Real challenge is the creation of good jobs in the organised sector: Arvind Panagariya

Subhomoy Bhattacharjee Posted online: Monday, May 05, 2014 at 0000 hrs
New Delhi : Arvind Panagariya, Jagdish Bhagwati Professor of Indian Political Economy at Columbia University, says that 6.5 per cent growth is possible in FY15, the Planning Commission has outlived its utility and accountability must rest only with the Prime Minister, in an interview to Subhomoy Bhattacharjee.

If you were to list out the short-term and medium- term priorities for the next government what will those include?

Appoint a pragmatic environment minister; end the paralysis in decision-making; fix the financial health of the banks through a mix of recapitalisation, mergers and consolidation and dilution of the government share in equity; restore investor confidence by assuring no retrospective taxation and related measures; complete GST and pass the DTC (with appropriate modifications to the existing draft); and begin moving on infrastructure and empowerment of states in the legislative area.

Basically upon assuming office, the next Prime Minister must immediately assure bureaucracy that the responsibility for all their legitimate decisions rests with him. Equally important, he must ensure there are no multiple power centres in government.

In agriculture, it is worth considering replacing the minimum support price and its associated procurement by the equivalent of deficiency payments in the US. An important advantage of such payments is that they do not require the government to procure food grain. Therefore the benefit extends to all farmers rather than only the lucky few.

How big a challenge is unemployment for the next government?

The real challenge is the creation of good jobs in the organised sector. In my view, this is the biggest challenge facing all future governments.

What must be done to achieve this goal is known. Therefore, the real challenge is political courage and skilful negotiation to bring various constituencies on board. Recognising that labour is a concurrent subject in our Constitution, one way is to give powers to the states to amend Central legislation.

It is also not possible for employment intensive industries to flourish without steady flow of electricity. Yet compared to 2003 when per capita consumption of electricity in India and Vietnam was equal, the latter had pulled ahead by more than 40 per cent. The gap today is probably larger. This is by far the most important sector in need of attention.

In the sputtering global growth scenario, what is the highest range for growth in the Indian economy that you see for FY15?

6.5 per cent.

To what extent will a new government get the fiscal space to pursue a pro-investment policy?

A determined and skilful government can create fiscal space for itself through improving tax policy and administration and rejig of expenditures. Besides, good policies can also return India to 8 per cent growth, which too will help improving tax revenues.

You have often compared growth rates among Indian states to drive home the importance of best practices to push growth in the laggards. Do you think the new government should take any new approach to make this actually happen?

Yes. Decentralisation and partnerships with chief ministers are important. But we also need a somewhat more flexible and focused approach to Central assistance to states. For example, the provision of electricity to households in states such as Bihar and UP should be the highest priority. The Centre could give freer hand to the states that are run well while offering greater help to states lagging behind and poorly administered. But in the end, states have to be willing partners. Otherwise, we will only boost expenditures without achieving intended outcomes, a phenomenon we have seen aplenty lately with the Centre forcing its schemes on the states.

In recent years, expenditures under Centrally sponsored schemes have expanded rapidly. These one-size-fits-all schemes have tended to straitjacket the states. With legislative reforms that empowers states how they want to implement the schemes, will also pave the way for the closure of the Planning Commission, which has outlived its utility. Instead, the next government must consider the possibility of letting each Finance Commission stand until its successor has begun functioning.

The other reform is to let the Centre insert a clause in laws that are on Concurrent List like labour, MGNREGA, right to education and even food security that if a state amended the law, it will prevail in that state. This spares the Centre of the politically difficult task of reforming the legislation. In effect, it passes the buck to the states. We could thus unleash unlimited experimentation and competition among states.