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Arvind Panagariya on corporate tax, lower tariffs & fewer ministries

Former Vice Chairman, NITI Aayog discusses the possible agenda for first 100 days of NDA-2

ET Now|
May 24, 2019, 02.18 PM IST
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For 70 years, the automobile industry has been protected with 100 plus kind of tariffs. Why should Indian consumers have to pay one and a half times the price that everybody else in the world market pays, said Arvind Panagariya, Former Vice Chairman, NITI Aayog, in an interview with ETNOW.

Edited excerpts:

Do you expect NDA-2 to be more focussed on reforms as the economy is now going to be the focus and the priority, going forward?
Of course. Economy is the issue number one and that impacts everything else, even our international standing gets influenced by how well the economy does. I am pretty confident that the new government will move on several fronts as soon as the cabinet is in place.

What should be the focus areas in the first 100 days for the new government?
It would be good if the government in its first 100 days gives a very strong signal for its commitment to reforms. And to give that signal, it can do a number of things. These are things that can be on the budget when it is presented because the budget as previously presented was the interim budget and the final one will be presented probably in July, maybe even in June and/or even before that a number of things could be announced.

For example, the corporate profit tax; there had been a commitment to roll it back to 25% and, of course, remove the exemptions so that the actual collection of these taxes does not decline. That will be a very strong signal that on the margin, the rate has been brought down to 25% as promised before.

The government could also give a signal by rolling back many of the tariffs that had been raised in the past two years. On the trade front, we have gone back. This is the only area where I would say that the government has done something that is consistent with its otherwise pro-reform stance. So roll back those tariffs, bring them back down and commit to a continued sustained trade liberalisation agenda. That is the second thing that the government can do to give a strong signal.

Third thing the government can do is to also speed up privatisation, decision ongoing affair for the government because in the previous term, several about, I would say more than two dozen public sector enterprises had been approved for privatisation by the cabinet. It is time to actually carry out that mandate. Once again, it is feasible to do on an average, one privatisation per week.

Do you think the new government would take some tougher decisions on NPA front? Does the NBFC mess needs attention and needs to be sorted out?
That was also one of the items on my list which I forgot to mention. So I am really glad you brought it up. What I said about the Banking Regulations Act (BRA) amendment actually is quite connected to that because it was on the strength of that particular circular that we saw the Jet Airways issue move so rapidly. The promoters were actually let go within a short period of time.

At that time, the February 12 circular was still imposed and that was an important catalyst for the amendment of the BRA. But more broadly, I totally want to echo you that the NPA cleanup needs to be speeded up. We have made huge progress. Under IBC, an acceleration that has already happened is completely unprecedented in our history and we are very pleased with what you have done.

Bur there are some bottlenecks which need to be removed. I also agree that capital infusion needs to be done in the public sector banks because at the end of the day, if you are really trying to resuscitate private investment in a short period of time the credit expansion, credit growth has to take off in a big way.

India is also facing the worst slowdown in consumption that we have seen in a while. What needs to be done on that account as the case for stimulus builds up?
Absolutely not. Actually, that will go completely contrary to what I just said about restraining borrowing by the government to finance its expenditures. I personally think that the industry needs to shape up a little better and I have never understood this whole talk about consumption slowing down, because the global economy is large. The merchandise export market alone is 17 trillion. Why doesn’t industry look at the export market?

It is their fault. There was interest rates complaints, particularly auto when you say for 70 years they have been protected with 100 plus kind of tariffs. Automobiles are paying a punishing kind of price for automobiles Why should they have to pay one and a half times the price that everybody else in the world market pays?

The industry needs to shape up both for the domestic and export markets. Today, they do not have even 1% share in the global auto exports after 70 years of protection. If that is the performance, they need to be exposed to competition. Let the tariffs fall and allow imports of even automobiles to compete with domestic producers. How long are we going to protect them and not protect the customer?

Ever since the US-China trade war started, some strategists believe that India can be a big beneficiary of this. What do you think we would need to do in order to achieve that?
Again, you have touched on my favourite subject. I have been one of the foremost and probably the original advocate of this. There are two reasons in fact, not just one. First, the wages in China have really gone up now and our wages our significantly lower and that alone gives us a big advantage in large number of labour-intensive industries such as apparel, footwear, furniture and all sort of manufacturers. That is what we need to create good jobs for the masses.

We are too enamoured by the IT industry alone which is of course, very important for the country but IT industry will never be a huge employer. Today, maybe the IT industry employs three million people but we have got a workforce which is over 500 million and most of it is either self employed or employed in very tiny little enterprises. We need to up our game in those industries and with Chinese wages having risen considerably, compared to ours, we have a real opportunity there.

Second, is what we have just said which is that the trade war between the United States and China have deep roots and therefore it is not going to go away so quickly and that does give us a major opportunity to break into both the American market because Chinese now are facing higher barriers in the American market and in the Chinese market because now the Americans are facing high barriers in the Chinese market. We have got a double opportunity there.

Do you also see a case for consolidation of some of the central ministries? Will that improve effectiveness going forward?
I absolutely think so, and that is the reason I put it out that we have some 50 plus ministries. The only country that comes even close to us but in internal numbers is still below us is Sri Lanka.

But if you leave Sri Lanka aside, most major countries in the world have less than 35 ministries. I can understand that it will be difficult for the government to get down to 35 ministries but certainly we ought to get down to at least 40.

How does it improve the efficiency of the government? Today with so many ministries, it inevitably happens that any change you want to make involves four or five different ministries and then each ministry wants to protect its turf. Sadly, I found this repeatedly in my experience at the NITI Aayog that the ministries do not work in national interest, they work in their narrow interest of the ministry itself.
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