Congress lacks convincing arguments against GST Bill: Bibek Debroy, NITI Aayog member (Exclusive)
New Delhi: Bibek Debroy, the renowned economist who is presently the member of NITI Aayog, is of the opinion that Congress is avoiding a debate on GST Bill in parliament because the party lacks convincing
State of Indian Economy
Q: There is a viewpoint that the Indian economy has fallen flat? Congress leader Anand Sharma says that the government has just changed the methodology of calculating GDP. According to him if the same yardstick is applied to the last two years of Manmohan Singh rule then the economy is at the same level and there is no actual growth. As an economist, can you tell us what is the ground reality?
Bibek Debroy: There is absolutely no question that the new GDP series is far better than the old GDP series. It conforms much more with international practices. In case of new GDP series, the sources of data are also different and this makes it difficult to compare new GDP series with old GDP series.
Whether you use the old GDP series or the new GDP series, there is no question that the growth has improved. You may argue, legitimately, that the growth should have been higher but if anybody is arguing that there is no growth then he or she is factually incorrect.
Let me point out that amongst the many changes that the new GDP series does is to change the measurement from ‘production' to ‘consumption'. So when you find that the growth is happening at 7.5% then it is telling you that this growth is not necessarily in narrow corporate sector manufacturing. Most of the time we say that growth is not happening, we are looking at a very small slice of that which is corporate sector manufacturing part.
Q: Was this new GDP series a necessity or the government has just introduced it to show better growth?
Bibek Debroy: The govt doesn't bring about a change overnight. It has been in the works for a very long time including when UPA was in power because as I said earlier, it conforms better to the international practices. The IMF, for example, whenever reported India's GDP numbers in the past, it has done so more or less in conformity with this current practice. Most countries in the world follow this practice.
Q: As it has been pointed out, exports have gone down, agriculture is not doing well. Do you think it's a moment of crisis for Indian economy?
Bibek Debroy: I wouldn't use the word ‘crisis' because as I said we are still growing.
So far as exports are concerned, the world economy is not doing that well. The world economy is not going to recover in a hurry. So the ‘exports being down' is part of life for next few years. We have to live with it.
But let's talk about the domestic economy. Domestically, to my mind, there were three main issues that plagued the Indian economy.
The first one was investments that was not picking up. That problem is over now because there is every sign that public investments are going up and give it another two quarters, I am certain that the private investments will also go up.
The second crisis (if we have to use that word et al) is more a symptom than a disease and it's the burden of Non-performing Assets that public sector banks are stuck with. It's a huge sum of money. It's not simply a question of pumping in money to recapitalise the banks because the reason why public sector banks are stuck with these is not something that we have been able to solve.
The third one is, of course, agriculture and rural sector. These sectors are in a bit of a distress and the government is working out a plan to revive the agriculture including the inputs provided by the NITI Aayog. So, I'm hopeful that will be over. In other words, what I'm saying is that I have a feeling that 2016-17 will be a better year also on agriculture and the rural sector.
Q: What about manufacturing sector? The kind of investment that we were expecting is perhaps not coming. I have a data that says that although overall FDI increased by 14% between Dec 2014 and April 2015, manufacturing still remains an area of concern and it will also impact the employment for unskilled workforce which is in large numbers in India.
Bibek Debroy: Yes, manufacturing sector remains an area of concern. By clubbing employment with it, you are actually asking two questions.
Most of the times, when people say that the manufacturing is not happening in the country, they look at credit off take from banks.
However, the data suggests that increasingly, the private investments are being financed out of internal resources. They are not necessarily being financed by banks. So If I look at credit from banks, that is probably a bad indicator.
Let's also recognise that there are problems connected with land acquisition, clearances associated with environment, forest etc and there are time lags. Manufacturing investments will begin, I think, from 2016-17.
Coming to your question of employment, it's a slightly different issue. Do realise that most of the modern manufacturing is today capital intensive. So the direct employment generation that will come from manufacturing is not very high.
The indirect employment generation may be higher, may be 2-3 times the direct employment.
So, to solve the problem of employment, we'll have to look elsewhere other than the narrow manufacturing sector. It'll have to happen in not so much in conventional agriculture but in agro-related areas and service-sector related areas, outside the narrow manufacturing.
Q: Agriculture also remains an area of concern. Distressed farmers are moving out of villages to urban areas. According to a study, over 23.3 million Indians left farming and moved over to towns from 1991-2011.
Bibek Debroy: There is a long list of agricultural reforms that have to be introduced. Agriculture does not mean food grains only. There is diversification, commercialisation that can happen. There is horticulture, aquaculture, animal husbandry etc.
You are absolutely right that people are moving out. The productivity levels are very low but it can be increased very easily. And purely labour moving out of agriculture is not the problem.
The problem is that the necessary agricultural reforms are not happening and have not happened sufficiently. Many of these are state government subjects and there is a long list of that. And then there are issues of infrastructure, public expenditure, financial markets in agriculture, land markets etc.