Rural Distress, Unemployment A False Narrative: Rajiv Kumar, VC, Niti Aayog

Niti Aayog was one of the policy initiatives of the Narendra Modi government. The body came up with a host of consultation papers and policy prescriptions for the government – something that was keenly followed and discussed. As Narendra Modi rakes oath for the second term, the Vice-Chairman of the Niti Aayog, Rajiv Kumar, in an interview with BW Businessworld’s Suman K Jha, dissects the current economic outlook, and lays out what could be an apt economic agenda for the new government.

Excerpts:

What do you make out of the verdict that the Modi government has got?
I think it’s an incredible verdict. For me personally, it’s much bigger than what was expected. Instead of any anti-incumbency, it turned out to be a pro-incumbency vote -- which reflects the fact that the people of this country have reposed a huge amount of trust in the prime minister. They have declared that they believe in what he says, they believe in what he stands for and they also believe that he will improve the future, their own future, in the coming years.

A very large number of people have been directly and tangibly benefited from the better delivery of services and better delivery of schemes and projects that the prime minister has launched.
There are the several examples that you know of, and I think to that extent the verdict also has placed enormous responsibility on the incoming government to not just continue with that delivery but also improve all aspects of the economy and make sure that there are sustained improvements as you go along.

What do you think are the economic challenges for the new government?
I think the biggest economic challenge in the long-term has to be a high rate of growth which must be attained for a sustained period of time, so that it also generates significant enough employment, enough good quality jobs for our young population. But that’s in a broad long-term sense. The immediate challenge is, of course, to make sure that the economy does not get into any kind of a downward spiral, and the evident consumption and investment weaknesses are overcome, and you put the economy back on track towards an increased GDP growth. That’s clearly a challenge which is significant.

Some would say that the economy has already taken a downward turn -- after a few quarters of growth we saw a slump…
Yes. As I said already the downward shift in economic growth as well as in consumption and private investment has to be reversed. And then whatever needs to be done, needs to be done to sustain higher level of growth. In fact, what I would want to say that the time now is to put the economy on a higher growth paradigm. It is easier said than done because, you know, some people will argue that if you can even sustain 7-7.5 per cent rate of growth in GDP with macroeconomic stability you are doing quite well. Why should we bother? My own understanding is that this may not suffice for meeting the aspirations of our young population. So you have to take extra measures.

In the last five years, you have already put in place a very strong foundation to be able to do so, which is that you have already undertaken a number of significant measures like the GST, IBC, RERA, like the expansion of direct tax net…

If you were the FM, what would your prescription to revive the economy read like?
On reviving the economy and finding the means to do so without breaching the fiscal balance -- that’s a tough task and, I think, therefore I would focus very much on ensuring that all the disinvestment targets, and the projects in the pipeline are completed as soon as possible. That will give me the fiscal space to do other things. Then I will focus laser-like on banking sector reforms. Because I do want the banking sector to play a much more proactive role in pushing up growth. Here, I’m armed with the statistics -- the private debt to GDP ratio is about 54 per cent. In China, it’s 105 per cent; in the US is 205 per cent. And this low private debt -- which includes both corporate and household debt -- is reflective of not sufficiently robust access to capital in the market. I would have to rectify that.

The second step would be to lower the cost of capital. I have to look carefully at the overall public sector borrowing departments. The third step would be to work very closely with the Department of Commerce to get the exports engine going.

Finally, I think I would want to ensure that private investment picks up in a major way and therefore whatever needs to be done there will be done. More importantly, the agro-processing sector -- where growth has been abysmal at less 1 per cent, needs to be pushed.

And if you can have that sector grow, it connects directly with your agriculture sector and its modernisation and higher income to the rural families and farmers which then shores up your consumption demand. And finally, my serious effort would be to break the logjam in the real estate sector.

Some in Corporate India feel that the Modi government, in the first term, focused on the welfare state, and now they should focus more on reforms. So do you think that they are mutually exclusive, or do you think that’s the need of the hour?
Surely, they are not mutually exclusive. If your reforms are not going to improve the living standards or the ease of living of our people they are not worth it. It’s a different matter to say that okay, some reforms have that welfare enhancing impact in a slightly longer term with a lag, as it were, but if there are reforms for the sake of reforms, then they are a non-starter. There is no ideology. The only objective that you have is to improve the lives of people.

In the first five years, we were trying to overcome all the huge negative legacy that we inherited and that took a bit of doing. At the same time the PM bit the bullet and took some very fundamental reforms like the GST, the Insolvency and Bankruptcy Code etc.

On demonetisation – yes, I’ve been a great supporter of DeMon. You needed to give a strong signal that corruption is no longer a part of the game and we need to clean up this economy. I think all of those are very big decisions, but the PM did that trying to get over the legacy of all that we inherited... you know, NPAs, and scams and governance, policy paralysis, etc. Now the time is to focus much more on growth.

But some sectors like auto, for instance, are seeing a slump not seen in the last nine years. Do you think that requires some kind of impetus?
I don’t see what kind of impetus you can give. I don’t know whether all autos are in the 28 per cent (GST) bracket. In the auto sector my understanding is that availability of credit is an issue.

But the two-wheeler market points to a larger rural distress. No?
Distress is the wrong word. After the latest verdict, you cannot say that there was widespread rural distress and unemployment. All these narratives have been defeated by the people. You wouldn’t have got that kind of result if there was widespread distress. I think that’s one thing that you should write about. That’s been a false narrative. Yes, as I said earlier, there’s emerging consumption weakness that has to be overcome by, you know, a greater dose of capital expenditure by the government and also the private sector.

Don’t you think unemployment and underemployment are the most prominent crisis facing the economy?
I just answered that one -- it’s a false narrative. Why would the young people vote for Modi otherwise? Employment is happening. This is what the Niti Aayog has been arguing for a while, that there is employment but not the kind of employment that young people want. It’s the quality of employment that needs to be improved much more.

We have to attract much higher volumes of FDI. You have a situation where the per cent ratio of FDI to GDP has declined from about 3.5 to 1.7 or 1.6 in the last five years. You can keep saying that you know, we’ve got $60 billion worth of FDI vs $30 billion five years ago etc. But the fact remains that we are only the tenth largest FDI recipients in the world. Why should we be the 10th largest? And why should we be satisfied with that?

At the moment, given the fall in corporate profits, given the huge debt burden, which we’ve seen in the private sector, there doesn’t seem to be sufficient capital.

What is the alternative? The alternative must be to attract a higher volume of FDI, and in the government there is emerging clarity that FDI is a necessary part of our growth strategy at the moment. That will help the employment situation improve a lot. With higher amounts of FDI, you also bring more technology in – that’s the need of the hour.