'Biggest challenge in reforms is exit'

Arvind-Subramanian-CEA Chief Economic Adviser Arvind Subramanian addressing a press conference on Economic Survey 2015-16, in New Delhi on Friday | PTI

Chief Economic Adviser Arvind Subramanian believes that one of the biggest challenges in the area of structural reforms is that of exit from failed ventures. He was addressing the media after the Union Finance Minister Arun Jaitley had tabled the Economic Survey in Parliament.

Terming it a “chakravyuh”—the mythological maze, exiting which is near impossible—he said the thought of an exit being impossible is “all pervasive in the Indian economy”. He talked about the other big challenge of “twin balance sheets”—of the public sector banks and those of the corporates. He said that had it been possible or easy for some of the companies with poor balance sheets to exit from failed ventures, the balance sheets of the public sector banks could look better.

The Economic Survey talks of four 'R's—recognition, recapitalisation, resolution and reforms. “Banks must value their assets as far as possible close to true value (recognition) as the RBI has been emphasising; once they do so, their capital position must be safeguarded via infusion of equity (recapitalisation) as the banks have been demanding; the underlying stressed assets in the corporate sector must be sold or rehabilitated (resolution) as the government has been desiring; and future incentives for the private sector...,” it said.

Subramanian, however, was confident that the government would bring in laws pertaining to bankruptcy to address this challenge.

The Economic Survey maintains that agriculture, which is cereal centric, regionally concentrated and input-intensive on account of policies, would have to concentrate on pulses and oilseeds, spread regionally and accept a policy of “more from less”, for greater integration with the market. The subsidy for urea, though “very big”, was so hurt by black market forces and leakages that 80 per cent of small farmers buy it at prices more than the MRP, and at least 50 per cent more than the market prices.

The survey points at different pricing for power, where, in the same town or city, there was one tariff for mushroom growers, another for municipalities and yet another for municipal corporations.

Talking of exemptions in direct taxes, the CEA said the benefits were flowing to the “mega rich”. The well-off people were also benefitting to the extent of Rs 1 lakh crore on subsidies in kerosene, railways, electricity, LPG, gold and aviation turbine fuel, he added.

He said that while there was scope for easing the monetary policy rate, the rate cut had not been passed down since October, possibly because of liquidity tightening.

The pending agenda for the government is—GST apart—strategic disinvestments, sorting out the issue of twin balance sheets and subsidy rationalisation.

Advocating targeting the Indian market, the CEA said a medium term—which he defines “not this year, but in the next 2 to 5 years”—has to be the international markets, which is always bigger than the domestic market.

Has he been overcautious in projecting a real GDP of 7-7.75 per cent for 2017? The CEA pointed to the global scenario as well as the fact that the “windfall” of falling oil prices cannot be counted upon. “The decline in oil prices will be half of what it was in 2014-16.

"That will be factored into the budget,” he said, declining to get into the issue of a gradual or aggressive fiscal consolidation for growth, with a “wait till Monday”. But what he did share was there that had been “a lively and rich debate on this within government”.

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