ET NowIn a chat with ET Now, Saugata Bhattacharya, Economist, Axis Bank, shares his views on the 100 days of the Modi government. Excerpts:
ET Now: Would you agree that investor sentiment is looking up? The question that many of us are beginning to ask is, when will it convert into ground reality, when will investment finally break ground?
Saugata Bhattacharya: I agree that investor sentiment is really very solid. It is not just in India. We have talked to many international investors and almost uniformly there is a lot of confidence in India’s growth potential now and we certainly are in a very good position.
I do not think even if things go horribly wrong, we are not going to get massively impacted by oil prices. Even domestically, although the agricultural scenario is still relatively deficient rains, but I do not think anything as bad is likely to happen. Sure we have a long way to go in terms of moving up the growth trajectory. It is best in the near term to do a slow climb so that the system stabilizes and so on. The government is working. We have seen many instances of that and the process of governance is getting simplified. That has been a very large change that we have seen. I mean using the digital technologies process efficiencies and so on, the business of the government is becoming simpler for the end users, people like us. So overall there are lots of reasons to celebrate, to remain confident, but it is not as if we are going to get into a 7% growth mode in very short order.
ET Now: The scope of reforms as far as expenditure and subsidy management is concerned, perhaps the sole Jan Dhan Yojana is targeted at more streamlining subsidy really reaching the right people, but what is the scope the government really has? Diesel is going to be decontrolled in any case in the next one or two odd months. It is only LPG and kerosene as far as the fuel subsidy is concerned, the government has taken upon itself the food subsidy. So what is the scope really that the government has?
Saugata Bhattacharya: The Jan Dhan Yojana is designed to transfer funds directly to a target segment of the population, the lower income and remote population that has not had access to banking and that obviously has led to diffusion of the payments that was designed to be delivered to them. So an effective roll out of this programme together with completely continuing functioning back accounts and so on will be a very powerful channel to target subsidies.
Remember the finance minister had also said that in a low-income country like India, you cannot really look to taking away subsidies completely. As we are moving towards the more market-based economy, there will be increased volatility, will be subject to volatility of prices, etc. So I mean a certain segment of the population needs to be protected, a safety net needs to be given. It is just that an efficient process of subsidy is the need of the hour.
ET Now: The sense that one gets from a distance is that this government is trying to fix the micro so that the bigger macro picture starts looking better. Is that the right strategy in times like this? The big bang reforms will happen, there is going to be legislative of opposition to this because the government does not have the numbers in the Rajya Sabha. Is that a fair strategy to go with?
Saugata Bhattacharya: You’re completely on the ball on this. Also, I agree. Ideally we would have liked for it to be a combination of the two - some bold reforms and a lot of micro detailing - but that is probably best for sustained growth to lay down a solid framework and efficient process system for the government to work in a passion that unlike in the past, where there has been fears that government expenditure is the way, it is not just the magnitude of expenditures, the direction of expenditures and the target of expenditures was crowding out private sector investments.
As of now, with the rationalisation of various processes, you set in place a system that can actually crowd in private sector investment, which is what all investors are waiting for, particularly various permissions for small and medium enterprises. This entire issue - which is a very large segment of the growth engine that we will be depending on in the future - is a very important part in setting right the micro structures for future growth.
ET Now: Would you agree that investor sentiment is looking up? The question that many of us are beginning to ask is, when will it convert into ground reality, when will investment finally break ground?
Saugata Bhattacharya: I agree that investor sentiment is really very solid. It is not just in India. We have talked to many international investors and almost uniformly there is a lot of confidence in India’s growth potential now and we certainly are in a very good position.
I do not think even if things go horribly wrong, we are not going to get massively impacted by oil prices. Even domestically, although the agricultural scenario is still relatively deficient rains, but I do not think anything as bad is likely to happen. Sure we have a long way to go in terms of moving up the growth trajectory. It is best in the near term to do a slow climb so that the system stabilizes and so on. The government is working. We have seen many instances of that and the process of governance is getting simplified. That has been a very large change that we have seen. I mean using the digital technologies process efficiencies and so on, the business of the government is becoming simpler for the end users, people like us. So overall there are lots of reasons to celebrate, to remain confident, but it is not as if we are going to get into a 7% growth mode in very short order.
ET Now: The scope of reforms as far as expenditure and subsidy management is concerned, perhaps the sole Jan Dhan Yojana is targeted at more streamlining subsidy really reaching the right people, but what is the scope the government really has? Diesel is going to be decontrolled in any case in the next one or two odd months. It is only LPG and kerosene as far as the fuel subsidy is concerned, the government has taken upon itself the food subsidy. So what is the scope really that the government has?
Saugata Bhattacharya: The Jan Dhan Yojana is designed to transfer funds directly to a target segment of the population, the lower income and remote population that has not had access to banking and that obviously has led to diffusion of the payments that was designed to be delivered to them. So an effective roll out of this programme together with completely continuing functioning back accounts and so on will be a very powerful channel to target subsidies.
Remember the finance minister had also said that in a low-income country like India, you cannot really look to taking away subsidies completely. As we are moving towards the more market-based economy, there will be increased volatility, will be subject to volatility of prices, etc. So I mean a certain segment of the population needs to be protected, a safety net needs to be given. It is just that an efficient process of subsidy is the need of the hour.
ET Now: The sense that one gets from a distance is that this government is trying to fix the micro so that the bigger macro picture starts looking better. Is that the right strategy in times like this? The big bang reforms will happen, there is going to be legislative of opposition to this because the government does not have the numbers in the Rajya Sabha. Is that a fair strategy to go with?
Saugata Bhattacharya: You’re completely on the ball on this. Also, I agree. Ideally we would have liked for it to be a combination of the two - some bold reforms and a lot of micro detailing - but that is probably best for sustained growth to lay down a solid framework and efficient process system for the government to work in a passion that unlike in the past, where there has been fears that government expenditure is the way, it is not just the magnitude of expenditures, the direction of expenditures and the target of expenditures was crowding out private sector investments.
As of now, with the rationalisation of various processes, you set in place a system that can actually crowd in private sector investment, which is what all investors are waiting for, particularly various permissions for small and medium enterprises. This entire issue - which is a very large segment of the growth engine that we will be depending on in the future - is a very important part in setting right the micro structures for future growth.
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