Sanjeev Sanyal, Principal Economic Adviser in the Ministry of Finance, says if the rest of the world is having inflation, the government need to be obviously concerned about it and watch the space carefully. In an interview with Aanchal Magazine and Sunny Verma, he said the Budget will offer clarity on how additional fiscal space is being utilised to support economy.
The Survey says fiscal space is available. Have you identified areas where it can be used or is it a kind of a buffer when uncertainty hits us?
I can’t comment specifically because you’ll find out in a few hours time what the Finance Minister is going to do. So I cannot comment. The most I can do is to say that the fiscal numbers available between April and November, which are publicly available, clearly show that revenues revived very, very strongly. Therefore, the fiscal deficits and other numbers are, in fact, better than they were even before the pandemic. So, obviously that allows you some fiscal space. What exactly will be done with it is not my prerogative, that is the prerogative of the Finance Minister and she will be obviously announcing the Budget tomorrow. So my lips are sealed on that.
The divergence between retail inflation (Consumer Price Index or CPI) and wholesale inflation (Wholesale Price Index or WPI) has been shown. Do you suspect a possibility of that feeding into retail inflation? Should we be very worried and should any action be required there?
Let me be very clear that the target range for the Monetary Policy Committee is only for CPI and not for WPI and it remains within the band. As far as WPI is concerned, it’s in double digits, but do remember that last year, it went briefly into the negative territory. So some part of it is base effect. Not all of it. It is also some effect of the spike in oil prices. That’s an issue that we need to think about. There is imported inflation generally because the rest of the world is seeing inflation. It will come through shortages of chips or shortages of containers. It can flow through in multiple ways. But the fact is if the rest of the world is having inflation we need to be obviously concerned about it and watch the space carefully. What we do about it will always be exactly about what happens. If it’s coming from shortages of chips, etc, there’s no point in tightening monetary policy, you have to ultimately create chip manufacturing capacity.
The Survey highlights that some of the services, especially trade, hospitality, are much below the pre-pandemic levels. Will those kinds of sectors require support?
What I’ve said there is absolutely no surprise to anyone. Even when you have a pandemic that is going on over the years that the poor fellows who are in contact-intensive sort of interaction, those services are going to be hit and doesn’t just happen once, it happens repeatedly, waves coming and so on. We went through a milder version of Omicron. But still, nevertheless, it still caused a disruption. The fact that contact-intensive services like entertainment or tourism or travel, these do get impacted is absolutely no surprise. Now what do we need to do about it? Well, as I said, I can’t talk about specific fiscal things for obvious reasons. But I will say that in the medium term, the single most important thing you need to do is to keep it open. So never lose track of that. That is the single most important thing. You can do whatever else you want on the side, ultimately, contact base services have to have contact of some sort. So you need to get a clear run on the health front, be able to keep them open. That is the most important. I would say the biggest support or policy issue is health policy. And therefore vaccination, which we have done a good job of, is the key strength of the Indian economy. It is not unfair to say we are in a position now that should another wave of some variant come, disruption to the economy will be reasonably, relatively small and we will be able to keep things running even in contact-based services perhaps.