Economy seems to have bottomed out in July 2017, expect upturn now: Rajiv Kumar, NITI Aayog

I believe strongly that the revenue deficit target should be met and if possible even be improved upon by measures like direct benefit transfers, cutting out leakages in subsidy payments, by doing the JAM trinity etc, says Rajiv Kumar, Vice Chairman, NITI Aayog, talking to ET Now.

Edited excerpts:

What is your view on the state of the Indian economy?
When talking about the growth of the Indian economy, we should look at it as a cyclical downturn which started in the last two years of the UPA government. This is something that we must note and it is not coterminous with this government’s coming into office. The last two years of the UPA had handed over an economy which had already started to slow down and where the exuberances or if you like, the excesses of the previous years where credit was given to all sort of projects and all sort of infeasible investments, had begun to take a toll on the overall macroeconomic situation in the economy.

I am very happy to say that I think this cyclical downturn is now coming to an end. The economy seems to have bottomed out in July 2017.

By the way, another additional fact is that everybody has been talking about excess capacity in the industry and in the manufacturing sector in economy for the last two-and-a-half, three years. If you have excess capacity, you cannot expect private investment to go up. But for the first time after July, the PMI in manufacturing has begun to look up from 47 to 51 and the PMI in services too has registered a similar increase.

One other final thing is that real estate prices are beginning to perk up at long last in some of the metros. Our exports have shown rise though not as strong as we would like in the last 12 months. They are well below their peak which they had reached in 2011. But now they are beginning to rise consistently over the last 12 months. I site all these figures to say we should not think about a structural downturn or a tailspin or disaster scenarios, etc. We have had a secular decline but that is a cyclical downturn that we had inherited and that has continued until now.

Fair point and you sort of elaborated why you believe a revival is around the corner. But the more immediate concern is what is going to happen in the next quarter. I know governments cannot plan policy keeping quarters in mind but for corporate India and from a job creation point of view, there is a more concern on what is going to happen immediately.
What is your own view on what is going to happen in the next quarter because former finance minister Palaniappan Chidambaram is of the view that growth might actually even drop below 5.7%. I know you are far more optimistic. How much of a revival do you see in the next quarter and what could be the factors contributing to that revival?

We should have a fairly smart revival. One is not talking about the so called V-shaped recovery. I would not expect the economy to get on to a sort of 7-8% growth path sort of level just now but given the fact that all the destocking which had taken place in anticipation of the GST is over and behind us. Finally, the private builders have come around to take advantage of the financial concessions that the government is offering for affordable housing and are beginning to take up those projects.

Also the fact that the auto wheel sector is now registering a growth and the festival season is upon us, I would have thought that the July to September-October would register a marginal increase and will take us above 6% but the third quarter is when the recovery would gather speed and we will probably go to 7%. The third quarter which will have the festival season within it will see private sector investment beginning to pick up.

We understand that perhaps this is a cyclical downturn. The worst is perhaps behind us but as the Indian economy begins to pick up steam, there is this clamour for the government to handhold, there is this clamour for a fiscal stimulus for some sort of a lifeline and desire for the government to step in with. Why do you believe it is necessary right now?

There is a lot that government can do and is now planning to do to facilitate private investment and remove some of the bottlenecks. To remove some of the irritants and some of the things which come in the way of clearing the projects etc, would enable private investment to come along and to gather a little bit more speed. But the other thing that the government needs to do is also to take care of its own expenses. For example, there are several ministries in the government which are not being able to spend whatever has been allocated in this budget.

In some cases, quite unfortunately, expenditure is below the level that has been done in the previous year. There are large number of vacancies even at the cutting edge which have been left unfilled which will improve delivery of public services.

All of those do not require any additional fiscal stimulus and yet will see a larger outgo of the government finances into the economy and also will debottleneck large number of projects in the infrastructure sector especially.

The second part which is perhaps equally important is that at a time when the recovery is about to begin. it will be good for the government to give it a little push by putting in an extra stimulus whatever it can afford. And what it can afford is something that I have actually held very clearly for some time. It should be determined by not looking at the fiscal deficit number but looking at the revenue deficit numbers.

I believe strongly that the revenue deficit target should be met. In fact, if possible even be improved upon by measures like direct benefit transfers, but cutting out all the leakages in your subsidy payments, by doing the JAM trinity etc.

If the revenue deficit is reduced and brought down and the rest of the government expenditure goes into capital productivity enhancing expenditure, there is no harm at all at this point in meeting the FRBM target that the government may have set upon itself.

After all, the FRBM law does permit a 0.5% expansion above the target in case of the economy needing it.