'If the RBI reduces the rate of interest, housing demand can pick up, investment can pick up, automobile demand can pick up...'
Illustration: Dominic Xavier/Rediff.com
One year after demonetisation, what is the state of the Indian economy?
Is it huffing and puffing still? What should be done to revive the economy?
Dr Ashwani Mahajan, co-convenor, Swadeshi Jaagran Manch, which is alingned with the Rashtriya Swayamsevak Sangh, discusses the economic challenges confronting India with Rediff.com's Shobha Warrier.
Do you think the economy is in crisis right?
Absolutely not. Our economy is doing well.
Yes, there are some temporary disruptions. When you introduce reforms, and this was to increase the tax-GDP ratio and not to get more FDI, there will be disruptions.
Such disruptions should not kill any industry and that is why the government is making necessary changes based on the feedback they are getting.
What should be the government's first priority to revive the economy?
We have seen that for the last few years, the rate of investment has not been picking up.
Investment can come from two sources: Public investment where the government invests and then private investment.
Public investment has not been happening as the government has had problems with resources.
The government wanted to maintain the fiscal deficit and hence not using the resources to invest.
I would say, even at the cost of fiscal deficit, the government should start thinking about investing.
Yes, fiscal deficit has its own economics, but there are possibilities and flexibilities available in the Budget to marginally enhance the fiscal deficit for the investment cycle to start rolling.
So, even at the risk of increasing the fiscal deficit, what we need right now to do is revive the economy and then think of the fiscal deficit.
We have to compensate for the lack of public investment in previous years.
Do you feel governments have a fixation about the fiscal deficit?
Of course. They want to keep the fiscal deficit under control to keep Washington happy! That shouldn't be the case. They should be thinking about their own country first.
After public investment, the second thing the government should do to revive the economy is improve ease of doing business.
Yes, they are already talking about the ease of doing business. My question is, ease of doing business for whom? The foreign players?
Is ease of doing business not important as it applies to both foreign investors and local investors?
Ease of doing business does not apply to both always.
What we have to do is we have to improve the ease of doing business for the small businesses of Indian investors.
We have to look at what hurts domestic investors more.
What is required is the government has to improve ease of doing business for the start-ups in India.
Our small industries are suffering from the many conditions put forth by various inspectors, labour laws, environmental laws, etc.
Do you feel Prime Minister Modi should be talking about India's 30 point jump in the World Bank's ease of doing business index as one of his government's successes?
It is a good thing and we are all proud of it. What we are talking about is the World Bank index which is aimed at foreign investors and MNCs.
Foreign investment is hardly 4.5% of our GDP and 6.3% of total investment. Why do we make everything easy for the 6.3% of our total investment?
Why don't you look at the 94% of investors and give them more concessions?
I feel we should have our own index of ease of doing business for our domestic investors in various states so that they can also act accordingly.
Do you feel the high rate of interest is a deterrent in getting private investment?
The third thing the government must do is lower the rate of interest.
We are trying to compete with other countries, even with China, by keeping the rate of interest high.
The major cause of lack of investment is high rate of interest.
In many countries, people can borrow at 2% to 3% for housing, 3% to 4% for any investment. But here, our domestic investors have to borrow at 12% to 13%, sometimes more. So, we have to reduce the rate of interest.
But the RBI is reluctant to cut interest rates...
It is high time we have a public debate on this issue. The decision should not be left to just 1 or 2 people at the RBI.
I am not questioning the intent or knowledge of the RBI, but questions are being asked why the rates of interest has not come down.
When the rate of inflation has come down, why has the RBI not reduced the rate of interest?
The RBI refused to lower the rate saying inflation would go up, but it has not.
Why is nobody questioning the RBI? It should have come down at least by 200 points.
If the RBI reduces the rate of interest, housing demand can pick up, investment can pick up, automobile demand can pick up...