SUMMARY
Arvind Panagariya, the Columbia University professor, has been a strong votary of the Gujarat model of development and his views have played a major part in the formulation of BJP’s manifesto for 2014 general elections
Arvind Panagariya, the Columbia University professor, has been a strong votary of the Gujarat model of development and his views have played a major part in the formulation of BJP’s manifesto for 2014 general elections. With Narendra Modi-led government comfortably in place to take measures for bringing the economy back on track, Panagariya tells Santosh Tiwari that Gujarat-like labour law reforms are required to boost the manufacturing sector besides other measures to improve the situation on the policy front, including a single window involving states for clearance of projects.
The 2014 Lok Sabha election results clearly indicate that people have rejected politics based on caste, religion and dole. What should be the new government’s priorities in this backdrop?
A broad priority has to be the promise made by Narendra Modi during the campaign: Growth and development. If we can grow at 10% per year, we will be able to end abject poverty, ill-health and illiteracy much faster than if we grow at 5%. At a higher growth rate, we will be able to bring in a certain measure of prosperity to the bulk of the population. India will be transformed into a modern economy from its current largely traditional structure.
Food, fertiliser and oil subsidies need to be rationalised and targeted better. How to do it? Should the government junk Aadhaar and look for a new model to target subsidies or should the existing plans based on Aadhaar be implemented better?
Subsidies such as those on cooking gas, fertiliser, electricity and water that principally go to the non-poor population should be phased out with a gradual move towards cash transfers to the poor. Aadhaar must be completed and should eventually be used to unify the existing highly fragmented transfer programmes. Meanwhile, we should not shy away from alternative instruments ranging from conventional postal money orders to modern mobile-based technologies.
The investment climate is grim. What can be done to improve it?
An effective PMO, corrective action on retrospective taxation, promise to bring transparency in taxation so that investors are not surprised after having made investment and some shift towards capital expenditures (mainly infrastructure) in the 2014-15 budget are some measures the government could take to reassure investors.
Clearances to projects have been slow. The UPA government tried to solve the issues through the CCI but it has failed to improve the situation. How to change the scenario here, so that growth is back to the 8% level?
This will require an effective PMO that can break the logjam across ministries, assurance by the PM to the top bureaucracy that it can fearlessly make all legitimate decisions expeditiously, and partnership with the states to move state-level clearances speedily. States that are willing to be partners could collaborate with the Centre to create a single-window facility that gives both central and state level clearances in one go.
Will GST and DTC be among the top priorities for the BJP government? What would be your suggestion here?
The GST requires crossing several hurdles including clearing arrears relating to central sales tax, constitutional amendment to allow the Centre to levy and collect sales tax, and bringing all states on board. Thus, the government should allow itself two years, promising to introduce it beginning April 1, 2016.
The DTC requires a closer look to ensure that necessary simplification is achieved, tax base is broadened, tax system is predictable and there is no scope for unnecessary harassment by tax authorities. Introducing a whole new code to replace the existing legislation can be hugely disruptive. Therefore, it is important to consider the possibility of introducing the necessary reforms through the amendment of the existing direct tax law. The goal should be to implement the reform beginning April 1, 2015.
Manufacturing needs a big push as this can help improve the job scenario. Is there a need for a National Manufacturing Policy?
What we need is the reform of key labour laws to achieve a better balance between the rights of already employed in the organised sector and those currently condemned to low-wage unorganised-sector jobs. We should begin with labour-law reforms in Gujarat where other conditions for the success of labour-intensive manufacturing—good roads, ports, 24x7 electricity and business-friendly environment—are already present. Countrywide, we also need the reform of the Land Acquisition Act on an urgent basis. Perhaps we should consider the option of simply abandoning the recently enacted law and amending the original Act to ensure that the legitimate rights of those whose land is acquired are protected. This will minimise disruption and confusion since there exists several decades of experience with the original Act.
High level of food inflation has been a major problem in the last five years. What should be done to curb it effectively?
This is a difficult problem. One option, however, is to use the food stocks effectively when food prices rise rapidly. Another reform relates to that of Agriculture Produce Marketing Committees Act, so that the massive waste of fruits and vegetables is eliminated, farmers receive a higher proportion of the price paid by the consumer and contract farming and food processing flourish.
You have helped the BJP formulate its economic agenda. It is now time to implement. How do you plan to contribute and guide this process?
The BJP formulated its own agenda and wrote its own manifesto. Any resemblance between my public policy writings and the manifesto at best suggests that someone in the manifesto team read what I wrote and was persuaded by it. As for implementation, our greatest hope is the Prime Minister who has impeccable reputation for getting things done. I will, of course, continue to do my bit through my public policy writings, interviews and other mediums.
How should the UPA flagship schemes for jobs, food security and education be restructured?
Ideally, we should offer the bottom half of the households a choice between cash transfer of R10,000 on the one hand and employment guarantee under MGNREGA and food subsidy on the other. This will empower households rather than public distribution shops and those administering MGNREGA. As for education, we should offer vouchers to the bottom half of households, thus imparting the latter the same ability to choose between government and private schools that richer households have. Additionally, we need to take measures to plug the massive leakages in the public distribution system and MGNREGA and to make the RTE Act outcome-oriented. The option to break the Food Corporation of India into three corporations dealing with procurement, storage and distribution deserves serious consideration. The option to connect MGNREGA employment to building housing for the poor, provision of toilets and skill acquisition must be explored. And the RTE Act must be amended to allow examinations and base school recognition principally on student performance rather than input norms.
