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We will begin recovering this moment onward: Panagariya

Amid speculation that he is all set to join the new Narendra Modi-led government, Columbia University professor Arvind Panagariya tells HT that the election results have been historic and now India needs to move swiftly on reforms.

business Updated: May 19, 2014 08:56 IST
Gaurav Choudhury

Amid speculation that he is all set to join the new Narendra Modi-led government, Columbia University professor Arvind Panagariya tells HT that the election results have been historic and now with a Prime Minister who is not a member of the Delhi elite, India needs to move swiftly on reforms. The government must set up a PMO capable of quick decision-making. Excerpts:

How would you describe the Lok Sabha election results?
Historic. After every Pundit had told us that we were now going to in the era of coalition governments forever, a single party has achieved majority. For the first time, we also have a Prime Minister who is not a member of the Delhi elite.

What is your outlook on the Indian economy, given the slowdown?
We will begin recovering this moment onward. 6.5 % growth in 2014-15 is achievable.

There is a speculation that you could join the government. Has any discussion taken place between BJP leaders and you?
No comment.

What is the immediate task for the new government?
Other than putting in place a first-rate Cabinet, which is the obvious first task, it must create a PMO capable of coordinating effectively across ministries and taking decisions in a time-bound fashion.

How can new jobs be created in the short-term, given India’s skill deficit?
The government needs to swiftly undertake reforms that would encourage entrepreneurs to enter low-skilled-employment-intensive sectors on a large scale. There are vast domestic and global markets in products such as apparel that our workers can produce with the current level of skills. The government should also facilitate skill creation through rapid expansion of apprenticeship. Not all these steps can be taken overnight but work on all of them must begin now.

Would you advise a redesign of the UPA’s social schemes including the NREGA?
Yes. Both NREGA and public distribution system are massive. NREGA has failed to produce any meaningful public assets. The Right to Education (RTE) Act promotes input norms and does nothing at all for improved student outcomes. The government should devote a part of the first year in thinking how the schemes should be reformed or replaced by alternatives and then take action.

There appears to be a view within the BJP that RBI governor Raghuram Rajan should be replaced because of his hawkish stance on price control. What are your views?
Ultimately, this is the Prime Minister’s call to take. Personally, I am hard-pressed to think of a person who is better suited for this job.

What are your views on the new legislation on landacquisition?
If you ask me to name a single legislation that in the most urgent need of reforming, this one will be it.

What are the specific problems that the first full budget should address?
The Interim Budget of the outgoing government largely determines the shape of the first budget, as the 2004-05 budget would testify. Even so, the first budget must: commit to (i) holding the fiscal deficit at 4.5% of the GDP; (ii) raising capital expenditure from 1.76% to 2%; (iii) completing the deregulation of diesel and petrol prices before the end of the year; (iv) slashing cooking gas subsidy back to six cylinders; (v) introducing a new Direct Tax Code beginning April 1, 2015; and (vi) completing the Goods and Services Tax reform by March 31, 2016.

The BJP is opposed to foreign direct investment in multi-brand retail. What are your views?
Personally, I think FDI in multi-brand retail will be good for India. But I understand that the small shopkeepers have been the key longtime constituency of the BJP, whose fears are the reason why the latter is ill-at-ease on encouraging foreign retailers. On the other hand, I do not expect the next government to reverse the current policy.

How can the new government address concerns of price rise in terms of policy interventions?
This is perhaps the more difficult of the tasks since we know so little about how increase in the world prices and domestic wages and monetary expansion translate into inflation. But releasing domestic food stocks and allowing imports more freely can address food prices that concern the masses the most.

What should be the sequence of reforms for the new government in terms of policy priorities?
Reforms often face political hurdles. Therefore, my view is that unless there is a compelling case for sequencing of a subset of reforms, it is best to proceed when the politics is right without worrying too much about sequencing. Get going and do the necessary clean up as additional issues arise.

How would you describe the performance of the UPA government?
I wish the UPA had not abandoned the reforms that had great momentum when it came to the helm in 2004. It was unfortunate for the nation that it took the view that the reforms of Rao and Vajpayee governments lacked a human face.