The economy isn’t in great shape, and the government’s economic management team is coming under fire and asked for solutions. In this exclusive interview NITI Aayog vice-chairman Rajiv Kumar talks about the state of the economy, the way forward and how NITI will drive change. Excerpts:
Economic data over the past week appears to confirm your view that the slowdown was cyclical and has bottomed out. But if the earlier gloomy numbers were supposed to be transitory, why are you so sure these positive numbers will also not be transitory?
One reason is that the external environment is turning positive. There is a synchronised recovery, seemingly, in the United States, Europe and Japan. That’s always been beneficial for us – we’re that boat that gets lifted by the tide. That’s also being reflected in our export numbers. Exports had tanked badly, but for 14-15 months have increased. Anaemically, but nonetheless, and last month the growth was 25 percent.
Third, there are some sectors like logistics, which are emerging out of the GST pain. There is a post-GST effervescence in some sectors like the trucking industry. This is getting reflected in a very leading indicator – sale of heavy commercial vehicles rising, rentals moving up. Rentals don’t firm up until transport activity picks up. Similarly, I believe freight numbers are improving. Those are some of the signs that tell me that this recovery is for real.
Yet recovery needs to be nurtured and made more pervasive. This is best done by taking care of sectors, especially those that are suffering from GST and demonetisation. Real estate is a prime example. So do something about it. And two, give a push to your labour intensive sectors – exports, tourism apart from construction.
In the debate over a stimulus, you have always – and rightly – held that the focus should be on revenue deficit. But over 70 percent of revenue expenditure is committed, where is the scope for reduction?
There are two sides of revenue deficit – receipts and expenditure. On both sides there is significant scope for improvement.
One of the best ways is, which is already beginning to happen, to transfer subsidies through DBT [direct benefit transfer], plugging all kinds of leakages. I’m told nearly Rs 2 lakh crore of funds are now done through DBT. That’s a huge number. You can do more and more of it.
Chandigarh has done away with public distribution system for food, money is deposited in housewife’s bank account. Why can’t this be scaled up? The BJP states should be encouraged to do so; there is no harm to any beneficiary.
Two, in NITI Aayog we are now monitoring very closely how the money gets spent. That again can help. If the size of the government doesn’t increase, then the revenue deficit will go down. There is one area where expenditure will increase – some very critical parts of the government are undermanned; they need to be better manned – police, teachers, doctors. That one can take care of.
Then there is a huge increase in the tax base, both direct and indirect. Fifty-six lakh new direct tax payers added is no mean achievement. And then GST. It is riling a lot of people but it is a fact that several sectors which were outside the tax net will come in now.
And the last bit – if you do manage to raise enough resources through disinvestment etc could you think of retiring higher cost debt and replacing it with lower cost debt? Why isn’t there a debt management office in the government yet?
So, use disinvestment proceeds to bring down the interest burden?
Or do debt management. Borrow new, retire old. That’s the way to do it. There is a treasury management function in the government which, at the moment, I am afraid, is not being done. The Reserve Bank of India (RBI) for some reason won’t let it go. There was a budget announcement that [a public debt management agency] will be set up in the finance ministry. That should be done.
Demonetisation and GST have hit the informal sector hard. While formalisation is desirable, can this be done in a less painful way?
Of course. GST has created a big churn, impacted people who for generations have never been in the tax net. So, in this situation, your tax department has to come out as a vyapari mitra rather than as a vyapari catcher. There is a handholding operation that is required, to assure them that, look, there is no issue at all in terms of retrospective action, and the government is committed to it.
What is the big fear out there? It is not that I will be paying tax tomorrow. It is that God, if I get this then what will happen to my past actions? So that assurance just must be given with as much credibility as possible. And perhaps the credibility may start by your now closing all the retrospective tax suits that you’ve got, rather than keep them hanging as you have done. Why should we not do that?
So the broader level issue is about the behaviour of the tax department vis-à-vis the client, both direct and indirect. And this has been an issue that has been there for a very long time. Why shouldn’t a government which is business-friendly make this change?
Demonetisation has drained the swamp in terms of existing stock of black money. But is enough being done to stop generation of fresh stock? There is still a lot of bureaucracy people have to deal with . . . .
I don’t agree with that. All the big ticket items have gone. In terms of value, in share of the swamp this was the big one. The other issue is that of rent-seeking at the lower level. There too the government has taken a very large number of steps which have made the government more transparent.
Some areas are left. But one cannot say, by any stretch of imagination, one, that the situation is as it was, or, two that the situation is not improving but getting back to the old bad ways. No it cannot. There are structural measures that have been taken which are, in some sense, putting a ratchet under the rent-seeking economy. So you are moving, you are undoubtedly moving, towards a cleaner, more transparent and more efficient form of government.
India is at this inflection point. When we succeed, we will get a growth which is completely different in quality. Yes, that fizz would have gone – that extra 1 or 2 percent of GDP from the black economy - but we didn’t need that, we don’t need that because that creates a whole immoral system of values which nobody likes.
Three years on, there is lack of clarity on what NITI is – is it a Planning Commission without teeth? Could you spell out what role NITI will play in economic management?
I don’t think there is confusion.
I have said NITI is going to be an action tank. What I mean by that is you suggest measures to address the often well-known pain points in getting the economy moving or new pain points that you identify. Therefore you focus on the how, rather than the what. Having done that, you follow up and monitor the progress made there. And in that monitoring you also create, hopefully, inter-state competition which will help everybody move along.
One of the things NITI is doing is to develop very comprehensive indices, like a composite water index, health sector index, education index. You rank states on that. As a result NITI becomes an instrument for getting competitive federalism that will yield the democratic dividend. That is a very major part of it.
As a think tank, it is the institution in the government which is like a funnel with its mouth open towards all the domain experts and then it filters and crystallises their inputs. The last four weeks have been spent on this by all my verticals. It was an outreach to identify all the pain points etc. And then I had seven NITI Aayog level meetings with scientists and think tanks, farmers, labourers, CEOs of manufacturing companies.
So you don’t feel constrained by the lack of power over allocations that the Planning Commission used to have?
Not at all. In fact, we’ve been liberated from that. Because, unfortunately, the Planning Commission had become so focussed on just that one thing. It had become a durbar that doled out funds.
But where we could be the real change-driving agent – we’ve got a new department called Development Monitoring and Evaluation Office (DMEO), which replaces the project appraisal office [the project appraisal division of the erstwhile Planning Commission] and the independent evaluation office [set up by the previous government which was disbanded]. We are trying to develop dashboards for all centrally sponsored schemes and central sector schemes, which are based only on an outcome performance monitoring framework. They are focused on critical variables to be analysed on the basis of real-time data. If we have project monitoring units in every district - to begin with, in 150 backward districts - and get our information directly from there, this can be a complete game-changer.
And that’s what NITI is all about. It is totally different and far superior to anything we have had in the past 70 years.
Employment is a big pain point. What kind of strategy will NITI be advocating?
I personally think you should replace capital-related subsidies with employment-related subsidies. For example in textiles, there is a package – the government has said it will pay the provident fund and employees state insurance share of employees to all units employing more than 300. Why not extend it to all exporting sectors? Why not expand the scope of the Apprentices Act?
Agriculture is another area that needs a lot of attention. You’ve been talking about a Mother Dairy model and doing some pilot projects. . .
Basically to de-risk the farmer by aggregating the land in a pool, which can now be possible because of the model land leasing act that the NITI has produced and which some states have adopted. So the farmer is confident that he will not be alienated from the land and can be an equity holder like a private company and can also be employed there.
The issue in agriculture is size of landholding that makes all technological progress out of the question. So you crack that through this, which is what Mother Dairy did. Once you do this, then you get an agent who is running this - farmers producers organisations (FPOs) could be doing this. If you do that, suddenly you open up agriculture to all possible technological advances.
These are the pilot projects?
I am trying to start them. Hopefully within the next six months 10 will be off the ground.
States have not been too responsive on the agricultural marketing reforms. Will they come on board on this?
I think there has not been enough push from below for the states to adopt that but when this model comes along, there will be a major push. Basically the farmers in the states are not organised enough to do this, not aware enough. Once they begin asking, then states will also agree.
Updated Date: Oct 18, 2017 12:15 PM