‘Expect more GST tweaks’

Noted economist, former vice chairman of NITI Aayog, and professor of Indian political economy at Columbia University, Arvind Panagariya, expresses cautious optimism about India’s growth. Like the Economic Survey, he too expects GDP to grow at 7.5% levels. Here, he answers five questions on the country’s economic progress.

The Indian economy is showing signs of revival despite clamour that demonetisation and GST had dealt growth a body blow. What is the realistic assessment?

Yes, there was about a 1 percentage point setback due to demonetisation and GST together. So we may end up somewhere between the CSO (Central Statistics Office) advance estimate of 6.5% and the Economic Survey estimate of 6.75% in 2017-18. For 2018-19, we should be back to 7.5%. There is enough good news from exports and other indicators that we are doing better in the second half of 2017-18 than in the first half. There is some threat from an oil price hike, but the RBI can turn this into an opportunity if the price hike leads to some correction of the large real appreciation of the rupee in recent years.

The GST is being cleaned up further. Is there an ideal GST level?

The level depends on two parameters: volume of revenue required, and tax base. While we have a good idea of revenue needs, we are still learning about how large the tax base will eventually turn out to be. Therefore, we should expect continued tweaking of the tax rates in the next year or so.

Indian asset prices, for instance in real estate, had ballooned to unmanageable levels in the boom years due to black money. What is your assessment of where we stand on the black money question today? How effective has demonetisation been on this? And how much more can be done?

As far as the top layers of the central government are concerned, we have made good progress in combating black money. We have heard of no allegations of corruption at that level since the present government came to power. Government interference in giving loans by public sector banks has also been effectively ended. No one would serious question today the sincerity and determination of the Prime Minister in this regard. The fall in real estate prices also directly cut black wealth by a significant amount. This being said, we still have a long way to go in weeding out corruption at lower levels, where the common man continues to suffer.

What is your assessment of corporate India’s NPA situation? Is the clean-up working?

To date, the RBI has made solid progress in pushing forward the clean-up process and I am extremely hopeful that we will finally succeed in this difficult task. For the first time, those who made bad decisions are being held responsible for their acts and [made to] pay for them. The government has also rightly upped the game on recapitalisation. So, we should also see credit growth to return to healthy levels.

Do you believe that the manufacturing boom can still happen, or have we missed that bus and will have to make do with services-led growth? And if the latter, what kind of services should we be pushing?

We did miss the bus many times, but I do not think we have missed it for good. We still have a 10-year to 15-year window in which we can successfully capture the world markets in manufacturing. Frankly, those who think that we can achieve transformation through services growth only are yet to provide a convincing roadmap. The key question is how do they propose to bring the vast workforce currently employed in agriculture and informal jobs or self-employed into gainful employment in services alone. To be sure, construction and retail trade can provide decent jobs and have to be a part of the solution but they alone cannot be the solution.