Reformist push

The National Institution for Transforming India, or NITI Aayog, has released its Three-Year Action Agenda for the years 2017-18 to 2019-20. The Agenda is meant to provide a guide to policy actions by the Centre and state governments over the coming years. As the Agenda points out, it “offers ambitious proposals for policy changes within a relatively short period”. It is far from certain that the NITI Aayog’s wish list for reform will be completely and properly implemented, but there are good reasons why it should be taken seriously.

As with the old-style planning process that was associated with the NITI Aayog’s predecessor, the Planning Commission, the Action Agenda begins with the question of where government resources should be prioritised. It argues for decreasing the share of non-developmental revenue expenditure in total expenditure from 47 per cent in 2015-16 to 41 per cent in 2019-20, alongside a sustained increase in the share of capital expenditure. The Agenda argues that the end of the old Plan/non-Plan distinction in spending allows for a clearer examination of what productive expenditure could entail.

The Agenda sets out a medium-term framework that assumes growth in tax revenues of between 14 and 17 per cent over the next three years. This will be driven, it says, by a larger growth in the proportion of direct taxes to GDP. The framework also assumes an optimistic Rs 80,000 crore of disinvestment receipts in each of the next two financial years. Given this, it plans to maintain the fiscal consolidation path, taking the fiscal deficit down to 3 per cent of the GDP by 2018-19. Importantly, it argues that this fiscal consolidation also provides space for increasing expenditure on health to Rs 1 lakh crore, or 3.6 per cent of total expenditure. It also intends a big spike in spending on education, as well as on capital expenditure in roads and in railways. The Agenda also lays special focus on the economic transformation of some key sectors, the top priority being agriculture, which employs nearly half of India’s workforce. From reforming laws such as the Agricultural Produce Marketing Committees (APMC) Act so that farmers receive better remuneration to enhancing farm productivity, the Agenda lays out an ambitious plan to reboot rural India, complete with “housing for all” and digital connectivity. 

The other key sectors are trade, industry and services where the Agenda outlines how unemployment and underemployment could be remedied by learning from countries which used manufacturing to grow fast.It correctly argues that export promotion has to play a critical role in the government’s policy mix, saying that it is crucial for creating jobs at a decent wage. It points out that “only four developing countries that have successfully transformed themselves within three decades: South Korea, Taiwan, Singapore and China… In every one of these cases, exports have played a key role”. The Agenda’s list of reforms tailored to individual export-driving labour-intensive areas is well judged. The question is this: Will the government listen to this excellent advice, and maintain fiscal consolidation while promoting flexibility and reform in the sectors that create jobs? The answer to that question will determine whether the NITI Aayog is in any way more effective than its doomed predecessor.

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