While some critics are sceptical of the 7% GDP growth reported for Q3 of FY17 when demonetisation had impacted cash-based consumptions 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 K.G. Narendranath, he says that India can’t afford a universal basic income scheme and so, under the current social schemes, the beneficiaries could be given an option between in-kind benefits and an equivalent sum of cash. Edited excerpts.

Q: 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 to 4 years’ time, nearly all beneficiaries will shift to cash provided they have easy access to banking.

Q: When it comes to targetting of subsidies, no real effort is made 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.

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 to solving this problem. This is one of the several reasons why the NITI Aayog has brought out a Model land Leasing Law and recommended to the states to adopt it.

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Q: The NPAs of the banks are at an unsustainable level and seem to get even worse. Banks are asking for some relaxation with regard to provisioning towards NPAs and other stressed asstes. But, the policy apparatus is not moving at the required pace to this issue which not only reflects the economy’s weakness but also is behind the core of many problems it is facing including a prolonged private investment famine. It seems that there is 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 Indra Dhanush programme. But that programme has not been sufficient. Discussions are under way on what additional steps must be taken. The idea of separating the non-performing assets (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 thus 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.

Q: The latest quarterly GDP data show that there is a 3% increase in gross fixed capital formation year-on-year in Q3 after declining in the previous three quarters. Some analysts doubt the feasibility of such investment growth in the immediate aftermath of demonetisation, especially since other data aren’t corroborating it. They are also similarly 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. Methodology has not been changed by the CSO post demonetisation. Besides, data on inflation about which no one has expressed any doubt, corroborate what the GDP estimate indicates.  Many experts had been predicting 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).

Q: What is your view about 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 the tendency among some not to voluntarily disclose the unaccounted income?

I had suggested that to minimize harassment of honest taxpayers and citizens, we do not scrutinize accounts receiving less than Rs 2.5 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.

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Q: What is your assessment about the progress of various flagship schemes of the government like Make-in-India, smart cities etc.? Projects in many infrastructure sectors are not making headway, as desired; the highway projects, for instance, are not keeping pace with the targets set, even as most of them are funded by the government itself via the EPC route.

We are growing at 7% plus. That means a turnaround has happened. The government is taking a lot of steps. A lot of investment has come into the electronics sector such as mobile phones. Some improvement has also been seen in the textile sector following the 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.

Q: There is a lot criticism that it’s a job-less growth?

The first point to note is that this is a frequent assertion made but without any credible data. The ministry of statistics and program implementation is working on designing labour-market surveys that would eventually provide reliable estimates of growth in jobs. The currently estimated unemployment rates in India by the Employment-Unemployment Surveys have been steadfastly 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 very 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 policies that has discouraged formal-sector salaried employment.

Q: Healthcare-to-GDP expenditure is very low in India compared to developed countries like 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 for health in this year’s central government budget is more than the historical trend.  But we clearly need to keep moving in this direction, raising public health expenditure while also raising its effectiveness. It is critical that the government do more in the provision of public health.

Q: 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 3-year action agenda–FY18 to FY20. In parallel, we are also working on the 15-year Vision document. 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 2017-18, GDP growth will be 7% plus, may be closer to 7.5%.

Q: What are the current interventions by the Niti Aayog on policy front?

A draft legislation that will replace 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 also doing a similar reform for homeopathic and also for the Indian systems of medicine. The problems are similar to those encountered at the Medical Council of India. We are also 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.

Q: 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 2017-18. But the matter rests with the Department of Investment and Public Asset Management.