7-7.5% is a pretty respectable expectation, and he would like to see more in terms of the growth composition, says Rakesh Mohan, Former Deputy Governor RBI, and a Distinguished Fellow at Brookings India. In an interview with ET Now, Mohan says that 7-7.5% is respectable, given the global economic situation. Edited excerpts:
ET Now: Growth targets being revised to 7 to 7.5% is really what the economic survey has said here, this is climb down from over 8% growth that was projected in the economic survey last year. Your take please?
Rakesh Mohan: Either 2015-2016 or 2016-2017?
ET Now: This is fiscal year 2017 growth is being seen at 7-7.5%?
Rakesh Mohan: Given the global economic situation, I think that 7-7.5% is a pretty respectable expectation. I would like to see much more in terms of the composition of that growth and how they think it will come about.
ET Now: How are you reading into the statement and just for the benefit of our viewers I am going to reiterate that point, the survey sees chances of a review of medium term fiscal framework, Arvind Subramanian making grounds for fiscal expansion once again?
Rakesh Mohan: Well I think this has to be seen once again within the context of the global economic framework that we are seeing over the next year or two. As I understand that in the ongoing G-20 meeting in Shanghai the US Treasury Secretary plus the others including the Chinese finance minister apparently are indeed arguing for fiscal expansion globally, of course, within limits and within the kind of slack that exists in different economies.
I would imagine that if there is indeed a review of the medium terms fiscal framework with some relaxation we would be pretty much in line with other major economies at that current time. Of course, one could argue that we perhaps have less fiscal space than some other countries and therefore we have to be much more careful than many others but then on the other hand, European economies have even less fiscal space than we do in terms of their debt GDP ratios.
I think that overall I would certainly say that Arvind Subramanian is not wrong in asking for a review of the medium term fiscal framework in the both the current global context and also the slowdown in both private and public, and particularly in private investment. Therefore, I think that this is something to look for.
I would add further that we should not be concentrating solely on one number that is the fiscal deficit, I would argue much more strongly for looking at the composition of public expenditure and if there is relaxation in the targets for fiscal deficit, then it would only be justified if it is due to a jack up in public investment over all and particularly of course in infrastructure.
This article was first published in Economic Times Online on Tuesday, 26 February 2016. Like other products of the Brookings Institution India Center, this is intended to contribute to discussion and stimulate debate on important issues. The views are those of the author. Brookings India does not hold an institutional view on any subject.