Saumitra Chaudhuri, member of the Prime Minister’s Economic Advisory Council and Planning Commission, says the economy is vulnerable to the rising crude oil prices. The government needs to ensure that the economy is able to absorb those prices, Chaudhuri told DNA in an interview. Excerpts:
Food inflation is the biggest issue for the government today. How do you tackle it? When do you see prices coming down?
Government has taken several short-term measures over the past months to contain the increase in food prices. Recent data suggest these measures have succeeded in taking the edge off the rising momentum for wheat and rice. With the new wheat crop due for harvest in April, I hope prices will stabilise. This does not mean that prices will come down, but they will stop going up. This is certainly the scenario for wheat and rice. In the case of pulses, there is a serious problem, especially in tur, moong and urad. These pulses are grown primarily in India and our output levels have fallen in the past couple of years. Moreover, they are hard to import since there is not much production in other countries.
Therefore, I think it will take longer for the price of pulses to stabilise and when they do, we hope there would be some downward correction. In the case of fruits & vegetables, the increase in prices that was evident from September to early December has abated. Sugar prices have started to come down on account of government initiatives and the crash in international markets. In the coming moths, there could be more moderation.
The Prime Minister’s Economic Advisory Council (PMEAC) report talks about certain risks that the infrastructure sector faces. Could you please elaborate on that?
For the infrastructure sector, the risk is mostly of slippages in meeting the target. We say we will complete this project in two years, but that project is often completed in 3-4 years. This leads to cost overruns and additional funding becomes a problem.
How can this be addressed?
Often slippages happen during implementation and even when the project is in an advanced stage. So it is not advisable to adopt a relaxed view just because 50% or 80% of the project is complete.
We need to plan ahead for the projects. Take the example of power projects: there are more plants on the anvil than available coal linkages. So we need to focus on developing our coal mines. We just can’t think of planning power plants without planning coal
linkages. Our record on project implementation is very weak.
There are problems of land acquisition, environmental clearances etc. We need to develop a system that collects each and every information about a project and take it on time
to the relevant authority so that there is no delay in decision making. The quality of top management is critical in successful and timely completion of the projects.
When is the rollback of the remaining stimulus likely?
I think it would happen only when the Goods & Service Tax is implemented. The government has restored the service tax and excise duty at 10% and theoretically the government could roll back the remaining stimulus in the middle of the year also, but I feel that it will happen only with the implementation of the new tax structure.
Is the target of Rs 40,000 crore through disinvestment of PSUs achievable?
If the target has been set, it will be achievable. However, it will depend on the market conditions also.
The PMEAC report has said that increase in commodity prices pose a risk to a recovery. We are seeing prices of crude, coal and iron ore rising. Cause for worry?
Yes, the rise in the prices of crude oil is a cause of concern. As the western economies recover from the slowdown, their demand for commodities will go up, which, in turn, will push the prices of all commodities in the international market up.
In the past few months we have seen a substantial hike in the prices of most commodities.
So are we heading towards another crisis? Would we see that much-touted W-shape recovery?
Rising prices of commodities is not consistent with recessionary conditions. If we have recessionary conditions in the developed world, we would not have to worry about commodity prices, as there would be weak demand there. We do not want the western economies to go into a recession. With their revival, our export sector will revive too. We need to look for ways to tackle the impact of higher crude oil prices. That is why there should not be a rollback in fuel prices. If that happens, it will send out a wrong signal, and as crude prices go up in future, which is almost certain, we would not be able to deal with that situation.
Can you tell something about the mid-term appraisal for the Eleventh Plan? Are we going to see any major corrections?
The mid-term appraisal is almost ready and there are no major changes being suggested. However, small changes in sectoral allocation and emphasis have happened. Agriculture is one area where there will be renewed emphasis, but it is unlikely to be something that will attract headline grabbing interest.
But how would the plan move ahead sans changes, and despite the funds crunch facing the government?
We have managed to provide the financing to the Eleventh Plan despite decline in tax revenues by taking recourse to higher borrowings. This has impacted the fiscal deficit and was an appropriate course of action during the financial crisis. However, it is not a sustainable course for the medium-term, which is why government has begun the process of fiscal correction from 2010/11. However, in terms of as a percentage of GDP we have by and large been able to preserve the overall Plan size.
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