Discussing economic reform with Shaktikanta Das
Updated: Jul 5, 2018
The changes are disruptive but disruptive changes are for the better in hindsight.
Chennai International Centre commenced its nineteenth event on 7th July, 2017. Having completed a year since establishment, CIC brought yet another engaging encounter in this wisdom sharing platform. Mr Venugopal Kasturi, director of Kasturi & Sons Pvt Ltd, committed board member and trustee of CIC informed us of this as he welcomed the gathering. He introduced the speaker of the evening Mr Shaktikanta Das, a 1980 batch IAS officer of Tamil Nadu cadre. He has served as the Economic Affairs Secretary of India, the Revenue Secretary of India and as the Fertilizers Secretary of India. Mr Das is currently is a member of the 15th Finance Commission of India, and India's Sherpa to the G-20. Mr Venugopal introduces the interviewer for the evening Ms Aarati Krishnan, columnist for Business Line newspaper and consulting economic editor, in-short, she would be a most suitable candidate to hold a discussion with Mr Das.
In this talk with the Ex-Economic affairs secretory of India, especially due to the time of economic reform in the year, the discussion fell exactly six days after the implementation of the Goods and Services Tax (GST) in the country. One would expect a lot of insight into what thought scheme went into this taxation policy and how it intends to be of benefit to the economy. And Mr Das did justice in giving meaning to the government’s moves- with regard to the GST and also the infamous demonetisation of Indian banknote. Ms Aarati explained how Mr Das had been the virtual face of Indian media during the demonetisation and how he could offer us a heightened insight into the overnight economic breakthrough. He had also been actively working with Swiss bank accounts in curbing offshore black money. Getting various states on-board for the GST reform. Mr Das had seen them all.
The discussion started off with Ms Aarati drawing real time observations of the economy’s state. She put out a set of statement points to which she let Mr Das give an unperturbed detailed addressing. Aarati made the following observations:
She stated that the economic Gross Domestic Product (GDP) estimate as given by a report is at a low of 7% particularly in the private sector of manufacturing and services. Also that it is sustained by government expenditure and agricultural rebound and questions as to why GDP is heavily dependent on government expenditure with a declining private investment rate of 2.4%. She also highlighted how monsoon plays an ever-significant role in the Agricultural industry.
With the implementation of GST, the difficulties that businesses faced- Whether they were transitory factors or are they’d have lasting effects.
On the job sector, she presented some statistics to say that 10 to 12 Million people joined workforce every year while only a fraction of the number, 2-3 Million jobs were being created. She also spoke of the tellable decline in major job sectors such as IT, Pharmaceutical and Export and asked how the government intended to act upon the situation.
That with demonetisation, large bouts of black money figures were set afloat. She pointed out a statement of the Finance Minister that 1.09 accounts received inputs above the 2 lakh mark. She enquired if this implied anything about the country’s fiscal regulations and if there were curbing actions, what they were.
Her next observation was on the supposed disintermediation of bureaucracy wherein government had been brought to the immediate online vicinity of common man via digital media- twitter, mygovdotin, etc. She sought a reply as to whether it was wise for the government to get involved with the general public on a one-on-one basis. With GSTIN automation and self GST filing, gap between taxpayer and administration slowly diminishing, was section of administration becoming obsolete?
Mr Das believed strongly that the economy looked robust and that the recent shifts in system with the demonetisation move and the GST enforcement the economy has only lent itself a good cleansing deed. Next, couple of solid proof was laid out to the gathering by the Ex-Economic Affairs Secretory along with sharp notes- that a 7% GDP is commendable for a nation that is developing fervently; Fiscal prudence and deficit target showed steady descending patterns from 3.9 to 3.2 that year; Government follow and up keep with Fiscal Responsibility and Budget Management Act.
Gross Domestic Product (GDP)
He took a minute to tell us how the Gross Domestic Product (GDP) estimate happened to reach an appreciable 7 point percentage organically, that may even go on to a 9 percent if trends went on likewise. And that quick fix mechanisms of reducing expenditure to meet budget targets was not employed, reflecting a stable government system. He commented on how India imported sizeable amount of fuel yet was not perturbed by fuel price hike situations thanks to shale oil involvement by the US.
That Mr Das was a person of the Finance Ministry or not, his speech carried an unmistakeable optimism when it came to backing the government and its laws. On the debateable game plan of the demonetisation coupled with the GST law enforcement, Mr Das pointed out that despite demonetization the last quarter of year 2016-17 showed appreciable VAT and Central Excise duty collections- which reflected good upkeep of trade and manufacturing industries respectively. He believed the country’s financial plan was in its initial hardship phase and for a system to bear fruit, it will take more than just a few months’ time.
When the CPI was Cut Back
Mr Das brought to memory a strategic move on the part of the government when the Cost Price index (CPI) was brought down when the ministry hiked the Minimum Selling Price (MSP) of the produce and consequently brought down the prices of pulses. Also how the overall CPI was brought down because of unfailing monsoons that year, and as food prices made up 48% prominence on the CPI.
Significant Planning by the Ministry
The subsequent part of his talk saw him give us jots of winning moments of the financial structure of the country. He gave us an anecdote of his visit to Yokohama to represent India at the Asian Development Bank (ADB) meet, where among other countries that had reforms planned to implement, India had already had key reforms incorporated into the structure.
Annual Financial Budget Release
Mr Das was all praise for the pre-emptive move by the Finance sector in releasing the annual budget on the 1st of February than the otherwise delayed month of May, thereby allowing the nation’s expenditure to promote ascending GDP figures. Same with how the Railway budget merger with the annual budget killed the need for any irrational spend of money. He was positive about the Highway sector and that the railways’ should have been rectified following suit long ago.
He outlined the Foreign Direct Investment and its Liberalisation Act and how relaxation of laws and partly automating the procedure was a game changer in bringing investments to India. And that it brought India more FDIs than China in the last year and noted that it was almost close to a feat; that it also salvages revenue, balancing the lack of investment by private sector as pointed out by Ms Aarati.
He touched upon the government’s earnest efforts at making the structure of the economy one of great benefit to public. In this light he listed out success schemes- easing of custom taxes, direct benefit transfer of LPG subsidy, Pradhan Mantri Jan Dhan Yojana, DBT scheme for Fertilizers, Amendment of RBI Act., Bankruptcy and Insolvency Act.
An Honest Take on Demonetisation
Demonetisation has initiated a process of ending the menace of fake currency notes and has dealt a solid blow to the entire black money syndrome in our country. GST adds to the efficiency of the process.
If his talk could have a midpoint, it was when he’d shared views on the demonetisation and the Goods and Services Taxation policy. With so much speculation of these reforms and their motive, the talk took a new beginning of sorts.
On demonetization and what big reform it made to the structure, he spoke on how supposed inflow of counterfeit currency notes from Bangladesh and how they funded terror attacks in the country was much smaller in comparison to the ginormous move of demonetisation. Yet it was done with the intent of placing human livelihood as the more significant factor than the initial discomfort of a new law system. And that considerable data mining was done to report that over two lakh accounts saw unwarranted transfers and they were all acted upon by the government by digital medium removing the need for physical interference thereby even complicating it further.
The currency note is an anonymous one. It does not belong to anyone. Nobody’s name is not written on it. It belongs to nobody until it is transferred into someone’s bank account. There is a name attached to every note that has come back into the bank now.
He spoke on how the ministry even played with the idea of using indelible election ink on the notes when they saw people approaching multiple banks with money on the same day.
The moment we announce indelible ink to be use, we can see the bank queues half in number.
Key Challenges Faced by India
Mr Das agreed in Ms Aarati’s observation that private investments are not that great in form and that a significant reason could be due to stressed assets in banks and that it is work in progress for the ministry to look at unmangling the situation even though steps have been initiated in this regard.
In answer to Mr Aarati’s statement at the beginning of the interview, that enough jobs were not being created, Mr Das mentioned that the statistics presented could not be taken up for discussion as they might be completely reliable. He raised a question as to how a nation could possibly bring out a 7-7.5% GDP estimate if enough jobs were not created. He insisted we take into consideration data that has been published from warranted information sources.
Toward the end of the talk our Former Secretory was patient in giving legitimate answers to questions raised from the audience on GST, demonetisation, even on the Defence Ministry and its funding.
The gathering was in the end well benefitted with Mr Das and his views on the Ministry of Finance, How he helped us get the larger picture behind what may have seemed much like an overnight move. His vision for the future is strong and sees the economic architecture of the country boom in the best way forward.