Reforms a must to bring economy back on track: Chief Economic Advisor Kaushik Basu

New Delhi: With economic concerns increasing, time is running out for the UPA claimed the government's Chief Economic Advisor Kaushik Basu. Speaking to Rajdeep Sardesai, Basu said that two reforms are the need of the hour - FDI in retail and partial deregulation of diesel prices.

Pitching for decontrol of diesel prices, Basu suggested the government can start the process through a "gentle" rise in rates before leaving it open to market forces. "Most people make the mistake of thinking that decontrol means one huge hike in price and that is it. Decontrol can mean a gentle price rise and then onwards it floats up and down," he said.

He, however, addedd, "full decontrol will not happen. At this point of time, it is going to cause such a jolt that we are not in position to take. But a partial decontrol of diesel I think is likely...".

Basu said the Prime Minister appointed Inter-Ministerial Group (IMG) on inflation headed by him has a full report on diesel price decontrol. "It is an advisory plan that is going to be given up and has to be discussed, he said.

He further said that decontrol does not mean that "you raise it and once again have ministers meeting to decide when the next move will take place".

In India, oil marketing companies are free to determine petrol prices, the rates of diesel, LPG and kerosene are sold at a discounted prices are decided by the government.

He also appeared optimist that government will take speed up reforms and is likely to allow FDI in multi-brand retail. "Our life is full of uncertainty. I feel that it (FDI in retail) is very-very likely that this will happen over the next six months," he said.

Here is an excerpt of the interview:

Rajdeep Sardesai: You said yesterday that we have a six-month window effectively to take tough economic reform. Do you believe that we have the capacity to take those tough reforms given our political decisions and what specifically are those reforms that we need to take?

Kaushik Basu: I feel we do have it enough to do it but there are couple of reforms which are very deep reforms which I don't think will happen in next six months. I will give you one which I don't think will happen in these six months - GST, which is extremely important but it needs constitutional amendment and it will be foolish to say that it will be happen in six months but there are other reforms which are not quite as deep as that and which can really energies the mood in the country, these are possible.

Rajdeep Sardesai: Like?

Kaushik Basu: Number one, I think which is very very possible is open our retail sector to International multinational corporations. This is actually more than just a small change it can increase the condition for our farmers, improve India's exports to the world through these channels that will open up through FDI.

Rajdeep Sardesai: Oil subsidies for example? You really believe that this government, because it has already given its intention that it will not cut the diesel subsidy that in a sense and if you don't do that you will not get the fiscal deficit target. Do you get a sense that the government is ready to take these extreme tough political decision?

Kaushik Basu: Yes, I think so. There is a gradually galvanising and we are getting there. Diesel subsidy, let me tell you, a full decontrol - I don't think that is on the cards right now. I also feel that it will lead to a kind of reaction which we will not be able to handle.

Rajdeep Sardesai: Partial decontrol?

Kaushik Basu: Partial decontrol has to be done in very intelligently. Decontrol doesn't mean that 'just raise the price once and again freeze it there' so what I'm hopeful for is that we will do our professional partial decontrol which is going to shelter the consumers partly but also allow a float to take place from now on. It is not going to happen in next couple of weeks but this is also like FDI something which I feel is entirely possible for the next couple of months.

Rajdeep Sardesai: So, therefore it will be fair on my part to say that the Chief Economic Advisor of government is saying that the time is running out.

Kaushik Basu: There is a six-month window and yes it is true that if we don't manage to do enough things over the next six months the economy after that will register that. So this is the six-month window that we just have to utilise.

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