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Jobs Have Happened, Privatisation Is No Panacea: Krishnamurthy Subramanian

In a conversation with BW Businessworld’s Suman K. Jha, the Chief Economic Advisor defends the Modi government’s economic report card, offering rare insights

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Krishnamurthy Subramanian, the new Chief Economic Advisor (CEA) to the Government of India, first caught the attention of the Narendra Modi government when he, as an ISB professor, stoutly defended demonetisation in various opeds. An IIT-IIM alumnus who also counts Raghuram Rajan as one of his mentors, Subramanian stands by his belief even when challenged with data and anecdotal evidence. In a conversation with BW Businessworld’s Suman K. Jha, the CEA defends the Modi government’s economic report card, offering rare insights.


How do you look at the economy’s evolution since this government came to power?
The overall economy has done really well. Based on the second revised estimates, the average GDP growth over the last five years has been 7.5 per cent — which is the highest for any government since liberalisation. And that growth has happened in an environment where the world economy has not been doing well. There are headwinds against globalisation which have affected exports.

This growth has been built to a large extent on domestic consumption. This is not just based on the revised GDP series etc. If you use the data in the ASI, which basically goes back to 1981 and therefore it is an unbroken series and you look at the growth in the gross value added, in real terms that growth has been 7.5 per cent. This data is available only till 2016-17, so once more ASI data comes up this can be checked.

Secondly, look at inflation. It’s a very pernicious tax that poor people pay. So, in 2014 the rates of inflation were 10-plus per cent. In contrast, the latest inflation numbers are 2-3 per cent. Overall, the average rate of inflation has been about 4.5 per cent over the past five years. Now this matters a lot if you think about the quality of life of a common citizen.

If you look at inflation around 2014, the real rates of interest were negative. So you had around 8 per cent nominal rate of interest and 10.5 per cent inflation, or minus 2.5 per cent real rates of interest. So we were putting in money and finding its value depreciating in terms of purchasing power. In contrast now, if you look at the nominal rate of interest which is 7 per cent and if you take 4.5 per cent as its average rate of inflation, you are looking at around 2.5 per cent real rate of interest.

The third element is jobs. The CII study that looked at MSMEs has found that there has been 14.9 million jobs created per annum and that’s a significant number. You can cross-validate that number, for instance, with the ASI.

Even the EPFO data — though it’s a subset of the overall job numbers — validates it.

So, we have had higher growth than any other government, lower inflation than any other government, jobs have been created, real wage growth has happened. I would like to point out that the key issue in India is not as much about unemployment as much it is about meaningful employment. Therefore, you have to look at wages, and you can’t just look at the number of jobs. You have to look at jobs together with wages.

One key structural reform that has been implemented is the Insolvency and Bankruptcy Code. Thanks to the IBC, NPA worth Rs 3 lakh crore has been retrieved. More importantly, the dirty dozen has been put to the process.

What is happening now is that the threat of losing control over your company is actually making a lot of borrowers repay.
The other one is GST (Goods and Services Tax). It was being talked about for ten years and yet it did not get implemented. It’s a very important reform which actually signals that India can reform even in the absence of crisis and that Centre and states can come together, bargain and come to an outcome that is actually good for the country.

To sum it up, India has seen the highest growth for any government since liberalisation; as well as very low inflation which translates into purchasing power and therefore the growth through domestic consumption has happened. The fact that you have actually jobs and wage growth is significant.

CII did put out data saying that a large number of jobs have been created especially in the MSME sector. How do you reconcile that with the CMIE data which shows an increase in gross unemployment, especially in the post-de-monetisation phase?
I have used the CMIE data for my research. The CMIE data on financial information is very reliable. The broad point I would like to make is that for financial information I would rely on the CMIE data, but I would not rely on CMIE data for other pieces of information. Because it is not very clear how they construct the sample, or collect the entire data.

You were among the few who hailed demonetisation. You’ve said that it has served its purpose. Do you still stand by it?
Yes. Policy making does not happen in a risk vacuum. For important changes, particularly path-breaking changes, risk has to be taken. GST is a very good example.

Post-demonetisation, I will give you some statistics. As many as 3,38,000 shell companies have been actually de-registered and their directors disqualified.

The growth rate in direct tax collection has been 18 per cent in 2017-18 and there has been a significant increase in the taxpayers and many of these couldn’t have happened without demonetisation happening.

Undisclosed income of about Rs 1,30,000 crore has been brought under the ambit of tax slabs. These are all excellent statistics in support of the benefits that demonetisation has created. I think this is a move in the right direction and I actually stand by that.

One of the stated objective of demonetisation was that it will be a movement towards ‘less cash’ if not cashless economy. Latest RBI data suggests that cash in the economy has in fact increased as compared to the pre-demonetisation phase. How were that objective achieved then?
As an economist I look at the exercise of demonetisation as trying to move towards an economy where tax payment is higher, shell companies are found out and business gets done in a cleaner manner. I stand by what I have said, that many of the objectives have been achieved and the benefits will accrue.

What do you think of the farm sector, farm distress, and farmers not getting enough for their produce? Do you think that the Rs 2,000 per acre goal is enough for the farm sector and for the farmers’ wellbeing?
There is an OECD study that looks at the producers’ support to farmers across different countries. And what that study has found is that India does not provide as much for the farmers, despite the talk.

As for the PM-KISAN scheme, people are talking about Rs 6,000 being ‘20 Rs per day’ etc. You have to be careful on how you actually look at this. The average income of farmers in 2015-16 was about Rs 30,000 and, hence Rs 6,000 would be 20 per cent. And 20 per cent increase is not something to be kidded about.

There is a view that real reforms are not being undertaken. What are your views on demands like privatisation of BSNL /MTNL?
I want to frame the debate properly. So we have to temper our fascination with privatisation. Look at the number of companies that have gone bankrupt — all of them are in the private sector. Look at what is happening to Jet Airways, it’s a private sector firm. Look at what happened to news that came along regarding the private sector banks like Axis Bank and ICICI Bank etc. The important thing is not necessarily about ownership but actually about efficiency. So the debate has to be framed correctly so that you can have efficient outcomes.

Take, for instance, the financial inclusion programme that was done. The Jan Dhan programme couldn’t have been achieved without the efforts of public sector banks. The important thing to frame is efficiency so rather than being too ideologically tied with ownership, the right question to ask is whether it is creating efficiency. If public sector can deliver those outcomes, then why not? Recent experience has shown the private sector is not immune to inefficiency either.

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krishnamurthy subramanian chief economic advisor