policy that reduced the country’s dependence on others as the oil price fluctuation will remain. As a country that imports 75% of its oil requirement, India cannot relax and needs to take care of the issue as oil accounts for a big part of its import bill, Virmani said.
The Economic Survey prescribed decontrolling petrol and diesel prices, and taking advantage of low inflation and global crude prices. It also asked for limiting subsidised cooking gas for domestic consumers to 6-8 cylinders per year.
He said high investment has been a driver of growth since 2003, but has now slowed down. As such, the country needs to ensure that investment takes place to return to a high-growth path.