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The main effect of reforms for now is on Sensex: Pronab Sen

Interview with Principal Advisor, Planning Commission

Shine Jacob  |  Kolkata 

With the Centre showcasing what is being termed the second generation reforms, the Planning Commission is expecting the measures to get results at ground level in another six to eight months, its principal advisor, Pronab Sen, tells Shine Jacob. Edited excerpts:

The Centre seems to be on a policy reform spree. What impact will it have on the ground?
It depends on the timeframe. At the moment, the main effect is on the Sensex (stock exchange). If we look at the situation in the past one year, corporate sentiments were really down. Nobody was planning any investments in India, things were bleak, so the announcements had a dramatic impact on various segments. That really reflected on the stock markets.

With the reforms in place now, some people will go for Initial Public Offers, the government’s disinvestment programme is starting to look better, because the market is booming. However, one cannot expect too much to happen on the ground immediately.

Once the sentiment improves, then only do people start planning for investments. Then the implementation space will come. So, we will be able to get the fruits of these measures only after six to eight months.

Do you see an impact of this on GDP figures?
My personal view is that our quarterly GDP figures have underestimated the growth a little bit because it does not adequately capture small scale industries. When the revised figures come in, I think it will go over six per cent, from the current 5.5 per cent.

The main problem we are having is a very sharp decline in corporate investments. With these reforms, if corporate investment comes, then the growth figures will be automatically up. In FY13, we might clock much more than seven per cent and possibly 7.5 per cent.

You mentioned that small and medium enterprises (SMEs) are going to drive growth. What exactly should be the road map for these?

The central government will do whatever it can in this regard. The real action in SMEs should come from the state governments. It is the business climate which is more important; corporates can get over a bad business climate but SMEs can’t. So, it is going to be really state-specific.

Steps like cabinet clearance of foreign direct investment in retailing could push. One of the things that organised retail does, in terms of agriculture, is it can create alternative marketing channels for SMEs and push up their growth. The future of the country’s growth is heavily dependent on SMEs. Even during 2009, when corporate India followed the global trend of a downward growth on investments, SMEs increased it by three per cent, showing resilience. But our financial sector must come with innovative schemes to support their growth.

On supply-side bottlenecks, it is something arising out of skills. That’s why the skill development corporation is there. Manpower is there in plenty but skills must be improved.

Still, there is little relief on the inflation front. Do you see further monetary measures?
What the Reserve Bank governor mentioned is very clear. We have reached the limits of what can be done with monetary policy and addressing inflation should now depend upon fiscal correction. The finance minister is also of the opinion that fiscal policy and monetary policy have to go hand-in-hand. Now, we have to see what steps the finance ministry will take.

Do you think more cuts in subsidies are needed?
Not necessarily. The issue is how we get the fiscal deficit under control.

Subsidy is only one element. The finance ministry has to take a call on which is easier to do and what can be done quickly. On the tax side, there is room for measures; that is the call the ministry has to take.

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First Published: Fri, October 12 2012. 00:26 IST