‘Economy is frankly doing well & well

Kaushik Basu said there are,however,concerns of inflation,corruption and oil prices.

There are concerns of inflation,corruption and a spike in oil prices,but the economy frankly is doing well and well,is how Kaushik Basu,Chief Economic Adviser in the Ministry of Finance,summed up the economic scenario a few hours after the Economic Survey 2010-11 was released on Friday. Basu,chief architect of the survey ,said while building on the traditional analysis,the economic report card also focussed on environment and climate change,and impact of social,cultural factors such as honesty and trustworthiness on economic development. A new chapter on service sector that accounts for over 50% of the GDP,has been added. Excerpts:

You have argued that inflation level will rise with steady growth over the years …

Inflation tends to go higher with steady growth. We have seen it in South Korea,China. If India goes into a growth sprint,growing at 9% GDP per annum,which means per capita income growing at about 7.5% per annum over the next 20-30 years. Then through as careful a study as we could do,we get a figure that this would push up inflation by 1.5% percentage points. This addition is not on the current inflation level but before the 2003 level when growth started expanding. If you add 1.5 percentage points to the 3.5% level prior to 2003,then you get 5% inflation rate. But currently inflation is very high.

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What is the Purchasing Power Parity catch-up analysis in the Survey?

Its a bit of a serious analysis. Right now,the PPP correction for India is 2.9. If an Indian is given $100 converted into rupees and told spend it,in America that person would need $290 to achieve the same quality of living,thats the meaning of PPP. So,2.9 is PPP correction factor. There are studies which show and my colleagues have done a lot of careful analysis,that if for 30 years we keep up this growth sprint so that India edges into the $10,000 per capita income category of nations,then we would require a smaller PPP correction in future. By then the price would climb up to the point that whether you are living in Turkey or in the US,you dont need that much more money to achieve the same thing. So,if you are going to move from the current situation in India to $10,000 category,then there is going to be some price adjustment that will take place. That is what the analysis is all about.

Can you detail the need for expenditure reforms needed for fiscal consolidation?

Its a fairly very simple point. India is still a country with lot of poverty and we need to give money (subsidy) directly to the people who are below the poverty line,who are vulnerable. But you cant do it with a leaky architecture. You cant do it with a bucket which is leaking,especially when a huge amount of expenditure leakage takes place and it is pilfered and lost. So you have to think of a design whereby you reach to the vulnerable,to the small farmers in buckets which are not leaking out.