Impact Of Demonetisation And GST Is Now Behind Us: Rajiv Kumar, Vice Chairman, Niti Aayog
The worst is behind us, says Rajiv Kumar, vice chairman of Niti Aayog. In a candid chat with Mahua Venkatesh, Kumar says that focus must be to invite Chinese FDI in a big way to address the skewed trade deficit between India and China. He also underlines the need to address the rural sector. An excerpt:
Prime Minister Narendra Modi delivered the inaugural speech at the World Economic Forum (WEF). How do you think his address would have been perceived by the world community?
Kumar— it was a fascinating speech, delivered in Hindi peppered with Sanskrit. The PM highlighted India’s strength and dynamism while underlining the fact that our traditions are not archaic, they are, in fact, very much in tune with the modern global ethos. I would rate it 8 or 8.5 on a scale of 10.
The PM spoke against economic protectionism. Is the world community speaking in one voice on this issue?
Kumar—Absolutely. Interestingly India and China are also now speaking in the same voice against the rising force of protectionism. This gives a huge sense of hope and if the two economies can find common ground to converge, the centre of gravity will be further pushed towards Asia.
The other highlight of the speech was to give an open invitation to foreign players to come to India to invest. This underscores the government’s focus on the Make-In-India programme.
How do you see the competitive dynamics between India and China playing out? What should our response be?
Special attention must be given to foreign direct investment (FDI) from China to ensure that the skewed trade deficit is addressed. The thrust must be to invite the Chinese to invest in India so that jobs are created, which is crucial. For example, China is one of the world leaders in the sphere of solar energy. Why not invite the Chinese companies that deal in solar energy to come here and invest. This will help us in moving further towards using clean and renewable energy, which is the need of the hour, while creating employment opportunities.
A lot is being spoken about the current economic scenario. What is your view?
The impact (problems) of demonetisation and GST (goods and services tax) is now behind us. More importantly, the souring of the investment sentiment, which started in the last three years of the UPA, is also behind us. The ill effects of the reckless lending by the public sector banks that took place during that period, which led to a crisis-like situation, is also now sorted out with the recapitalisation plan in place.
Now we also see an uptick in credit off-take. Earlier the credit off take from public sector banks was low due to the high non-performing assets (NPA). Now that will be addressed as they get recapitalised. But at the same time, if you look at the credit off-take from private sector banks, it is very healthy. Besides, there is a record mobilisation of corporate bonds and a record IPO (initial public offering) this year. Financial mobilisation for capacity expansion has started by the private sector. And given that the government has hiked up its capital expenditure things have started looking up and the worst is behind us.
What are your growth estimates for the next financial year?
We bottomed out in July (last year) at 5.7% (GDP growth rate in April-June). That was the lowest part of the business cycle. Now the CSO’s (Central Statistics Office) advance estimate indicates that GDP growth will be at 6.5% for 2017-18, which means we are doing 7% (growth) in the second half. Investment cycle is looking and this will continue. Besides, consumption demand is also up.
Given all this and what I mentioned earlier, the International Monetary Fund’s growth projection of 7.4%, for the next financial year, is an underestimated figure.
My estimate is 7.5% to 8% in 2018-19 and then on it will be even higher. It will be 8% plus and that will be sustained. Cleaning up of the economy and significant improvement in ease of doing will push economic activity and growth in the next many quarters.
While there were concerns of a jobless growth, a recent study indicates the situation is not as gloomy as it was being made out to be. What should be done to create more jobs?
A recent study by Ghosh and Ghosh (Pulak Ghosh of the Indian Institute of Management and Soumya Kanti Ghosh, chief economic adviser of the State Bank of India) estimates that 55 lakh jobs have been created in the formal sector in 16-17. I absolutely buy that estimate. I have seen their methodology. In fact, I think the figure will be higher and I will tell you why. The distinction between formal and informal has become very blur in this country. For example, where will you put Ola or Uber or Amazon? They have created lots of jobs but whether they are they being reported is something that needs to be seen. Or even the hospitality industry, for example, the delivery boys. So the job scenario is not so bad. And that is the reason why there is no general unrest or violence in the society. The protests are about getting better quality jobs.
How do you provide that?
That too will happen. As investments pick up, the quality of jobs will improve. Besides, we need a much bigger focus on exports and tourism. Also, I feel that more than skill development, we need to focus on apprenticeship. You need to have many more apprentices. It is also important to modernise agriculture and agro-processing industry to create a larger number of jobs on the interface of the two.
What are the challenges in 2018-19?
Rural distress is for real. We have to raise rural income and this is crucial. Then, exports. India has to shift to an export-driven strategy. Exports are treated as a residual activity and get over the fear of depreciating currency. There is a global recovery and we must be able to cash in on that. Fuel prices are another area of concern. Sooner we get petroleum products under the GST ambit, the better it is and the tax burden will be mitigated. Greater efficiency and more attention need to be given to the banking sector, though a lot has already been done in that area.
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