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    Hello and welcome to a chat with Mr AK Bhattacharya on the state of the Indian economy.

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    S K NAIR

    We blamed UPA-II for a policy paralysis, but then BJP's disruption in Parliament had also contributed to that. Now, BJP has been in power for a year and a half. And we do not find much of policy action to attain the desired rate of economic growth. The government is banking on Chinese slowdown and the GST legislation (albeit truncated) for economic growth. To what extent do you think is the government's hope realistic?


    The BJP-led government has not been able to crack the big problems that come in the way of increased investment or an easier business environment. The failure to amend the land law of 2013 and the uncertainty over the goods and services tax regime are two examples. But some positive movements must quickly take place in the financial sector, without which the economy could be in a jam. The banks, particularly the ones in the public sector, are stressed by a huge amount of non-performing assets. Their lending ability is substantially constrained. It is important to free up the banking sector from this stress. Some decisions have been taken by granting them autonomy, etc. But more needs to be done.

  • N


    I would like to know your views on whether the Indian economy has really improved during the present NDA regime vis-à-vis the UPA rule. A lot is being said about this government's focus on the country's infrastructure which will result in infra spending and subsequently improve the state of our companies in infra, capital goods, metal/non-metal space. However, I'm not able to see any real effect on the ground. It is understood that infrastructure development takes considerable time, but one would have expected orders flowing to companies and bolstering their order books by now. One would have expected demand for commodities zooming up by now. But nothing of that sort is visible today. Do you see any positives for the future? Is this government really doing something different from the previous one to kick-start the economy? Or is it all hype?


    Not everything that you see is hype. The global headwinds are strong. The Indian economy cannot but weather the storms of a slowing global economy, reflected largely in India's falling exports - for the ninth month on the trot its exports in August saw a decline. The government must take the required steps to maintain its fiscal balance - by targetting subsidies to the really needy, reducing wasteful expenditure, avoiding the harmful effects of a generous award of higher compensation package by the Seventh Pay Commission, and so on. The government must keep its fiscal deficit under control. That would release some resources for the economy and the activity to firm up a bit.

  • D


    Can Indian industry ever take off, now that the eminent domain option has been effectively culled from the Land Acquisition Bill? Even a minor landholder can now hold up a multi-million project if it's part of essential contiguous land.


    It would be difficult. But remember that there are many exceptions to the land acquisition law of 2013. The road construction projects, the railway projects, etc. are among those that would face higher costs, but should not suffer from denial of land.

  • A


    One of the newspapers reported that the country had seen brilliant FDI inflows from the countries that the PM visited in the past 18 months. Is that a good way of looking at improvement in foreign investor sentiment? Or are we reading it positively far too soon?


    Not entirely wrong to see it that way. Mr Modi has so far visited 26 countries. And if you looked at foreign investments in India, from these countries in 2014-15, they increased by 50 per cent or so over those in 2013-14. But foreign investment is not the only indicator of the health of the economy. The actual dividends from foreign investment should be judged by a variety of outcomes - increase in economic activity or more precisely the rise in the index of industrial production or the services sector growth. While foreign direct investments from these countries have risen, the other indicators are yet to show a corresponding positive improvement. This raises the question : Is domestic investment also rising or at least keeping pace? The answer shows that it is still a long long journey before the economy can claim to have reached a sustainable path of reasonably high growth.

  • N


    The finance minister says that the government is committed to resolving the tax disputes with multinationals like Vodafone, Cairn and Shell. Do you think that will improve the foreign investor sentiment significantly? Or will it be too little, too late?


    I think such statements should help the investor confidence. Nothing is late in such matters. The important point the investors would note is the consistency in the government's stance and approach to such issues. So far, the government has been consistent, though it could have acted much faster in resolving these issues.

  • A


    Sir, what does a decrease in tax-to-GDP ratio of a country indicate? Slowing economic growth rate, or less equitable distribution of national income? What do you think of this in the present Indian context?


    India's tax to GDP ratio is relatively low, also because big chunks of the economy (take agriculture for instance) remains largely outside the tax net. There is also the tax administration issue and the absence of tax reforms like an early introduction of goods and services tax. It is also important to see the mix of direct taxes to GDP ratio and the indirect taxes to GDP ratio. In the last few years, that mix has got a little skewed - the indirect taxes to GDP ratio has risen faster than the ratio of direct taxes to GDP - this is a sign of an inequitable taxation system. This too needs to be corrected.

  • A


    The Indian economy is also facing the heat of global headwinds, and the stock markets are sliding as much as 800 points in a day. How do you see India reviving its GDP growth in the coming years and outperforming other emerging market economies?


    As I said, it is important for the government to free up the public sector banks from the burden of non-performing assets. This might require tough steps - including some closure, some merger and some ownership change in the form of privatisation. But it seems the government is at present reluctant to take such steps that might appear bold, but are needed at this time. The problem is how the economy's investment demand can be revived. And as Business Standard has reported, capital spend by 36 listed public sector undertakings declined last year by 24 per cent. This is serious when seen in the context of an 80 per cent decline in Indian companies' investments abroad.

  • S


    With China entering a bear phase, Europe and Japan showing few signs of growth, and Fed not increasing its rate, do you think the Indian economy will rebound anytime soon? Or will it enter a bear phase like in 2008 and live on government investments? If it would rebound, by when? And what would be key lead indicators?


    With the Fed deferring a rate hike, India has got some breathing space. It can and should use this opportunity to get its policies in place. With the banks reeling under the burden of non-performing assets, the stimulus has to come from the government or at best the public sector enterprises. Unfortunately, that stimulus to kickstart investments has been inadequate. There is need to take more steps in that direction.

  • S


    Many top ministers and officials like Arun Jaitley and Aravind Panagariya have been demanding further rate cuts by the RBI. But Governor Raghuram Rajan recently warned against chasing economic growth too fast, citing Brazil as an example. How do you see the diverging views in the context of the Indian economy?


    We should consider ourselves lucky to have a system in which our regulators are free to express their views that they know are divergent from those held by the government, its ministers and senior officials. The RBI Governor is right in pointing out that quick fixes are not a solution for paving the way towards sustainable growth. You need institutional strength and robust policies. The demand for interest rate cuts must be viewed in that context. It is important to focus not just on the repo rate, but also on a host of other administered rates as those that govern the small savings scheme, for instance. Similarly, it is important to examine why transmission of earlier rate cuts has not taken place through the banking system before making the next move on this front.

  • K


    In the wake of the economic crisis in the EU and the migrant crisis which will add on to the existing financial crisis, the recent Fed decision to not to change the existing rates. And there has been a market collapse because of China and a Russian economic crisis, too. Will the after effects be catastrophic for the Indian economy?


    The Indian economy will not remain totally insulated from the global developments that you are referring to. It will have some impact. But the Indian economy is quite large. If the government sticks to prudent fiscal management and does not succumb to jingoistic calls for boosting the stock markets and propping up the currency, the Indian economy can weather that storm with far less adverse impact than most other large economies.

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