‘It is important to ask who is gaining from subsidies’

NEW DELHI: Chief economic adviser Arvind Subramanian, who presented his second Economic Survey on Friday, told HT that the government must pursue the reform process aggressively to achieve an 8% growth rate in the medium-term, and that given a choice, he would have added several chapters to the Survey. Excerpts: You have said the benefits of subsidies are enjoyed most by the rich and this needs to be corrected. Isn’t a sagging savings rate a cause for concern? At any time you give a subsidy in the form of tax exemption, you need to ask who is benefitting from it, and what is the benefit-to-cost ratio. If you give tax breaks to build toilets, even toilets will be built. So if you give tax benefits for savings, savings will go up, but it is critical to ask who is benefitting from these breaks. After all the money that you gave away, who benefitted from that is something we need to ask. Of course savings is important but one also needs to calculate the cost. So there has to be a trade off here and a balancing act must be done. With the rising problem of NPAs, do you think government stake in public sector banks should be reduced below 51%? Should the exercise start with weak banks? Everybody believes it should be, but the question is how easy it will be. It’s a political question and I am not into these decisions. Small banks are more difficult to sell as there will be fewer takers. The strong ones will be easy to dilute but if you touch them there will be criticism. People will start saying that these are the Navaratnas and they are the ones doing well, and it will go on. What are your views on setting up a bad bank? If the current strategy is working then it is fine, but if it does not or if it is not as speedy as it should be, we must evaluate all options, and setting up a bad bank is definitely one option. All options should be on the table and bad bank should be part of the menu. It also depends on the money for recapitalisation. What is required to make JAM agenda more effective? Opening bank accounts for all was a fantastic first step towards achieving financial inclusion. Only when we achieve that, can we implement the JAM (Jan DhanAadhaarMobile) agenda.