Q&A: Montek Singh Ahluwalia, Planning Commission

'We're trying to build an institutional direction'

Edited excerpts of an interview with Montek Singh Ahluwalia, deputy chairman of the Planning Commission, by Karan Thapar on the CNBC TV18 channel’s India Tonight programme:

The good news is the economy during the year ending March grew at 8.5 per cent, but growth in the final quarter came down to 7.8 per cent.
Our assessment throughout was that in the next year, we will do better than in the last quarter of the year that just ended. Even if we are anywhere between 8.25 and 8.5, it’s still a very good performance for a post-recovery year. In the world as a whole in 2011, everybody is expecting to slow down compared to 2010, which was the recovery year.

The fiscal deficit target is based on the assumption of 9 per cent growth. In that situation, can you meet the (fiscal deficit) target of 4.5 per cent (of GDP)?
A lot of the expenditure that is budgeted doesn’t get done. The food security bill is not a big problem. Petroleum is a different matter. My view, as is that of many people in the government, is we cannot afford to delink the domestic price of petroleum products from the global price. If we are importing it, we cannot afford to subsidise it.

That sounds more like hope. Your subsidy bill will destroy your calculations.
It would be a major failure on our part of macro management if that turned out to be the case.

Part of the cloud on the horizon is inflation. Do we have a hold and grip on inflation?
Nobody in the world has a hold and grip on inflation. One of the dominant negative things about the world economy is the rise of inflation, especially in emerging markets. Our rate is coming down, that’s good news. It looks as if we are maintaining the course on fiscal consolidation — if we have a normal year and if there is no sudden further disruption in global oil prices.

Is inflation the Achilles Heel of the government at the moment or the Achilles Heel of economic planning in India?
Inflation has always been a subject of enormous interest to any government, looking at political reaction. The Indian public, rightly, is very sensitive to inflation and government would be well advised to take whatever measures that may be necessary.

Including further interest rate hike?
If inflation is out of control and a small readjustment outcome on the demand side would bring inflation under control, it would be worth doing. You don’t control inflation in the medium term, then within a year, it would become a bigger problem.

So, in your eyes, it’s a much greater priority than growth?
A year ago, I’d said you don’t need a stimulus when the growth rate goes above 7.5 per cent. We are still the second-largest, second-fastest of the large economies.

When this government came back in 2009, most people believed we were going to see substantial, second-generation reforms.
Second-generation reforms are not like you change something and it is done. We are trying to build an institutional direction. More has happened than people give credit for. The whole business of providing economic infrastructure in rural areas and improving economic conditions for farmers by improving prices, giving flexibility on marketing, hasn’t happened as fast as you would want but it has happened.

Then, there’s the whole issue of building infrastructure by relying on public-private partnership (PPP). In many dimensions in the central government area, you’re seeing a lot of PPP in infrastructure; now you also see it in the states.

What about foreign direct investment in retail?
The government said they are going through a consultative procedure. Quite a lot of consultation had happened. The Planning Commission formally conveyed that we should introduce it and many other ministries have said, do it. I hope they will take a decision soon.