‘Next Year, We Should See More Disinvestments’

Many say, Arvind Subramanian is the finest Chief Economic Adviser to be working with the Ministry of Finance. Known for speaking his mind, he recently said in a lecture, economists don’t come out with divergent views. In an interview with BW Businessworld’s Suman K. Jha, Subramanian says that job creation certainly remains a priority for the Narendra Modi government, even as he lists his concerns and priorities for the next two years.

Edited Excerpts:

The government has been in power for three years. How do we assess the economic situation? Where do we stand compared to the situation in 2014?
In 2013, India was considered a part of Fragile Five and we were on the verge of a financial crisis. If you look back, a number of very important things have happened. The government has established really solid macroeconomic stability; inflation is down to below 3 per cent; fiscal deficit has been coming down. In some ways, the basis for all that you do is to have macroeconomic stability and that is the foundation for all good that can happen.

India is now the fastest growing major country in the world. Not only it is considered a safe place, it is also a considered a place where opportunities are huge.

There are 4-5 really big changes. One is in the sense of corruption, in terms of a clean government and transparency. There is a sea change brought about by the government.

The other thing is decisiveness of the government. The government has a number of really big reforms. Some of the big reforms like GST is going to be implemented. We have the whole architecture of JAM (Jan Dhan, Aadhar, and mobile connectivity). Financial inclusion and easier access to credit, all that has happened. Opening up of the economy to FDI has happened. Other legislative things such as bankruptcy, Aadhar Bill and other legislative changes have happened.

Do you agree jobless growth is one of the biggest concerns today?
Job growth is always a challenge for every government. The most immediate policy action relates to twin balance sheet challenge. If we can get private investment growing and credit flowing from banking system again, then we can revive the economy to the point of actually getting more rapid job growth.

Is there any timeline to fulfil the promise that was made?
The government has done well in recent elections. So, people seem to be happy with what the government is doing. The government will continue on its path of reforms.

Six months have passed since demonetisation. Have all objectives been met?
I said in the Economic Survey that it is going to be both short-term costs and long-term benefits. We set clearly what would be the markers of success in the long run. These assessments have to be made over a period of time.

We had set three markers of success: a) Are we going to get more taxpayers? b) Are we going to increase digitalisation? and c) Are we going to get less cash in the economy? These assessments are going to be made in the next couple of years. Some of the early signs are encouraging but we will do all the analysis.

We have to produce a document in a couple of months. Costs are behind us. Cash has come back in the system. The gains are not going to show immediately but over a period of time.

Why is there so much of ambiguity over the industrial growth rate? Central Statistics Office puts it at 8 per cent, the new IIP pegs the rate of industrial growth at 5 per cent and old IIP at 0 per cent?
Before the new IIP series came out, the discrepancy between what the national income accounts said and what the IIP said was very different on manufacturing. With new IIP, that divergence has narrowed from 8 per cent to 2.5 per cent. New IIP is giving us better data on organised manufacturing data than the old IIP. New IIP series is what we have to look at very seriously.

Does it concern you about the reliability of our data?
I have always said that the notion that we somehow manipulate the data is complete nonsense. We have a credible and strong statistical ministry. In the last few years, because of some developments, our methodology has led to questions but these are more technical issues that need to be resolved. New IIP has gone some way towards addressing these discrepancies.

We have a very strong rupee and exports are rising. Are you concerned that an appreciating rupee could affect exports in the longer run?
It is a matter of concern. We have to be watchful about it. Some of the export sectors such as pharma are feeling the pinch. At the moment, it is being offset by the world economy, which is picking up, and we have to be very watchful to not let the rupee appreciate too much.

We have seen less demand for bank loans. Does that somewhere indicate a slowdown in the economic system?
It indicates that private investments is challenged. If you look at the loans to the consumer sector and agriculture sector, that has been reasonably doing well.

What can be done to encourage private investments?
We have to resolve bad assets in the corporate sector, clean up the banks and then get the machinery and credit flowing again.

What has been the biggest challenge in terms of implementing economic policy?
The government has tried to do a lot of things. Key challenges are banking, job challenge and private investment. These are things we have to work on, on an ongoing basis.

The government says that it has framed its policy not based on a five-year plan but a 10-year plan. What is in the pipeline for the next two years?
The kind of implementation for GST rollout will be big, sorting out the banking system is big and JAM infrastructure is being developed. All this will work itself out and, at the same time, the government is talking about strategic disinvestments also.

The government has been talking about disinvestment, but on the ground level, all that has not been happening at all. Niti Aayog has been talking about it. Do you think there is a case for disinvestment that has been talked about?
Niti Aayog and the disinvestment ministry have a plan and they have to implement that plan. They are very keen and active to implement and let us see to it that it gets implemented next year. We should see more disinvestments next year.

In the Economic Survey, one of the key issues was universal basic income. It was highly debated, and do you think in the next two years, this is an idea whose time has come?
We said in the Survey that this is an idea whose time has come for serious discussion. Let’s see how the idea is received. Maybe some States will take up and implement at the State level and that will be good. It is still is a good idea, it has some challenges and we have to phase down some existing schemes. But maybe the States will be able to do that.

Economic Survey is one of the most readable documents that we have. It has been prescribed by universities, all due to you...
I am going to create a course on it. More universities are adopting it as textbook. We are going to organise a workshop along with the HRD ministry. I am going to do 14 modules of presentations and surveys so that teachers can use that more effectively as a resource for the students.

I am very keen that one should make all these things accessible to as many people as possible. It has to be comprehensible to all people. We want more students to be involved. It is also about making public policy accessible, comprehensible. These things are to be done in a democracy through citizen participation.

In a recent lecture, you said that economists don’t speak their mind. What triggered this thought?
It is just observing it over a period of time. There is a range of opinions before key decisions are taken, but range of opinions shrinks after a decision is taken. Usually they say that if you ask three economists, you get four views, but in this case, it turns out that you ask 100 economists and you get the same view. More discussions and debates should take place.

What is the biggest economic challenge that we could face in the next two years?
We have to create more growth, more investment and more jobs and that is, by far, we have to do including public service delivery, access to health, education, building public infrastructure and reducing cost of doing business. Main objectives are rising standards of living for everyone, inclusive growth, and achieving that is important.

GST rollout is from 1 July. Is there a case for a single rate maybe at 18 per cent in the long run, instead of having multiple rates?
That should be the aim, going forward it will be one rate or fewer rates. Now, we have 5-6 rates, both in the goods and services. But over time, we should certainly strive to rationalise it, to make it cleaner. There are lot of benefits from that, like less corruption, less misclassification of goods and services, more efficiency of collection and you can get more resources, which can be plunged back to the economy.