New Delhi: The labour reforms brought in by the Narendra Modi government, coupled with those in the Micro, Small and Medium Enterprises (MSME) sector and the new production-linked incentive scheme can change India’s industrial sector and lead to a surge in exports, NITI Aayog Vice-Chairman Rajiv Kumar told ThePrint in an exclusive interview.
The purpose of all these ideas is to boost manufacturing, at a time when India has suffered an economic contraction on account of the Covid-19 pandemic and the lockdown. Last week, the National Statistical Office predicted the economy will contract by 7.7 per cent in financial year 2020-21, the worst mark ever.
However, with the Union Budget just under three weeks away, Rajiv Kumar said: “A small positive growth can be expected in the January-March quarter. And India’s fast economic recovery will surprise everyone in 2021-22.”
In this wide-ranging interview, Kumar spoke on many other key issues, such as India deciding not to join the Regional Comprehensive Economic Partnership (RCEP) trade pact, and the need to promote natural farming.
The NITI Aayog vice-chairman also stressed on the need to usher in two key reforms in the financial sector — creation of an overarching entity to mobilise resources for infrastructure development, and increasing the number of specialised banks that could pointedly assess and manage risks in specific sectors.
Here are excerpts from the interview.
On labour and MSME reforms
Twenty-nine central laws have been crunched into four labour codes — on wages, passed in 2019; and on working conditions, social security and industrial relations, passed in 2020.
“Essentially, they (the labour reforms) have greatly simplified and rationalised labour policies in our country, and the impact will be very positive because these provide a lot of flexibility to the employers, and at the same time, a much better social security net for the workers,” the economist said.
“One of the impacts (of the reforms) will be to bring in a much larger number of workers into the formal sector, so they will benefit as well,” he continued.
The definition of MSMEs was also revised as part of the government’s stimulus package announced under the lockdown, the turnover limit for a firm to be classified as an MSME being increased to Rs 250 crore from Rs 25 crore.
“These reforms will really allow the firms to grow. The whole issue of Indian firms remaining dwarfs will finally be addressed, and this will permit Indian companies to become part of the regional production networks,” Kumar predicted.
He also put the onus on states to implement these reforms. “States will soon realise that they will lose investment if they don’t undertake or implement these reforms. So, I think, the states will come forward,” he said.
On PLI scheme
The PLI scheme worth Rs 1.46 lakh crore was announced in November for 10 sectors, and Kumar called it a historic step forward.
“Never before has the government taken measures to encourage individual companies by giving them fiscal incentives as long as they achieve the results that they have promised. These results have to be in terms of achieving global scale of operation and the exports that they will achieve,” the NITI Aayog vice-chairman said.
“Each ministry is looking after a particular sector, and designing its own incentive structure and criteria. The ministries are in consultation with the NITI Aayog, and we are helping them in whichever way we can. Each sector has its own special characteristics, so that the PLI schemes will be designed differently. But the main feature remains the same — they will encourage attainment of global scales, global competitiveness, and high export shares,” Kumar explained.
Recently, Credit Suisse has estimated a 1.7 per cent increase in India’s GDP by 2027 as a result of the PLI scheme. But Kumar said it was probably an “underestimate”.
On sectors which should be targeted for exports
Rajiv Kumar mentioned some key sectors to be focused on when it comes to boosting India’s exports.
“There are some very obvious candidates that have already done very well. In auto components, mobile telephones and garments, where we have lost market share, we can regain it; in gems and jewellery, we can improve access to credit, and as we do that, their exports can be ramped up very quickly. Then, there is the pharmaceuticals sector, in which our exports can grow in a very big way. Handicrafts can be very big and high value-added,” he said.
“I think it is important to focus on some of these sectors, and make a conscious effort to increase our share in the world market because that will be the key, rather than having a very dispersed approach. Look at the PLI sectors; in each of them, there is a possibility of ramping up exports,” he added.
On Modi govt’s fiscal response to Covid-19
Kumar said with the benefit of hindsight, it’s “very clear” that the steps the Modi government took during the Covid-19 pandemic and the lockdown has “engendered a much stronger economic recovery than what was expected”.
“At least at this point of time, one should not second-guess the government on the scale and nature of its fiscal response. The fiscal and monetary policy reform have to be taken together; they have been adequate in bringing back the economy on track, so much so that you can now expect a small positive growth rate even in the fourth quarter of this year from January to March,” Kumar insisted.
“Overall, (growth) will be negative, between 7 to 8 per cent, but in the fourth quarter, it could be a small positive growth rate. This has laid the foundation for a faster recovery in 2021-22; India will surprise everybody by the strength of its recovery going forward,” Kumar said.
“As the honourable finance minister has said, if more fiscal stimulus is needed, it will be directed at infrastructure, where the multiplier effects are much greater and employment generation is much higher. And I think, as you might see in the Budget, if this comes forth, this will provide further impetus to strengthening the economic recovery,” he added.
On India staying out of RCEP
Fifteen Asia-Pacific countries including China, Australia, Japan, South Korea and South-East Asian nations, signed the RCEP in November 2020, but India chose to stay out of it.
Giving his own view on the issue, Rajiv Kumar said: “We need to look at our own competitiveness, and take steps to reduce the cost of logistics, energy, make the labour market more flexible, and achieve global production scales. If we achieve that, then the problem of becoming a part of regional production and trade chains won’t be a real issue.”
The need of the hour, Kumar propounded, is to focus on India’s domestic supply-side issues, and make things more efficient, competitive, and globally scaled.
“If we achieve this, we can form other trade pacts with Europe, Australia, and so on. And I don’t agree that walking out of RCEP has moved us out of the Asian production chain, because we have agreements with ASEAN, Thailand, South Korea, Japan, Sri Lanka… which give us ample space. So, it is wrong to say that by opting out of RCEP, we have walked out of global markets. Not at all,” he said.
“We have trade agreements, but these trade agreements will become useful to us when we take the measures I spoke of on the domestic side, and make our firms more export-oriented.”
On how to boost funding for infrastructure
Kumar said India needs an entity that can mobilise resources for infrastructure development, because the current situation of scheduled commercial banks giving money for infrastructure projects leads to what is generally called ‘asset-liability mismatch’.
“The private debt-to-GDP ratio in India is very low at about 50-53 per cent, while in other countries it is about 100 percent. That is also because there is not a robust-enough mechanism to extend private debt to large projects,” he pointed out.
“We had the India Infrastructure Finance Company Limited… (we need) something along those lines, but much more resourced and strengthened,” the NITI Aayog vice-chairman added.
On need for more specialised banks
Another reform within the financial sector that Kumar recommended is to improve the competition within the banking sector by either having a larger number of banks or getting banks to specialise in particular sectors.
“For example, one could possibly have a bank which specialises in the credit needs of the small and medium enterprises, or one which specialises in the agriculture sector. Basically, you need to develop better risk assessment and risk management capacity in the banking sector. Now, that can often happen if you have specialised in one segment or the other,” he said.
On reducing regulatory & compliance burdens on firms
Rajiv Kumar also talked about another “big reform” — reduction in the regulatory and compliance burden on companies — which would bring “real improvement” in the ease of doing business.
“According to some estimates, there are over 63,000 regulatory and compliance requirements if you add up all of the states. The NITI Aayog is working closely with the states to roll back the compliances one by one, just the way the central government did away with its 1,200 redundant laws,” he said.
On idea to merge allopathy, homoeopathy and Ayurveda
Kumar also went on to deny speculation that the NITI Aayog is considering merging allopathy, homoeopathy and Ayurveda.
“There is a committee within the NITI Aayog to look at the advancement of integrated medicine, which does not mean a merger or ‘mixopathy’ as it is being called,” he said. “What is desired here is that the practitioners from all disciplines know what the others are doing, and there is a more seamless interaction between them, and the proven qualities of one can be used by the other for the benefit of the patient.”
“The traditional medicine system has advanced a great deal in China, and they have made sure that some of those cures and medicines are even US Food and Drug Administration approved. In our case, that has not happened. So, what we need to do is give the AYUSH professionals the same standing as the so-called ‘modern’ doctors, and for them to be on the same page in their training,” he continued.
“What’s also required is rigorous research-based evidence for the performance of traditional medicine. A committee is working under the chairmanship of Dr V.K. Paul (member, health, NITI Aayog), and it has a very large and full representative membership towards trying to promote integrative medicine in India,” Kumar said, welcoming the move to let Ayurvedic doctors to work in primary healthcare, and suggesting they be given compressed courses in basic diagnostic skills to boost India’s low doctor-patient ratio.
On push for natural farming
Another big reform the NITI Aayog is trying to work on is to make agriculture chemical-free, known as ‘natural farming’.
“This method has proved that you can achieve the same if not higher levels of yield even by making your agriculture free of chemicals, pesticides, or fertilisers, whose overuse has now quite visibly caused problems across the health chain,” Rajiv Kumar said.
“This also reduces the water consumption in agriculture because such crops are enabled to absorb the moisture from the air, and the atmosphere has seven times the amount of water present on the surface and underground,” he explained.
“The quality of the agricultural products produced in this way is far superior. Reducing the cost of agriculture while keeping the income the same will help farmers significantly improve their net incomes,” Kumar added.
Thanks to the efforts of the NITI Aayog, the Indian Council of Agricultural Research (ICAR) and the International Council for Research in Agroforestry (ICRAF) have signed an MoU to undertake research, collect evidence on the outcome of natural farming, and do field experiments, he informed.
“I have written to 14-15 agriculture universities asking vice-chancellors to start field experiments on these. As hard evidence emerges, farmers will shift to natural farming,” he said.