Bibek Debroy, chairman of the Economic Advisory Council to the Prime Minister (EAC-PM), refused to let on what either the Council or he expected of the Union Budget that finance minister Arun Jaitley will present less than a month from now. “I don't have any (wishlist) for Mr Jaitley. We convey it to the Prime Minister and he will convey it to Mr Jaitley,” Debroy said in a Facebook live interaction.
But it would be safe to assume that Debroy and the EAC-PM would have conveyed their thoughts on current and future economic management to the government (never mind that the actionable suggestions on five areas that they were to give for the budget has been delayed). After all, the EAC-PM was set up to serve a certain purpose – advising the government on economic policy. What should Jaitley be doing if he were to heed Debroy’s words?
For one, he should make that much-needed announcement on reforms in public sector banks that must go hand in hand with the Rs 2.11 lakh crore recapitalisation announced in October. When the recpaitalisation plan was announced, Jaitley had said that a reform package would be announced soon. Everyone expected this to be in December, but since it has not yet happened, the budget speech would probably be as good a time as any.
Doing this would be important in order to revive private investment which Debroy flagged as an area of concern, even though he cautioned against taking an alarmist stance. Things may be looking up in the sectors he mentioned (steel, commercial real estate, pharmaceuticals, information technology and auto ancillaries) but the investment story is not quite falling into place – its share in GDP is only 26.4 percent at the end of the second quarter. What the budget does to perk up private investment will be interesting to see.
Second, Jaitley needs to take a good hard look at the export-oriented sectors. Debroy had doubts about whether net exports can power a 9 percent growth rate for the economy. Indeed, it is quite clear that Indian exports have not been able to hone their competitive edge because of which smaller economies have been able to tap into the global trade revival much better than India has.
The knee jerk reaction of successive governments has been to play the sops card – interest subventions, tax relief and the like – and this government too has gone down the same path. Jaitley and commerce minister Suresh Prabhu need to brainstorm together to work out an actionable agenda for exports. That shouldn’t be too difficult; what needs to be done is pretty well known.
Third, the government needs to have a war-room strategy on irrigation. The biggest problem of agriculture, according to Debroy, is really a dry land issue and that unless the government solves the water problem, it will be difficult to solve the agriculture problem. This is not to say that other issues – marketing reforms, land-related reforms – are not important, but water is the most basic issue. He certainly has a point.
A Crisil study on the monsoons and agriculture in October 2016 had pointed out that 54 percent of rainfall deficient districts that have good irrigation cover were insulated from agricultural stress; that was not the case with the 46 percent districts that lacked adequate irrigation facilities.
Fourth, in trying to tackle the employment challenge, the government should be careful in rushing in with ‘schemes’. Though Debroy commends the government for focussing on entrepreneurship, the gains to employment from Start-up India and Stand-up India are still not very clear. The employment challenge is a very complicated one and coming up with some crowd-pleasing announcements is unlikely to change the situation very much for the better. Instead, the government should heed what Debroy says – about their being a mismatch between the regions of labour supply and regions of labour demand.
It would be tempting to put a redesign of GST to include all items as the fifth takeaway from Debroy’s interaction, but this is not something the finance ministry can do; this is something that only the GST Council can do. But if there is a fiscal slippage – and there are signs that there will be – Jaitley needs to give convincing reasons of why this slippage (even if it is one decimal point as Debroy feels it will be) was necessary and what the government will do to get back on the consolidation path.
Over now to Jaitley and his budget team.
For full coverage of Union Budget 2018, click here.
(The writer tweets @soorpanakha)
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Updated Date: Jan 14, 2018 23:08 PM