State-wise targets are important because once you drill down at that level, then things can actually take shape rather than just talking in air, says Rajiv Kumar, VC, Niti Aayog, in an interview with ETNOW. Fixing infra deficit, cost of credit, labour reforms and exchange rates can give Indian economy a competitive edge, says Kumar.
How do you propose to revv up India’s growth engine?
States have to be given separate targets. India is a diverse country with states of different size. For example, Maharashtra has a $400 billion economy today. They can say we want to double it or we want to reach one trillion in the next five years or something. Look at Tripura. It is a $36-billion economy and they can think of becoming a $80-billion economy. Look at the diversity in our country. The state-wise targets are important because once you drill down at that level, then things can actually take shape rather than just talking in air, so that is one.
You talked about the possibilities and he emphasised exports a lot because our share in merchandise trade is 1.67% and has been stuck there forever and ever. Now China has risen to about 13%. Even if we double or triple our exports, and which is easily possible, then from $300 billion, they again become a trillion and why shouldn’t they? Their share of exports to GDP has actually fallen in the last few years. The exports is a huge possibility. The other very big one is agriculture. About 43% of our workforce is engaged in producing less than 18% of our GDP. It just shows that there is a massive potential for improvement in productivity and profitability and commercialisation of agriculture.
I will touch upon the two issues of agriculture and pushing exports in the economy but since you are saying that states should be given specific targets, is that really a case for bringing back the five-year plans?
No not at all. One, the states will not be given the target. He is encouraging the states to adopt themselves because given the diversity of our country, from Tripura to Maharashtra and from Kashmir to Tamil Nadu, no “one size fit all” policy will ever work.
Each one will have to determine its own set of strategy. It has to be tailor made and this is what Niti Aayog has been trying to do which is work its development partner for each state and then be grounded in their reality. The five-year plan, the Planning Commission exercise consisted of them projecting things and creating targets which no state ever took seriously.
There is simply no reason for bringing that back because one, we need to have the cooperative federalism which Niti Aayog is pursuing and competitive federalism. The one way to get the states going is what we are trying to say, “let us see how competitive you are in agriculture or in tourism”, things like that. The last thing here, for Niti Aayog to get this rate of growth, we need out of the box ideas. We need cutting edge ideas and that is the job of Niti Aayog and that job is a very critical one because that is the area in which by presenting the new thoughts and new ideas and then getting them implemented in the line ministries, a higher rate of growth can be achieved.
A lot of questions are being raised by the Former Chief Economic Advisor Arvind Subramanian where he said that GDP methodology could have led to an overestimation of 2.5 percentage point. How do policy makers like you navigate through numbers like these then?
One, I wish Arvind had taken cognisance of these numbers when he was in a position to have done something with it; two, just one number for you which is the tax-GDP ratio. The taxes are collected in cash and then you calculate a GDP ratio. So if your cash is the same because that is actual number, then with 2.5% GDP down, the tax to GDP ratio will go through the ceiling. Now how does he explain that? So that is the second part. The third part is look most of the time, policy is not about very precise numbers but it is about direction.
For example the manufacturing sector is about 14% of a GDP. Now it is too low compared to other peer countries. So you want to encourage that and the policy will try to do that. Same in agriculture. So we need the statistics of the highest quality. We are committed to doing that in the coming period and I think you will see action on this front quite soon.
When you are saying we will see action, can you specify for us?
I cannot possibly do that but I think you will have to wait for a little while.
Is there a change in the methodology, some kind of panel being set up?
Let us wait and see.
Since there is a need to push manufacturing and exports, how should one be making India more competitive?
See one thought earlier had been that if India was to enter into bilateral and regional trade pacts, the so called comprehensive economic cooperation agreements which we have signed with several countries, that will in some sense drive the change.
But in terms of our overall competitiveness, quite clearly things have not worked and. We need to go back to the drawing board and answer your question. There are four key drivers here; one is the infrastructure deficit. If there are companies who have to generate their own power or have to construct their own roads or industrial sheds, they will not be competitive. So that is one part of it.
As you can see, in the last five years a huge amount of attention has been given and for example, the power situation has improved enormously. So, that is the infrastructure part.
The second part of course, is the cost of capital. The cost of capital is inordinately high because given the inflation rate at which we are borrowing, this very large segment of a small and medium enterprises is actually borrowing at a much higher rate than formal credit. It is in some sense the access to credit which is an issue now and even more perhaps than the cost of credit. We have to resolve that and I am sure our very competent colleagues in the RBI will be tackling this because that is their realm.
The third of course, is labour. The Ministry of Labour has announced that three or four codes will bring together 52 or 53 different laws including industrial safety and others altogether and that will clarify a lot of issues.
The last big issue of competitiveness is the exchange rate and it goes without saying that if even if you do all of this, if the exchange rate is not in line then you can defeat some of the other efforts. The government now clearly recognises this. There is focus on it and you will see that these factors will be transformed and Indian economy will become more competitive.
This meeting of the NITI Aayog also happens to be around the same time when the prime minister announced that there is going to be a specific committee looking at the issue of the economy…
No, on the economy. I am talking about the committee that is going to be headed by Nirmala Sitharaman as well as Amit Shah. There is so much focus on the economy. The prime minister is talking about a $5-trillion economy. Can we expect movement on these issues happening in the next say 100 days? Are there any low hanging fruits there apart from the labour law that will come?
I am sure there are several and there is also a fair bit of action in the making. You should wait for the 100 days to be unfolding before you. Let me not take away your excitement.
NITI Aayog would be forming a task force on agriculture. A lot of people are saying that if you repeal or mend the APMC Act and the Essential Commodities Act, it could lead to a lot of middlemen becoming stronger. How will you look at addressing those issues?
The suggestion that was made there came from quite a few chief ministers as well. The idea is not to repeal but to replace it with the APLM Act (Agriculture Produce and Labour Market Act). That still gives you a framework in which the farmer can transact his business but also gives the farmer the freedom to take his or her product to wherever and whichever part of the country he wants and to sell it to whoever rather than to the registered traders under the APMC.
So the idea is to replace it because in Bihar which repealed the APMC Act, the experience has not been the best. There is unanimity on this one and this will happen. The second part of this is…
Is there a timeframe for it?
We have asked them to give us a timeframe and we will follow it up but there was not any agreement during the meeting itself.