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Drought, global market volatility impacted GDP growth: Das

The Mid-year Economic Review presents a realistic picture of the gross domestic product (GDP) growth, says Economic Affairs Secretary, Shanktikanta Das.

The review, presented today by Chief Economic Advisor Arvind Subramanian, mentions that the economy is likely to grow at 7-7.5 percent level in FY2015-16.

Speaking to CNBC-TV18’s, Das says that post the 2015 budget, events like drought for second consecutive year, low rural and urban demand and volatility in global markets have impacted the country’s GDP growth. The nominal GDP growth has remained low on back of low inflation, he says. Das says the government will meet its 3.9 percent target for fiscal.

The governemnt will spell out its fiscal deficit target clearly in the upcoming budget in February 2016, he says adding that the divestment target will be missed. Though this will be balanced by positives like non-tax revenue collections, which are expected to be better than estimates, he says.

On the mention of tweaking of monetary policy by the Reserve Bank in the plan, Das says that the decision will be taken by the RBI keeping in mind inflation and growth.
Below is the verbatim transcript of Shaktikanta Das’s interview with Sapna Das on CNBC-TV18.

Q: The nominal gross domestic product (GDP) numbers, he has given those projections of a downward revision, in fact already for the current year also the growth forecast has been cut based on that. Going forward do we see the government’s fiscal roadmap for the next financial year getting tweaked accordingly, what is this signaled as of now? 

A: So far as the current year’s GDP growth is concerned, the mid-year economic review has presented a very realistic picture. After the Budget was presented, two or three developments have taken place which is beyond governments’ control. 

Number one there was a drought for the second consecutive year. Now, this is something which cannot be anticipated so it has had its impact on the agriculture and rural sector and also in creation of rural demand and private consumption in the rural and also in the urban and semi-urban sectors to some extent. 

Secondly, the world was hit by depreciation of currencies of various emerging economies. So, the net impact of all this is that the growth which we were earlier expecting to be slightly higher, we are now saying that it is about 7-7.5 percent. So, it is a realistic picture.

Q: How is the fiscal deficit picture looking?

A: The gold schemes were also launched. Securities and Exchange Board of India (SEBI) has also modified some of the regulations relating to the capital markets, so, going forward the fiscal deficit so far as current year is concerned, it will be kept at 3.9 percent, and so far as the future, next year is concerned, it will be something which will be spelt out in the Budget. At this stage I cannot talk about what will be the fiscal deficit projection in the Budget but by and large in the medium-term, the government has a medium-term fiscal plan (MTFP) and government will adhere to the overall MTFP.

Q: It does say that possibly the further tightening in terms of 0.4 percent of the GDP in terms of the fiscal number, I do not want to know what you are going to do in the Budget, of course it is still sometime away. Just a macro view point, do you think that would be the right way to go in terms of keeping the demand alive because it also recognizes the fact that apart from the lower nominal GDP numbers, it will impact your fiscal directly, apart from that, demand per se also, something which you have just referred right now in your first answer, demand also is likely to be not very robust next year. So, under these circumstances government expenditure which you have been doing pretty well in the current financial year may need to continue. So, on a macro view, you think that this suggestion as of now makes sense?

A: The nominal GDP growth is lower. That is because inflation levels are low. There are always two sides to every story. Every success story also has its difficult side. There are two sides of the coin. So, when the economy, the real GDP growth is 7-7.5 percent, in the earlier years, inflation used to be very high, so therefore, the nominal GDP growth was higher and therefore, the fiscal deficit target as a percentage of the overall GDP was much higher.

Today the inflation being low, naturally the nominal GDP growth has come down significantly. So, therefore in absolute terms the fiscal deficit number today, the percentage equivalent to the number, it poses certain challenges and this is something which the government will deal with as a part of the next year’s Budget, I would not like to go into anything beyond. At this point of time, I would not like to say anything beyond that.

Q: One is the fiscal side of it. The others think, the analysts also mention about that some kind of a reworking or a retweaking of monetary policy also will be required. So, the US Fed has just started its rate tightening plan and 2016 may also see some further rate hikes. Under these circumstances, what do you think should be the call on the monetary policy? I know RBI is the regulator and it is RBI’s domain, but on a very broad basis because the analysis also at some point of time says that the base rate right now is higher than a nominal GDP growth rate. So, you think there is a case for further softening and that might be the call to be taken keeping the demand factor in mind not just what the US Fed is doing and then how does it play out with what US Fed may do?

A: Reserve Bank is an autonomous entity; monetary policy is in the domain of the Reserve Bank of India (RBI). However, let me also mention that finance ministry and the Reserve Bank of India we work in very close coordination, there is frequent interaction and overall there is a meeting of minds and we are on the same page. Now, what will be the monetary policy tweaking or what monetary policy decision the RBI will take that is their domain but we are in regular touch, we are in regular interaction and I am sure as the monetary authority the RBI will factor in what the economy requires at the moment and there are requirements to contain inflation, there are requirements to maintain growth. I am sure the RBI will find the right balance.

Q: What kind of further demand measures maybe announced? The Budget is around the corner so something that we can expect on the horizon that can keep the growth momentum going, the growth story going to keep at least at some particular levels?

A: The new measures I can’t spell out, whatever new measures are there they will come in the Budget. The parliament is also in session so as and when there are new measures if any you will come to know about it.

Q: Also in terms of the revenues right now you have the indirect tax story which is supporting the revenue base so to speak but disinvestment, the targets will have to be kind of more realistic in the coming year, this year also it will miss the target so would there be any other tax measures that the government would really think of, one Swachh Bharat cess we have already done this year but there could be some further measures that it may be announced down the line; I am not trying to outguess the Budget exercise?

A: I cannot say whether there will be new tax measures again. I cannot say that but let me say also that disinvestment – you are saying that we will miss the target, yes, we will miss the target, by how much we will know when the year ends but we have our internal estimates. We are doing far better in non-tax revenues so I would expect the non-tax revenue collections to exceed the Budget so we will get some plus, some additional resources from that. The overall expenditure numbers, we are maintaining, whatever was projected in the Budget we are maintaining that and if few other measures are under consideration. So overall let me again stress as I said earlier is that this year’s 3.9 percent will be maintained.


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