Can India Afford Entitlement-Driven Welfarism: N K Singh

N K Singh, Member of Rajya Sabha, in conversation with Govindraj Ethiraj, at The Growth Net.   Govind: The economy has seen some tough times in the last five years.  The big question is how is it going to pan out now after a new Government comes in. I'm joined by NK Singh, Member of Rajya Sabha, who has joined the Bharatiya Janata Party (BJP) recently. So, let me ask you a straight question. We’ve seen tough times, we've seen the economic growth slowdown. The question now is really more about what has to be done immediately, and then what has to be done over a slightly longer term as the new Government comes in? What is your sense?

NK Singh: I have written a longish piece recently, entitled “The Lost Decade” which also articulates the immediate challenges of the new Government which is how to get the growth momentum back in the economy, how to revive investor confidence, how to revive expectations, and I would say that these are overarching themes. The most important challenge is how to get macro stability, now that really is the more difficult elephant in the room, of managing the fiscal deficit in a credible way because some of the things which have been mentioned so far is really a lot of accounting engineering to suggest figures of fiscal deficit than actually is the position.

Govind: Can you give us an example? NK Singh: For instance, a lot of known expenditure of this year has been pushed to next year. Unpaid bills of petroleum and oil companies, in their own reckoning, are Rs 35,000 crore. If you talk to agricultural experts, the suppressed bills on the food subsidy programme could exceed Rs 50,000 crore or pushed to next year. For instance, gains on revenue taken on the basis of nominal GDP growth of 13 per cent, inflation’s around six per cent or so which is expected, are you expecting a GDP growth of seven per cent? If not, then the revenue figures look misaligned. So, I think that in terms of the quality of fiscal consolidation, people realise that a lot needs to be done.

Govind: So that’s one part, that you can re-juggle the books so to speak, but what are the real issues? NK Singh: Well, the real issue is how to rationalise subsidies in a more meaningful way. How to really target the beneficiaries of subsidies in a more meaningful way? Are the subsidies being properly targeted? The answer would be a resounding no. Like, for instance, you take the report of the Comptroller and Auditor General on the benefits of the employment guarantee scheme known as the MGNREGA scheme. That report brings out its dark reality that the bulk of the money, which had been utilised, had been utilised for non capital creating assets, it has gone in dole programmes, which do not serve any long-term social purpose, nor sustain employment.

Govind: So, there is a thematic question there, and an operational question there. Let me ask you the thematic question first. Do you think that flagship programmes have served their purpose? If so, to what extent and if not, then why? NK Singh: I would say they have served a limited purpose for two principal reasons; one because the beneficiaries are not properly targeted, secondly, the implementation was deeply flawed.

Govind: So, you’re saying you’re in consonance with MGNREGA as a theme, I mean the whole concept of providing... NK Singh: Not as a theme, I'm in consonance with the fact that India requires an employment/social security programme but whether MGNREGA is the best way of delivering it is a very questionable theme, because let us not forget the fact that India has become increasingly uncompetitive in terms of its comparative factor advantages. The cost of labour is misaligned with the productivity of labour, which has rendered India an uncompetitive market.

Govind: What about the schemes? What about the Food Security Act and other schemes? NK Singh: In the case of Food Security Act, certainly the Right To Food is something that morally would bind any right-thinking citizen but whether this is the best way of transporting huge quantities of food to very distant destinations, acquiring them, storing them, is a better way than, for instance, direct cash subsidy, and allowing progressively more market forces. I mean, after all, it’s recognised that the public distribution system has one of the most flawed systems. And yet we are putting a much greater burden on the public distribution system than ever before.

Govind: So you're saying direct cash transfers, properly targeted with identified recipients, is a much better way of giving out the subsidies? NK Singh: Certainly, and therefore that requires a restructuring of many anti-poverty programmes in a manner which would serve the poverty reduction theme much better than what has been done by UPA 1 & 2. Govind: Let me take a step back, what do you think the country really wants?

NK Singh: The country wants a decisive, stable, political leadership. The country wants a stable Government at the Centre. The country wants credible growth measures to revive the growth momentum, to revive investor confidence and green shoots of investment. Govind: Let me come to the operational part. So, what would be the first steps if one were to correct the anomaly of the flagship schemes of the UPA Government?

NK Singh: One of the things that you must deeply examine is whether India is in a position to afford, what I call, a new form of entitlement-driven welfarism. A few countries at this level of per capita income have undertaken this kind of legally enforceable welfarism that India has begun to practice. Have a very fundamental look at that, for instance, look at the fact that which would be the real drivers of growth and to look at the fact why have investors been put off from more investments in the country. How do we revive investor confidence, how do we revive the confidence of Indian entrepreneurs?  That requires institutional changes, which require changes in the way some of the regulatory framework has operated. Entrepreneurs in this country would routinely tell you that the bulk of their time is now either being spent in courts or in dealing with various enforcement agencies. whereas I have everything against crony capitalism, the fact remains that you can combine better enforcement of existing laws, check the evils of crony capitalism, and yet not kill the entrepreneurial spirit completely.

Govind: But you feel that can change that quickly? NK Singh: Well, the beginnings of change are as important as change itself. If we have begun to move in the right direction, I think that is likely to gather momentum. Govind: Let me ask you about two things. At least one factor is likely to cost the current Government these elections or at least maybe ensure that they don't get the kind of advantage that they had earlier, that is inflation. How do you think that, and that’s been a bogey that’s been around for a while, how do you think that a new Government if it were to come in, let’s say your Government if it were to come in, would tackle this.

NK Singh: Well, certainly I think one of the things it would want to tackle is much better supply side responses. This Government has concentrated exclusively or almost exclusively on the monetary policy, by squeezing demand out of the system. I’ve always felt that squeezing demand out is not the answer. The answer really lies in improved supply side elasticity. Supply side elasticity, reviving the manufacturing sector, manufacturing sector has undergone a zero rate of growth, very unusual for two consecutive fiscal years. So how to really genuinely get the manufacturing sector off the ground. How do we get much better responses from the agriculture sector than has been possible? I mean this Government has talked about agricultural reforms, but done next to negligible to improve agricultural productivity which has plateaued off at a particular point. So I think that the focus of the Government must be for improved supply side elasticity to manage inflation better, both in the short-term and more importantly to reverse inflationary expectations. To anchor inflationary expectations, people must realise, that there is credible supply side responses.

Govind: Right, so on retrospective tax for instance, do you think the BJP will actually signal or do something which could assuage the investors? NK Singh: Well, this certainly has been one of the concerns within the BJP, of how to undo the damage of what a retrospective changes in the tax laws have done to the investor psychology in this country and also the foreign investors. Govind: Foreign investors being one of the other signalling things but what if, let’s say the BJP were to come to power, what would be the first week’s agenda?

NK Singh: The sequence of events, when a new Government comes to office is, apart from securing a vote of confidence and so on and so forth, the first big thing that happens is the joint address of the President to the two houses of Parliament. And the joint address of the President lays down the agenda, not only for the first 100 days, but the Government’s medium-term agenda. That would, of course, be followed by a little break and then followed by the presentation of the budget because we have had only a vote-on-account but you’ll have a regular budget, perhaps sometime in July or so. That, along with the President's address, would really articulate the agenda of the new Government in the coming months and years.

Govind: Last question, the youth of India, they make up a large part of the voting populace and a large part of the population as well. Are parties like the BJP thinking about the youth? And if so, from your point of view, for instance, what is the vision for the youth of India? NK Singh: The most important vision is better life quality and better employment prospects by inculcating much better skills and more relevant skills, which can give value-added activity. Create hope and create expectations of a better India, which would improve the life quality in a very definite time frame.

Govind: Could you give us one step or instance that would let’s say demonstrate what could be done? NK Singh: Skill inculcation and upgrading their technology for skill inculcation with better employment prospects