1. Inflation data corroborates Q3 GDP estimate

Inflation data corroborates Q3 GDP estimate

NITI Aayog vice-chairman Arvind Panagariya points to “reasonably firm” inflation to argue that there was no sharp dip in demand during the period.

By: | New Delhi | Published: March 8, 2017 4:55 AM
NITI Aayog vice-chairman Arvind Panagariya points to “reasonably firm” inflation to argue that there was no sharp dip in demand during the period.

While some critics are sceptical of the 7% GDP growth reported for Q3FY17, when demonetisation had impacted cash-based consumption and other economic activity, especially in the rural and informal sectors, NITI Aayog vice-chairman Arvind Panagariya points to “reasonably firm” inflation to argue that there was no sharp dip in demand during the period. In an interview with FE’s Prasanta Sahu and KG Narendranath, he says that India can’t afford a universal basic income scheme. But under the current social schemes, the beneficiaries could be given an option between in-kind benefits and an equivalent sum of cash. Excerpts:

What is your take on the Universal Basic Income (UBI), an idea, according to the latest Economic Survey, whose time has come?

UBI will be beyond our fiscal resources, a fact the Survey indirectly recognises. So, I have generally written in terms of cash transfers to the poor. Even this as add-on to the existing social spending is fiscally not feasible unless we are able to radically expand the tax base. At the same time, closing down on-going social schemes is a real political and administrative challenge. So the way to proceed would be to offer the beneficiaries an option between the current in-kind benefit and an equivalent sum of cash. My hunch is that in 3-4 years’ time, nearly all beneficiaries will shift to cash, provided they have an easy access to banking.

When it comes to targeting of subsidies, no real effort is being made in case of those on fertilisers which tend to be onerous on the fisc; even the latest Budget doesn’t envisage much on this front.

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Fertiliser subsidy poses a different challenge: here the actual farmer is not necessarily the owner of land. So, the identification of the actual farmer as the beneficiary of direct benefit transfer becomes difficult. A proper land-leasing law, which would make tenancy legal, can pave the way for solving this problem. This is one of the several reasons why the NITI Aayog has brought out a model land leasing law and recommended that the states to adopt it.

NPAs seem to be getting worse. Banks are asking for relaxation with regard to provisioning towards NPAs and other stressed assets. But the policy apparatus is not moving at the required pace. There appears to be no immediate plan for a public sector asset reconstruction company as suggested by the Economic Survey…

An earlier attempt to tackle the problem has been made under the Indradhanush programme. But that programme has not been sufficient. Discussions are under way on what additional steps must be taken. The idea of separating NPAs from performing ones is on the table, though how this should be done is a major issue. RBI deputy governor Viral Acharya has proposed a two-part solution, whereby assets that can be credibly revived would be sold to private asset reconstruction companies or similar entities, while those that cannot be revived would go to an entity in which public sector is a shareholder. Once NPAs are separated from healthy assets, measures will need to be taken to restore the health of banks. The proposal is being studied at the highest levels along with other possible solutions.

The latest GDP data shows that GFCF increased 3% year-on-year in Q3 after declining in the previous three quarters. Analysts doubt the feasibility of such investment growth immediately after demonetisation. They are sceptical about a 10% increase in private consumption in Q3, estimated by the CSO…

When a particular variable, which is generally robust, has declined for a while, chances are it will turn around after some time. Neither IIP nor PMI was showing the kind of decline that many experts including economists had been predicting post-demonetisation. Personally, I don’t doubt the data. The methodology has not changed post-demonetisation. Besides, data on inflation about which no one has expressed any doubt corroborates what the GDP estimates indicate. Many experts had predicted a huge decline in consumption demand—as much as 40%. Such a drastic decline in demand should have led to a collapse in prices, resulting in a large and negative rate of inflation. But the inflation rate has held up reasonably firm (retail inflation averaged 3.5% in November-December).

What is your view on scrutiny of deposits by individuals under PMGKY? Will it lead to substantial tax revenue given that infrastructure for scrutiny with the

I-T department is grossly inadequate and there is a tendency among some not to voluntarily disclose unaccounted income?

I had suggested that to minimise harassment of honest taxpayers and citizens, we do not scrutinise accounts receiving less than R2.5 lakh in old currency, and also allow for a threshold sum of housewife’s savings, based on the husband’s income. As for how much revenue would come under PMGKY, we have to wait for the results of the on-going data analysis by the department of revenue and other arms of the ministry of finance.

What is your assessment about the progress of various flagship schemes of the government like Make-in-India, smart cities, etc?

We are growing at 7%-plus. This means a turnaround has happened. The government is taking a number of steps. A lot of investment has come into the electronics sector, such as mobile phones. Some improvement has also been seen in the textiles sector, following announcement of the textiles package. All this is work in progress. We are having to make up for vast numbers of pre-1991 and post-2004 mistakes in a relatively short period of time.

There is a lot of criticism that it’s a jobless growth?

The first point to note is that this is a frequent assertion made, but without any credible data. The ministry of statistics and programme implementation is working on designing labour-market surveys that would eventually provide reliable estimates of growth in jobs. The currently estimated unemployment rate in India by the employment-unemployment surveys has been steadfast in the 2-3% range. The real problem we face is not lack of jobs, but slow progress in creating well-paid salaried jobs. A large proportion of our workforce remains either self-employed or employed in casual or contractual jobs. This is a huge legacy problem resulting from decades of mismanagement that has discouraged formal-sector salaried employment.

Healthcare-to-GDP expenditure is very low in India compared to developed countries like the US. Still the Budget spending is not rising as fast as it should …

In the US, healthcare is largely in the private sector. If we combine private and public sector expenditure as a proportion of the GDP in India, it compares favourably with other countries. Private sector expenditure on health is 3-4% (of GDP) and public sector expenditure is another 1.2%. The allocation towards health in this year’s central government Budget is more than the historical trend. But we clearly need to keep moving in this direction of raising public health expenditure while also raising its effectiveness. It is critical that the government does more in the provision of public health.

This is the terminal year of 12th Plan. What is the vision for the next 15 years, in the absence of five-year plans?

Currently, we are engaged in preparing a three-year action agenda—FY18 to FY20. In parallel, we are working on the 15-year vision document. The first draft of the vision document may be ready by end-May, that is our ambition. Separately from these documents, I can say that my expectation is that, in FY18, GDP growth will be 7%-plus, may even be closer to 7.5%.

What are the current interventions by the NITI Aayog on the policy front?

A draft legislation that will replace the Indian Medical Council Act, 1956, is now being looked at by a group of ministers. Then it will go to the Cabinet and to Parliament for approval. In parallel, we are doing a similar reform for homoeopathic and also for the Indian systems of medicine. The problems are similar to those encountered at the Medical Council of India. We are looking at what more can be done in the gas sector. Share of gas in the energy basket of India is significantly lower than the global average.

When do you expect strategic sales in PSUs to take off?

My hope is that we will see some action in the first quarter of FY18. But the matter rests with the department of investment and public asset management.

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