GDP is not the answer to all, gross national investment is
Feb 15 2013 , New Delhi
With P Chidambaram’s forthcoming budget under intense scrutiny, K R Sudhaman chats up former finance minister and senior BJP leader Jaswant Singh for the alternate point of view. Excerpts:
I don’t look at the budgetary exercise in that fashion. First, based on my experience, I am of the view that for a country of size of India, size of the economy and aspiration, I do not find it encouraging that we continue to have once in a year all the decision-making on taxation and policy pronouncements. It’s a reality that such an annual exercise cannot respond to management of an almost continental-size economy. Rather answering what kind of budget it would be, I would much rather favour identifying the challenges that confront us. And, it would define contours of the budget.
You mean to suggest that there should be a periodical review every quarter of the tax and policy measures?
Without doubt that’s how it should be. The NDA government introduced a system that finance minister has to report every quarter on the management of the economy, current account deficit, fiscal deficit, and revenue deficit and how the budgeted expenditure had been spent. It will be good if that (exercise) is revived.
What are the options for the government in the budget to deal with high fiscal deficit and burgeoning current account deficit?
The options are confined by and defined by the economic situation we have. What is the economic situation? It is marked by continuing high inflation with food inflation hovering in double-digit figures. Why is this happening? There is an unaffordable high current account deficit. By my reckoning, we could have current account deficit exceeding five per cent; if it is 5.4 per cent already as you say, it means we are spending more than the earnings from exports. I do not want boost in that fashion, but in 2004 when we demitted office and I left North Block (finance ministry) we had left current account deficit of 0.3 per cent, inflation figure that hovered around 4-5 per cent and GDP growth exceeding 9 per cent, and in one quarter, we had gone to 10.3 per cent. I personally don’t think GDP is the answer to all our issues or problems. I would point with certainty to three significant yardstick or markers i.e., emphasise sluggish agriculture growth, continuing high poverty and we are in the lowest rung on infant mortality, poverty and nutrition figures. And, worrisomely we see decline in manufacturing and service sectors. What is left then?
You mean to say the indicators show that the economy is plummeting?
Yes, the economy is plummeting in all aspects… In fact it is. Why is it happening? It is governance, confidence and investment. Unless there is governance, there will be no confidence about policy. Therefore, there will be no investment. If there is no investment, there will be no growth. And if there will be no growth, we can’t address the issue we are faced with. Please do not go by stock exchange figures or indices of stock exchanges. They are short-term money. Whereas domestic and foreign investments won’t come unless we rid the country of corruption and empower it with the kind of governance we need.
Can all these be done in the short-term?
You are asking the question so patently answerable. There is no short cut. Of course, there has to be demonstration of will to start governing, at least that must be there. I don’t find it. What is the use of an annual ritual; only newspapers and media will be full of comments.
Coming to specifics, what can be done to revive the economy in the budget?
Governance, restore confidence in India and investments will revive.
n In the past five or six months, the government has been striving to do that. Don’t you agree?
I don’t see any changes. I again come to it that if there is confidence it (investments) will come automatically. Government should never be the investment agent. They are governors of policy. As soon as you provide efficient policy, money will come. Flies go on honey. They don’t go on citrus.
Which is more important, pushing growth or containing inflation?
I was walking across from South Block to North Block on the day I took over as finance minister in 2003. Pressmen asked me what is your policy. In the spur of the moment I told them — money in the pocket of housewife, food grains in the stomach of the poor. That is the policy… what is wrong with that? Money in the pocket of housewife means higher purchasing power of families and low inflation. Grains in the stomach of poor means eliminating poverty. More than GDP what is important is gross national contentment. That is my policy — you can’t eat GDP if your stomach is empty you can’t have contentment.
The government is sitting on 80 million tonnes of food grains stock. Should it not be distributed to poor?
The whole supply side management is grossly mismanaged. This results in uncontrollable food inflation. Sometimes, I begin to question whether this is being done deliberately to benefit a few i.e., the food grains suppliers’ lobby. This can be corrected I know. We have done it in 2002 and 2003. The challenges we had were two wars, globalisation, Iraq war, two cyclones, a major earthquake and a severe drought. We ensured that food was in supply in homes of the poor, because we had ensured 30 kg of wheat or its equivalent reached every household.
How do you see the NREGA programme?
This is a classical example of drought relief programme by another name, digging holes and filling it up. But this has affected labour market and spread corruption in rural area. NREGS is a classic example of the misplaced western notion of welfarism to be transplanted into our country, which does not accept such foreign concepts.