The finance ministry is budgeting on the provisions in the budget to spur growth. R Gopalan, secretary, economic affairs in the ministry of finance, says it may be time for the Reserve Bank of India to rethink its monetary policy. Excerpts from an interview with ET.
The budget seems to be a business-as-usual one. Is there a central theme to the budget?
This budget’s focus has been on growth. There are a number of measures that have been taken which will spur growth. Investment-linked incentives have been provided. Measures have been taken for stressed sectors. Focus is also on supply side measures to address the problem of inflation.
All nuts and bolts are also being put in place for the goods and services tax (GST). Its backbone is being readied, returns, forms, common legislation other groundwork is being put in place to ensure whenever there is agreement to launch GST it can be done immediately. The launching time would be curtailed with all this preparedness.
Can this growth scenario play out without support from the monetary policy?
The RBI takes a number of things into account. It takes into account fiscal deficit and the underlying inflationary pressures in an economy. It looks at global factors and the core inflation. RBI has to take care of inflation but it has multiple roles. It also has to look at growth. So, with all this it is more reasonable to presume that there could be rate reversal. The time is ripe for it to happen.
You have budgeted lower petroleum subsidy in the budget than last year. What are the assumptions on crude and how will you manage within the lower subsidy provisioned?
We have looked at $115 per barrel. With the prices rising there is a need to change the behaviour of people. Something which does not reflect the true cost in its price is used much more than what people would otherwise do.
That behaviour has to be changed. So subsidies which are instrumental in getting that behaviour entrenched have to be addressed. There is a very strong economic argument to take up the issue of subsidies. We need to do three things. First and foremost is to reduce consumption by educating people.
Second, the poor need to be provided for in an efficient manner. Those who don’t deserve subsidies we must mercilessly take it away. We must allow the price rise to pass on as only that will change the consumption behaviour. FM has said in his budget speech that the idea would be to restrict subsidies to 2% of GDP. This is a very bold step.
But have you provided for a spike in crude prices in your oil subsidy estimates?
A tolerance of $120-125 per barrel is doable but beyond this prices range there could be a severe reaction to it that consumption will automatically start coming down and then impact prices as well. What we should have is a mechanism to pass on the prices rise. Most countries pass on rise in prices through an automatic mechanism.
The Economic Survey has suggested a new subsidy mechanism for petro products. Is that on the agenda?
Th e Survey has gone further. It says you give them specific subsidy so when prices rise or fall subsidy remains constant. This ensures that people are aware of the government support and also of the prices of the commodity. That helps addresses demand. Today this is not happening. It’s too early for a decision on this.
The maximum the government has managed through disinvestment is about Rs 23,000 crore. How confident are you of the Rs 30,000 crore budgeted in the next fiscal?
They have permission to go ahead with NBCC IPO. Then there are a number of PSUs that do not comply with the 10% public holding norm – NMDC, NLC, and OIL. Subsequently, RINL , HAL and BHEL are also lined up. Hindustan Copper and SAIL are also likely candidates.
With these candidates, achieving this target should not be a problem. Also, now we have a variety of instruments available in our hands.