‘I strongly support demonetisation’ | Business Line–04.09.2017

Rajiv Kumar is well aware of the thin line between politics and economics. An old hand in dealing with government, Kumar, the newly appointed Vice-Chairman of NITI Aayog would like to be seen as someone who is firmly rooted in India’s political economy.

When Arvind Panagariya decided to quit and go back to Columbia University, ‘Who next’ was the question on everyone’s mind. It has to be someone with a doctorate tag, said some, while many wondered whether Prime Minister Narendra Modi would opt for an import? Would someone from the finance ministry get the job or would it be a politician?

Was the choice of Rajiv Kumar surprising? Not really. After all Kumar, founder-director of Pahle India Foundation, has been part of a government-appointed high-level panel that went into the appointment of regulators in the Indian financial sector. A senior fellow at the Centre for Policy Research, he has also served as FICCI secretary-general and chief economist at CII, besides being a member of the national security advisor board between 2006 and 2008, and holding senior positions in the industry and finance ministries, and in the Asian Development Bank. As if these credentials were not enough, Kumar’s latest book is Modi and His Challenges; he has also strongly supported demonetisation.

Ask Kumar what he thinks is the role of the NITI Aayog and he says that the think-tank should be perceived in light of the following three components: as a principal conduit for new relevant ideas taken from domestic and global sources and adapting them to ground realities which are diverse across the country; as a platform for bringing together various stakeholders to push forward the development process in a participative manner; and, as a premier agency for strengthening policy formulation and implementation capacity in the States.

Tough call

But the job may not be easy and Kumar is aware of it. Succeeding Panagariya, who was Modi’s pick for the job, Kumar finds himself in a situation similar to the one Urjit Patel faced when Raghuram Rajan moved out and he took over as RBI governor. The larger-than-life image of Rajan overshadowed Patel’s credentials. However, Kumar is very media savvy and active on social media.

Without mincing words, he says, “Yes, I strongly support demonetisation because it has sharply attacked stock of black money while not mortally disrupting the economy.” He maintains that demonetisation will reduce black money stock in the economy. But to control such flows in the future along with GST there is an urgent need to reform the direct tax structure. As for inflation and the rural economy, and he saysthe rural economy will not be impacted because agriculture does not attract income tax, and inflation, if anything, will decrease.

The restrictions on black money will lower the pressure on demand and improve supply-demand management. But the larger volume of deposits will encourage banks to lower interest rates, which in turn will bring down the capital cost. Banks would have larger CASA on hand and that would help them reduce interest rates on their loans, which should then spur investment demand, which is better than increasing consumption demand, he says. “If consumption demand is replaced with investment demand, it will be beneficial for generating employment and put the economy on a sustainable trajectory,” he adds.

Politically correct

Kumar’s predecessor was clear on his views about the social sector. Does he share the same passion? “We need a qualitatively new approach towards the social sectors that will radically improve delivery of public services and at the same time incentivise private providers to participate in public health provision,” Kumar says.

Since its inception in 2015, the NITI Aayog has taken some key decisions such as doing away with the Five-Year Plans and preparing three roadmaps for the economy — the 15-year Vision Document, the 7-year Strategy Document and the 3-year Action Agenda.

It has been working on reforms in healthcare, education and the Smart City initiative with State governments.

It also coordinated with the finance ministry on subjects such as advancement of the Union Budget and merger of the Railway and General Budgets.

All this, apart from making strong policy suggestions such as those on strategic sale, disinvestment of public sector undertakings and agriculture reforms.

Rajiv Kumar has often been quoted as saying that policymaking should not be elitist but rather rooted in ground realities. When you say that sounds rather politically correct, he counters by saying that only a participative concept will ensure that development becomes a mass movement — Bhartiya Development Model. Whether his development model will work or not only time will tell.

(This article was published on September 3, 2017)

 

via ‘I strongly support demonetisation’ | Business Line

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