RBI Div­i­dend is in Line with What was Bud­geted: CEA

The Economic Times - - Companies: Pursuit Of Profit -

In an over hour-long in­ter­ac­tion with the me­dia, Chief Eco­nomic Ad­viser Arvind Subramanian out­lined key con­cepts of the sec­ond edi­tion of the Eco­nomic Sur­vey 2016-17. Edited ex­cerpts ...

On the growth fore­cast of 6.75-7.5% We have to think in terms of prob­a­bil­i­ties than point out­comes. We have given a range be­cause there is a lot of un­cer­tainty. What we are say­ing is that bal­ance of prob­a­bil­i­ties has shifted. It’s less likely than be­fore that we will reach the up­per end of the range. It’s also con­di­tional on pol­icy. If, for ex­am­ple, we can im­ple­ment pol­icy that can re­vive growth — mon­e­tary, fis­cal, agri­cul­ture — then we can hope to go back to the up­per end of the range.

Im­pact of lower rates on savers If real in­ter­est rates mat­ter to bor­row­ers, real de­posit rates mat­ter to savers…If for ex­am­ple your de­posit rate is 7% and in­fla­tion is 3% then if in­fla­tion goes from 3% to 1% that 7% is re­ally worth a lot. So it is not right to say re­duc­ing nom­i­nal rates will hurt savers if all nom­i­nal rate cuts are do­ing to track in­fla­tion de­clines since that’s also ben­e­fit­ing savers.

De­mon­eti­sa­tion’s suc­cess When we ex­am­ine any of this, there is no one that it is 50% cor­rect or 60% right or 100% cor­rect or 0% cor­rect, be­cause there are dif­fer­ent dif­fer­ent im­pacts. If you see cash, it sur­prised me. 20% re­duc­tion in equi­lib­rium cash. Sim­i­larly, digi­ti­sa­tions. The tax­pay­ers data that I said also came as a very pleas­ant sur­prise. But on the other side you also have the in­for­mal sec­tor im­pact.

Sharp cut in div­i­dend de­clared by RBI The RBI div­i­dend has come down, but it is in line with what was bud­geted. So, in that sense it doesn’t rep­re­sent some­thing new. Is this a fis­cal shock? I as­sess shock as rel­a­tive to what we bud­geted. I think rel­a­tive to that, there has not been, as far as I know, a shock.

More rate cuts This (sur­vey) is a tech­ni­cal as­sess­ment which says what could be the po­ten­tial scope. Tim­ing mag­ni­tude all that is up to the mon­e­tary pol­icy com­mit­tee to de­cide. Sur­vey not deal­ing with jobs is­sue We don’t re­ally have good re­li­able con­sis­tent series of data to be able to say with some de­gree of con­fi­dence that this went up or this came down. I am hope­ful that once we re­ally, im­prove our em­ploy­ment data, we will be able to do those things much bet­ter.

Wind­fall from de­mon­eti­sa­tion When we think about the wind­fall from de­mon­eti­sa­tion I think that this wind­fall can man­i­fest it­self in dif­fer­ent ways. One is how many notes came or did not come, that’s one. Sec­ond is if taxes go up be­cause of this or if we have new tax­pay­ers that also is a source of wind­fall. Cer­tainly, the Data that I showed on new tax­pay­ers is en­cour­ag­ing in that record. But again it is some­thing we will have to track over time. All the ben­e­fits and costs will have to as­sess over time.

Fis­cal con­sol­i­da­tion ad­just­ments The di­ag­no­sis is that there are short term de­fla­tion­ary im­pulses, there are chal­lenges. I think cer­tainly a big pol­icy lever that we and that we have set in mo­tion is the ac­tions to ad­dress the twin bal­ance sheet chal­lenge via the bank­ruptcy thing. Then we have the other lev­ers, mon­e­tary pol­icy and fis­cal pol­icy as well. All of th­ese come with ben­e­fits and con­straints… One thing I would say is that if we get a fis­cal bo­nanza based on GST rev­enues I cer­tainly think we should think about spend­ing that con­sis­tent with our deficit tar­gets and deficit ob­jec­tives.

AMRENDRA JHA

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