Macro Economy

NoiseToSignal Conversations: Interview with Rajiv Kumar

Praveen Chakravarty
September 27, 2017

(Source: PTI)

Time For Mint Street And North Block To Work In Tandem, Says NITI Aayog Chief Rajiv Kumar

The Reserve Bank of India and the finance ministry should work together to revive the slowing economy, said India’s new NITI Aayog Vice-Chairman Rajiv Kumar.

“Any good, efficient policy meant for reviving the economy has to walk on two legs. It has to be both, monetary and fiscal,” Kumar told BloombergQuint’s Contributing Editor Praveen Chakravarty. “There is a time now for Mint Road and North Block to work closely together, and in tandem and figure out what is needed to be done,” he added.

Kumar said that working in sync doesn’t mean an end to RBI’s independence, and instead the regulator should find ways to work in close co-ordination with the Centre.

“Why is it that if you are independent, then you should be in opposition?” he said.

Here are edited excerpts from the interview.

You do agree that interest rates being held up as this villain is perhaps a bit unfair?

I grant you that, but with one caveat. Any good, efficient policy meant for reviving the economy has to walk on two legs. It has to be both, monetary and fiscal. And this whole – in my view – nonsense of this against the other, it is just that much. There is a time now for the Mint Road and North Block to work closely together, and in tandem and figure out what is needed to be done, so that on one hand there is better transmission of the interest rate cut and there is greater supply response and that they are in sync, rather than working against each other.

So, talk of independence of the central bank is some la la land concept?

Independent of course, but working in close coordination can be achieved. Why is it that if you are independent you should be in opposition? Independent doesn’t mean opposition. You don’t have to be confrontational. You are a part of the government, and the policymaking team.

Nominal government spending has been growing at 2.5 times the nominal GDP growth. Some would argue that we were already in a stimulus package. In just four months we are already at 92 percent of the targeted annual fiscal deficit. How much more can the government spend?

What I noticed was that the growth in government expenditure have slowed down from last year. It was 16.2 percent in the last year and it is 9.8 percent this year on a real basis, so that’s gone down. I don’t want to give a number, but I do want to say that the FRBM, which is the fiscal target, is a self-imposed punishment on yourself. You want to tie yourselves in hand and foot for this. I have insisted even to the NK Singh Committee that you should focus much more on the revenue deficit than on the fiscal deficit. Because, if you are going to use your borrowing for capital investment and productivity enhancing investment, I cannot see anyone objecting to it. As to – how much more, bank recapitalisation, large infrastructural projects, low-cost housing and then there could be roads and highways, so if you are going to do that, then it is inevitable.

There are a large number of ‘spending ministries’ in our government like rural development, urban housing, etc. who have not spent what their budget allocation is. So, why not first get that money out of the door?

Perhaps because the absorptive capacity of the economy for increased government spending is just not there.

I don’t agree. The absorptive capacity can be created by steps taken on governance. If you are going to be innovative enough to de-risk your projects and then invite the private sector; and not take the attitude that ‘the private sector is going to make lot of money, I’m not going to let you go in’, you have to change the mindset, you have to think of the private sector as partner to take the economy along.

What you are essentially saying is that a stimulus is somewhat inevitable, to boost spending.

Pretty much so. The sooner we can do it the better. We have outlined and discussed all the measures that are needed. Those measures need money, and the also need to be done. Then it’s up to the government. It may not necessarily increase the fiscal deficit if they smart about it. But if it does, then we have to make sure that revenue deficit doesn’t increase. And if fiscal deficit increases I do not think people will punish you for that.

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