NITI Aayog is Now Up & Run­ning

As he leaves the in­sti­tu­tion he helped build, the econ­o­mist says In­dia ur­gently needs coastal em­ploy­ment zones and trade re­forms for speedy growth

The Economic Times - - Economy: Macro, Micro & More -

NITI Aayog’s out­go­ing vice chair­man Arvind Pana­gariya has pitched for trade re­forms in the coun­try, say­ing the process has taken a back seat and it’s time In­dia low­ers ex­ter­nal tar­iffs. In an in­ter­view to ET’s Yogima Seth Sharma, Deepshikha Sikar­war and Vi­nay Pandey, he said with some re­forms, In­dia can grow by over 8% for sev­eral decades. Edited ex­cerpts:

How would you sum up your role in cre­at­ing NITI Aayog? Is the in­sti­tu­tion now on its feet and the next per­son can seam­lessly take it off? When I came, I felt it was a real chal­lenge in many ways. This was a new in­sti­tu­tion, which needed to be put on its feet. I was also in a way very new to the kind of tasks. The in­sti­tu­tion is now up and run­ning in terms of its per­son­nel, new hires, a full sys­tem in place, which is very dif­fer­ent than what ex­isted in the Plan­ning Com­mis­sion. We have es­tab­lished very good re­la­tions with all min­istries and states. There are on­go­ing works with both of them and, of course, we work very closely with the PMO also. Large num­ber of tasks have been ac­com­plished, in­clud­ing the three-year ac­tion agenda. I can say it without hes­i­ta­tion that my suc­ces­sor can take it very, very far if we main­tain the ac­cel­er­ated pace.

You came from academia. How easy or dif­fi­cult was it work­ing in the gov­ern­ment? Ev­i­dently, I came without ad­min­is­tra­tive ex­pe­ri­ence and I thought this must be a bit dif­fi­cult. When I ar­rived, I re­alised there was a very well de­fined sys­tem that ex­isted in the coun­try, which meant that there was a staff who knew what to do. Their loy­alty is to the of­fice and not to in­di­vid­u­als and so, my ini­tial fear of whether they will be loyal to me or not was also without base. I think that made it re­ally a lot easy to tran­si­tion into work. The fact that the vice chair­man is ap­pointed at a cab­i­net rank has a clear sig­nal value in the sys­tem. The ad­van­tage I had over some­body from within the sys­tem is that I had been writ­ing on the In­dian econ­omy for 15-20 years. That made it in­cred­i­bly con­ve­nient for me in my in­ter­ac­tions with any­body. PTI

Where do you see the econ­omy now? Did GST and de­mon­eti­sa­tion push the nee­dle for­ward? The av­er­age growth rate in last three years is 7.5%. So, we are in a good spot for sure and this growth has been achieved without much of the rad­i­cal im­pact of the re­forms you men­tioned hav­ing yet been re­alised. The In­sol­vency and Bank­ruptcy Code is an im­por­tant re­form, so is GST, and now, we are also on to clean­ing of bank NPAs. These things along with ac­cel­er­ated in­fra­struc­ture cre­ation are agents of change and if we do a few more things, we should grow at 8% or more for a cou­ple of decades.

What are the “few things” that you think should be done on an ur­gent ba­sis? Some of these in­clude the coastal em­ploy­ment zones, as these will help both in job cre­ation and as a cat­a­lyst to bring global firms to In­dia in ar­eas where our large en­trepreneurs are not op­er­at­ing, for in­stance, in cloth­ing, footwear and elec­tron­ics. These global firms will be an­chor play­ers who would bring in their own cap­i­tal man­age­ment plus the mar­ket link and that will have a huge mul­ti­plier ef­fect on mak­ing our own MSMs more pro­duc­tive. The other area we re­ally need to take a sec­ond look at is trade. I think trade re­form has taken a back seat and our last ma­jor open­ing up was in 2008. We had been open­ing up to the global econ­omy by knock­ing down the tar­iffs on in­dus­trial prod­ucts but that is a con­tin­u­ous process af­ter 1991 when li­cens­ing was done away with. Last re­duc­tion was in 2007-08 when we brought down the tar­iffs from 12% to 10% where we are to­day. I have been ar­gu­ing for the top tar­iff rate of 7% and the uni­fi­ca­tion of all tar­iff rates around that with some ex­cep­tions like au­to­mo­biles. With 7%, you will gain rev­enue and put an end to all in­verted duty in­ver­sions that ex­ist, and com­bined with some fur­ther con­sol­i­da­tion on the GST, I think, we will have a fan­tas­tic in­di­rect tax regime. On GST, what we have ac­com­plished so far is ex­cep­tion­ally phe­nom­e­nal but in the course of time, in next two-three years, we ought to unify tax rates also, may be try to get around two slabs, but a lot of work needs to be done on this.

On trade re­forms, we have al­ready re­duced rates un­der FTAs. Is top tar­iff rate of 7% needed? We have a smaller net­work of FTAs. When we think of our ma­jor trad­ing part­ners—US, EU and China—they are not in any of our FTAs. So, lot of our goods that we are im­port­ing or ex­port­ing are ac­tu­ally sub­ject to usual ex­ter­nal tar­iff. I re­ally think there is an ad­van­tage. If ex­ter­nal tar­iffs are high, you cause trade di­ver­sion. Also, we need to work very, very hard on im­prov­ing trade fa­cil­i­ta­tion in the coun­try and the key task at hand is to sub­stan­tially lower the turn­around time at the ports. In fact, they should work 24x7.

Is it time for us to en­ter into FTA with China? There is on­go­ing dis­cus­sion in RCEP and, yes, I think, we need to start process some­where and RCEP is a good place. It will be in our in­ter­est be­cause it is in our pol­icy to Act East and this is some­thing that takes us in that di­rec­tion. Also, our trade with China is very large and there is also scope for ex­pan­sion of trade with all Asean coun­tries. I think it is time for us to be­come a truly ma­jor sup­plier in this mar­ket. Your views on pri­vati­sa­tion, FDI re­forms, multi-brand re­tail and change in fi­nan­cial year? Pri­vati­sa­tion: The view I took at NITI Aayog was that en­ter­prises that can be un­der­taken by the pri­vate sec­tor with equal or higher ef­fi­ciency and which do not serve a public pur­pose, we should con­sider for pri­vati­sa­tion. The gov­ern­ment, in this re­spect, has been on the right track. FDI re­forms: Multi-brand re­tail is po­lit­i­cally a lit­tle more dif­fi­cult re­form for this gov­ern­ment be­cause small traders are a part of its po­lit­i­cal con­stituency. Nev­er­the­less, the gov­ern­ment is mak­ing progress on this through e-com­merce. Fi­nan­cial year change: There are pros and cons. I thought this will be use­ful to do be­cause we align our data to fi­nan­cial year, while rest of the world re­ports its data on cal­en­dar year. The sec­ond ar­gu­ment is that this will align bet­ter with farm­ers’ har­vest­ing time around Di­wali. If it is from Jan 1, prob­a­bly the bud­get will come af­ter Di­wali and that align­ment will also come.

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