Poverty has fallen in every state: NITI Aayog V-C Arvind Panagariya

NITI Aayog Vice-Chairman Arvind Panagariya insists that growth rate will touch 8 per cent mark soon.

By: Express News Service | Updated: December 20, 2015 8:06 am
NITI Aayog, Arvind Panagariya, NITI VC Arvind Panagariya, Planning Commission, Narendra Modi, GDP, economic growth, MNREGA National Affairs Editor P Vaidyanathan Iyer (left) with Arvind Panagariya at The Indian Express office. (Source: Express photo by Tashi Tobgyal)

Why Arvind Panagariya

In August last year, Prime Minister Narendra Modi announced that the Planning Commission had become redundant, and handpicked Arvind Panagariya, the Jagdish Bhagwati Professor of Indian Political Economy at Columbia University, to head the organisation in its new avatar, the National Institution for Transforming India or NITI Aayog. Since then, he has cut the size of the institution, ensured greater play for states in policymaking, and is aiming to make it a hub for sharing ideas that promote cooperative and competitive federalism. However, he has his task cut out now — to push large projects, turn NITI Aayog into an independent think tank and prod states to implement reforms independently

Watch Video: Arvind Panagariya Speaks On Indian Economy, NITI Aayog & The Changes

P Vaidyanathan Iyer: Since taking charge as vice-chairman of NITI Aayog, what are some significant changes that the organisation has seen vis-a-vis what the Prime Minister initially announced?

The first fundamental change in NITI Aayog was that this was in effect a recognition that India is now a market economy. We are now moving towards a system which would be more in the spirit of our approach to economic policymaking. Now as we go beyond that, there are a number of directions that can be taken as far as the NITI Aayog is concerned.

In the last year, the one important change that we have introduced is to resize and restructure. So when I joined, the institution had about 1,250 positions, of which about 800 were filled. So a downsizing was done, and we now have about 500 employees in the institution. There has also been a restructuring within the institution and we have divided the staff into two hubs — one is the Knowledge and Innovation hub, and the other is called the Team India hub. Team India hub largely interfaces with states because cooperative competitive federalism is one of our important mandates. Knowledge and Innovation hub is going to have about 12-14 verticals which will deal with different sectors.

Arvind Panagariya at The Indian Express office Arvind Panagariya at The Indian Express office

We have also tried a different approach in our relationship with states. The relationship under the previous institution (Planning Commission) was kind of unequal, because the institution gave money to states and became the ‘giver’ and states became the ‘recipients’ of the money. This made the relationship unequal. Now, we have a more equal relationship, which is reflected well in different ways.

There is a very good example of the equality in the relationship (between NITI Aayog and states). (On February 8, 2015) the Prime Minister appointed three sub- groups of chief ministers for making recommendations in three important areas (centrally sponsored schemes, skill development and Swachh Bharat).

On centrally sponsored schemes, this was the first time that states got control of what the schemes would be… and these would be executed in states. (The sub-group was asked to study 66 centrally sponsored schemes and recommend which to continue, which to transfer to states, and which to cut down.)

Swachh Bharat and skill development are of great importance to the Prime Minister, but how we execute these should also come from states.

All the three sub-groups have now reported and we are trying to work out the modalities on how the funding arrangement will be set up between states and the Central government (for the centrally sponsored schemes). At a recent meeting, we tried to basically get ministries to agree that we need to have a clear mechanism, clear the picture by February as to how much money each state is going to receive under the centrally sponsored schemes. This will help states go back and plan their contributions and access to the schemes.

We have also rationalised the schemes from about 66 to 30, and for each of these 30 schemes, states will be informed what their likely share is going to be. There will also be flexibility to move funds across sub-schemes within each major scheme.

P Vaidyanathan Iyer: In the last one year, the economy has been struggling to cross the 7-8 per cent growth mark. During this time, there have also been discussions on interest rates. Do you think we need to further cut interest rates to boost growth?

First, let me say that the economy is recovering. Last year, that is 2014-15, saw a growth rate of 7.4 per cent and in 2015-16, in the first two quarters, we have 7.2 per cent growth. So I think the economy has recovered. I have not been one of the doubters (of the growth figures). As an economist, I, of course, always look at things sceptically first, so that I can go back and check whether what was done was done correctly. So the average growth rate for the first two quarters was 7.2 per cent. I am personally predicting that by the time we get to the fourth quarter, we will have a growth rate of 8 per cent. So growth wise we are doing well. Could we do better? Yes.

Before the last cut in interest rate, which was 50 basis points, I had said that the cut has to be between 50 and 100 basis points. So, there is room for further cuts in interest rates. Also, there are two ways to answer the GDP figure issue. One way to approach the problem is, is there anything wrong with any of the changes that have been made? Do the changes represent data-wise improvement or are we going backwards? So I looked at each one of those component changes that were made with respect to manufacturing, services etc, and I came to the unequivocal conclusion that there is nothing that they (the government) have changed which did not represent an improvement in methodology.

So it gets you back to the other question… that people say it doesn’t feel like (that there is an increase in growth rate).

But one source of discomfort for some is the fact that inflation, and particularly wholesale price inflation, has been incredibly low. Now the profitability depends on the nominal and not real GDP. Your earnings depend on nominal not real GDP.

The other major factor I would point to is that when the government actually inherited the economy, there were several sectors which where truly in very bad shape and bailing them out was not in anyway an easy task.

So there was a healthy part of the economy which could come up relatively fast — like auto and auto parts, machinery sectors… some of the service sectors are doing well. But there were some sectors that were really suffering, starting with construction, steel, infrastructure, all of them were having a harder time. This was because the fortunes of these sectors were tied to the fortunes of banks, and the banks’ ability to give extra loans and credit was tied to the cleaning of these sectors, and that has been tougher. Often it is the sectors that are not doing well that make the most noise. As a result, voices of the sectors that are doing well and succeeding are simply not heard.

P Vaidyanathan Iyer: Do you think there is a need to review or revise the monetary policy framework?

The present monetary policy framework was adopted just around the time I had arrived in New Delhi. So technically it happened after I came, and I was not a part of the discussions that led to the framework. I think we have had a good start and now that we have an experience of about a year, we can look at reviewing or revisiting (the monetary policy framework). Maybe we will stay with the current framework for another year or two and then experiment more with what we have, maybe we will want to revise it, but I think it is something that we ought to take a look at.

Harish Damodaran: Some very indicative sectors like compressors, industrial turbines, boilers… these give the real signals of where industrial production is heading. So when you talk to companies which are in this business, apart from say steel and cement, there are no signs confirming the 7-8 per cent growth rate. Is there a credibility issue there?

Where is the credibility issue? The statistics are being collected and the estimates are being derived from the actual filings of the companies. So it is an aggregation of the filings of the companies to the Ministry of Company Affairs. I would argue that you actually are going by anecdote. The data that is being analysed is much wider and far more representative of the economy.

Udit Misra: In the last one year, what makes you think that the government has essentially done the right thing in countering excesses that were there since 2009 onwards?

First of all, clearly there was a paralysis. It first originated in the Environment Ministry, then spread to individual ministries and then there was the problem of intermediary ministerial conflicts which were not resolved by the Prime Minister’s Office or any empowered group. So all that had to be tackled and is being tackled.

It was necessary to clear some projects — you can look up and check — but largely I think a lot of this clearing up happened under the present government.

That was one thing. Then purely in terms of the signals to markets… we are moving back to reforms. The insurance sector has opened up. In the defence sector, the FDI has gone up from 26 per cent to 49 per cent. There were a lot of issues related to the ease of doing business and it showed up in the latest rankings (India jumped 12 places to 130 in the World Bank ranking, October 2015) too. I think it is going to show up in a much bigger way in the next round for two reasons — first a lot of these readings were taken by the World Bank before many of the changes had been introduced and secondly the readings are from Delhi and Mumbai, which are not the most advanced when it comes to ease of doing business. Delhi, in fact, ranks very poorly in our own government rankings. Mumbai, as part of Maharashtra, ranks a bit better.

With respect to labour laws and land acquisition, the government has certainly proceeded. So things will change, a number of things have actually happened and, of course, don’t forget that one of the major reforms that was announced in the Budget — at least initially I was the only one talking about it and now you see more references to it — was the bankruptcy law. It was a very important reform that India needs. That will be a major step forward.

Sandeep Singh: When do you see the growth finally getting reflected on the ground in terms of job creation and corporate investment?

I expect the growth rate to touch 8 per cent by the fourth quarter of this current fiscal year. Then steadily I think we will move up further.

See when people say that investments are not doing well, they are probably not referring to the growth rate of investment. Those are two different things, but in the case of investment what really matters is the level of investment. I mean it will be nice for investments to also grow, but certainly the level is far more important.

Prasanta Sahu: What about the major thrust areas in the upcoming budget to further boost growth?

It is a bit early for me to say that as the discussions will now begin. I can maybe tell you a little bit about one of my favourites though… the Prime Minister has this programme called Sagarmala (project to develop port infrastructure) which he says is not about port development. He wants port-led development.

What happens in India is that we try to simultaneously develop every pocket of the country, which could lead to the problem of dilution of resources. So we could think in terms of creating some sort of coastal economic zones. The coastal economic zones would right away put the focus on the export markets as well. Because the big markets are essentially export markets.

To give you an idea… today our economy is worth 2 trillion dollars and if you think in terms of goods output, we are just less than a trillion. The world export market by itself, the merchandise export market, is about 18 trillion, in which our share is only 1.5 per cent. China has a share of about 12-13 per cent. But given our labour force of 500 million workers and with 10-12 million workers joining every year, we have a lot of scope to capture the merchandise export markets.

Harish Damodaran: The already developed states are getting more projects. What happens to poverty then, which is largely concentrated in the rural areas?

There has been a significant decline in poverty in both Uttar Pradesh and Bihar, in fact in every single state in the last 15 years. The kind of poverty decline that happened between 2004-05 and 2011-12, did not happen in 50 years in India. What do you attribute that to? Agriculture did okay, but it is not an agriculture story. The story is that the economy grew faster than any other time in the history of independent India. It is a growth story in the end. And do not forget that it was on the back of very rapid growth that we could actually build a whole MNREGA programme.

The public distribution system could be expanded and the National Food Security Act could be brought in to cover 75 per cent of the population, precisely because growth made those resources available. We managed to implement the Sarva Siksha Abhiyan effectively and convert it ultimately into a Right to Education Act in 2009. I remember the constitutional amendment had already been made in 2003. Why did it take till 2009 (to be implemented)? Simply because growth had not happened in India, and revenues were grossly inadequate to actually, truly implement it (the Right to Education Act).

Santosh Tiwari: Are there enough funds to execute the jobs that PM Narendra Modi wants you to do?

We are very well-funded. The area where the funding is very different is in terms of what the Planning Commission used to give states. Should NITI Aayog have some money? Yes, so that we can give it to states. Some money would be useful to introduce economic reforms in states. In this way, states can be incentivised to carry out reforms. The Planning Commission sat in judgment of states, saying, ‘Hey, this is a good project, I will fund this, and hey that is a bad project and I will not fund it.’ And states lined up for this. I don’t think that was a particularly inspiring model.

Parth Mehrotra: There have been some apprehensions about the old export-led growth model. Economist Jahangir Aziz has talked of the need to focus more on consumption than export-led growth. How would you respond?

Chinese have no difficulty in making for India. In fact they are making for everybody, why can’t we?

Parth Mehrotra: But do we have the skills for such manufacturing?

In 1980, if China had said the same thing, it wouldn’t have been where it is today. You need to get started, rise up and start running. Otherwise we can keep making excuses and complaints, saying ‘pehle aap’. The mindset has to change. We have got 1.5 per cent of the export share in the world market today and 17 per cent of the population. It would go a long way if, in six to eight years, we could aspire and get from 1.5 to 5 per cent on the world merchandise export share.

Udit Misra: How do you see the recent Fed rate hike, beyond its short-term impacts?

I personally don’t think that there will be any kind of shock to the Indian economy as a result of the Fed rate hike. Today, the economy is robust, the processes are in place, our foreign exchange results are significantly larger and the general policy has now been to intervene in foreign exchange market as opposed to the summer of 2013, when you saw a major impact on the Indian rupee.

Transcribed by Pooja Khati & Pallavi Chattopadhyay

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  1. V
    Jan 21, 2016 at 4:44 am
    So don't close your eyes and ume its all modi.
    1. O
      Dec 20, 2015 at 2:12 am
      Now a days, interviews are not sought by media. The interviewee calls the media and asks to be interviewed. In return the media is paid lavishly. Arbitrary BD Panagariya's is one like that.
      1. A
        Dec 20, 2015 at 10:38 am
        So the credit goes to 65 years congi rule or BJP government ??? Please mention. Debit goes to Congi and credit goes to Bajpi by default .
        1. I
          Idikkula Nair
          Dec 20, 2015 at 7:45 am
          It is hearty to know that Poverty has really come down in one year under the able administration of Modiji.
          1. A
            Dec 20, 2015 at 10:09 am
            Ha ha ha. What does Niti ayog do anywy? Doctor data? We know Gdp data are a fudge, dressed up by changing the method of calculation. No international organisation data indicate India is any better today than before. The Modi bombast and lies repeated down the line?
            1. H
              Dec 20, 2015 at 2:18 am
              the media should report all these things, but they are not reporting this and going behind sensationalism
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