Interim Budget 2024: 'You under promise, over deliver and generate credibility to the process,' says CEA

Over the last five years, Budgets have been prudent, conservative and transparent, said the finance ministry’s chief economic advisor V Anantha Nageswaran. In a post Budget interaction with BT, he said that the Interim Budget 2024-25 has also adhered to that formula. “You under promise, over deliver and generate credibility to the process rather than over promise and under deliver,” he underlined when asked about the Budget projections. Edited excerpts: 

Two days before the Budget, a recent report by you spoke about India becoming a $7 trillion economy by 2030. What are the challenges that you foresee in this and the reforms needed? 

To get to $7 trillion economy, I think if we continue the current pace of growth, we will be able to get that, maybe a year here or there. We are talking of $ 3.4 trillion economy by end of March 2023 and then heading towards $ 7 trillion by March 2030. Usually, the rule of 72 is that to double something in seven years, you need 10% growth. We are talking about 10% growth in dollar terms in nominal GDP. For India, this should be somewhere along 11% and even if the rupee depreciates by about 1%, we may be able to achieve 10% dollar GDP growth. In the last 30 years, between 1993 and 2023, we achieved 8.6% dollar GDP growth per annum. So this is doable. If we run into higher inflation, then our currency may depreciate more than 1%.  In that sense, maintaining price stability and sustaining growth are the two key means for this even at the current growth rate.

The Budget has projected 10.5% nominal GDP growth in FY25. What is the break up for real GDP and deflator? 

The Economics Division (in the finance ministry) may come up with a number and the Budget Division doesn't have to necessarily use that, they can be more conservative and they are conservative. As I had said in the paper, GDP growth in FY25 is likely to be closer to 7% although 6.5% can also be considered closer. So even if I assumed 6.5% GDP growth in FY25 and then at a 4% inflation as per the GDP deflator, we are talking about 10.5% nominal GDP growth. But if you multiply the cross product, it will be 10.8%.

The Budget projections are being seen as very realistic. Has the government erred on the side of caution given that the economy has done better than anticipated in the last few years? 

No, that has been the hallmark of the last five years. The Budgets have been prudent, conservative and transparent. It has adhered to that formula. You under promise, over deliver and generate credibility to the process rather than over promise and under deliver. 

The Budget spoke about inflation being moderate but food inflation has been high in the last few months. 

The Reserve Bank of India had said inflation will go up for two months and then stabilise. That's why the government extended the PM Garib Kalyan Yojana for another five years. The government has also been taking measures to contain inflation by reducing exports and imposing higher import duties and price restrictions as well as restricting diversion of sugarcane into ethanol production. The RBI is confident of inflation coming down to closer to 4% in the second half of the next financial year. Right now, we are at 5% plus. And more importantly, the core inflation rate is low at 3% plus. Also, I don't think the inflation rate as measured even by the food price index is the correct inflation rate faced by the households because it is not accounting for the free foodgrains that they are getting in some areas. One may overpay for tomato or some other item, but many households are also not paying for foodgrains up to a certain limit. That is not reflected in the price index. In that sense, it's merely a price index, it is not a cost of living index. There is a difference between the two. 

What is your reading of the external situation given the two wars and the crisis in the Red Sea? 

At the moment, we are aware of those concerns and the commerce ministry has spoken about it. It has been four months since the conflict between Israel and Hamas started in Palestine and oil prices haven't really trended upwards, maybe the underlying demand conditions are playing a part itself. Right now, it would be difficult to model the impact, we can only say that we are aware of the impact and commerce ministry is aware and Indian Navy is playing a big part in ensuring passage to those ships. 

One concern has been that the Budget has not given a fillip to consumption… 

The extension of PMGKAY for five years happened before the Budget. There are two ways of giving a fillip to consumption, one way is to do it directly by handing them out cash, and it is still happening through various means. MGNREGA allocation for FY25 is the same as the revised estimate for this fiscal and PM KISAN Samman Nidhi is also happening. These are cash transfers. But this is a direct route of putting cash in the hands of the people directly from the government. This is a fiscal stimulus and can lead to higher money supply. Instead, we can try to create conditions for employment generation and income growth and therefore, consumption growth. The government is focused more on the indirect route but is not neglecting the direct route either. But the indirect route is more sustainable and more effective and also doesn't upset stability. It is okay to try and boost consumption for one year or two years through these methods and then lead to high inflation, which will then affect the purchasing power of the households. We are actually planning and executing for medium term sustainable growth. 

The Budget also spoke about reforms by state governments and a certain amount of money being kept aside for that. What kind of reforms should states be taking up? 

The areas where states have a much more important and direct contribution to make are in the health sector, ensuring health indicators and with respect to preparing the youngsters for the job market of the 21st century where Artificial Intelligence will play a big part. Implementation of the New Education Policy will go a long way towards improving learning outcomes in the country and states have a role to play in this. Similarly, states are pretty much in control with regard to the land markets and land use conversion is an area of reform. Labour market and labour codes are now in different stages of public consultation.  I think in all these areas, the states have big role to play.