Economic affairs secretary R Gopalan has his hands full navigating the fortunes of Asia's third largest economy at a time when inflation threatens to rock the boat. But his diverse experience ranging from banking (he was a probationary officer with Bank of Baroda) and insurance to trade and manufacturing will come handy.
The salt-and-pepper haired IAS officer from the Tamil Nadu cadre is a details man and goes through every file with a toothcomb. Though he appears mild-mannered, Gopalan maintains a tight grip on the affairs in North Block. Excerpts from a free-wheeling interview:
Are we on course to meet the budget targets on expenditure, taxes and disinvestment?
I am confident that the Rs 40,000 crore (disinvestments target) I can take for receipt without batting an eyelid. The market volatility is not the way you think it is. The sensex numbers are holding and we will be in a position to achieve this number.
On fuel, we never thought that prices would be so high. Demand is expected to increase from present levels. Several views suggest that crude will remain at this elevated levels. We find some cooling in certain prices in non-ferrous metals and in some food items but not to the extent we would like it to happen. Revenues will remain robust. Last year the actual increase in direct taxes was 27%. We are operating from a higher base and this year we have taken only 17% increase. Even if the economy were to slow down from the 9% projection to 8.5%, this number will be achieved.
People may say it could be a challenge and we may have to revise the target. But that will not happen. The challenge lies because you are putting in new systems and new people that is the internal collection machinery challenge; which is there.
Was it a case of the government not budgeting for higher crude price? Everyone was talking about it at the time of the budget.
That's not the way we work. We plan for 12 months. You look at a number on February 28 and say why this number has not been used. That's not the way budgeting is done. Second, in 2008 when you had $147 a barrel price and how within six months it came down to about $45, is also history.
What about the budget numbers against this backdrop?
There are two ways of looking at it-absorb it in the fisc or pass on the prices. There are many possibilities and the government will decide soon. So then there will be the question of how the burden has to be shared. Even if it means providing Rs 10,000 crore or Rs 20,000 crore, we can provide. In our view that's not going to be a cause of concern with reference to the magic number of 4.6% (the fiscal deficit target for 2011-12).
There are no fertilizer subsidy-related arrears as in the final supplementary, we paid Rs 8,000 crore, which normally would have come in the first quarter (this year). This year, it is feasible that we can use nutrient-based subsidy in urea also. On fuel because of the targeting of subsidies, you will find we will reduce the number of people who use subsidy. On the food side, the Food Security Act has to be passed by Parliament. When it comes we will provide for it. We have the cushion.
What is your assessment of growth at this point in time?
With an investment rate of 37%, we should normally get 9% growth. Agriculture is going to grow from a very high base of 6.6% growth rate to 3-3.5%. Industry will certainly be around 8% and services around 9-9.4%. So, it is possible for us to get 8.5%. Besides, monsoon is reported to be good and all reports indicate that it is going to be normal.
How do you see inflation? When do you see it moderating?
The 250 basis points increase in interest rates has started acting. Monetary and fiscal policy will work in tandem. If some partial pass through can take place on the fuel side the RBI's expectation is 8% (inflation) in the first few months and then sharply decreasing until March 2012. The monetary policy has started biting and then we expect good monsoon and number three the base effect will be there. Combine all this and inflation has to go down and we expect it to end at 6% by March 2012.
Apart from the political concerns, there are also some worries on stability of policy given that you have reversed the policy on special economic zones five year after enacting a law.
Certainty of policy is there. As far as tax is concerned, Goods and Services Tax and the Direct Taxes Code will provide that. In some sense it was known that the tax benefits would go when the DTC is implemented. Those who are already there will get benefits. Those who plan to start now will get grandfathering facility. There are a number of SEZs that have received approvals but not all are functioning. Basically, the principle is to do away with exemptions. You can't reduce tax rates unless exemptions go.
Now you are creating a situation where someone who has come to an SEZ may now look at setting up new capacities elsewhere, maybe in Thailand or Malaysia, and take the advantage of FTAs to export to India?
Expansion can happen in India also. They now know the rules here, the people here, the skills are available and there is demand. They can ship some components from Thailand and expand capacity even outside SEZs too. Anyone who wants to have a predominant role in the market would like to be here.
How far have we progressed with allowing foreign direct investment in multi-brand retail?
FDI in retail is a must in the country. It will help grow the share of organized retail from 6%, which is very low compared to countries like China and Malaysia. One very critical element is to ensure that there are no controls on movement of perishables. We have some very strong local players as well as kirana shops and we need to calibrate the opening up in a way that our players are not affected. We can prescribe norms such as 80% local sourcing. But we will not do anything without consultations.
source-http://timesofindia.indiatimes.com/business/india-business/FDI-in-retail-is-a-must-for-India/articleshow/8895151.cms
steven
management trainee-fundamental analysis
DENIP consultants Pvt Ltd
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