A quick summary of all the sessions that happened during Day One of the Swarajya — Indic Academy India Economic Seminar.
Between 30-31 July, Swarajya— in collaboration with the Indic Academy and Public Policy Forum of IIM-Bangalore— organised the India Economic Seminar which had sessions on specific themes of economics such as political reforms, taxation and public-private partnership.
The seminar took place at the IIM-Bangalore campus. Several participants attended the event with the attendees being from, and outside, IIM-Bangalore.
The seminar was anchored by the head of Indic Academy’s ‘Indian Economic Studies’, Dr V. Anantha Nageswaran who was also the first one to give a presentation on India’s growth prospects. Dr Nageswaran was followed by Mukul Asher, Seetha and Manish Sabharwal among others.
Speaker 1: Dr V. Anantha Nageswaran— Can India Grow?
Dr Nageswaran spoke on India’s economic growth prospects and feasibility of sustaining the growth for a meaningful period of time.
Dr Nageswaran started out by highlighting that two major ingredients that contribute to growth are missing in India’s case: primary education and women’s share in the GDP.
He suggested that the country needs more factories with the capacity to employ large number of workers. The longer they remain in business, they ought to employ more. However, this does not happen in India which is a cause of worry.
Unfortunately, most of the economic policies in India are being crafted without taking cognisance of the facts. The policy makers must make use of more concrete data before outlining policies.
Dr Nageswaran made an interesting comment on China. He observed that, for a long period, China kept its head low and did hard work playing by the international rules. Now, since it thinks it has acquired enough muscle and can frame its own rules, it openly flouts these same laws.
Coming back to India, he noted that in the last five years, exports have been declining as well as the propensity for an export-led growth.
What is more disappointing in Dr Nageswaran’s view is the dearth of important components in policy execution of areas like primary school outcomes, higher education, healthcare facilities and banking.
Although he commended the political dispensation for setting economic targets to succeed, he also felt that those in the government end up focusing more on targets rather than on the processes of how to get there.
Dr Nageswaran lamented that we are the only country that believes that the rules of economics do not apply to us because we are different from the others.
He opined that for a country of India’s size, diversity and political complexity, any fundamental reform must emerge as a top-down effort— similar to the millions of marginal revolutions that characterised China’s growth over the past three decades.
The government should whole-heartedly clasp the principle of under-promise and over-delivery. More importantly, India should stop obsessing about China. The appropriate growth strategy, in his view, is to accept five to six percent growth as the trend growth, while pursuing higher rates of growth speculatively, and change the structural deficiencies.
Speaker 2: Mukul Asher on GST— Rationale, Design And Implementation Challenges
Professor Mukul Asher’s presentation concentrated on the basis of the Goods and Services Tax (GST) in the framework of the Indian economy, and focused on the key design issues and implications for the economy, businesses and tax administration.
From the last decade, GST has been in the news for several reasons ranging from the game-changing concept in economy to the question of whether the Indian political system has the will for implementation of GST.
However, with the law being tabled in the Rajya Sabha after all the parties reached a consensus, the bill is closer to fruition than ever.
Prof Asher started by saying that, on the evolution pyramid, the GST is the most complex and at the highest level. In his view, GST will better the accounting standards in India and will also be a huge competitive advantage for the country.
He tried to counter the narrative prevalent in the intellectual circles regarding the nature of the GST. It says that the GST will be regressive. Prof Asher doesn’t think so. He said that the GST will, in fact, reduce the regressiveness of the current Indian tax system which is a remnant of our socialist economy, and favours goods over services. Until 1994, our lawmakers didn’t even think of taxing services. Today, service taxes are growing faster than excise collections.
Prof Asher believes that India’s GDP will expand by 0.1 to 0.3 percent in the next three years on sustainable basis. This is his hunch and not based on any economic model.
But he also warned that the GST rate should not only be grounded on ramping up revenue but how competitive it makes our system in the world. The Organisation for Economic Co-operation and Development tax average is 18.7 percent. The GST rate beyond that would hurt India’s competitiveness.
Professor Asher expressed his dissatisfaction at the fact that, in the GST draft bill, the exemption for the North East state was lower instead of being higher. He also suggested that the draft bill needs to improve the transition phase as it has not been addressed extensively in the draft bill.
Prof Asher finished his presentation by saying that it is very important that the Indian tax officials change their attitude. Unless things change on the ground, merely passing a law won’t help improve our tax system.
Speaker 3 : Vivek Dehejia on the rise of anti-globalisation, India’s export challenges and export strategies going forward
It is an era of anti-globalisation as is evident from the Brexit vote and the rise of Donald Trump. Some might think this trend is new but it isn’t. Mr Dehejia said that the difference now is that it’s been presented in a new language.
He informed us that the last major bout of protectionism rhetoric in the U.S. took place during the 1992 presidential election when we heard the same arguments on protectionism from a group of economists and Bill Clinton, the campaigner, as we are now hearing from Donald Trump. Of course, the language was different then.
The academicians debated on the culprit behind the loss in jobs (or wage stagnation) in developed economies and vacillated between the technology, the nature of new jobs (capital intensive/skill intensive) and the international trade for a definite answer.
Trade economists, Mr Dehejia argued, have done a poor job in explaining the case for free trade. On an aggregate, free trade is good for the economy but Mr Dehejia noted that there are both winners and losers in the game, and the latter has to be compensated. No credible economist will ever say that free trade has been always good for everyone, he said. That’s never been the case.
The Trump phenomenon, he explains, is fuelled by blue-collar workers who believe that their wages have stagnated because of the free flow of labour and trade across the borders. The free trade economists, instead of accepting the fact that the losers need to be taken care of, have swept these arguments under the rug for years.
However, Dehejia cautions that the debate in the U.S. about free trade and the same in India should be not be seen with the same lens. While the priority of a developed country should be to bridge the inequality; in a country like India, the priority should be to focus more on reducing poverty. The fixation on losers in the U.S. is welcome but we shouldn’t be distracted from our goals.
Dehejia closed his remarks by saying that while India shouldn’t be bothered by the proliferation of anti-trade sentiment, it mustn’t also mindlessly accept the call for harmonisation of standards. For instance, he argues, it would be disastrous for India to accept U.S. intellectual property norms for our level of development. He said that we should think about our strategic national interest instead of reacting defensively, when it comes to free trade.
Speaker 4: Seetha on the Direct Benefit Transfer (DBT) pilot in Chandigarh and policy lessons we should learn as we go forward
Seetha started by speaking about Nandan Nilekani’s report on Direct Transfer of Subsidies on Kerosene, LPG Fertilisers. She mentioned that even though the then UPA dispensation was on socialist drive there were some good initiatives that were taken. They were:
- Kotkasim pilot on cash in lieu of kerosene
- Delhi government Annashree Yojana
- DBT in lieu of LPG (Liquified Petroleum Gas)
- Direct cash transfer in 51 districts from 1 January 2013.
But these initiatives were confined to welfare payouts. They had limited success due to problems of targeting, Aadhaar coverage and banking infrastructure.
Seetha then mentioned the Modi government’s initiative of reviving the DBT in LPG through the Pahal scheme and initiating cash transfer in the public distribution system. She stated that although pilot programmes have been initiated in the union territories of Chandigarh, Puducherry and Dadra & Nagar Haveli they are not working well on the ground.
In Chandigarh, she said that the problem lies with the National Food Security Act (NFSA) itself. She wondered why the administration is not being too rigorous about checking the eligibility of the applicants falling under the NFSA.
After explaining the entitlements decided by the NFSA, she went on to cover the design and operational glitches. Primary among them was the shutting of 93 ration shops from 1 September last year which left 25,000 people, who are not covered under the NFSA along with those without Aadhar cards, without any rations or cash.
In some cases, even registered people are not getting cash or subsidised rations. The reason in many cases, Seetha explained, is the “Information Asymmetry”. Most people are not aware of enrolment drives, the categories they fall in, the amount decided and the date of payments
All these are angering the public who are now looking negatively at the government’s DBT programme. Going forward, she suggested that the focus should be on beneficiary convenience— not just savings for the government. And, instead of a uniform policy, the government should ensure that no one is left behind.
She concluded by listing the following operational changes for Cash-Benefit Transfer:
- don’t start without full preparation
- sort out issues with the Plan Scheme Monitoring System (PFMS)/National Payments Corporation of India (NPCI), Aadhaar seeding, BCs/micro ATMs
- grievance redressal mechanisms must be effective
- political management/effective communication
Speaker 5: Manish Sabharwal on the challenge of creating 50 million jobs in the next decade and how to achieve that goal
Manish Sabharwal is the founder of Teamlease, a leading recruitment consultants, human resource outsourcing and staffing company.
Mr Sabharwal said that the kids who come to their job fairs, organised in small towns, would have landed jobs long ago if they were in Delhi or Mumbai. So, the trick is to chose one’s parents carefully, he added— with a tinge of humour aimed to sting.
Mr Sabharwal said that when he went to the U.S. for higher studies, he was constantly asking himself how come the Americans, who are not smarter than him, are much richer. Maybe there is something wrong with the system? He said that poverty is about productivity which is embedded a level above the individual. It is in the institutions, infrastructure, education and the environment. He made a case that poverty is about the “infrastructure of opportunity”.
Mr Sabharwal says that all kids are not going to study at IITs, IIMs, Wharton or Harvard. The millions of kids who are entering the job market today need to be employed. This is an emergency kind of a situation.
In the political imagination, he notes, we have always taken the jobs to the people. What we need to do is to take the people to the jobs. Mr Sabharwal makes an interesting point: aperson getting paid Rs 4,000 a month in Gwalior wants Rs 18,000 in Mumbai, for the same amount of work. His productivity doesn’t increase. But that’s the cause of urbanisation. This is what we need to address from a policy perspective.
On the criticism of Make In India, Sabharwal says that the programme is not about taking the workforce share in the manufacturing to the level of China, which is 31 percent, but to increase it from the current 11 percent to maybe 20 or 25 percent. What we have today is not right. So, that needs to change— be it through Make in India or make for India.
Mr Sabharwal noted that half of India’s workforce is self-employed. Of course, that doesn’t mean we have a entrepreneural gene. The majority of them cannot get a job so they are self-employed in lower-end jobs. India’s problem is not a lack of jobs but lower wages. Our unemployment rate is below five percent. The problem is that most of people aren’t making enough money to come out of poverty. So, self-employment here is not a feature: it’s a bug.
Mr Sabharwal said that we have around 63 million enterprises in India but barely 10,000 have a paid up capital of more than $1.5 million. The former figure doesn’t mean anything when the majority of the firms are not growing bigger to contributing substantially. That’s the difference between China and India. China has a lot of babies that grow into adults (small firms that expand into big ones) while we have a lot of dwarfs.
Of course, Mr Sabharwal said, the reason is not cultural but has a lot to do with the “regulatory cholesterol”. The environment is simply not hospitable for the small firms to grow.
Mr Sabharwal’s biggest problem was with the education system. The latest Right To Education (RTE) Act confuses a “school building” with “building schools”. We need a Right to Learning Act, he implored. Schools provide a strong foundation. Things that are learnt in 12 years cannot be imparted in just six months. Also, the link between education and employability is missing in higher education.
He concluded by saying that India shouldn’t compare itself to China. Our nature is not to be either hot or calm but consistently warm, and there is nothing wrong in that.
Speaker 6: Narayan Ramachandran Chairman, Inklude Labs spoke on “Last Mile Challenges & Opportunities in India’s Economic Decision Making”
Indian policy makers should view the customers and public as their goal, thus, justifying the term “Last Mile”.
Mr Ramachandran mentioned that Indian policymakers are always in an “output vs input” mode. In his words: “The RTE act is a classic example of input thinking. Forget about outcome thinking, this is not even output thinking.”
Most of the policy formulation starts from a think-up mode where expert commissions or committees come up with a formulation based on best practices.
He mentioned that policy makers draft rules with the view of how a fraudster works. Even tweaks that are done to the policies are done in an ad-hoc manner. That is often the reason for some of India’s complicated policies. In his view, one of the worst policies formulated in post–independent India was the Foreign Contribution (regulation) Act, 2010. (FCRA)
Mr. Ramachandran then went on to explain “Information Assymetry”, the Problem-Driven Iterative Adaptation (PDIA) of Lant Pritchett and even reflected on the view of Daron Acemoğlu that a country is not poor if its institutions are doing well.He then went on to say that there are Macro Economic Last Mile Challenges
and Micro Economic Last Mile Challenges. The latter should focus on two issues:
i. The ease of doing business
ii. How easy is it to conduct business?
This is because achieving ease of conducting business is much more difficult than achieving ease of doing business.
Mr Ramachandran concluded by stating that every policy should come with a death date, because many schemes that don’t work often get extended for an infinite period of time.