DE­VEL­OP­MENT AGENDA 2022

The De­vel­op­ment Agenda for New In­dia 2022 must in­sist that we move be­yond the govern­ment’s fis­cal deficit and be­gin es­ti­mat­ing the coun­try’s pub­lic sec­tor deficit to get the com­plete pic­ture of the deficit. Let the Govern­ment of In­dia, in con­sul­ta­tion wit

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THE NITI Aayog was ex­pected to in­tro­duce the draft de­vel­op­ment agenda for New In­dia 2022 at the June 17 meet­ing of its Gov­ern­ing Coun­cil. But it didn’t as it re­port­edly felt that the draft de­vel­op­ment agenda should be sent to the States for get­ting their de­tailed in­puts. My take on this is that In­dia needs high GDP growth which is in­clu­sive and is con­sis­tent with a sus­tain­able bal­ance of pay­ments sit­u­a­tion. In­clu­sive growth re­quires em­pow­er­ment of our peo­ple through, what for­mer RBI gov­er­nor Raghu­ram Ra­jan calls, “a broadly eq­ui­table dis­tri­bu­tion of eco­nomic ca­pa­bil­i­ties.” In case we had done this, there would have been no need for ini­tia­tives such as Prad­han Mantri Jan Dhan Yo­jana. Em­pow­er­ing our peo­ple along these lines will re­quire a lot of ef­fort and re­sources. In­dia’s pub­lic fi­nances are not in a shape that they can af­ford the ex­pen­di­ture in­volved. Our tax-GDP ra­tio is very low—about 18 per cent. It needs to go up by at least five per­cent­age points. GST should help. In the mean­while, pri­vati­sa­tion of pub­lic en­ter­prises can gen­er­ate the req­ui­site re­sources. The NITI Aayog has ar­tic­u­lated a sen­si­ble frame­work for pri­vatis­ing the pub­lic en­ter­prises. But the govern­ment is not be­ing able to make any progress on the pri­vati­sa­tion front. Pri­vati­sa­tion of Air In­dia is an ex­am­ple—the Govern­ment of In­dia didn’t re­ceive any bid for it. Why? Pri­vati­sa­tion of pub­lic en­ter­prises like Air In­dia does not nec­es­sar­ily mean that you will fetch a pos­i­tive price. The govern­ment may like to mull over this. What else can the Govern­ment of In­dia and the State gov­ern­ments do to strengthen our pub­lic fi­nances? Well, a lot can be

done. The first thing that they need to do is to clear the mess in the coun­try’s power sec­tor and thereby en­sure that it is no longer the kind of bur­den it is on the coun­try’s pub­lic fi­nances. The Govern­ment of In­dia had launched a ma­jor ini­tia­tive, called UDAY (Ujwal Dis­com As­sur­ance Yo­jana), in Novem­ber 2015 to im­prove the op­er­a­tional and fi­nan­cial ef­fi­ciency of the State power dis­tri­bu­tion com­pa­nies, with the out­comes to be mea­sured through re­duc­tion of ag­gre­gate tech­ni­cal and commercial (AT&C) losses to 15 per cent in 2018-19 and re­duc­tion in the gap be­tween the av­er­age cost of sup­ply (ACS) and the av­er­age rev­enue re­alised (ARR) to zero by 2018-19.

UDAY is 31 months old now. Has it made any dif­fer­ence? Will UDAY suc­ceed in de­liv­er­ing the in­tended out­come of mak­ing In­dia’s Discoms fi­nan­cially vi­able, so that they are no longer a bur­den on the coun­try’s pub­lic fi­nances and so that they don’t have to be bailed out again and again? Ac­cord­ing to Ra­jiv Ku­mar, Vice Chair­man, NITI Aayog, UDAY has made a pos­i­tive dif­fer­ence, in the sense that “State util­i­ties have been freed from their debt bur­den.” The State util­i­ties have been freed from 75 per cent of their debt bur­den be­cause the State gov­ern­ments have taken over that debt bur­den. So, if one is talk­ing about the debt bur­den on In­dia’s pub­lic sec­tor, is UDAY re­ally a great deal? There are cer­tainly some pos­i­tive signs, but one can­not, be­cause of lack of cor­rob­o­ra­tive ev­i­dence, def­i­nitely say that UDAY has made a pos­i­tive dif­fer­ence. One will have to wait for some time be­fore one can say some­thing def­i­nite about UDAY’s im­pact. But there are three things that the Govern­ment of In­dia

The NITI Aayog has ar­tic­u­lated a sen­si­ble frame­work for pri­vatis­ing the pub­lic en­ter­prises. But the govern­ment is not be­ing able to make any progress on the pri­vati­sa­tion front. Pri­vati­sa­tion of Air In­dia is an ex­am­ple—the Govern­ment of In­dia didn’t re­ceive any bid for it

Zcan do in the mean­while. First, it must put in place a mech­a­nism to have the data avail­able on the UDAY web­site au­dited by an in­de­pen­dent in­sti­tu­tion. Sec­ond, the govern­ment must cre­ate an en­vi­ron­ment which will in­cen­tivise the State Elec­tric­ity Reg­u­la­tory Com­mis­sions to de­ter­mine power tar­iffs which do not in­clude any tax el­e­ment and do not pro­vide for any sub­si­dies, with sub­si­dies, if con­sid­ered nec­es­sary, to be di­rectly trans­ferred by the con­cerned State Gov­ern­ments to the in­tended ben­e­fi­cia­ries. Fi­nally, given that In­dia’s power sec­tor is dom­i­nated by pub­lic en­ti­ties, the govern­ment needs to mull over the wis­dom un­der­ly­ing this dom­i­na­tion.

Ibe­lieve there is a very strong case for launch­ing an ini­tia­tive for pri­vati­sa­tion of Discoms. Look at Delhi. Things un­der BSES Ra­jd­hani Power, BSES Ya­muna Power and Tata Power are sub­stan­tially bet­ter than those un­der Delhi Vidyut Board. Of course, there are some po­lit­i­cal econ­omy is­sues as­so­ci­ated with pri­vati­sa­tion of pub­lic en­ter­prises. It’s not just politi­cians and pol­i­cy­mak­ers who op­pose pri­vati­sa­tion of pub­lic en­ter­prises, other peo­ple, in­clud­ing em­ploy­ees in the con­cerned ad­min­is­tra­tive min­istries/de­part­ments, also do so. But this is some­thing that can be man­aged. The sec­ond thing that needs to be done re­lates to the fi­nances of the pub­lic sec­tor banks (PSBs). They have piled up huge NPAs. Avail­able data sug­gest that they add up to about ` 10 lakh crore. But there is rea­son to be­lieve that they are higher. This is be­cause the PSB man­age­ments have an in­ter­est in not dis­clos­ing the truth

What must be done to en­sure that the govern­ment doesn’t have to deal with such a mess in the bank­ing sec­tor in fu­ture, it must recog­nise that it does not have the req­ui­site ca­pac­ity to man­age cer­tain things. It can­not man­age Air In­dia, it can­not man­age the coun­try’s ar­chae­o­log­i­cal mon­u­ments, and it can­not man­age the PSBs

about their NPAs. The govern­ment which owns these banks also has an in­ter­est in not dis­clos­ing the truth. The hair­cut in­volved in clean­ing the PSBs’ NPAs may add up to about ` 6 lakh crore. How should this be fi­nanced and what must be done to en­sure that the govern­ment doesn’t have to deal with such a mess in fu­ture? There were ru­mours that the govern­ment may fi­nance the hair­cut by in­vok­ing the bail-in pro­vi­sion in the Fi­nan­cial Res­o­lu­tion and De­posit In­surance (FRDI) Bill ( the Bill was ex­pected to be tabled in the Par­lia­ment in the up­com­ing win­ter ses­sion but has since been with­drawn). In a re­cent dis­cus­sion on the FRDI Bill that I par­tic­i­pated in, some par­tic­i­pants shared re­ports of peo­ple with­draw­ing their fixed de­posits from their banks. For­mer RBI gov­er­nor YV Reddy, in an ad­dress at Shivaji Univer­sity at Kol­ha­pur on June 9, is re­ported to have said that “the FRDI Bill has caused na­tion­wide con­cern, and rightly so…the pro­posal has it­self cre­ated a panic and some with­drawal of de­pos- its has taken place. To an ex­tent, some per­ma­nent dam­age has been done to the trust in safety of bank de­posits.”

AS re­gards the is­sue of what must be done to en­sure that the govern­ment doesn’t have to deal with such a mess in the bank­ing sec­tor in fu­ture, it must recog­nise that it does not have the req­ui­site ca­pac­ity to man­age cer­tain things. It can­not man­age Air In­dia, it can­not man­age the coun­try’s ar­chae­o­log­i­cal mon­u­ments, and it can­not man­age the PSBs. The PSBs got into trou­ble partly be­cause they had, postLehman Broth­ers’ col­lapse in 2008, as

for­mer RBI gov­er­nor YV Reddy has put it, “been en­cour­aged to lend to in­fra­struc­ture, which was not the core com­pe­tence of the banks, apart from cre­at­ing as­set and li­a­bil­ity mis­match.” Ac­cord­ing to a widely-held per­cep­tion, the PSBs have also run into prob­lems be­cause of the cul­ture of in­flat­ing project costs, with a part of the cush­ion so cre­ated used to fi­nance elec­tions. This clearly sug­gests what the govern­ment needs to do: It must de­velop a con­sen­sus among po­lit­i­cal par­ties on how elec­tions should be fi­nanced, with the PSBs man­aged by peo­ple who are highly com­pe­tent and, what’s more, who be­lieve in ethics.

THE De­vel­op­ment Agenda for New In­dia 2022 must in­sist that we move be­yond the govern­ment’s fis­cal deficit and be­gin es­ti­mat­ing the coun­try’s pub­lic sec­tor deficit (deficit of all pub­lic en­ti­ties in the coun­try), in or­der to get the com­plete pic­ture of the deficit. Let the Govern­ment of In­dia, in con­sul­ta­tion with the State gov­ern­ments, set up what may be called the Fis­cal Coun­cil. Given that the re­la­tion­ship be­tween pub­lic sec­tor deficit and the macroe­co­nomic sit­u­a­tion is not lin­ear, let the Fis­cal Coun­cil de­cide how much pub­lic sec­tor deficit the In­dian econ­omy can af­ford in a given year. This brings me to the is­sue of en­sur­ing sen­si­ble man­age­ment of pub­lic ex­pen­di­tures. The present govern­ment at the Cen­tre keeps on an­nounc­ing pub­lic in­ter­ven­tions of all kinds, but are they be­ing mon­i­tored and eval­u­ated the way they should be? Take, for ex­am­ple, the Swachh Bharat Mis­sion. Toi­lets are be­ing built in record num­bers. But, as a re­cent (June 14) ar­ti­cle by Shaon Lahiri and Radhika Menon points out, the Mis­sion “can be con­sid­ered truly suc­cess­ful only if the con­struc­tion of toi­lets leads to sub­stan­tial im­prove­ments in peo­ple’s health. And that can hap­pen only if toi­lets are used by ev­ery­one. Our met­ric for defin­ing suc­cess needs to be longterm changes in health in­di­ca­tors such as re­duced child mor­tal­ity, malnutrition and stunt­ing.” As re­gards the is­sue of GDP growth be­ing con­sis­tent with a sus­tain­able bal­ance of pay­ments sit­u­a­tion, we need to man­age things to en­sure that the ru­pee is not un­der pres­sure. This will ne­ces­si­tate con­trol­ling in­fla­tion and man­ag­ing the cur­rent ac­count deficit. For con­trol­ling in­fla­tion, we should avoid ini­tia­tives which kill the in­cen­tives for re­duc­ing costs, such as cost-plus pric­ing schemes. We should also mull over the op­po­si­tion to the ac­qui­si­tion of Flip­kart by Wal­mart, on the ground that Wal­mart squeezes sup­pli­ers in or­der to be able to sell goods at low prices to its cus­tomers. As re­gards the man­age­ment of the cur­rent ac­count deficit, I be­lieve the time has come to mull over the idea of re­duc­ing the cur­rent ac­count deficit to zero and then aim to have a sur­plus. This will ob­vi­ate the ne­ces­sity of our in­cen­tivis­ing cap­i­tal in­flows through FDI, FPI, NRI de­posits, ECBs and so on, so that we may be able to com­fort­ably fi­nance our cur­rent ac­count deficits.

As re­gards the is­sue of GDP growth be­ing con­sis­tent with a sus­tain­able bal­ance of pay­ments sit­u­a­tion, we need to man­age things to en­sure that the ru­pee is not un­der pres­sure. This will ne­ces­si­tate con­trol­ling in­fla­tion and man­ag­ing the cur­rent ac­count deficit

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