Export growth in 1998-99 has been dismal. Exporters claim that, in the light of the south-east Asian crisis, a devaluation of the rupee is necessary to revive exports. The commerce minister, however, does not seem to agree. What are your views on the issue?

It is true that exports have been hit badly and that we need to take suitable steps to correct the situation. It is also true that the currencies of most south-east Asian nations have depreciated to a great extent thereby making their exports more competitive. However, merely because there has been a depreciation in the currencies of neighbouring countries, it is not advisable for India to devalue the rupee.

A devaluation in nominal terms can at best have a positive impact on exports for a very short period. This is because such step invariably leads to an increase in money supply, which inturn fuels inflation. As a result of the inflationary conditions, in real terms, the value of the devalued currency reverts to the original level within months. Despite the fact that in nominal terms the rupee has depreciated from about Rs 29 to about Rs 42 per dollar, in real terms its value has been hovering at around Rs 27-28 per dollar.

Instead of asking for devaluation, exporters need to concentrate on building core competencies. If they can be sufficiently innovative, they would have little need for short-term benefits like a devaluation. As far as the Government is concerned, it would do better to keep inflation in check. If the inflation rate can be brought down sufficiently and maintained at those low levels, there would be a depreciation of the rupee in real terms even though its nominal value may remain unchanged.

The commerce minister has vehemently criticised the finance minister's move to increase interest rates for export credit. Is his criticism justified?

The commerceminister's stand on the issue appears to be perfectly justified on the grounds that at a time when the economy is not doing well on the exports front, exporters cannot be burdened merely to meet revenue targets. It is true that the finance minister needs to keep fiscal deficit in control but there are other far more productive ways of doing this. A check on the profligate spending of the Centre and the states is perhaps the best.

Another issue that the finance minister needs to look into is the fiscal erosion that occurs as a result of the lag in tax collections. An IMF study reveals that, in India, there is a 6.5-month collection lag for current revenue, a 4-month lag for levies on international transactions and a 13.7-month lag for taxes on profits & capital gains. The study estimates that these lags result in a loss of about 0.61 per cent of the GDP. In rupee terms, this means that there was a revenue loss of Rs 8,750 crore in 1997-98. If this fiscal erosion can be completely done away with fiscaldeficit will automatically be 0.61 per cent lower.

Will the benefits, that the finance minister has announced for the housing sector, help to tide over the current recession?

The housing industry has around 289 linkages. In this sense, if the sector sees increased activity, we could expect the economy as a whole to benefit. However, the benefits would accrue only if there is a spurt in housing construction as a result of policy initiatives. Housing finance has been made cheaper and tax benefits have been provided to make borrowings for the purchase of dwelling units more attractive. These are no doubt good measures and considering that there is a huge working class that has seen the HRA component of the salary increasing as a result of the Fifth Pay Commission, it is logical to believe that actual user demand for housing should rise. If one uses the government/company provided residence, one not only loses out on the HRA every month but is also without a house on retirement. If on the otherhand, one is able to get a housing loan involving around the same per month outgo as the HRA received, one would prefer to take the loan and buy a house. The flip side, however, is that housing finance is still inaccessible to the majority of the population.

What, in your opinion, has caused the current recession?

The CSO old estimates indicate that both private consumption and savings as a percentage of total private disposable income have fallen during 1996-97 to 1997-98. This trend may still be continuing and is only possible if the private-sector resource outflows are increasing -- that is the private sector is sending more money abroad. The comparison of the break-up of the appropriation of national disposable income for the periods 1984-90 and 1991-97 also shows that total resource outflows from the nation have increased from 0.7 per cent to 1 per cent at the cost of consumption which has fallen from 78.2 per cent to 76.7 per cent. Repayment of external debt by the Government and privatesector external liabilities seem to be taking a toll on domestic demand. This combined with a poor export growth appears to have led to the current recession.

Does this mean that the liberalisation programme has failed to deliver?

One cannot squarely blame the liberalisation process for the current state of affairs in the economy. The fact that growth did pick up in the initial years of liberalisation means that we are more or less on the right path. Take the operating surplus of the Government, which has risen from 5.8 per cent of national income in 1990-91 to 7.8 per cent in 1997-98, for instance. Yet, the sequencing of the reforms process leaves much to be desired. We have invited foreign competition without strengthening the economy adequately. In fact, we had even begun to contemplate capital account convertibility (CAC) in an attempt to integrate with the world. Thankfully, good sense prevailed and we do not talk of CAC any more. But the fact remains that we still have to strengthen thedomestic real sector.