The agenda for India set by the highest and most powerful think tank of the country suffers from several weaknesses opined Prof. J.D. Agarwal and Prof. Aman Agarwal, Economists and Professors of Finance, Indian Institute of Finance in a comprehensive article published in the latest issue of Finance India, Vol. XXXI No. 3, September, 2017 issue released recently. It does not identify goals and also constraints. Any agenda in the short run or medium or long run can be of no meaningful purpose if it does not identify goals and constraints. Leaving long term vision to be done at the IInd and IIIrd stage is not justified. Vision and goals in the short run i.e. for the next three years has to be defined first, priorities assigned and constraints to be taken care of. Otherwise the whole exercise is not of much use. The agenda and the estimates do not give the methodology used e.g. in chapter 3 and 4 the agenda of expenditures in the next three years is given. How has it been worked out, is not spelled out. On page 16 it states that due to uncertainty in the implementation of GST, estimates cannot be given while the GST has already been implemented on 1st July 2017. To fulfil the Action Agenda how much funds and other resources are required have not been spelled out either.
NITI Aayog has also not included in its agenda, the possible implications and estimates of GST, the most important indirect tax reforms of independent India. Its estimates and effects on revenues of central government, State Governments for the next three years and the actions required to tune GST opined Agarwals. GST is likely to have positive effects on the life of people, trade, industry, inflation despite temporary disruptions and problems faced by traders.
According to Agarwals, any Action Agenda either for a country or for a firm or even for an individual has to be in quantified form setting up achievable goals through systematic and logical goal setting and assigning priorities and financial and resource implications. UN millennium goals could have been a good index for determining the agenda in the quantified form. NITI Aayog Agenda has been prepared taking into consideration very well informed opinion of various experts from different fields. Research findings of various specialized Institutions or universities on which government of India has spent crores, could have been of great help. Instead of suggesting to follow China, Singapore or some other countries solutions adopted in some of the countries which have been successful in achieving targets in some of the sectors, could be of immense value. For instance, Japanese PM Shinzo Abe rolled out a comprehensive approach to the Japanese economy lost 10 years summarizing three policy arrows i.e. aggressive monetary easing, flexible fiscal policy and structural reforms to raise potential growth.
NITI Aayog should have identified goals set with the requisite financial implications and government and non-governmental efforts. Traditional view held since independence that the government is the sole authority to achieve growth and development and marginalizing peoples’ role and participation in the process has to have new look. There has to be clear departure from the incremental approach of the past. It should be more towards stimulus than adjustment. Government should act as facilitator than provider or obstructionist.
Various parameters based on the PM’s vision and the emergent needs of the economy should have been identified opined Agarwals. Some of the parameters could have been macroeconomic aspects of dynamic and growing India. The present status and the targets of various parameters should have been stated on the very first page of the Agenda. Some of these could be Growth rate; fiscal deficit; revenue deficit; increase in the income of farmers and other marginalized people of the country; Tax GDP ratio; reduction in unemployment rate; increase in the Growth of various sectors, elimination of diseases, reduction in mortality of children, women and India’s sovereign rating and all those parameters taken into consideration by successive finance commissions from time to time.
The NITI Aayog has ignored completely banking and financial sector and reforms needed urgently. Government’s efforts to have as many as 30 crore bank accounts under Jan Dhan Yojana opened in the last 3 years as part of financial inclusion is admirable. However, Banking reforms to strengthen banking free from NPAs and tuning to the need of capital adequacy ratios as per BASEL III norms are urgently needed. Prime Minister Modi’s call for cashless economy or less cash economy lays greater focus on increasing role of banking, insurance and financial sector in India. According to some estimates Banks NPAs amounting to ` 6,14,872 crores, risen up from 2,16,843 crores by 135 percent in the last two years together with inadequate Capital Adequacy Ratio posing a serious risk to the profitability and solvency of banks. Indian banks will need additional capital of US $ 65 billion to meet all of global Basel III norms by March 2019 with Public Sector Lenders accounting for 95 Percent of the requirements. It is far above the US $ 11 billion in capital infusions in the public sector banks which the government has budgeted through March 2019 with US$ 3 billion due to be injected in the 2017-18 and 2018-19 fiscal years.
According to Agarwals, the chances of a massive cut in the poverty rate in the upcoming decade are excellent but too optimistic. The attempts to remove poverty or reduce poverty have been made by successive governments since the election winning slogan of Mrs Indira Gandhi in 1971 while the latest trends indicate that inequalities of income and wealth have widened and large number of farmers are committing suicide due to poverty. According to OXFAM Study (PTI, 2016), India’s richest house hold one percent now hold a huge 58% of the country’s total wealth. The study further shows that 57 billionaires in India now have same wealth (US $ 216 billion) as that of the bottom 70% population of the country.
One million Dollar question is how would the objective of poverty reduction in the next three years achieved ask Agarwals. The exercise is limited to the central government. Most of social sector schemes are handled by states. Even the expenditure proposals for three years are additive in nature rather than based on goals and priority based which have been very well outlined in the last three budgets presented by Finance Minister, MrArun Jaitley. NITI Aayog ignored suggesting Direct Tax Reforms, which are badly needed keeping in view the change in economic conditions and government’s mission. NITI Aayog has however, very well recognized the government’s efforts in implementing the sound and stable fiscal strategy stating that during the past three years (2014-15 to 2016-17).
NITI Aayog has very well identified the priorities to education, health, agriculture, rural development, defense, railways, roads and other categories of capital expenditure but should have given ordinal or cardinal ranking to these priorities so that meaningful results are achieved but all of these cannot and should not have equal priorities.
IIF and its professors through various studies and International Conferences hosted after 1994 have made numerous suggestions for Financing of Agriculture some of which have been matched with various policy decisions of the Government of India in the form of Kissan Credit Card and Corporate Farming.
NITI Ayog has given very useful suggestions for the agriculture and the rural economy. Most of these as part of Action Agenda are being implemented for a long time but could not give desired results. It can be validly expected that an out of the box innovative proposal should have been made to achieve the mission of the Prime Minister to double the incomes of the farmers. Heavy doses of capital investment and Extensive agriculture reports needed in the agriculture sector opines Agarwals. Banks are shy of financing tools, equipments, technology, seeds, fertilizers, etc. in the agriculture sector as the small and fragmented farmers do not have any reach to senior bank executives and the ways and means industry adopts.
According to Agarwals, it is surprising that NITI Aayog has shown satisfaction to the unemployment rate of 5% and 8 % and shown a concern for under employment. Its proposal as Action Agenda is far from being practical. Unemployment in India and also in the rest of the world is a matter of serious concern. It requires to be handled innovatively. A proposed agenda on action required generating employment and also do away with under employment as well as disguised employment. Indian labour is highly immobile due to its social structure. Creating well organized large size organization in India is a difficult task. Government’s focus on “Make in India” and “ease of doing business” despite government’s best efforts have not yet taken off. NITI Aayog has failed to recognize the contribution of Small Scale Industries / MSMEs. Agarwals feel Goods & Service Tax (GST) might help in this aspect by removing obstacles/obstructions due to tax policy & restrictions placed by states.
NITI Aayog also ignored the role of SSIs. SSI plays a major role in India’s present export performance 45% – 50% of Indian exports is contributed by SSI Sector. Besides direct exports, it is estimated that SSI Units contributed around 15% to exports indirectly. MSMEs contribute more than 37 % of GDP with total employment in the sector is over 805.24 lakhs according to Agarwals.
NITI Aayog favouring export based strategy over import substitute strategy look quite impressive but not appropriate. For instance, Indian firms are not able to compete with Chinese or other firms dominating Indian markets due to their cost advantages, India needs to focus on low cost high quality products to compete both in domestic and international markets. Appropriate cost control measures through the use of technology avoiding abnormal wastages and controlling material cost, labour costs and overheads. India needs to follow up “be Indian buy Indian products” in the domestic markets. A spirit of Nationalism needs to be awakened. How would Indian firms be able to be successful in competing internationally? In such circumstances if export based strategy fails and import substitution strategy abandoned, India would face serious trade deficit.
Niti Aayog focusses on facilitating urbanisation in the country not realizing that urbanisation has its own problems. Niti Aayog could have spelled out Action Agenda for smart cities and also smart villages or village clusters. Smart cities is close to the heart of Prime Minister Shri Narendra Modi. Driven by the need for education, health care, and income the rural population is migrating to urban areas for better opportunities, often meeting with despair. This further contributes to urban poverty as well leading to stresses and societal turbulence. The rural areas of the world have unharnessed resources, potential, youth and traditional skills. They have to be encouraged to add value. According to Dr. A P J Abdul Kalam,we would need to evolve sustainable development systems and deliver in an entrepreneurial manner. The need of the hour is the evolution of sustainable systems that act as enablers and bring inclusive growth and integrated development to nations of the world. One such sustainable development system is the mission of provision of urban amenities in rural areas (Pura) by creating three connectivities : physical, electronic and knowledge, leading to economic connectivity. The villages must be connected to themselves and to towns by good roads and wherever needed, by railway lines. They must have other infrastructure like schools, colleges and hospitals. This is physical connectivity. once physical and electronic connectivity are enabled, the knowledge connectivity is enabled. That can facilitate productivity, knowledge, healthcare transparency and access to markets.”
There can be no two opinions on the balanced growth as advocated by NITI aayog what is new in this suggestions questions Agarwals.. Industrial Policy Resolution 1956 and setting up of Central Public Sector Enterprises was to remove regional disparities and balanced regional growth and development. Some of the attempts made by the government in this direction are praise worthy.
NITI Aayog silenced about the financing of these projects while Financing part cannot be ignored and the effects of harnessing Energy and its uses, having direct effect on sustainable growth, climate change and sustainable development. The challenges faced in this sector include physical capacity constraints, severe modal imbalances and a lack of holistic planning, maintenance and safety. According to Agarwals, equally important challenge is the capital investment outlays, adopting technology and reducing vast scale corruption, time and cost overruns which NITI Aayog has not considered. The Action Agenda discusses the Digital India campaign and the actions related to enhancing digital connectivity. But it misses out on the effect of innovations, on disruptions, transformations, financial inclusion, Banking and Digital Dividends.
NITI Aayog has very well identified various aspects to bring about reforms in Civil services. However, it has not touched the sensitive area of lack of accountability and corruption. According to Agarwals, people deserve delivery of service. There is a need for Citizen Charter. Even after 70 years of India’s independence there has been barely any change in functioning style of bureaucracy. The Government has already began very well to identify non performing civil servants and taking action as well as rewarding those who during their career performed / performing well. Proposal for an outcome budget for central government, ministries & departments is welcome.
Niti Aayog has however maintained silence on financing strategy of elections and stopping misuse of money, power for elections to be free and fair. Very useful suggestions have been made for curbing black money in the economy by the government particularly demonetization, implementation of GST- two most transformative and revolutionary steps besides many others which are at different stages of implementation like seizure of benami property and confiscation of unaccounted assets according to the study.
Implementation of GST will have several positive effects on the economy, despite disruptions in the short run. However some of the Challenges before GOI for GST are – Implementation is a Big Challenge; Cash Transaction to be done away : Not to Evade GST; India has been a Cash Economy; Social Fabric, Established Systems and Access to Information; Digitalization Risks due to Cyber Security; Bank Risks (Charges Levied; Dominance Position Behaviour); Concerns over Governmental Control and Money Laundering.
However, objectives outlined by NITI Aayog on taxation policy and administration are not in the right direction. The objective outlined missed the most important objectives of maximising tax revenue incomes both from direct and indirect taxes with minimum burden to honest tax payers. Other important objectives of tax policy are macro economic stability; generating employment; maintaining sustainable growth; managing inflation; equity and justice; facilitating international competitiveness, of the economy, reducing regional imbalances etc. The equity and justice to tax payers minimizing the scope for generating black money and tax evasion or tax avoidance. Government has taken some effective steps in this direction. NITI Aayog confuses between Tax Incentives, Tax Exemptions and subsidies.
It appears that more than a century old laws and procedures designed by British (Aliens) to rule i.e. Indians in British era require legal reforms urgently opine Agarwals in their article. India is now bestowed with some of the best and learned judges in the World as well as some of the top lawyers matching international standards, who can help introduce changes in laws and procedures in tune with the present situation in independent India. At present there are 2.54 crore cases pending in around 17000 subordinate courts across the country of which 22.76 lakh cases have been pending for more than 10 years, according to the latest statistics from National Judicial Grid despite the proactive measures adopted by the High Courts in making the justice delivery system responsive and effective. Huge pendency in courts has resulted in large number of undertrials languishing in jails for longer than the sentence they would have served if convicted. According to the government’s estimates two-thirds of the country’s prison population comprises undertrials. It has a cost to the nation and denial of justice to the undertrials as well as litigants. As it is widely believed – justice delayed is justice denied. According to Agarwals, this requires serious attention as part of Action Agenda for next three years to provide relief to undertrials and litigants. Adoption of technology , modernization, adding human resource and training with human face is the urgent need shedding away British (Aliens) way of handling Indian Citizens.
NITI Aayog on education and skill development has done a good thinking and outlined the action agenda. However, it failed to appreciate its contributions and also its constraints. India’s pitiable education infrastructure particularly in the past, has still been able to give world, a large number of the leading educators, scientists, engineers and doctors. It also failed to appreciate the problems of this sector. Poor infrastructure, low salaries of teachers, over regulation, lack of autonomy, low priority sector for the government, low allocation of funds both by centre and state, low quality of teachers / professors due to low salaries, lack of commitment, non merit based appointments etc high level of corruption for approvals and recognitions are few concerns which needed attention but ignored by NITI Aayog. New Central Universities have 53.28% vacancies followed by NITs with 47%. Even various age old prominent Universities like Aligarh Muslim University (AMU) has 20% with 55 of 195 sanctioned posts for professors lying vacant besides post of 110 Associate and 160 Assistant Professors are vacant against sanction strength of 390 and 1040 respectively. Delhi University recorded a total of 54.75% vacancies against permanent positions. Central universities in Haryana is recording under 75.11% vacancies. The situation in IITs and IIMs and other central government and state government funded institutions/Universities is no better despite easy availability of funds from public exchequer. In such a situation how do we expect high quality of education and research?