A panel led by former RBI governor Bimal Jalan, set up to decide the appropriate capital reserves that the central bank should maintain, will submit a well-researched report by the end of the month, former Reserve Bank of India (RBI) deputy governor and vice-chairman of the panel Rakesh Mohan said.

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Looking at the Reserve Bank of India in an independent sense or in contrast to the government is a mistake and the RBI is a crucial part of maintaining the economic and financial stability of the country, Mohan told CNBC-TV18’s Latha Venkatesh.

Edited excerpts from the interview:

You are a member of the Jalan Committee which is looking into the economic capital of the Reserve Bank of India. Give us some hint, under the circumstances how much might be excess capital?

We have been doing hard work over the last five months. I had to make the trips from the United States, where I teach, once a month. There has been very hard work. I am hoping that the next meeting which is on June 12 will be the last meeting. After that last meeting, I will be free to talk to you on that issue. Until then, until we know the final decisions that we make next week, it is difficult to talk about it.

Can you say whether the plan is to give whatever money you consider surplus if any in one shot or in tranches. Anything like that you can share?

All of this will become clear once you have the full report. One thing I can assure you, it will be a very strong, well-researched technical report which will address all of these issues.

Considering there are two central bankers, I would assume the autonomy and credibility of the central bank is something that will bring to the table?

It is a mistake to think of it as an issue of the central bank’s autonomy. I think it is much more important to think of it as an issue for economic and financial stability of the country and of course the central bank, since the Reserve Bank is a crucial part of maintaining economic and financial stability of the country. So I do want to emphasise that there has been a tendency in the past few years to look at the central bank in some sense independent or in contrast to the government. I do think it is a mistake, because the central banks is very much part of the overall macro-economic management of the country.

There is a valuation reserve and contingency reserve. The valuation reserve is not yet realised, any comments on that?

No, as I said we will be addressing all of these issues in detail. June 12 is the meeting and after that let us hope that it will be done and we can talk about it.

You spoke about the economic situation of the country and we are at the moment just crossed a quarter where the gross domestic product surprisingly came in at 5.8 percent. We were not prepared for 5 handle. What is your diagnosis? What is your comment on this steep fall in growth?

Let me take a broader view and I will come back to the immediate issue. One of the things that we had achieved in the 2000s, before the outbreak of what was referred to as North Atlantic financial crisis, was growth rates of almost 8-9 percent for 5-6 years. Yes, there are some issues but because of difficulty of understanding the revised series, all my remarks are based on the old series up to 2011 and the new series from 2011. So what has happened is in the last 6-7 years growth has been basically somewhere around 7 percent give or take whatever. Investments and savings have been lower than the previous period and so there has been some slowdown in growth relative to what we achieved earlier. So to my mind the question is a broader one and also I would say that the focus on growth has been missing in the last 6-7 years. So I am not just pointing to the National Democratic Party government, but I think the focus on growth has been missing in the last 6-7 years. Let me broaden that. Right from independence the key policy objective of every government has been economic growth with perhaps an interval during Indira Gandhi years.

Speaking as an economist, one thing that stresses me is that my colleagues, some of the best economists, Indian economists, in the last few years have been focusing far more on efficient ways of distribution and to some extent, if I can say so, they seems to be mesmerised by the technical possibility of doing efficient cash transfers through Jan Dhan Yojana. It is very good, but is it feasible to do efficient cash transfers from households directly, but somehow the whole attention has got transferred to that and not to growth.

How serious is the growth issue because the number 7-7.5 is not bad but if you look at earnings growth, it has not been that great?

So this is part of the problem, it is a little difficult to interpret the growth. I cannot say it is wrong because I have no way of saying it is wrong because bases have changed, some of the data resources have changed but nonetheless if you look at industrial growth and compare it with corporate earnings, corporate topline, bottomline, profit growth, it is not consistent. In previous years, it used to be consistent.

Similarly, there is a large difference between recorded manufacturing growth in the last few years, around 7-7.5 percent, with what you get from either the annual survey of industries (ASI) or from the index of industrial production (IIP) which is lower than 4 percent. Furthermore, if you look at the capital goods production growth you get from the IIP or the ASI, it is actually less than one percent for the last six-seven years on average. There may be some uptick in the last two years.

So the stock of capital goods itself may be less?

One can have some arguments about the accuracy of the IIP because it is a small example of firms but you cannot argue with the import data.

Yes, that is very clean number.

That is a clean number. So as I am saying that there are some difficulties in interpreting. So one of the things that I would say is that in terms of economic debate, it has got somewhat partisan and it is very difficult to argue about it because to some extent, the government, the CSO, has not explained well the new series and explained these discrepancies because these discrepancies arise when we have a base change in sources, but it has got to be explained.

To come back to your question that there seems to have been a slowing down in the last six months. Given the objective fact of large non-performing assets (NPAs) in good part of the private sector, whether it is Essar, on the financial side IL&FS, now DHFL coming, Jet collapse, governance issues in the ICICI Bank, that there is a clear, almost a collapse of animal spirits in the Indian private sector. Many of the private sector icons have fallen and one doesn’t see replacements.

So my point is that there is a broad issue of investment and growth, collapse of confidence of the private sector, all of this has to be addressed and now even the national accounts data seems to be exhibiting a broader slowdown. Therefore, first point I would make for the new government is to back focus on growth because a current per capita income is around $2000. Even if we grow at 7 percent per capita, which means 8 percent plus GDP growth for next ten years, in ten years from now we will be $4000 per capita at today’s dollars, China is around $8000-9000, so even ten years from now we will be half of what they are today. So we have no time to lose.

What kind of structural reforms should the government look at and what can the Budget do, is there fiscal space?

The CAG, ministry of finance just released last week the actuals or the revised of FY19 and the gross tax receipts come out to be one percent of GDP lower than the RE than the Budget estimates.

So that is Rs 1.6 lakh crore.

The first job for the Budget is to understand why that has happened because what this implies is that if you take the budget estimates for 2019-20, to just achieve those would mean a hike of 20-25 percent in gross tax revenues compared to 2018-19. So the point is that the job for the Finance Ministry is first to see these numbers and see what the reasons are, why there is such a short fall and only then they will be able to have realistic estimates of what kind of revenues they will get next year.

So you would say that there is no question of additional expenditure?

So, there is no space, particularly if I may now say as conventional, traditional macro-economist, there is no space for expansive

giveaway.

One giveaway has been announced and that was part of manifesto?

Yes, also it was part of last Budget, so government will have to examine.

So it may have to cut back on other expenses?

It will have to see where cut back is possible. Coming back to the growth issue, an integral part of growth is infrastructural investment. One of the welcome things that I see in the media is that the prime minister has appointed two committees, one is to do with growth, and the other is cabinet committee on employment, again a crucial issue. Those are very welcome moves, so focus is right. You cannot get higher growth unless there is infrastructure investment.

First Published:Jun 10, 2019 6:44 PM IST