In a bid to quell the political controversy and debate over his recent remarks on the slow pace of reforms and his understanding of the country's economic environment, Chief Economic Adviser Kaushik Basu on Thursday met Prime Minister Manmohan Singh to clarify his position on the issue.
The meeting with Dr. Singh came a day after global rating agency Standard & Poor's (S&P) scaled down India's sovereign rating outlook from ‘stable' to ‘negative' and warned of a possible downgrade within 24 months if the problems of high fiscal deficit and the widening current account deficit are not adequately addressed. Alongside, Moody's analyst cited specific reasons that are responsible for the slow pace of economic reforms in the country.
Incidentally, Dr. Basu, who has been given an extension in office as CEA till August this year, had also harped on the same issues, detailing why it would take time to implement the pending financial reforms. During a lecture at the Carnegie Endowment in Washington last week, Dr. Basu had said that major economic reforms in India would hit a roadblock and were not likely to happen before the next Parliamentary elections in 2014. Post-2014, “you would see a rush of important reforms” and after 2015, India would be one of the “fastest growing” economies of the world, he had said.
As per media reports, the Chief Economic Adviser is said to have told the gathering that economic reforms were unlikely to pick up before the 2014 national elections. Relatively less important Bills, he said, might go through Parliament but major economic reforms would hit the roadblock.
At the same time, he said there were some reforms that needed to go into fast gear and identified the opening up of the retail sector as one key reform in waiting.
Dr. Basu was also reported to have referred to the slowdown in decision making. The unfolding of a series of corruption and scams, he had pointed out, was also having its own impact on the psyche of the bureaucracy, who were not willing to take risks. Reforms also slowed down on account of the coalition government at the Centre, apart from the problem of rising inflation which impacted both the fiscal and monetary policy, he had said.
With the Opposition back home latching on to the economic cue provided by the CEA and blaming the government for the economic morass, Dr. Basu subsequently issued a clarification the very next day saying he was quoted out of context, and his comments on Europe in 2014 were wrongly “juxtaposed” with the 2014 election in India.
“This is unfortunate because the central message of my talk was the possible European crisis of 2014 and India's major rise thereafter, likely overtaking China,” he said in a statement.
Be that as it may, the pointers highlighted by Dr. Basu, incidentally, were much the same as noted by S&P, though in different words. Giving the reason for revising the rating outlook downwards, S&P credit analyst Takahira Ogawa said: “High fiscal deficits and a heavy debt burden remain the most significant constraints on the sovereign ratings on India. We expect only modest progress in fiscal and public sector reforms, given the political cycle — with the next elections to be held by May 2014 — and the current political gridlock.”
Ostensibly, apart from the Chief Economic Adviser providing an explanation to the Prime Minister for his comments, the meeting, of which details are not available, is believed to have taken stock of the macro-economic situation in the light of S&P's action along with prioritisation of the various pending reforms that could be taken up for implementation.