PK Choudhury, chairman and group CEO, ICRA Ltd, is against the announcement of big-ticket welfare schemes in the Budget in the interest of expenditure flexibility. In an interview to George Mathew, he said that higher infrastructure spending is crucial to reduce supply-side bottlenecks and stimulate growth. Excerpts:
What should the finance minister focus on while formulating Budget 2013-14?
Clarity on the roadmap for goods and services tax is awaited. It would be prudent to avoid the announcement of big-ticket welfare schemes, as these impart inflexibility to the composition of expenditure. Instead, higher infrastructure spending by the government and PSUs is crucial to reduce the supply-side bottlenecks and stimulate growth. Further, public sector banks need to be adequately recapitalised. Overall, fiscal consolidation is crucial to restrain government borrowings and ensure that the private sector does not get crowded out.
How do you rate the performance of UPA over the last four years? Do you think a golden opportunity to introduce reforms has been missed?
The last four years have coincided with a turbulent period globally, which had its impact on the formation and implementation of domestic policies. The government’s focus on inclusive growth has partly helped to insulate the Indian economy while at the same time setting the groundwork for the improvement of various social sector outcomes. Recent steps to address regulatory issues regarding allocation of natural resources, reforms measures particularly on foreign direct investment and diesel pricing as well as the rollout of the Beneficiary Transfer Scheme, would have far reaching implications for the economy.
What should the government and the RBI do to bring growth back to 9-10 per cent level?
Higher infrastructure spending in conjunction with faster clearances for projects would boost economic growth in the near term. Revival of private sector investment activity critically depends on policy measures to ensure ease of land acquisition, availability of reasonably-priced power for industry and removal of infrastructure bottlenecks, which would help growth revert to 8-9 per cent
levels. Based on RBI’s guidance and our expectation regarding the inflation trajectory, we anticipate further monetary easing of 75 basis points by September 2013, which should lead to a moderate revival of growth.