NITI Aayog Vice-Chiarman Rajiv Kumar
about various aspects of the economy, ahead of the completion of four years of the Narendra Modi government. Edited excerpts:
How do you assess the first four years of the Narendra Modi government in terms of reforms and its achievements?
You have to look at the four years of the Modi government in the context of the economy that we inherited. The economy was in a shambles — there was policy paralysis because of zero decision making, declining GDP growth and rising inflation. Current account deficit was getting out of hand and NPAs of banks were mounting. We have overcome all that.
The CPI inflation is down to 4.5 per cent, GDP growth is now (pegged) at 7.5 per cent, our forex reserves are at a record high and we have generated jobs. I think there have been much bigger and more reforms compared to four years in any other previous government. Even the Narasimha Rao government, which I served, had stopped reforms by the beginning of 1994. In one sentence. we had inherited the economy in a bad shape and we have brought it to a situation where we can with confidence say that economic growth will be 8.5-9 per cent per annum in the next four years.
What is the unfinished agenda that could be taken up now?
One is the banking sector situation. Corporate governance in public sector banks requires more attention. The concerns are the ability of banks to make genuine risk assessments and use Rakesh Mohan’s famous words — “lazy banking”.
The fact that banks are holding on to 29 per cent of the statutory liquidity ratio (SLR) when the limit is only 19.5 per cent means they are unable to push that money into investments. The second unfinished agenda is the agriculture sector. We have shifted our focus from agriculture growth to farmers’ income. The third is water. This is the only government which has given attention to this scarce resource. Ninety inter-connecting river projects are on the anvil.
Then, there is improving access and quality of our energy. Some major steps have been taken — all 18,000 villages are electrified and 40 million households are connected under Saubhagya (scheme). But the number of villages that receive 24X7 reliable power supply is still very less. The last one, which is a special priority for me, is the malnourishment of children. I failed to understand how we are still living with 38 per cent of under-nourished children.
Has the government erred in managing oil economics?
The government mobilised the resources that it could and used it to ramp up public capital expenditure. It did not fritter these away in revenue expenditure. That was essential when the economy was in the downturn as investments had dried up of because of the twin balance sheet problem.
The commercial credit offtake to the industry had become negative in 2016, and now the growth is barely in single digit. If the government had not ramped up its public expenditure in infrastructure, affordable housing and rural roads, you can well imagine where the economy would have been.
But, global oil prices have potential to disturb macroeconomic parameters...
Everybody in the world has been taken by surprise by the persistent rise in oil prices. It is not a demand-side problem. Europe, China and Japan are reducing their energy intensity. This is a supply side issue. The Vienna alliance — the OPEC plus Russia — have stuck. It suited them for various reasons.
It could well be that Russia, cussed about Europe and the US, is not ramping up its production. At the same time, Venezuela is in an absolute mess where oil reserves were being plundered and pillaged. You have got things in Nigeria, Algeria, and now in Iran. The most surprising has been the lack of response from shale oil, so far. It is believed that when prices reach $ 60-65 a barrel, shale oil responds in a very big way. That has not happened. I am now hoping that at this level, there will be a much bigger response in the next three to six months.
I see this price rise moderating as you go forward. But, you have to see macroeconomic balance at a new benchmark of $70-75 a barrel. That has created a new situation. In this context, a new biofuel policy is a good step. Petrol prices were 245 per cent of diesel’s in 1989-92 and the government ensured that these come down to 114 per cent now.
What should be the policy response now? Should the government cut excise duty or bring petroleum under GST?
I think the policy response should come in the next few weeks. Bringing it under GST will help companies’ external costs. Otherwise, our businesses will not remain competitive; they have to get input tax credits for energy. As such, not only petroleum but even electricity should be included in GST. I think states would agree to it soon. Also, states should have to do their bit. The incidence of petroleum tax is 27 per cent in states and that too ad-valorem. Rather than 27 per cent, they can cut it down to 25 per cent or 24 per cent. This should be done in manufacturing states such as Maharashtra and Gujarat because it builds into the manufacturing costs.
The Centre should also consider a cut in excise duty, provided it has the fiscal space because we don't want deterioration in the fiscal balance. Already, bond prices are rising. We don't want to further disturb that. We don't want to announce another rise in the borrowing programme. If you are sure of the fiscal space, time is right for a cut in excise duty. It would give a signal to investors that the government is interested in growth. Also, this would be a signal to the RBI that we are willing to take responsible fiscal steps to not stoke inflation further.
You talked about signal to the RBI, but the fear is that the RBI is likely to hike interest rates in its June policy. So, what would be your advice whether there should be status quo or a rate cut?
I won’t like to comment on this. I respect the autonomy of the RBI and the Monetary Policy Committee. From the government’s point of view, at least from where I’m sitting, the later it (a rate hike) comes, the better it is.
You said oil revenues have not been frittered away. But, one criticism of the government is that budget documents don’t reflect that increase. How do you respond?
No, that is wrong, whatever CapEx we did in the last four years is higher than previous years. You can see it for yourself. That is what has speeded up the growth of highways, the Sagarmala, Bharatmala projects, etc. I think the rise in CapEx has been much higher in the last few years than it has been in any previous year and that’s what saved our boat. This is because, if the government hadn’t ramped up its capital expenditure in the absence of private expenditure, we would have turned turtle.
Former Finance Minister P Chidambaram, in a series of tweets recently, said the government should be bold enough to cut petrol prices by at least Rs 25 a litre?
It is so nice to make these suggestions when you are a former (finance minister). But, it should be remembered that both during Mr Chidambaram’s regime and also his predecessor’s, we had the worst under-recoveries, so what are we talking about? At least, this government has allowed petrol prices to reflect market conditions and we have not flinched from doing so.
You touched upon jobs, but do you think that 10 million jobs are being created a year as was promised?
Ghosh and Ghosh papers point out that 7 million jobs have been created which is not bad in the formal sector.
But, that includes formalisation of the economy as well…
I know, but now the latest (payroll) data shows that it is not just formalisation, but an increase. Therefore, 7 million jobs in the formal sector, and then add in the informal sector, plus under the MUDRA Yojana, and then there is the services sector, which are not counted anywhere. I think you will have much more than what people are talking about. I think when it comes to the creation of jobs, we haven’t done too bad. The quality of the jobs can still be improved simply because young people are now far more aspirational. And, this whole nonsense of the narrative around jobless growth and people writing commentary based on the Labour Bureau’s eight sectors with 11,000 sample size should stop.
When do you plan to roll-out Ayushman Bharat scheme?
That should be rolled out soon. We are hard at work and that will be a complete gamechanger. I would love the PM to announce its launch from Red Fort on August 15 but it’s a complex thing and requires a lot of hard work and coordination with the states.
Has any state opted out of the scheme?
No state has opted out of the scheme. The understanding was that whatever schemes states run would be subsumed in Ayushman Bharat as the coverage in all the cases is lower than this (provided under the Ayushman Bharat scheme). And, therefore, it would be nicer for them to get subsumed.