‘Economy To Grow At 7-7.5 Per Cent In The New Year’
Bibek Debroy, Chairman of the Economic Advisory Council to the Prime Minister, in an exclusive interview with Suman K. Jha, lists his concerns on the economy in the new financial year. He expresses his concern on how our official data systems are routinely questioned over their reliability. The eminent economist, however, is confident of the economy growing at 7-7.5 per cent in the FY18-19.
Edited excerpts:
Q: How does the economy look in 2018?
In the last quarter of the financial year 2017-18, we will see growth rate going up to 7 per cent. I think in FY18-19, we will be in the band of 7-7.5 per cent growth rate. I should also say what this government has done, is broadly what economists call the supply side. It will lead to a higher growth in the slightly longer term. You don’t expect that to happen instantly in 2018-19. Some of them will show you the payoff in two to three years down the line — whether it is transport infrastructure or the efficiencies because of GST (goods and services tax) or various other things.
Q: Do you think the downturn, as a result of demonetisation (and the glitches that the GST implementation led to) is well and truly over?
No one has statistically been able to establish that the demonetisation led to a slowdown. To my mind, demonetisation had a slight blip and did not last for more than a month. I don’t think it had any effect on GDP (gross domestic product) growth. The slowdown has been going on for quite some time. But linking it to demonetisation is unjust, facile, naïve. I can list out the reasons as to why there are what economists call structural problems.
GST will be a bit more careful and less categorical. In any case, GST is a process. It is a goal we all want to reach, that no one is disputing —that all products should be under GST. There should not be any multiplicity of rates. If not one rate, there should be three rates. And all other indirect taxes should go away. But this is the only country in the world, with the possible exception with the question mark of Canada, which has implemented a federal / dual kind of GST. All the other countries have a unitary GST. And that leads to complications.
I am of the view that it is not a perfect GST, but let’s start with it. We recognise there are ‘glitches’. That will be tweaked as we go. There is a broader issue of bringing in entities that were outside the tax net into the tax net.
Just as we are now beginning to get a shakeout in the large sector, there will inevitably be a shakeout in the MSME sector too.
Just to keep the record straight, the Central Statistical Office, in my view doesn’t deliberately falsify national accounts. It is perfectly correct to say that there are problems with our data systems. That doesn’t mean one deliberately fudges national accounts. We started the system of quarterly reporting in 1996. But our systems are not geared to deliver quarterly national accounts satisfactorily yet. Because a large chunk of it is informal and unorganised.
You have a reasonable data for the organised sector and have some past surveys of the informal unorganised sector. You are assuming that continues and you are projecting. That’s what you are really doing. So the link to your question is, we don’t really have very good data on the informal and unorganised sector in this process.
When you are talking about GST and its impact on MSME, we really don’t know. So the critical issue is that for the informal and unorganised sector, we are assuming past trends are continuing that may or may not be true.
Q: Last week, the government announced to borrow Rs 50,000 crore more from the bond market than it had budgeted in the Union Budget. Do you think in the coming year, there is a lesser probability or possibility of cheaper loans?
We should wait till the budget; it is not very far. Both finance minister and the Prime Minister and many other people have said, there will be no deviation from fiscal consolidation. I think we should accept that statement and wait for the budget. We should also recognise that union government finances are under a certain amount of pressure. There is the 14th Finance Commission; the devolution on account of centrally sponsored/ Central Sector schemes; revenue compensation on account of GST given to states… Every time there is an exemption or reduced rate, it affects the revenues. So far, the FM has stuck to his promises. I don’t think there is any need as of now to disbelieve what he has said about fiscal consolidation.
What will probably happen if there is some sort of deviation, is that there will be enough explanation for that marginal deviation, if at all it happened. It is not a minor deviation that causes alarm. Obviously, if there is a significant deviation, it does have undesirable consequences along the lines that you have mentioned. And it is not very good for bond markets.
Q: Now crude is $66 a barrel, and may go up to 70. Will this have any inflationary pressures? What do you think?
I have not seen any figures or projections that suggest great alarm on account of balance of payments. And I don’t really think there is much of an implication, except for the issue of that being transmitted to domestic prices and how one manages that. That applies to a whole range of different petroleum products whether it is kerosene, diesel or petrol. And part of the unrelated or distantly related issue is, the extent to which the petroleum products are brought into the GST framework. And the reason I am flagging that is because after there is indirect tax structure for petroleum products, it should be better.
Q: There’s rural distress across the country. What should be the viable solution in the coming years for this recurring problem?
I don’t like the expression ‘rural distress’. That’s because there is ‘rural distress’ and ‘agriculture distress’, and both are not synonymous.
Unfortunately, they are often used synonymously. If I stay away from agriculture for the moment, I don’t think I would use the word ‘distress’ for the rural sector outside of agriculture.
Agricultural distress is a much more complicated issue, because agriculture also varies widely from state to state. There is a certain kind of issue in irrigated areas and another kind in dry-land areas. Much of the issue, the distress, in my view, is in the dry-land areas.
There are two kinds of people who work in agriculture: land-holders and agricultural labour.
I don’t think there is much distress in agricultural labour. The distress, now I am accepting the word distress not for rural but agriculture, is much more for the land-holders. But they are not in silos.
Essentially what has happened is, the prices of inputs have gone up disproportionately. And the prices of output, have not been commensurate. So there is a real income/profit squeeze for agriculture. So that’s what is causing the distress.
And there is a long agenda about what should be done for agriculture. Right at the top of that, I would say, is the water problem. Yes, there are things such as the APMC (agricultural produce market committee) and this that and all kinds of control. But I would put number one, as water/irrigation.
Q: What should be the thrust areas in the coming budget?
I don’t like that question. The budget is only an annual statement of the Union government’s receipts and expenditure. That’s what it is. A large part of the revenue is almost given to you. It’s a function of growth, unless you are going to tinker with the indirect tax rates, which you cannot since there is GST. You cannot do much with the direct tax part of it either. You can do a little bit of incremental here and there, but otherwise now that there is a task force to look at the Income Tax Act, you don’t realistically expect any significant changes on the direct tax side of this budget either, apart from slabs and minor changes. So the only element of revenue, that’s really left is the non-tax part. The non-tax part, primarily disinvestments, I think it should be noticed that in 2017-18, disinvestments are going to be more than what was projected in the budget. And I also think there will be a fair degree of disinvestments in 2018-19.
What I expect the budget to do is set out the government’s plan of reforms, the fiscal and non-fiscal plans, and point out how the budget is one of the instruments of achieving that.
Q: There have been various missions such as ‘Housing for All’ by 2022 and doubling farmer’s income by 2022. Do you think we are on course towards achieving the targets we have set out for ourselves?
I will say that in ‘Housing for All’, we will see a significant pick up, because I think, on that front, there will be a structural break. There is an issue of whether it being disseminated adequately or not. But these are fundamentally demand-driven; if there is no demand, it doesn’t pick up. So I think that the dissemination has begun to happen now.
Agriculture is a more complicated issue. Because agriculture, as you know, much of it is a state subject. So agriculture is a function of what the states are doing. I think the big structural break there, will happen because of that electronic market place in agriculture, which is yet to take off. But it will soon take off. There will be people who will criticise and say the poor farmer doesn’t go to such platforms, but the poor farmer, even in the old system, did not have much of marketable surpluses.
Q: Jobs have been the problem area. People lament about jobless growth. Although some people say that jobs have been created through Mudra, etc. What is the way out?
One of the things is that we have problems in our data systems. And the last credible data we have for jobs is unfortunately from 2011. Of course, it is a sad commentary on the state of our data. We will have the next good data set on jobs probably towards the end of 2018 — the NSS survey.
I already mentioned the informal unorganised earlier; a large part of the nature of employment in India will not be captured through enterprise surveys. We need household surveys. So every discussion that has happened on jobless growth, growth-less jobs, whatever it is, is slightly dated. We don’t have data. Having said that, what do we do about jobs? I think, the only sensible thing to do is to create an enabling framework for growth to happen. Because jobs are not going to be given by the government, people are not going to work for the government. You create that enabling framework, that enabling environment by providing physical infrastructure where did not exist earlier. Whether it is roads, railways, civil aviation, the judicial system, you create land markets, you provide financial products. Once you have created that enabling environment, growth will be delivered, but outside the government. It’s not necessarily going to be delivered by the private corporate sector manufacturing, because it can be quite capital intensive these days. But it will be driven by private entrepreneurship.
Q: You talked about creating an enabling environment that could mean land acquisition act, labour laws, etc. Do you think in election year, the government can afford to undertake these measures?
You asked both questions in the same breath, but I will draw a distinction between the two. Because land is entirely in the state list, and labour is in the concurrent list. Now you’re right that there is a piece of legislation in 2013, that legislation should be amended, if not outrightly repealed.
I don’t think it’s a question of the election year, because if you look at it, every year is an election year. There will be an election either at the Union government or the state government level. At the Union government level, depending on how you count, there are 54-55 labour laws, not all of which are administered by the ministry of labour, some are outside the ministry. The ones that are under the purview of the ministry, it is working on consolidating them under four cores — wages, social security, industrial relations and safety.
