Amidst worrying signs on headline and retail inflation, Chief Economic Advisor Raghuram Rajan quipped that at least ‘page inflation’ has come down. In a media interaction on the Economic Survey, he explained that ‘page inflation’ referred to the number of pages in the Survey document, which had come down by 60 pages!
Excerpts from his remarks:
Economic forecasting is an art and not science. We need to understand the science behind the art.
On the need for giving a wide range in projections
There are wide ranges of uncertainty. That is why growth has been projected with such a wide range.
On the reasons for optimism
India is in a difficult but not impossible situation. We are at or beyond the turning point of the economy. With improved sentiment, we expect the outlook to improve and growth to remain in the range of 6.1 to 6.7 per cent. There is the glimmer of a turnaround. The conditions are in place for a turnaround in economy as we do not expect global headwinds like last year, but much of it we have to do domestically.
On external factors to help growth
Last year we had constant worries about Europe. We had constant worries about the US. External side will not be a drag this year.
On interest rates
What we need to do is turn around investments, turn around government’s saving and increase household savings. This will bring down inflation, which will give the RBI more room for easing monetary policy to promote growth. Going forward, credible budgetary plans for fiscal consolidation, along with augmented agriculture production should lead to lower inflation and give the RBI room to reduce policy rates.
On risks to growth
There might be some downside risks including an investment slowdown. Investors’ sentiments are very hard to pick up. We think sentiment is building up. Sentiment is one of the risks. The other risk that we worry more about is the external risk and it has to do with geopolitical risk.
On fiscal deficit and current account deficit
We have to bring down these twin deficits to reduce the scale of our external as well as internal borrowings. The key number that we worry about is the current account deficit (CAD). CAD at over 5 per cent is way too high. In my view 2.5-3 per cent of GDP is the level we should not exceed.
On gold
If we get a low inflationary environment, savings become more attractive, financial savings become more attractive, then perhaps the desire to go for gold will be lower.
Shishir.Sinha@thehindu.co.in