It is a mind-blowing Budget, at least for me: Arvind Panagariya – The Economic Times

Clipped from: https://economictimes.indiatimes.com/markets/expert-view/it-is-a-mind-blowing-budget-at-least-for-me-arvind-panagariya/articleshow/80671802.cmsSECTIONSIt is a mind-blowing Budget, at least for me: Arvind PanagariyaET NowLast Updated: Feb 03, 2021, 07:47 PM ISTSynopsis

The kind of reforms that we had hoped for in the 2014 Prime Ministerial candidate Narendra Modi, have now all come true in Modi 2.0, says the Former VC, Niti Aayog.

Arvind Panagariya, Former VC, Niti Aayog, says there is need for a separate ministry of disinvestment.

I cannot remember a Budget where people are happy because the fiscal deficit is at 9.5% merely because the government has been honest about it. Is the 9.5% fiscal deficit for this year and 6.8% for next year worrying you in any way?
I have been fiscally conservative but in this case I am quite okay with both the numbers. Because of Covid, we had expected that the tax revenue collection would be poor and the expenditures had to be maintained and that is precisely what the government has done and the cheer for transparency has to be there. When people say they are happy with 9.8%, they are partly rejoicing that finally the government has recognised that there are a lot of off-budget items which previously were not included in calculating the fiscal deficit.

The government has now introduced full transparency and that is a good thing and bodes well for the future. It is said the devil is in the detail. One detail which may not be devil but angel is the fact that in the last quarter of the current year — January to March — the expenditure according to revised estimates is about twice of what it was a year ago during the same months. If the government actually pulls off those expenditures, they will go a long way towards stimulating the economy because workers are still returning to their workplaces and this is a good time as that demand would help.

As for the next year’s deficit, once again, this is intended to give a hand to the economy while it pulls out of the decline that Covid had induced. That is a good thing and almost everyone, myself included, was actually suggesting that we ought to raise the expenditures. The government has chosen to spend it on the right things – health and infrastructure; so no complaints.

When you go into the details for expenditure for healthcare. you see that it includes a little over Rs 60,000 crore for drinking water and sanitisation, close to Rs 3,000 crore for nutrition, Rs 49,000 crore for finance commission grants and the vaccine chunk also comes out of the same pie. Many have pointed out that if you compare the healthcare allocation which goes to the ministry compared to what we spent this year, the revised estimates is actually a 10% drop. Do you think there could have been a clearer and transparent push on healthcare as well?
You have counted all the major expenditure heads and almost all of them really relate to public health and that is what the government ought to be spending on. In India, healthcare, particularly hospital care is largely private, meaning individuals and households spend out of their own pocket and the government has been under-spending by a wide margin compared to all other countries in the health sector. The public expenditures have been far below what the other countries spend. So this is a move in the right direction and certainly the expenditure on vaccines at Rs 35,000 crore is very important. I had been myself calling for expenditures in this range $5 billion to $10 billion and this is certainly on the lower side of that, at least $5 billion.

Bringing drinking water by tap to everybody is a public health issue. So these are all expenditures on correct items. I have no reservations about those. We should also factor in that in the last six years, the Modi government’s record of spending money wisely and delivering the services that match the expenditures incurred has been good. That makes me feel that perhaps the central government is an able government right now and it is not a bad thing for it to be carrying out these expenditures.

The big game changer really has been the unabashed return of the word privatisation in a public policy document. There is clear intent to privatise public sector banks. Do you think this will be easier said than done?
That is a very good question and ought to be asked in view of the experience so far. Air India privatisation is still struggling. But we can be a bit optimistic. For the first time, the government has gone out on a limb to outline a very bold policy. Privatisation of banks has never been even talked about before at the government level.

But I am not so surprised because during my years in New Delhi, I had enough exposure to the prime minister and I think he was waiting for the right moment. So some scepticism is legitimate. But on the other hand, the policy announced on public sector enterprises is really the kind of document that reminds of the new industrial policy that had been announced in 1991 by Prime Minister Narasimha Rao. So just imagine the implications. The textile ministry eventually will not be there if the policy is implemented. Perhaps the steel ministry will not be there. So it really has far reaching implications.

The kind of reforms that we had hoped for in the 2014 Prime Ministerial candidate Narendra Modi, have now all come true in Modi 2.0.

In the post Covid world, do you think the government can pull off the Air India disinvestment?
I think progress has been made. Originally, even I underestimated the kinds of hurdles that you have to go through and not mention the hesitation on the part of many offices to not be responsible for the sales, but a progress has been made. The kind of offers that are there on the table for Air India, I am reasonably optimistic that we will see that sale go through. BPCL, hopefully, will happen as well. I now really think that we need a separate ministry of disinvestment. This is something that I had argued even before the Budget. But after having seen what the budget has given us, I feel even more convinced about the need for a separate disinvestment ministry.

At the time of Prime Minister Atal Bihari Vajpayee, there was a disinvestment ministry which was very successful at privatisation and what we are talking about is going to far exceed in scale and scope what the Prime Minister Vajpayee’s disinvestment ministry had done.

The other big game changer with the caveat that it needs to be implemented properly is the asset reconstruction company for bad loans or bad assets — the bad bank. What should it look like?
That is for experts to decide. The basic purpose is very sensible. I was myself at the forefront of this. We already had seen this in 2015 when we were very slow. I was probably the lone person inside the government in favour of an Asset Reconstruction Company at that time and we did not have the IBC in place. But we are again in a situation like 2015, given that these bankruptcies will happen. Some recapitalisation has been allocated — Rs 20,000 crore — perhaps we would need a little more but that all depends on how this ARC is structured, how much the government has to invest in it.

You sound very thrilled and almost as if everything that you were looking at and wanted to do in your stint in 2015 is kind of coming to fruition now. Am I correct?
Absolutely and if I were to use a bit of an exaggerated term, I would say it is a mind blowing budget, at least for me.

Some criticism is coming in from the poor beleaguered middle class income taxpayer who got no relief at all and in fact will be penalised. One section of tax payers will now be penalised for investing in retirement with the cap on tax exempt interest being set for Rs 2.5 lakh. Do you think more could have been done to put money in peoples’ hands?
They are two separate questions, money in hand I will come to, but first on the taxation. You could argue that direct tax reform is still an outstanding item and it ought to be on the agenda of the government but given so much that the government has put on the table in this Budget, maybe this will wait a little bit. The tax rates at the top end are quite high, 45% kind of tax rate is a bit excessive and has certainly has a dampening impact on wealth creation. While we want to tax and the government needs the revenues, we ought to work towards broadening the base.

On putting money into the hands of the people, especially with respect to the stimulus effect, I think there have been some complaints that if the government transfers some of the money to the customers or households to spend on their own, then the stimulus will take a much longer time and it might be a little too late. I am not so pessimistic about this. The United States has tried these onetime transfers in the past, not just during Covid but in previous episodes of recessions, it has never been successful because people get a one-time increase in their incomes. That simply does not change their consumption profile. Economists talk about something called permanent income which is their long-term income and consumption is very much determined by long-term incomes.

It is not clear that one-time transfer would have resulted in demand stimulation. On the other hand, the government is going to spend in the last quarter of FY21 twice of what it spent in January-March 2020. That is a very large stimulus upfront even before the year actually begins. Plus, the government ought to clear all its dues very rapidly starting now. Why wait for the next year when due has to be given back to the people? These are things like tax refunds of individuals which are probably in trillion rupees and not lakh crore rupees, arrears to the states in terms of outstanding GST revenue, lot of overdues on goods and services that companies have already provided, fertiliser subsidy dues etc. If these are cleared, they will be spent very quickly and that will translate in a stimulus right away. Those are the things the government can still do within the current budget.

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