What are your views on the recently announced bank recapitalisation programme, and also plans to consolidate state-owned banks?
First, I think consolidation is absolutely overstated as a reform. You merge bad with either bad or bad with good, that is not a reform. You have got to address the bad. For me the big reforms going forward will be first to differentiate between good and bad even in terms of recapitalisation. That is the way forward. You distinguish between what’s viable in the long term and what is not, and a policy of gradual shrinking of the balance sheet. Second, there should be more of private sector participation. The reason we need private sector ownership in India is because HR policies are so constricted for public sector banks. They are constrained in decision making and hiring. When you do public to private lending in India, it is toxic because exit is impossible.
Can we see Universal Basic Income (UBI) becoming a reality, maybe in the 2019 Budget, if not the 2018 one?
UBI is not an idea that only the Centre can run with. We have 29 states and any of them can run with it. If you want to implement it centrally, it won’t be cheap. You can only finance it if you wind down existing programmes. We know that in India it is fiendishly difficult. But the states have an advantage. They can say to the Centre “we will not ask you a paisa more than what you give us”. But essentially untie the aid, and let us decide what we want to use it for, whether fertiliser subsidy, or MGNREGA, or UBI. It is not something that one should think of only as part of the Union budget. Jammu & Kashmir is keen on this idea. Discussions are going on. Let us see where it goes.
You have done financial inclusion, bank recapitalisation, the Jan Dhan-Aadhaar-mobile trinity, and the GST. What’s left to do now?
There are three or four areas. First, state capacities in delivering health and education have to improve. Early in my career, I had been a bit cavalier about the neglect of health and health care, as I felt the growth pick-up from the 80s would increase the returns and, therefore, make the education outcomes better. It hasn’t. It’s one of India’s founding sins that we haven’t been able to focus on these two areas.
Your views on job creation?
I don’t think there can be a credible jobs strategy without a credible growth and development strategy. You need to create a general climate of dynamism where there is investment and growth. You cannot create jobs sustainably when you grow at 4-5 per cent. That needs to be supplemented with sector-specific measures, by providing incentives to certain sectors. It will be challenging. There are headwinds in terms of automation. We also need to focus more on agriculture as a creator of jobs, on how we can get agricultural productivity up.
We made a big to-do of the fact that the oil market had structurally changed and I thought it would cap at $55-60 a barrel because of shale. For me a genuine puzzle is why the oil prices are at these levels. If oil prices stay above $60-65 a barrel for very long, I’d have to admit that my analysis was not that right earlier. Everyone had said that shale was competitive at $50 to a maximum of $55 a barrel. As long as it stays at $60-70 a barrel, I don’t think we’re in that dangerous territory of the current account deficit being 3 per cent (of GDP). Because, remember, every $10 dollar per barrel translates into an extra 0.2-0.3 per cent of GDP in terms of the CAD.
But exports fell in October, that may impact the CAD…
The notion that exports are falling is not right because if you look at manufacturing export growth in the past three months, exports have been growing at over just 9 per cent. It was a bit higher in the first quarter but 9 per cent is still substantially greater than in 2016.
In your latest survey, you mentioned that rural distress was region-specific. You also mentioned that it was not because of demonetisation. Do you still feel that it’s the case, now that demand is going down for the kharif crop and prices are crashing?
We have taken action on this by imposing tariffs on both oilseeds and yellow peas. That is an attempt to shore up agricultural prices. The funny thing now is that while for the non-perishables the prices are down, perishable prices such as for onions are soaring. So, I don’t know if we should ascribe the price changes of one or both of this to demonetisation or none. What was different about the last agricultural year is that normally when we have a good monsoon and good crop, farm incomes don’t decline. Prices come down, but not by a large degree, and greater output at lower prices still ensures that farm incomes go up. The last season was unusual in the sense that apart from wheat prices which have gone up, all other items have seen a crash compared to previous year. I think more analysis is required on whether the economy is down in general or is it an effect of demonetisation.