NITI Aayog’s outgoing vice chairman Arvind Panagariya has pitched for trade reforms in the country, saying the process has taken a back seat and it’s time India lowers external tariffs.
In an interview to ET, he said with some reforms, India can grow by over 8% for several decades. Edited excerpts:
How would you sum up your role in creating NITI Aayog? Is the institution now on its feet and the next person can seamlessly take it off?
- When I came, I felt it was a real challenge in many ways. This was a new institution, which needed to be put on its feet. I was also in a way very new to the kind of tasks. The institution is now up and running in terms of its personnel, new hires, a full system in place, which is very different than what existed in the Planning Commission. We have established very good relations with all ministries and states. There are ongoing works with both of them and, of course, we work very closely with the PMO also. Large number of tasks have been accomplished, including the three-year action agenda. I can say it without hesitation that my successor can take it very, very far if we maintain the accelerated pace.
You came from academia. How easy or difficult was it working in the government?
- Evidently, I came without administrative experience and I thought this must be a bit difficult. When I arrived, I realised there was a very well defined system that existed in the country, which meant that there was a staff who knew what to do. Their loyalty is to the office and not to individuals and so, my initial fear of whether they will be loyal to me or not was also without base. I think that made it really a lot easy to transition into work. The fact that the vice chairman is appointed at a cabinet rank has a clear signal value in the system. The advantage I had over somebody from within the system is that I had been writing on the Indian economy for 15-20 years. That made it incredibly convenient for me in my interactions with anybody.
- The average growth rate in last three years is 7.5%. So, we are in a good spot for sure and this growth has been achieved without much of the radical impact of the reforms you mentioned having yet been realised. The Insolvency and Bankruptcy Code is an important reform, so is GST, and now, we are also on to cleaning of bank NPAs. These things along with accelerated infrastructure creation are agents of change and if we do a few more things, we should grow at 8% or more for a couple of decades.
What are the “few things” that you think should be done on an urgent basis?
- Some of these include the coastal employment zones, as these will help both in job creation and as a catalyst to bring global firms to India in areas where our large entrepreneurs are not operating, for instance, in clothing, footwear and electronics. These global firms will be anchor players who would bring in their own capital management plus the market link and that will have a huge multiplier effect on making our own MSMs more productive.
- The other area we really need to take a second look at is trade. I think trade reform has taken a back seat and our last major opening up was in 2008. We had been opening up to the global economy by knocking down the tariffs on industrial products but that is a continuous process after 1991when licensing was done away with. Last reduction was in 2007-08 when we brought down the tariffs from 12% to 10% where we are today. I have been arguing for the top tariff rate of 7% and the unification of all tariff rates around that with some exceptions like automobiles. With 7%, you will gain revenue and put an end to all inverted duty inversions that exist, and combined with some further consolidation on the GST, I think, we will have a fantastic indirect tax regime.
- On GST, what we have accomplished so far is exceptionally phenomenal but in the course of time, in next two-three years, we ought to unify tax rates also, may be try to get around two slabs, but a lot of work needs to be done on this.
On trade reforms, we have already reduced rates under FTAs. Is top tariff rate of 7% needed?
- We have a smaller network of FTAs. When we think of our major trading partners—US, EU and China—they are not in any of our FTAs. So, lot of our goods that we are importing or exporting are actually subject to usual external tariff. I really think there is an advantage. If external tariffs are high, you cause trade diversion. Also, we need to work very, very hard on improving trade facilitation in the country and the key task at hand is to substantially lower the turnaround time at the ports. In fact, they should work 24×7.
Is it time for us to enter into FTA with China?
- There is ongoing discussion in RCEP and, yes, I think, we need to start process somewhere and RCEP is a good place. It will be in our interest because it is in our policy to Act East and this is something that takes us in that direction. Also, our trade with China is very large and there is also scope for expansion of trade with all Asean countries. I think it is time for us to become a truly major supplier in this market.
Your views on privatisation, FDI reforms, multi-brand retail and change in financial year?
- Privatisation: The view I took at NITI Aayog was that enterprises that can be undertaken by the private sector with equal or higher efficiency and which do not serve a public purpose, we should consider for privatisation. The government, in this respect, has been on the right track.
- FDI reforms: Multi-brand retail is politically a little more difficult reform for this government because small traders are a part of its political constituency. Nevertheless, the government is making progress on this through e-commerce.
- Financial year change: There are pros and cons. I thought this will be useful to do because we align our data to financial year, while rest of the world reports its data on calendar year. The second argument is that this will align better with farmers’ harvesting time around Diwali. If it is from Jan 1, probably the budget will come after Diwali and that alignment will also come.