NITI Aayog vision for higher Indian economic growth - Part-I

Belief in economic growth has come to be seen as a solution for all India’s social and political problems, including poverty, social exclusion and environmental degradation. Top government economists believe that for India, in order to transform itself and attain the desired level of economic and social outcomes, requires higher and sustainable growth in coming years.

Higher economic growth will not only create employment, but will also generate higher revenue which will help increase government spending without disturbing the budgetary balance. Higher growth is the best way of lifting standards of living.

Therefore, towards this front, NITI Aayog, which has been recreated as a think tank for the Government after dissolving the erstwhile Planning Commission, has rolled out a fifteen year vision and a seven-year strategy document of transforming the Indian economy.

It has also circulated a three-year action agenda.Vice-chairman of NITI Aayog, Arvind Panagariya, said that the size of the Indian economy is expected to increase from a level of Rs137 trillion in 2015-16 to Rs469 trillion by 2031-32 (2015-16 prices)—a compound annual growth of about 8%.

As per official estimates, the Indian economy achieved annual GDP growth rates of 7.2 percent, 7.9 percent and 7.1 percent for the financial years 2014-15, 2015-16 and 2016-17, respectively.

• NITI Aayog has envisaged a new India in which all citizens in 15 years will have houses with toilets, two-wheelers or cars, power, air conditioners and digital connectivity.
• This is a glimpse of Vision 2031-32 presented by the NITI Aayog Vice-Chairman Arvind Panagariya to the body's Governing Council, chaired by Prime Minister Narendra Modi.
• The India 2031-32: Vision, Strategy and Action Agenda also visualises a fully literate society with universal access to health care.
• It also calls for having a much larger and modern network of roads, railways, waterways and air connectivity and a clean India where citizens would have access to quality air and water.
• It is envisions that per capita income would increase three fold to Rs 3.14 lakh in 2031-32 from Rs 1.06 lakh in 2015-16.
• Prime Minister Narendra Modi is backing a plan that could change a 150-year-old practice. The government is looking for a January-to-December fiscal year instead of the current financial year — from April to March — that was adopted in 1867, principally to align the Indian financial year with that of the British government.
• Agriculture contributes more than 15% to India’s GDP and above 58% rural households depend on farm yields. Assuming there is drought, which is the norm between June and September, a change in the accounting period will help in better farm allocation.
• The current global practice is following the January-December cycle. 156 nations follow calendar year as financial year. Even top firms and agencies such as World Bank and IMF use the calendar year for data reporting.
• Another argument is that the current set up does not allow proper utilisation of the working seasons and does not keep into mind the national culture and habits, because of which there is a direct impact on data collection for national accounts.
• It speaks about an India with modern and larger network of railways, roads, air connectivity and waterways. It speaks about a clean India where every citizen will come with an entry to quality water and air.
• It says how the per capita income would go up by three fold to Rs 3.14 lakh in 2031-32 from Rs 1.06 lakh in 2015-16.
• In addition,it speaks about India while the gross domestic product or whose economy would rise from Rs 137 lakh crore level in 2015-16 to Rs 469 lakh crore in 2031-32.
• In addition, it increases the central and state expenditure from Rs 38 lakh crore in 2015-16 to Rs 130 lakh crore in 2031-32, the industry rise of Rs 92 lakh crore.
• India 2031-32: Vision Strategy and Action Plan.
• Besides, the repair about the Fifteen Year Vision and Seven Year Strategy document spanning 2017-18 to 2031-32 is progress. However, the Three Year Action Agenda that covers time from 2017-18 to 2019-20 was circulated towards the members on the Governing Council, which is finalised in coming time.
• As per reports, the vision presentation aims at realising Prime Minister Narendra Modi's vision of an attractive India by 2031-32.

Highlights of the draft:

• The action agenda will span a three-year time frame involving mostly executive decisions, the strategy will be for a seven-year period and include decisions that need legislative changes while the vision would be for 15 years and incorporate institutional changes that may need Constitutional amendments.
• The agenda includes proposals for shifting additional revenues to high priority sectors, doubling farmers’ income by 2022, creating jobs, bringing down land prices and expanding tax base through measures such as taxing agricultural income.
• The draft action agenda makes a strong case for tackling tax evasion, expanding the tax base and simplifying the tax stem through reforms. One related proposal is consolidating existing custom duty rates to a unified rate.
• In the area of urban development, the draft stresses on the need to bring down land prices to make hosing affordable through increased supply of urban land. It proposed more flexible conversion rules from one use to another, release of land held by sick units, more generous floor space index, reform in the Rent Control Act and promoting dormitory housing.
• For creating jobs, the action points include creation of Coastal Employment Zones to boost exports and generate high-productivity jobs and enhancing labour-market flexibility through reforming key laws.
• The action points also propose addressing high and rising share of NPAs in India’s banks through supporting the auction of larger assets to private asset reconstruction companies and strengthening the State Bank of India-led ARC.

Key recommendations in the draft 3-year action agenda for Education and Skills Development:

• Shift the emphasis on the quality of school education paying particular attention to foundational learning.
• Move away from input-based to outcome-based assessments.
• Rank outcomes across jurisdictions.
• Use ICT judiciously to align teaching to the student’s level and pace.
• Revisit the policy of automatic promotion up to eighth grade.
• Create a tiered regulation of universities and college to provide greater autonomy to top universities under the current system.
• Focus on creating and funding public universities under the World Class Universities program.
• In part one, a revenue and expenditure exercise is undertaken to illustrate how we can begin to shift our expenditure based on set priorities within a three-year period — like increasing expenditure on health, infrastructure, agriculture, and rural economy.The subsequent parts deal with major sectors, growth enablers, governance, social sectors and sustainable development.
• Part two deals with agriculture, industry and services.
• Part three with transport connectivity, digital connectivity, public private partnership, energy, and science and technology.
• Part four focuses on innovation and entrepreneurship;
• Part five on governance, tax policy and administration, rule of law, and pro-competition policies and regulations.
• Part six deals with health, education and building an inclusive society; and part seven on environment and forests, and sustainable management of water resources.

Growth of Acceleration

• First, high growth is being witnessed in India in recent times despite a marked slowdown in private investments, which itself is an outcome of a huge corporate debt overhang.
• The Economic Survey (2016-17) notes that private investment (real gross fixed capital formation) had started shrinking from 2015-16 and experienced negative growth in the first half of 2016-17, also dragging down growth of total investments to negative territory.
• This is in contrast to the earlier phase of growth acceleration witnessed between 2003-04 to 2007-08, when private corporate investment had witnessed a sharp increase, fuelled by a marked rise in credit flow from public sector banks.
• The excesses of the expansionary phase of the last decade eventually led to bad loans piling up in the banking system, primarily on account of the sectors like infrastructure (power, roads, telecommunications) and iron & steel.
• Consequently, the public sector banks in India, which account for nearly two-thirds of annual credit flow, suffered negative profit growth in 2015-16, with credit growth witnessing a secular decline since 2011-12 (RBI’s Financial Stability Report, December 2016).

Fiscal Consolidation

• The Indian government claims that public expenditure has taken the place of private investment in driving growth in the current phase.
• However, this phase has also witnessed fiscal consolidation with the fiscal and revenue deficit brought down to 3.5 percent and 2.1 percent of GDP, respectively, in 2016-17.
• This could be achieved through additional revenue mobilisation, mainly through a sharp increase in indirect tax collections. Rather than passing on the drastic fall in international crude oil prices in the last three years to the domestic consumers, the government has chosen to increase excise duty collections from the petroleum sector from 0.7 percent of GDP in 2013-14 to over 1.4 percent of GDP in 2016-17 (Petroleum Planning & Analysis Cell, GoI).
• The hardening of international oil prices makes this revenue mobilisation strategy of the government unsustainable. Recent steps like demonetisation, income disclosure schemes, the policy thrust towards digitisation of payments and the rollout of the GST are all aimed at increasing revenue mobilisation.
• It remains to be seen whether these measures can lead to an increasing trend in revenue mobilisation, enabling higher levels of public investment and expenditure. Evidence so far does not reflect any such trend.
• Hardening international oil prices alongside increasing interest rates in the US and other advanced economies, in the backdrop of a growth revival, can also have adverse impact on India’s current account balance, exchange rate and inflation.
• The improvement in the external balance seen in the recent years has mainly been on account of declining oil prices, coupled with a rise in FDI inflows. Portfolio investors, however, have already changed direction with FPI outflows bringing the rupee under pressure.
• While the government has embarked on an ambitious export promotion strategy under the ‘Make in India’ initiative, the rise of protectionist trends within the US and other advanced economies do not provide a conducive environment for an export-driven growth strategy for India.
• The political-economic developments around the globe rather add to the uncertainty in India’s external economic environment.
• Whether India has entered into another phase of high economic growth, as was witnessed in the last decade, is not clear at this point of time. It will depend much on how the three factors discussed above play themselves out.

Unshackling agriculture

• The plan panel proposed major changes in the agricultural produce marketing committee act, the law that sets in place systems to ensure farmers get a fair deal for their produce and are not exploited.
• Once implemented by states, the APMC changes will be one of the biggest reforms in the country.
• The panel has also drawn up an agricultural marketing and farmer-friendly reforms index to assess and encourage states to implement new rules.
• At present, more than two-thirds of Indian states have not been able to reach even the halfway mark of reforms score in the year 2016-17.
• Preparing for second Green Revolution
• Increasing crop yields to feed 1.23 billion Indians is high on the agenda of the government.
• A task force, headed by Niti Aayog vice chairman Arvind Panagariya, also suggested ways of raising agricultural productivity and making farming remunerative for farmers.
• The panel suggested reforms in land leasing policies, ramping up of land records and land titles, preparing the country for the second “Green Revolution” in eastern states, and addressing farmers’ distress.