He also praised the central bank for handling of rupee volatility.
New Delhi: The outgoing chief economic advisor has praised the government for staying on the fiscal prudence path resisting the public pressure by not cutting excise duty on petroleum products when crude prices hit a record high in April and May.
“The government needs to be applauded for not succumbing to populist pressure on oil situation. The government has shown that it is committed to the fiscal deficit target,” said Arvind Subramanian in an exclusive interview with Financial Chronicle.
Responding to a question if the government would be able to stick to the fiscal deficit target in a pre-poll year, he said the government is striving to keep the fiscal deficit under at 3.3 per cent of GDP in this financial year.
With long-term solutions to oil price hike eluding the government; will bringing it under GST help? “Eventually petroleum products, land and electricity will come under GST. The aim of GST is to make the base as broad as possible,” the CEA said.
When the clamour for excise duty cut in April became shrill after petrol and diesel prices jumped to the 55-month high of Rs 76.63 a litre and Rs 65.93 a litre, the government refused to agree to the demand. Every Rs 2 cut in the duty would have resulted into Rs 24,000 crore a year loss to the government.
The man who gave the annual economic survey a relevant twist and prescribed appropriate solutions to ills ailing the economy also took on the Reserve Bank of India (RBI). But he also praised the central bank for handling of rupee volatility while terming the Indian currency’s free-fall as “unavoidable corrections”.
“Before the recent volatility, the rupee had strengthened by 20 per cent in the last four years. After recent developments, it has come back (depreciated) by 7 per cent,” he said.
“In case of a trade war, currency war or oil price rise, there will be volatility in all foreign exchange markets, including the rupee market. That’s unavoidable. We can’t control external factors. All we can do is to minimise the impact and cushion ourselves,” he said.
On the central bank’s role, he said, “by and large RBI has done a very good job of handling the currency in the last few months”.
On recent rate hike, he said, “RBI has the inflation mandate given by the government. It has to adhere to that. You can’t have a situation of inflation running above what has been agreed upon between Centre and RBI and expect the apex bank not to take any action.”
He said while evaluating the role of RBI, we need to know that external market is largely unsettled and the growth is picking up.