Taking into consideration the weaknesses in the economy, including the high fiscal deficit and infrastructure issues, a formidable set of reforms would be required to get the country back on track, explained Srinivasan. Therefore, hopes of a 9 percent growth seem farfetched, he opined.
Labour market reforms and financial sector reforms are the key issues that need to be addressed at the moment to get the economy moving, feels Srinivasan.
Here is the edited transcript of the interview on CNBC-TV18.
Q: Let me come with the most heated debate or the most worrisome problem which Indian policy makers and the business class think about frequently. Have we lost that 8-9 percent growth which we thought was ours between 2003-2009 or was that the one-off because of international exuberance of an irrational kind and we are rather going to be in the bracket of 5-6 percent growth for a much longer period than we are able to accept?
A: I have done some work on that. If you go back to the 9 percent and above growth rate we had for three years ending in 2007-2008 and have a look at the quarterly data from that period, it can be seen that the growth slowdown had already started in the last quarter of 2007-2008. In other words, the sustainability of a 9 percent growth with the kind of infrastructure or with the kind of other things that we had, had already been shown to be questionable in 2007-08.
The financial crisis that happened in 2008 made it worse but, it didn't cost the growth slowdown. That's the important point. It didn't cost the growth slowdown, it exacerbated what had already started. The question here is can we come back to the 9 percent? My judgment is that, it will not be very easy. This will take longer than what we hope.
The reason is the weaknesses that were shown when the growth slowdown started. They still are there. The infrastructure issues are there and you can go on fiscal issues as well. Fiscal deficit is much higher than it was then and similarly, the kind of reforms that need to be undertaken that were part of the second generation of reforms has not even started. And therefore, I do not see an easy way of getting back on a 9 percent growth anytime soon.
Q: Let me start with the last quarter of 2008. According to you, what propelled or triggered that slowdown even before the crisis? Was it lacking in infrastructure?
A: Yes we were pushing 9 percent on a weak base and so you cannot push it too far. The system will react and that's my interpretation.
Q: You spoke about the second generation reforms which you are waiting for. The glib talk in India would be FDI in multi-brand retail, foreign investment in these sectors. Would you count that as seminal reforms? They pale in comparison to what we did in 1991, bringing down tariffs from 200 to 20 percent or even lower, what are the second generation reforms?
A: There are two basic reforms, one is the labour market reform which not only deals with labour laws but takes into account a whole host of issues relating to the labour market. Second is the financial sector reforms ranging from bankruptcy laws to a whole range of issues and domestic financial sector reforms. So these are the two major sectors that call for reforms.
More to come.
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