How would you categorise economic reforms for the next four to five years of the UPA government?

Firstly, there is a contradistinction between long- and short-term fiscal policy. In the medium term, it is important to have fiscal balance and the situation demands fiscal stimulus in the short term. We need to start thinking of elements that will bring us back to the path of fiscal prudence. In the last couple of years, oil shocks and rise in prices have hit the economy. Therefore, second sector that needs reforms is energy. And thirdly, it is the financial sector that needs reforms. FDI and high capital inflows can put us on the growth path quickly. We have enough savings both at domestic and corporate front. The core problem is to figure out how this money can reach the right people.

You’ve talked about FDI in multi-brand retail, the Contract Labour Act and retrenchment of labour in factories. What is the economics of all this?

The government showed interest in building consensus for labour reforms. We have put forth our views where a distinction has been made between the employment element of manufacturing and manufacturing itself.

The problem is limited flexibility in labour laws. This cannot lead to fast growth of labour-intensive mass manufacturing. However, the semi-skilled-labour manufacturing can go on if education is improved. Take Bangladesh. The garment industry is labour-intensive there whereas in India it is fragmented and nobody wants to employ more than 10 people. This is part of the larger structural issue where most labour still goes to agriculture in India. In this scenario, contract labour is a win-win solution as the laws will apply to the contracting agency and not to the employer. Moreover, labour will not get affected completely if there is, for instance, a slowdown in one sector, say, exports.

The government has already given a fiscal stimulus of almost 3.5 per cent of the GDP to the economy. Is there a case for continuing with this?

The interim Budget has already stated the plan to return to fiscal deficit targets. The economic analysis suggests that it is necessary to maintain fiscal stimulus as we are still in the midst of global crisis. Fiscal deficit is a constraint to growth but we need to make choices necessary in the short term. As of now, I think we require fiscal stimulus as the problem of low demand is still evident in the data.

On the monetary policy front there has been a lot of easing since September 2008 but transmission of liquidity has not happened…..

Tightening of monetary policy seems implausible as the Index of Industrial Production growth is close to zero. Policies need to be consistent with the economic climate and therefore, both, monetary and fiscal policies have to focus on generation of demand. Our domestic concern is food-price inflation but the larger issue is linking liquidity to commodity speculation, especially oil.

Are you worried about food-price inflation, especially when monsoons are not expected to be normal?

The problem is the large gap between the WPI and the CPI, which suggests that the supply chain is unable to cope with accelerating growth in income and consumer demand. This issue points at the urgency for reforming the land market, real estate sector, retailing, public transport and food supply chain. It is a long-drawn process but we need to start thinking about it. Nobody has an explanation as to why even after years of almost 3 per cent growth in agriculture the prices are still high. GDP deflator is 6.2 per cent and the private consumption deflator is higher than that. Inflation is there that has to be weighed while making macro-economic policy.

Even though the Congress manifesto does not clearly talk about disinvestment you have mentioned this…

What I am laying down is a five-year perspective of what needs to be done professionally to put the economy on a high growth path. Even if half of it is done, I would be extremely happy.

What are your views on multi-brand retail?

The Economic Survey says that a condition can be put to FDI in retail that the investors may have for five years wholesale outlets as well from where small retailers can also source because the small retailer will not be able to build a supply chain on his own. In this way, others also gain from the supply chain created. It is about finding a middle path to introduce competition and modernisation.

The survey talks about tax reforms and reviewing surcharges, cesses and transaction tax etc…

The survey gives a theoretical view to tax reforms. Take the case of dividend distribution tax, which made things more complicated while the intention was the opposite. Sometimes creating simplifications in one area can complicate the entire system.