RBI Dividend is in Line with What was Budgeted: CEA
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.