The Finance Ministry will, in the next few months, try to create macro-economic stability and then allow the public and private sectors to take over to propel growth, said Raghuram Rajan, Chief Economic Advisor in the Finance Ministry.
He was speaking at the first ever India symposium organised jointly by MIT Sloan Management School and Citi in the Capital on Friday.
Rajan’s assurance came a day after the Central Statistics Office (CSO) surprised the markets with a lower-than-anticipated advance estimate of five per cent economic growth for the current fiscal, the lowest in the last decade.
In the post-global financial crisis era, policymakers in India have come under a lot of criticism for allowing the macro-economic fundamentals to deteriorate. They have been grappling with the twin deficits – fiscal and current account – and betting largely on capital flows to keep the economy going.
Asserting that the Government was well aware of the three-four things it needed to do in the coming days, Rajan sought to play down the CSO estimate, stating that it was based on past data. He indicated that CSO may have under-estimated the growth this time round.
“One of the problems with the estimate that CSO made is that it is based on past data. At the turning point of GDP growth, looking at past data tends to under-estimate change. When you are going up, you tend to over-estimate growth and when you are trending down, you tend to under-estimate it,” he said.
Nonetheless, any GDP growth of 5 or 5.5 per cent is below potential, he added.
Rajan said there was a need to raise growth and undertake policies that would enable it to reach at least eight per cent.
He said the Government would focus on fixing the fiscal deficit, restarting growth and reducing the current account deficit.
“There is every intent on our part to stick to the fiscal deficit target of 5.3 per cent of GDP. The Finance Minister has already made a firm commitment on this. We can’t keep running large fiscal deficits and borrow to finance it,” he said.
Rajan said India had a lot of positives, such as a young population and limited infrastructure (which he saw as a source of growth opportunity).
India will be able to record strong sustainable growth in the next two decades if it were to also successfully manage out-migration from agriculture, he said and added that India was at a stage where more and more people were entering the labour force.
Although India had the growth potential, it was not being fulfilled, he pointed out.
Citing the Delhi-Mumbai industrial corridor project, Rajan said India could benefit from a lot more infrastructure.
“The Government is in the process of putting in place massive infrastructure projects,” he said.