India’s Macroeconomic Picture Best I’ve Ever Seen: Surjit Bhalla

The economic survey presented yesterday projected a ‘reformist’ picture of the Indian economy in the days to come. The Quint spoke to leading economist Surjit Bhalla on how optimistic the picture is in reality. Below are a few excerpts from the interview:

How would you assess the reform agenda of the government?

I think the world has changed radically over the last year when Modi came to power. He came to power in May, so it will be two years and I think the world has changed substantially. And we are witnessing quite low growth and I think the quite low growth may be a function of both what has happened internationally and what has happened with our policies, therefore, I think, in macroeconomic terms, this government has done exceedingly well. The macroeconomic picture of India today is the best I’ve ever seen. At the same time, the decline in growth is quite disturbing. Now we need to know what are the policies that have led to a decline in growth. One policy which we’ve been discussing is that they have stayed fiscal consolidation, with fiscal deficit at approximately 3.9% of GDP, and I think that they have succeeded in achieving that. They have sacrificed growth, they have sacrificed inflation in order to have credibility with their policies which is precisely what you are alluding to, will they forego these policies and go for populism. Bad government expenditures is what populism is, corrupt expenditures is what populism is, so we’ll have to wait and see.  

It was literally a war of words when in one of your pieces you suggested that RBI Governor Mr Raghuram Rajan needs to get his basics right in terms of MSP inflation versus CPI inflation. Mr Rajan has chosen to stick to the status quo again, your advice to him?

The big question is whether inflation is strongly on a downward path and secondly that whether over the next six months, this encourages much steeper rate cuts than anybody else is thinking about.There is another belief in India that fiscal deficit causes inflation in India and I’m open to that challenge whoever is willing to take it, to show me where in the Indian context has the size of fiscal deficit affected the size of inflation or for that matter any economy in the world. Evidence does not exist, however, that does not mean you should not control the fiscal deficit. You should control the fiscal deficit for crony capitalism, what I call crony socialism, you increase government expenditures which have really no basis, they are wasteful and they are corrupt and that should be cut.

Also watch Part 1 and Part 2 of Surjit Bhalla’s interview.