Chief Economic Advisor Arvind Subramanian said on Tuesday that the rate of poverty reduction achieved during the five-year period from 2005-2006 to 2011-12 was the fastest in the history of the country.
Addressing a press conference on the state of the economy to mark the one-year anniversary of the Modi government, he made a strong case for an aggressive interest rate cut by the Reserve Bank of India, which is scheduled to announce its Monetary Policy review on June 2, and also said that there was a need for the Modi government to find ways of relieving the distress in rural incomes.
“In the last few years, our economy has not done as badly in reducing poverty as some people will have us believe…. It was due to the fast GDP growth,” Dr. Subramanian said of the five-year period from 2005-2006 to 2011-12 during which the Dr. Manmohan Singh-led UPA Government was in office. He listed the policy steps the Modi government took and said: “In one year you can argue that more could have been done or that it could be done faster but I think the reforms agenda has been substantial.”
Not much pick-up in new projects
Giving what he called an “interim update” of the economy, the CEA said that though the number of stuck projects was coming down, there was not much pick-up in new projects. “We need to identify the reasons why projects are stalled and find the mechanisms to unblock them…. the private sector is not investing in new projects as a legacy of the boom period.”
In the short term, economy needed support to boost consumption and private investments for stronger growth, Dr. Subramanian said. “Looking at the analysis of what is the inflation forecast, what is the fiscal consolidation, what is the international environment...and how monetary policy should respond, I think there is scope for monetary easing,” he said. He also cited the low rate of inflation and under control fiscal deficit and said that India must act to keep its currency competitive in view of aggressive rate cut policy of China and other countries. “China is cutting interest rates quite aggressively. That makes their currency even more competitive and has implications for Indian exports as well as imports from China and manufacturing on the whole. So we need to respond accordingly.”
Giving an indication of the differences of opinion within the Modi government on its Goods and Services Tax (GST) proposal, Dr. Subramanian said that the move to allow manufacturing States to levy one-per cent additional tax on supply of goods as part of GST has the potential to undermine the Make In India initiative. “While GST is a destination-based tax, the one-per cent additional tax is proposed to be origin-based tax which is against the concept of GST…. It will undermine the Make In India by encouraging imports rather than inter-State movement of goods… We should use the time we have got [while the select committee examines the GST bill] to re-examine it.”
The additional one-per cent tax to the integrated GST, or IGST, was allowed to be imposed after producing States like Gujarat and Maharashtra argued that they will lose out to consuming States as the GST would be collected at the point of consumption rather than the place of production.
Here are the key points from Mr. Subramanian's analysis :
|1||The rate of poverty reduction during 2006 to 2011 was the fastest ever due to the fast GDP growth.|
|2||Number of stuck projects coming down but not much pick-up in new projects.|
|3||We need to find ways of relieving the distress in rural incomes.|
|4||In the last few years our economy has not done as badly in reducing poverty as some people will have us believe.|
|5||Private sector isn't investing as a legacy of the boom period.|
|6||In one year more could have been done but I think reforms agenda has been substantial.|
|7||Interest rate cuts in China and elsewhere in the world making Indian exports, manufacturing uncompetitive.|
Arvind Subramanian: when rural incomes r under stress first thing govt needs to do is emergency measures >@the_hindu— Puja Mehra (@pujamehra) >May 26, 2015
Arvind Subramanian: Cut backs in expenditure last year were due to expectations of revenue shortfall; hoping this yr won't be so >@the_hindu— Puja Mehra (@pujamehra) >May 26, 2015
Arvind Subramanian: If the new GDP numbers are puzzling then I find the employment numbers even more difficult to understand >@the_hindu— Puja Mehra (@pujamehra) >May 26, 2015
Arvind Subramanian: in the short term economy needs support to boost consumption, private investments for stronger growth >@the_hindu— Puja Mehra (@pujamehra) >May 26, 2015
Arvind Subramanian: with 14th FinCom implementation, reduction in India fiscal deficit (Centre+States)=0.4%, a collateral benefit >@the_hindu— Puja Mehra (@pujamehra) >May 26, 2015
Arvind Subramanian: Everyone and his uncle is giving views and updates on the economy so I thought I will give an interim update >@the_hindu— Puja Mehra (@pujamehra) >May 26, 2015