‘PAYROLL DATA SHOULD END JOBLESS GROWTH DEBATE’

NITI Aayog Vice-Chairman RAJIV KUMAR Indivjal Dhasmana speaks with and Sanjeeb Mukherjee 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 macro economic parameters... Everybody in the world has been taken by surprise by the persistent rise in oil prices. It is not a demandside 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. More on www.business-standard.com