Shubhendu Parth | June 24, 2015
The road ahead has many possibilities and Niti Aayog has to define many. In an interaction with Shubhendu Parth, Aayog’s member Bibek Debroy speaks about economy and issues before the new organisation:
What is your assessment of the current economy?
I think there is a question you have asked and there is a question that I deduce that you have asked. There is difference between the two. ‘How the economy is doing’ means either we are evaluating it in terms of the growth or in terms of inflation. The inflation numbers are very respectable now. As far as the growth numbers are concerned, we have changed the method for estimating GDP – not just the base year and the change from factor costs to market prices, but the sources of data also have been changed. Therefore it is difficult to compare the old GDP numbers with the new numbers.
However, I do not think anybody expected that the GDP growth will miraculously jump 9-10 percent overnight. It was not supposed to happen. It will not happen. The answer to your other question is that no one in the government, certainly not the prime minister, ever said that everything will be achieved in one year. It’s a five-year term and therefore at the end of one year if you ask me whether everything has been solved I will say everything has not been solved. But we never expected everything to be solved in this period either. We expected the beginning to the process and that has certainly happened.
But people want to know what has been achieved in one year and whether the economy is being steered on the right track to attain the transformation that was promised.
You are mixing up the two issues. I had avoided using a specific GDP number as this will lead us into the methodology issue since the GDP estimate has changed. But to give you some sense of the development let me use the old GDP number. Before this government came to power the growth was about 5.5 percent. On the same parameter (old) the growth this year will be around 6.5 percent. However, what does this growth indicate? Does it mean more jobs are being created? That is too early a question to ask. Are new investments happening? I will argue that you can see some intentions of new investments. But what is significant is that the investments that were stuck in the pipeline are now materialising because of speedier clearances.
It’s the numbers again. Where can the citizen see the real change?
Roads. It is something where the change (improvement) is clearly visible. Roads are clearly becoming better and I think we all can now see it. The trouble is that people expect to see bullet trains immediately. You won’t see bullet trains tomorrow. In fact, the problem is not with the government’s delivery but with expectations that are always far out of proportion to what can be delivered. The most visible thing, however, is the inflation number. But again people cannot distinguish between drop in inflation rate and prices. Drop in inflation rate means that prices are still increasing but at a lower rate.
While talking about the real change, it is important to understand that this government has come to power in Delhi and there are several things that are the subject of the state governments. Make in India cannot happen in Delhi. It has to happen in the states. Therefore, things have to change at the level of the states. Besides, there are several things in a democratic and parliamentary system that have to go through a legislative process. So you cannot have a situation where suddenly land legislation or MGNREGA gets changed or GST gets implemented. It doesn’t happen overnight. Many of the things this government has started doing are part of the long-drawn processes. There are several executive level things that have changed. For example, the streamlining of the decision making process. Investment projects that were stuck in the pipeline have now been unblocked. Coordination across ministries and departments is the other important thing that has improved. Integration of the beneficiary database using JAM (Pradhan Mantri Jan Dhan Yojana, Aadhaar and mobile) is another big initiative. The decision to implement 14th finance commission recommendations is another big step. This will give state governments the power to determine what kind of centrally sponsored schemes (CSS) they want. These are all beginnings of the process and yield results in a longer term.
But there seems to be a lot of confusion on the funding pattern of the centrally sponsored schemes? Is there clarity at the policy level on this?
The 14th finance commission report has said that the distinction between planned and non-planned funding should go. In another words, it has said that there should be no centrally sponsored schemes. More importantly, it has also recommended that 42 percent of the divisible pool of resources should go to the states in the form of untied funds. However, the commission did not contemplate a transitory mechanism for the intermediary period of switching from the present to the new mechanism. Since there was no clarity on the new mechanism this would have led to a situation where all central government fund flow to the states would have got stopped from April 1 this fiscal. So the finance ministry decided to continue funding nationally important category ‘A’ schemes according to the existing formula (of the central-state share) and 50:50 in category ‘B’ schemes that were to be transferred to the states.
This is purely a temporary arrangement until the sub-group of 11 chief ministers decides on the number of schemes that they want the government of India to support and in what ratio. The sub-group is also supposed to take a call on the special status states and will actually recommend how the union government should spend the money that is available with the nation after deducting the amount that the country needs to meet certain obligations and expenditure including those for repayment of loans, defence, national highways and the likes. This is for the first time the chief ministers are actually deciding which schemes they want. This is more of a federal structure than ever.
When is this expected to be finalised?
The report will not be available till the end of June after which it will go through the usual route of being submitted to the prime minister who is also the chairman of the NITI Aayog. Once the new mechanism is rolled out it will overtake the present temporary arrangement.
By allowing the states to choose their priority, is the central government not ignoring the overall development agenda? eGovernance for example, was put under CSS as NeGP so that all states can become digitally equal. How does the government or NITI Aayog plan to handle this?
Whatever is the issue, the bottom-line is that there isn’t an infinite pool of money available with the government and so prioritisation has to be done. You might say that eGovernance is important. But is eGovernance more important than health? That is the question to ask. Since we can’t have everything, it is the chief ministers who will decide what is more important for their states and I don’t see any particular reason to assume that the chief ministers will not arrive at sensible decisions.
You had raised seven questions on setting up of the Niti Aayog. Structurally and functionally have those concerns been addressed?
Those seven questions have now gone out of the window because the recommendations of the 14th finance commission have already addressed them, particularly the issue of directly transferring the central funds to the states without requiring the intermediation of any ministry or a planning commission-like body.
So how is NITI Aayog different from planning commission?
NITI is supposed to do several things. It is a think tank, though not in an academic sense, but in terms of the research that has policy relevance. It is a store of data and a repository of good practices across states that we will disseminate for adoption and replication in other states and departments. We also are a bit [more] activist than the planning commission in terms of our links with the union ministries and the state governments. We are different from the planning commission in two ways – one, we are not involved with five-year planning and resource allocation, and two, no money goes through us. Besides, a key role for NITI Aayog is to map various public expenditure schemes against various development indicators – human development indicators, doing business indicators across states – with the objective of determining whether the basket of programmes are leading to improvement in outcomes. In the process we may recommend new schemes or tweaking of existing schemes.
Things seem to have settled down at the Aayog now. Are there any challenges?
One of the biggest challenges at hand, at the moment, is to make people understand what NITI Aayog does. This is something I do all the time. However, an organisation like NITI does not begin to function only because it has got some members. It needs the regular staff and the advisors. Also, you may or may not want the staff that you have inherited because the environment is different. So you need to get people from outside – both from the government and outside the government. We need about two more months to complete this process. Until then we are not ready as an organisation to deliver much. Secondly, in this altered environment, where no money goes through the Aayog, a big challenge will be to make states listen. In another word the issue is how to make NITI Aayog relevant.
So how is the NITI Aayog addressing the second challenge?
We need to look it from the perspective of the recommendations made by the 14th finance commission. Since 42 percent of the fund is going untied to the states, a particular government may decide to use it for productive purposes while another state may fritter it away for salary purposes. No one has any control. However, the only control that is relevant is that sooner or later the voter of these states will punish misgovernance and reward governance. That is the only answer. They will demand that the money be used. They will demand that a state finance commission be set up and there is further devolution of funds within the state to municipalities and local bodies. So one of the key things that we will be doing is to share the best practices and, without using the exact term, also the worst practices which we will disseminate. And there is no reason to presume that it does not work.
Who will disseminate this information? Will it be NITI Aayog or the respective states?
Dissemination (of information) is a very important component of our role.
And what would be the mechanism for dissemination of this information till the grassroot level?
The electronic route is the easiest and the cheapest and we will be sharing a lot of information through our website. However, what has not been decided is what printed form it should be or what grassroot interventions will be made. But we are very clear that until we decide our priorities that would be based on the recommendations of the chief ministers’ sub-group and the report of the task forces on poverty reduction and agriculture, we will not spend money on any such programme.
Do you see NGOs playing a role in this?
If you are referring to this because of the few recent incidents, I will say we need to be careful. There are NGOs and NGOs and just because there is a friction between a few NGOs one should not tar all NGOs with the same brush.
The UN Economic & Social Survey of Asia & the Pacific inclusiveness index ranks India 14th among 16 countries in the region. As an economist, how do you look at the situation?
Personally, I am against all indexes. This is because there are a large number of indicators and different countries, states and individuals perform differently on each of these indicators. To create an index one needs to assign weightage to these indicators and aggregate them. While the variables and the data are easier to defend, the weightage are always subjective in nature.
Will the task force on poverty reduction also measure poverty and redraw the poverty line?
The task force is yet to submit its recommendations and till then I cannot share NITI’s view on it. The poverty line as it has been defined is based on the data from the national sample survey (NSS), which comes out with large sample data every five years. In 2015 what am I going to do with data till 2011? Also, NSS is a survey, not a census, and it does not tell me whether one is rich or poor. It tells me what percentage is poor. This is completely irrelevant. Poverty also is multi-dimensional. One may be poor from the point of view of consumption, but one may or may not be poor from the data that whether you have a house or do not have a house. In other words, there are multiple indicators under which people can or cannot be called poor. So what is the point of aggregating and getting a single number? It is completely irrelevant from the policy purpose. I hope NITI does not produce the single (poverty) number.
How are you planning to improve the quality of data collection?
Ideally we would want district-level data and we have a bit of a problem with the quality of this. At the state level we have decent enough data that is not too bad. But there is still some variation in the state-level data. For example, while we have decent data of school education, the data from the health sector is a big question mark. The prime minister would like us to work upwards; part of the planning that we are now doing is using the bottom-up approach instead of the earlier top-down approach. So now we are going to aggregate data upwards. The prime minister has already indicated that he wants us to gather data village upwards. This is a long haul. What we are trying to do now is take a stock of all the data sources and then try to figure out how it can be improved, both in terms of quality and timelines. But the real concern is the health data.
A lot has been said on the report on railway reforms, and there is still a lot of confusion around it. Can you decode it for us?
There are three most important elements of the report. One, there is a need for commercial accounting. Unless the railways have commercial accounting they won’t even know the costing is the rate of return on investment. Secondly, railways also needs to do HR cleaning-up because today they are managing it in silos. The other important recommendation is to set up an independent railway regulatory authority.
The private sector entry that is being talked about is not something that we have suggested. It already exists in the form of private freight operators and private passenger trains (on paper). Private production of wagon is already happening. This is not something that we have proposed. Instead, we have just recognised the policy.
The report also proposes change in the composition of the Railway Board, bifurcation between Railway Infrastructure Corporation and the rest of IR, and end of railway budget in five years. How will this work?
The unbundling was not meant to happen today. It was meant to be a terminal goal. Similarly, there is no legal requirement of a railway budget. The day railways starts functioning according to the commercial principles it will not really matter how the company prepares its budget. It is a company’s internal thing and does not need to be presented in parliament. All that is required is the relation between the union government and the railways, including communication on the gross budget allocated to it, the reason for the budget allocation and the dividend, if any, being paid by the railways. It should be like any other PSU with one paragraph in the overall budget.
Are there Vedic management lesson that can be used by the government and the NITI Aayog on managing the socio-economic affairs of India better?
The message of Vedanta is that you are irrelevant – neither you nor I can affect the world. In the economic policy also, one should realise that they cannot influence anything and so there is no point sitting in Delhi and wanting to affect things. Instead, one should leave things to the individuals and the market. This is the biggest moral of Vedanta.
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