Union Budget 2023: Concerns remain on the economic front, says former RBI governor YV Reddy

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Reddy: ....you have to make a distinction – India and its people; what is the wealth of India and what is the income of people. So, if you recognise people's wealth for India, not just India by itself and then view it together and you have to say this is what India stands for. If you have to say India is growing very fast, then you should say but the per capita income of Bangladesh is growing faster. So, we should constantly, at least the readers and everybody else, should constantly keep in mind that things may have to be, more than what you see in the newspaper. I think certainly short-term is very bad because of two situations. One is we are not very well integrated in the globe and second, we ourselves are not very much into any ideological position either politically or economically. We are just somewhere in the middle. So that ambiguous position of non-commitment to any particular ideology, we are taking advantage and I must compliment the Prime Minister for taking advantage of this particular neutral position; the uncommitted country is giving a lot of duties now.

A: Yes. So that is why I would say that people will have to be far more careful than what they are now about the Indian economy and the society also.

A: First let me start with current account deficit. Current account deficit influences the medium-term view because the current account deficit determines the exchange market, exchange market is determined by capital account, capital account transaction. So current account deficit may not be built into day-to-day movement; current account deficit will be on structural and the effectiveness of current account deficit in transmission to exchange is diluted.

Therefore, the situation is that current account should be a worry when people assess our fundamentals but not for market volatility. For that I have to look at capital flows. And in the capital flows also, we have slight problem also because our reserves have been built out of borrowing and more important the debt portion, particularly the government portion, is increasing large now. So, the composition of capital flows requires a careful voice before we attract any more, but now we are not in danger as far as current account deficit is concerned.

And then you come to the fiscal deficit; if the current account deficit is not an immediate problem, fiscal deficit is also not an immediate problem because most of it is funded and domestically biased and institutional prescription.

And finally, household savings are high. This is a redeeming feature, which already existed, and which will continue to exist. But there is a problem still and the problem is that if you stretch it too far then it could breakdown. So, we must very carefully not stretch it too far.

So, I would not say to worry about fiscal deficit but certainly worry about the central government because people look at central government — macro analyst may prepare – markets do not look at totality of the deficit; they are concerned about government of India — direct and indirect.