Blogspot – Page 17 – Gopal Krishna Agarwal

Why government must spend more

January 30, 2019

One does not need to go too far back in history to recollect the precarious situation of the Indian economy. When the current government took over in 2014, the declared fiscal deficit was at 4.5 per cent while the actual was estimated to be in the range of 5.5 per cent. The gap between these two figures was because the UPA government incurred off balance-sheet expenses like oil bonds (issued to the tune of Rs 1,42,202 crore and not reflected in government accounts), withheld income tax refunds and rolled over, to the next year, payments which would have ideally come in towards the end of financial year 2013-14. It was creative accounting at its best. Coupled with weakness on the external account, India was part of a group that was informally referred to as the “fragile five” — countries being the weakest links in the global economy.

The Modi government went about managing its financial affairs in a very prudent manner. Falling global oil prices were leveraged to generate better revenue for the government. Measures like demonetisation and the Goods and Services Tax (GST) were launched, establishing audit trail and ownership of money and simplification in indirect tax structure. Macroeconomic parameters like inflation and fiscal deficit have been contained, the current account deficit is manageable and foreign exchange reserves and GDP growth rates are inching higher. In doing so, the government has not sacrificed any essential expenditure. As per the publicly available data, the 2014-15 to 2018-19 period has seen the best combination of GDP growth rate (high) and inflation (low) than any other government in the history of independent India. Success on the macro-economic management front has been one of the biggest achievements of the Modi government and like many other achievements of this government, has been unduly ignored by the mainstream media. We are not only one of the fastest-growing economy, but also the sixth-largest economy in the world. PwC’s annual Global Economy Watch report projects India’s real GDP growth in 2019-20 at 7.6 per cent and accordingly, India is likely to surpass UK in 2019 rankings of world’s largest economies and occupy the fifth position.

The incumbent government is not chasing macro-economic parameters; you look for growth in the economy, hand-hold sectors that need support and do not chase parameters like a certain level of fiscal deficit. At the centre of all initiatives is the ordinary citizen of India and the goal is to ameliorate her condition of living. The target is to achieve a higher level of GDP growth and to make it as wide and participative as possible. In the roadmap for doing so, macroeconomic parameters are self-imposed road signs. These numbers are not sacrosanct. There may be times when we can justifiably ignore these limiting factors. Finance Minister Arun Jaitley has said in unequivocal terms that the government would consider ground realities while making its economic policies.

Currently, agriculture and allied sectors are facing some challenges due to lack of sufficient demand for their output. The Micro, Small and Medium Enterprises (MSMEs) sector is another segment that is facing headwinds due to lack of liquidity in the financial system and lack of demand. Increased demand brings in private investment and if there is resource constraint with the government, fiscal expansion is the way out.

The economy will grow only when there is sufficient demand. Government expenditure has increased tremendously in the last five years and sectors like steel and cement have benefited immensely. However, private consumption and investment demands need to increase further. For this there is scope for expansionary fiscal policies, particularly when inflation is low. Fiscal discipline during the last five years has been one of the best and has given the government the elbow room to boost expenditure. The government might consider measures like interest subvention on agricultural loans, direct cash transfer to farmers based on their landholdings, relaxation in income tax slabs for the lower-middle and the middle class and injection of liquidity in the financial sector to boost credit availability. These measures might put some upward pressure on inflation which might not be such a bad thing. Cash transfers to farmers are constrained by the lack of updated land records with the state governments and a way around it must be found. Such a transfer will boost demand for agricultural and non-agricultural products in the rural areas and help the agriculture and MSME sectors.

Governments and economies exist for the people and not the other way round. Accolades from foreign rating agencies and media cannot compensate for the suffering of the people and our government knows this very well.

Fruits of Focused Approach

December 18, 2018

The Modi Government’s focus on promoting in ‘Ease of Doing Business’ is driven by the philosophy of ‘Minimum Government, Maximum Governance’

The Doing Business 2019 Report of the World Bank has ranked India at 77th position in terms of ‘Ease of Doing Business’ (EoDB), an improvement of 23 ranks over the last year. In the last two years, India has improved its rank by a massive 53 positions and looks set to storm into Top 50 by next year, a target the Modi Government set, when it came to power in 2014. This improvement is being made possible because the Government believes that Indian youth are full of entrepreneurial energy, which the economy and the country were failing to harness and something had to be done about it and therefore it invested its political capital and energy in it.

Top 10 Most Reforming Economies

It is not only the improvement in ranking of EoDB, but India is amongst the top 10 most reforming economies. In fact, Djibouti and India are the only economies to make to the list of 10 top improvers for the second consecutive year. We have made significant achievement in ‘dealing with construction permits’ (184 to 52), ‘getting electricity’ (137 to 24), ‘trading across borders’ (126 to 80) and ‘resolving insolvency’ (137 to 108) from the year 2014 to 2018 respectively in these catagories. In fact, if we compare India’s ranking on the 10 parameters of EoDB for the year 2014 and 2018, we see we have improved on all the parameters except for ‘registering property’.

Reaching the Unreached

There are a number of areas where India can still improve its ranking to join top 50 nations. The work is already under progress in these areas and the results would be visible in due course of time. At present, we are at 137 rank in ‘starting a business’, at 166 in ‘registering property’, 163 in ‘enforcing contracts’ and so on. Proactive measures are being taken in these areas. For example, with an objective to have a faster resolution of matters relating to commercial disputes and to create a positive image about the independent and responsive Indian legal system, the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act was enacted in 2015 and commercial courts are being established. Even Insolvency and Bankruptcy Code whose effect is captured in ‘Resolving insolvency’ and GST whose effect is captured under paying of taxes etc, are in progress and will affect the ranking positively in the coming years. Some of reform measures like registration of property can only be addressed at the State level and the states are being encouraged by the Centre to do the same.

Concerted efforts have been made to eliminate the ‘Inspector Raj’ and simplify compliances further. Under the latest changes made by PM Narendra Modi for Micro Small & Medium Enterprises (MSMEs) under PSB-59 initiatives, factory inspections will be done only through a computerised random allotment and inspectors must upload their reports on the portal within 48 hours, giving reasons. MSMEs now are required to file one annual return for compliance for eight labour laws and 10 central rules. An Ordinance has also been promulgated to simplify levy of penalties for minor offences under the Companies Act, 2013 and in the coming session of the Parliament, the necessary amendment Act would be passed.

A concern has been expressed that the rankings capture only the improvements made in the cities of Delhi and Mumbai and ignores the rest of the country; this is a limitation of this ranking. But the Government’s focus is not limited to improving the headline grabbing EoDB ranking.

Effective Delivery of Services

Department of Industrial Policy and Promotion (DIPP) in collaboration with the World Bank launched an annual reform exercise for all States and UTs under the Business Reform Action Plan (BRAP). The aim of this exercise is to improve delivery of various Central Government regulatory functions and services in an efficient and transparent manner. The reform plan under BRAP expanded from 285 to 372 action points in 2017 and further to 405 points in 2018. States and UTs have conducted reforms to ease their regulations and systems in areas such as labour, environmental clearances, single window system, construction permits, contract enforcement, registering property and inspections. The focus on ‘EoDB’ has spawned off a culture where the states are competing with one another in the ease of doing business to attract investment to their states.

Improving Ease of Living The reforms being undertaken also feeds into the manufacturing sector focus of the Government and is therefore not limited to the parameters that go into determining the EoDB ranking. For example, compliance with labour laws do not figure in the EoDB parameters but the Government has still initiated a number of reforms to encourage the manufacturing sector. Under Ease of Compliance, Government has pruned the number of registers mandatory for all establishments to maintain under 9 Central Acts to just 5 from 56, and the relevant data fields to 144 from 933. Prime Minister has repeatedly said that he is focused on improving the ‘Ease of Living’ of Indian citizens and EoDB forms a small part of it. The larger goal is to create an ecosystem of transparent level playing field so that entrepreneurs have peace of mind and focus on business development instead of managing government department. Such an environment will also promote entrepreneurship.

New labour for new India

November 19, 2018

Any discussion on the unemployment challenge in India should be grounded in the following facts: One, the Indian economy needs to generate employment for about 5-7 million people that enter the labour force annually; two, over 90 per cent of the workforce has informal employment — they have neither job security nor social security; and three, there has been a growing infomalisation in the organised sector. Informal workers are the most vulnerable section of our society and the trade unions have focused their attention on only protecting the rights of workers in the organised sector.

The Narendra Modi government has tried to address the problems of the informal sector through a focused approach which rests on two legs. The first is to promote formalisation and the second is the provision of social security to those remaining in the informal sector.

The most important reform is the introduction of “fixed term contract” employment. According to the notification introducing it, fixed contract workers must be employed under the same working conditions (such as wages, working hours, allowances and other benefits) as permanent workers. Fixed-term workers are also eligible for all statutory benefits available to a permanent workman proportionately, according to the period of service rendered by him/her. Allowing fixed-term employment would help employers to respond to the fluctuating demand and seasonality in their businesses and facilitate the direct employment of workers.

Formal employment is also sought to be promoted by reducing the compliance cost for companies. Under the Ease of Compliance rules, the government has pruned the number of registers mandatory for all establishments to be maintained under nine central Acts to just five from 56, and the relevant data fields to 144 from 933. The government has also taken numerous technology-enabled transformative initiatives such as the Shram Suvidha Portal, universal account number (UAN) and national career service portal in order to reduce the complexity burden and ensure better accountability. In order to reduce the labour law compliance cost for start-ups, the central government has also managed to persuade state governments and Union Territories (UT) to allow self-certification and regulate inspection under six labour laws wherever applicable.

One of the major achievements of the government is the increased Employees’ Provident Fund (EPF) coverage. The Employees’ Enrolment Campaign (EEC) was launched by the government in January 2017 to enrol employees left out of the EPF and provided incentives to employers in the form of a waiver of administrative charges, nominal damages at the rate of Re 1 per annum and waiver of employees share, if not deducted. In this drive, close to 1.01 crore additional employees were enrolled with EPF Organisation between January to June 2017. The government also launched the Pradhan Mantri Rojgar Protsahan Yojana in 2016 (revised this year) under which the government will pay the full employers’ EPF contribution for three years for new employment.

The construction sector employs the highest number of casual workers outside of agriculture. As a result of the massive campaign and effort by the Union of India, state governments and UTs, the approximate number of building and other construction workers registered as beneficiaries under Building and Other Construction Workers (BOCW) Act up to March 31 has increased to 3.06 crore. The most important reform for this sector is the introduction of Universal Access Number (UAN). If a construction worker migrates from one state to another (which is common), the benefit of registration will not be lost due to the portability of the UAN. The central government also amended the Building and Other Construction Worker Rules, 1998, on December 29, 2017, so as to make the process of filing of the Unified Annual Return transparent for registered establishments.

The amendment of the Payment of Wages Act in 2017 introduced a provision that the government may, by notification in the official gazette, specify that an industrial or other establishment shall pay wages only through its bank account. A notification to this effect with respect to the railways, air transport services, mines and oil field sectors covered under central sphere has been issued on April 25, 2017.

The government is also in the process of finalising Labour Code on Social Security. The Code aims to simplify, rationalise and consolidate the hitherto fragmented laws into one consolidated law, which will be simpler both in terms of comprehension and enforcement. The code has drawn inspiration from the Constitution and follows a rights-based approach.

Historically, due to well-intentioned but poorly-designed labour laws, only a small section of India’s labour force has had job security and social security, while a very large section has had neither. The government has taken a number of steps to change this and the same is being reflected in monthly data released by EPFO, which shows that there is a shift from the unorganized to organized sector, and those remaining in the former will be covered under income and social security schemes.

Road map to affordable medicines

November 17, 2018

It goes without saying that no government can allow market forces a free hand in the pricing of medicines. Affordability of medicines has to be ensured so that no person in need of it has to suffer. This is especially true in India where a large number of people are still poor. The Narendra Modi government has been focusing on making medicines affordable by making them available through Jan Aushadhi Kendras, enabling price control of essential medicines, promoting prescription of generic medicines by medical practitioners and focusing on a conducive intellectual property regime (IPR).

Generic drugs

Generic drugs tend to cost less than branded ones. These drugs form the largest segment of the Indian pharmaceutical sector. The increasing prevalence of chronic diseases and ever-rising costs of hospitalisation and medicines are responsible for the growth of the generic drugs market. In this context, the National Health Protection Scheme (NHPS), also known as ‘Ayushman Bharat’, launched in 2018 — which seeks to insure 10 crore families for ₹5,00,000 — is expected to exponentially increase the demand for medicines. A well-functioning, end-to-end generic medicine supply chain will keep costs low.

Targeted implementation

An initiative to ensure affordable medicines through dedicated outlets was launched in the form of the Pradhan Mantri Bhartiya Janaushadhi Pariyojana (PMBJP) in 2008. The mission was to create awareness among the public about generic medicines and provide commonly used generic medicines and health-care products. However, as on March 31, 2012, only 157 stores were opened; later, many became non-functional. Till the end of 2014-15, there were 99 stores.

In 2014, the impetus came from the Modi government.A ‘Strategic Action Plan’ was prepared. The product basket now has more than 600 medicines and 154 surgical and consumables in all therapeutic categories. There are over 4,000 Jan Aushadhi Kendras in the country. These centres are gradually becoming ubiquitous and government-procured generic medicines are sold at prices that are between 50% and 90% cheaper than the branded medicines in the open market.

Directive on prescriptions

Due to sustained efforts by the government to put in place a legal framework to promote generic medicines, the Medical Council of India issued a directive in September 2016, making it mandatory — by amending the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 — to prominently mention the generic names of drugs along with brand names in prescriptions. There is an advisory to State drug controllers that all branded drugs, imported or domestically manufactured, should mandatorily have generic names mentioned in bold letters while packaging.

The instrument of price control is also being used to restraint companies from pricing their medicines exorbitantly. ‘Every few years, the Health Ministry, in consultation with experts, draws up a National List of Essential Medicines (NLEM). These medicines, deemed essential for the treatment of common conditions, automatically come under price control. Under NLEM 2015, a total of 376 drugs are under price control. In addition, the government has the power to bring any item of medical necessity under price control — paragraph 19 of the Drugs (Prices Control) Order, 2013. This provision was used to regulate the prices of cardiac stents and knee implants’. There has been an attempt by the government to strike a fine balance between the health interests of consumers and the financial health of Indian pharmaceutical companies.

India has also emerged as the low-cost supplier of medicines to other countries and is the largest provider of generic medicines globally in terms of volume. The Indian pharmaceutical sector industry supplies over 50% per cent of the global demand for various vaccines, 40% of generic demand in the U.S. and 25% of all medicines in the U.K. At present, over 80% of antiretroviral drugs (used globally to combat AIDS) are supplied by Indian pharmaceutical firms.

A serious threat to affordability of medicines comes from big global firms. These pharmaceutical companies and their governments have been trying to lobby with the Indian government to make patent protection more stringent despite the fact that both compulsory licensing and prohibition of evergreening, provided under the Indian Patents Act, 1970, are valid under the TRIPS agreement of the World Trade Organization. India has resisted any change in its intellectual property laws that can have the effect of making medicines unaffordable.

Pharmaceutical Industry in India- the Sunrise Sector

October 8, 2018

Indian pharmaceutical sector could be the next IT industry for our economy, both its ability to leverage our skilled manpower and to emerge as a global powerhouse. According to a report, in 2017 the pharmaceutical sector in India was valued at US$ 33 billion and in May 2018, the Indian pharmaceutical market grew at 10.8 per cent year-on-year. The country’s pharmaceutical industry is expected to expand at a CAGR (compound annual growth rate) of 22.4 per cent over 2015–20 to reach US$ 55 billion and is likely to be among the top three pharmaceutical markets by incremental growth and 6th largest market globally in absolute size. India contributes the second largest share of pharmaceutical and biotech workforce in the world.

The row over faulty hip-resurfacing system provided in India by Johnson & Johnson shows shortcomings in the legal and institutional mechanism to deal with quality issues in pharmaceutical industry. This episode has made it abundantly clear that global pharmaceutical companies would continue to treat Indians as second rate patient-customer. The conduct of Central Drugs Standard Control Organisation (CDSCO) in the whole affair also leaves much to be desired. India should use this experience to plug gaps in the legal and institutional framework applicable to the pharmaceutical industry and ramp up the working of the CDCSO. All these will bode well for the domestic pharmaceutical industry and place it on a firmer footing.

Generic drugs form the largest segment of the Indian pharmaceutical sector. A generic drug is a medication created to be the same as an already marketed brand-name drug in dosage form, safety, strength, route of administration, quality, performance characteristics, and intended use. Generic drugs tend to cost less than their brand-name counterparts because generic drug applicants do not have to repeat animal and clinical (human) studies that are required of the brand-name medicines to demonstrate safety and effectiveness. The market for the generic drug has been accelerated by increasing number of patent expiration of branded drugs and government initiatives in all the countries. Increasing prevalence of chronic diseases and ever-rising cost of hospitalization and medicines are responsible for the growth of generic drugs market.

India is the largest provider of generic medicines globally in terms of volume. Indian pharmaceutical sector industry supplies over 50 per cent of global demand for various vaccines, 40 per cent of generic demand in the US and 25 per cent of all medicine in UK. Presently over 80 per cent of the antiretroviral drugs used globally to combat AIDS (Acquired Immuno Deficiency Syndrome) are supplied by Indian pharmaceutical firms. Around 40.6 per cent of India’s US$ 16.8 billion pharmaceutical exports in 2016-17 were to the American continent, followed by a 19.7 per cent to Europe, 19.1 per cent to Africa and 18.8 per cent to Asian countries.

Apart from the global demand for Indian pharmaceutical products increase in the size of middle class households coupled with the improvement in medical infrastructure and increase in the penetration of health insurance in the country will also influence in the growth of pharmaceuticals sector. In this context National Health Protection Scheme (NHPS), also known as ‘Aayushman Bharat’ which seeks to provide insurance cover to 10 crore families for an amount of Rs. 5,00,000 is expected to be a watermark for the Indian pharmaceutical industry. A vastly improved access to medical facilities under this scheme to the hitherto excluded population is expected to provide a significant boost to the domestic health service and pharmaceutical industry.

Another threat emerges from manufacturing practices of some of the domestic pharmaceutical companies. As of 2016 there were around 10,000 generic manufacturers in India, of which only 1,400 were WHO GMP (Good Manufacturing Process) –compliant and only 523 of them were US FDA-approved. Now that the Indian companies have captured a significant part of the global generic drug market, it faces a very intense international scrutiny regarding its systems and processes. Any instance of poor manufacturing by one company is likely to attract global attention and affect the brand equity of Indian pharmaceutical industry as a whole. It is time that CDSCO sets higher benchmarks for quality standards for the drug and pharmaceutical industry.

A serious threat to the Indian pharmaceutical industry comes from its global counterparts. The big international pharmaceutical companies and their governments have been trying to lobby with the Indian government to make patent protection more stringent despite the fact that both compulsory licensing and prohibition of ever greening, provided under the Indian Patents Act, 1970, are valid under the TRIPS agreement of the WTO. It should not surprise us that India regularly figures on the ‘Priority Watch List’ of the Office of the United States Trade Representative (USTR) for providing ‘weak’ intellectual property protection. The annual ranking by ‘Global Innovation Policy Centre’ of the US Chamber of Commerce also ranks India poorly for its IPR climate. Any change in Indian IPR law made under foreign pressure will prove to be detrimental to the interest of the domestic companies. Another threat emerges from manufacturing practices of some of the domestic pharmaceutical companies. As of 2016 there were around 10,000 generic manufacturers in India, of which only 1,400 were WHO GMP (Good Manufacturing Process) –compliant and only 523 of them were US FDA-approved. Now that the Indian companies have captured a significant part of the global generic drug market, it faces a very intense international scrutiny regarding its systems and processes. Any instance of poor manufacturing by one company is likely to attract global attention and affect the brand equity of Indian pharmaceutical industry as a whole. It is time that CDSCO sets higher benchmarks for quality standards for the drug and pharmaceutical industry.

Regulatory complexity is another obstacle faced by the Indian pharmaceutical industry. One of the most commonly cited reason for the growth of Indian Information Technology industry is the lack of governmental interference. While such a scenario is not possible for the pharmaceutical industry considering it literally deals with matters of life and death, the regulatory burden can certainly be reduced. Currently, five ministries of the Government of India are involved in regulating drug and pharmaceutical industry. ‘Price control’ under which the Government fixes the maximum price that can be charged for a medicine also needs to strike a fine balance between the health interests of the consumers and the financial health of Indian pharmaceutical companies.

The bulk import of cheaper Active Pharmaceutical Ingredients (API) from China has led to an evisceration of the Indian manufacturing capacity in the sector. In order to ensure the long term health and independence of the Indian pharmaceutical industry, it is required that instances of dumping of API from China are quickly identified and remedial measures taken. It is equally important that issues that hobble Indian manufacturing are removed.

Gopal Krishna Agarwal

National Spokesperson of BJP on Economic Affairs

Member Board of Governors Indian Institute of Corporate Affairs (IICA)

gopalagarwal@hotmail.com

Petroleum Pricing in India – Economics override political expediency

October 6, 2018

Petroleum prices are always a contentious issue. Historically, political expediency overrode economic considerations. Central government has some compelling reasons not to interfere into market forces, which are currently being effected by global factors.

India imported 256.32 million metric tonnes of crude oil and petroleum products in 2017-18 and paid Rs. 6,52,896 lakh crore. The import dependence of India in the case of crude oil is over 80 percent. Further the Indian basket of Crude Oil represents a derived basket comprising of Sour grade (Oman & Dubai average) and Sweet grade (Brent Dated) of Crude oil processed in Indian refineries in the ratio of 72.38:27.62 during 2016-17. The price of Indian crude oil basket was $106.85 per barrel (1 barrel=159 litres) in May, 2014. It fell down to $39.88 per barrel in April 2016 and has gradually increased since then and is around $78 per barrel.

It is also important that we look into the tax structure and petroleum prices. On 3^rd September 2018, the price build-up for Diesel and Petrol in Delhi was as follows:

Sl. No.	Description	Unit	Petrol	Diesel
1.	C&F (Cost & Freight) Price (Moving average basis)	$/bbl	84.20	90.59
2.	Average Exchange rate	Rs/$	70.22	70.22
3.	Price Charged to Dealers (excluding Excise Duty and VAT)	Rs/Ltr	39.21	42.85
4.	Add : Excise Duty	Rs/Ltr	19.48	15.33
5.	Add : Dealer Commission (Average)	Rs/Ltr	3.63	2.51
6.	Add : VAT (including VAT on Dealer Commission)	Rs/Ltr	16.83	10.46
7	Retail Selling Price at Delhi- (Rounded)	Rs/Ltr	79.15	71.15

(Data from Indian Oil Corporation Limited)

With every dollar increase in the international price of crude oil, the cost of petrol and diesel in India increases by Rs. 0.50/ litre and a fall in the exchange rate of Indian rupee against US dollar increases the cost of petrol and diesel in India by Rs. 0.65/ litre.

The revenue generated by the taxes on petroleum products is very important for both the Central as well as State Governments. The contribution to central and state exchequer by the petroleum section is significant and in the last few years is as follows:

Year	2014-15	2015-16	2016-17	2017-18 (P)
1.	Contribution to Central Exchequer (in crore) through Tax/ Duties on Crude oil & Petroleum products	1,26,025	2,09,354	2,73,225	2,84,442
2.	Contribution to State Exchequer (in crore) through Tax/ Duties on Crude & Petroleum products	1,60,526	1,60,114	1,89,587	2,08,893
3.	Total Contribution of Petroleum Sector to Exchequer through Tax/ Duties (1+2)	2,86,551	3,69,468	4,62,812	4,93,335

We have to remember that, 42% of the Basic Excise Duty collection at the Centre is given to State governments for infrastructure and welfare programs and 60% of the balance 58% of the Basic Excise Duty collection is spent on Centrally Sponsored Welfare Schemes in the States i.e. total amount transferred to States is (42+34.8)= 76.8 percent. And every one rupee reduction in central duty leads to a loss on about Rs 14000/= crores to the central exchequer.

Earlier, Under Administered Price Mechanism (APM), petrol /diesel prices were not market linked and prices were being modulated, the steep increase in international prices of oil used to exert severe pressure on the oil marketing companies (OMCs). The retail prices of these commodities were kept below the cost resulting in large under-recoveries for OMCs. From the year 2004-05 to 2013-14, the total under-recoveries was Rs. 8,53,628 crores and there was significant subsidies for the same.

Year	Under-recovery (crore)	Cumulative Total (crore)
2004-05	20,146	20,146
2005-06	40,000	60,146
2006-07	49,387	1,09,533
2007-08	77,123	1,86,655
2008-09	1,03,292	2,89,947
2009-10	46,051	3,35,998
2010-11	78,190	4,14,188
2011-12	1,38,541	5,52,729
2012-13	1,61,029	7,13,759
2013-14	1,39,869	8,53,628

The subsidies for these under recoveries, during the period of 2004-08 when the international crude prices were increasing rapidly, proved grossly insufficient. Since the fiscal position of the Government was already precarious, it could not increase the subsidy to this sector. The UPA government then resorted to issuance of ‘oil bonds’ to the OMCs. These interest-bearing bonds called, The Oil Bonds were not even reflected on the balance sheet by the UPA Government, resulting in artificial measurement of the burgeoning fiscal deficit.

Between 2005-06 and 2009-10, the Oil Bonds worth Rs. 1,42,202 crore were issued by the Government with rate of interest ranging from 7.33 percent to 8.4 percent per annum repayable up to 2024-25 by successive governments. Oil companies have either sold these bonds or used them as collateral to raise cash. OMCs have sold oil bonds worth Rs 1,24,536 crore and had to bear a loss of around Rs 5,000 crore in selling of these bonds at discounted rate because the bond market did not have much appetite for these bonds. Till date the Government has repaid around Rs. 70,000 crore to the holders of these bonds and out of this amount, only Rs. 10,000 crore (approx) has gone into the repayment of the principal component and the rest towards the interest obligation. Thus the outstanding principal amount on these bonds is Rs. 1,30,000 crore. Most of these bonds will be matured by 2024-25, putting heavy burden on current as well future governments.

An important part of the solution to the problem can be focusing at the alternative energy source. In the year 2015-16, the source wise share in consumption of energy was as follows:

Sl. No.	Source	Share ( in percentage)
1.	Coal and Lignite	46.28
2.	Crude Petroleum	34.48
3.	Electricity from hydro, nuclear and other renewable sources	12.75
4.	Natural Gas	6.49

Therefore the policy of the Shri Narendra Modi government is to move towards renewable sources of energy. But one cannot readily switch between them and other sources of energy. To make our economy less dependent on oil would be a long drawn process, which can be accelerated by conducive government policies. Modi Government is working on this long-term solution.

It is evident than in order to reduce our dependence on imported oil, we need to generate more energy from coal and lignite, which we have in abundance and also focus on electricity generation from hydro and other renewable sources like wind and solar. Since the government is focussed on having 1 GWh of installed solar capacity by 2022, we will see an increase in its share in the source wise energy share in the coming years. Till then economic prudence should override political expediency.

Gopal Krishna Agarwal

National Spokesperson of BJP on Economic Affairs

Member Board of Governors Indian Institute of Corporate Affairs (IICA)

gopalagarwal@hotmail.com

Good Economics is Good Politics

October 5, 2018

Q1. The country is facing a challenging economic situation: a slowdown threatens, unemployment is at historic highs and manufacturing is at a standstill. How does the BJP propose to deal with the situation if it comes to power? What should be its top priority?

Answer 1. It is wrong to say that the country is facing a challenging economic situation. If you look at the macro-economic parameters they all are in a very good shape. Inflation is under control at around 4.5%. GDP growth is on a higher growth path, and is about 7.5 %. Fiscal deficit at 3.5% is under control. Current account deficit is also healthy. Tax to GDP ratio has increased to 12%. All this will allow the government to take necessary steps wherever required.

We understand that, if the economy has to grow on this strong foundation, we have to address many issues. We also have many opportunities arising from growing aspirational middle class. This middle class is having large money at its disposal for consumption and investments. One important consideration is our focus to reduce poverty to a single digit. The aspirational middle class and reduction in poverty will drive consumption demand in the economy. The top priority for the government would be to revive private corporate investment, which has been low for some years now. Once these engines work well, things like manufacturing growth and employment generation would be taken care of. Our focus will be on the manufacturing sector particularly MSME, which we have termed as the missing link. The government would be committed to take all the necessary supportive steps.

Q 2. The Goods and Services Tax (GST) has left enormous destruction in its wake. While it has formalized the economy, it has also increased the expenses of small businesses, and increased the potential of corruption. There is nothing a small trader fears more than the word ‘mismatch’. The Congress in its manifesto has promised a much more simplified version of the GST. How do you propose to do this?

Answer 2. Conceptually, no one has a problem with the GST. It does away with the multiplicity of tax structures, subsuming central, state and local taxes, it results in a reduction of indirect taxes for the consumer, it creates ease of doing business by online registration, filling of returns and assessment and creating one tax one market. For the consumer, it would reduce prices of manufactured goods, for the Government it would mean increased tax collection and fiscal consolidation and creation of a much simpler system to administer through GSTN network.

Small Businesses with aggregate annual turnover up to Rs 40 lakhs are exempt from GST. And those having annual turnover up to Rs 1.5 crore can avail the benefit of composite scheme by paying 1 percent tax and get rid of GST formalities.

Fear of mismatch is an initial hiccup, but is necessary to clean the indirect tax structure. It penalizes those who collect taxes but do not deposit it to the exchequer. Without the complete audit trail the gaps in the tax collection can’t be filled. To overcome initial problems of mismatch, government has been lenient and has allowed input tax credit on provisional basis. But ultimately black sheep in the system have to be weeded out.

India with such diverse income groups can’t have a single rate GST. We plan to integrate 12 and 18% GST slabs into a single 16 % rate with majority of items falling in this category. Only 6 item termed as sin goods remain in the higher 28 % slab. Essential commodities mostly food items are under 5 % tax slab.

With 30 GST council meetings, most of the demands for simplification have been accepted, like reverse charge. Anti profiteering provision has a sunset clause. And still if more modifications are required, government is open to those suggestions.

Q3. You have in the past expressed clear views about the role of the Reserve Bank in helping kick-start the economy. What should the RBI do now?

Answer 3. There are two issues with the way Reserve Bank of India has conducted its monetary policy and banking regulation. First is that the monetary policy committee (MPC) has always overestimated the future inflation in the economy as a result of which RBI has kept the benchmark interest rate at an elevated level. This was clearly not warranted by the level of economic activity in the economy. Second whenever the RBI cut the repo rate, it was not fully transmitted by the banking sector. As a result of these two factors the investors in India face one of the highest real interest rates in the world. Though we see an improvement in these areas in recent times, I would want RBI to continue working on these two issues. If they are taken care of, other pieces of the financial sector puzzle will fall in place and the real economy will benefit. The government and the RBI are working to resolve the issues at IL&FS and some NBFC.

The banks underwent cleansing via prompt corrective action or PCA. 6 banks are still under PCA they have to be corrected through Bank mergers or infusion of capital. We don’t need 27 public sector banks.

Q4. What are the direct tax reforms on the anvil?

Answer 4. The new government will present its first budget in July 2019. We are waiting for the report of the task force on direct tax simplification. Corporate tax has to be brought down in line with withdrawal of exemptions and incentives. Even basic income tax exemption limit has to be increased from Rs 3 lakh to Rs 5 lakh. We have promised to ensure reduced tax rates.

Earlier government had launched email-based assessment. This facility was included in e-filling portal. Later CBDT directed all cases barring certain exemptions to go for E-assessment. We would follow it up. E-assessment will help in removing widespread corruption in direct tax structure. It will smoothen the process and remove subjectivity. Income tax notices etc. will be generated through central database. The focus of all the steps would be to lower the effective tax rate for the payer and have a better compliance so that there is net increase in the tax revenue.

Q5. Should we expect another round of populist spending?

Answer 5. Your question presupposes a previous round of populist spending, which is not true. In the current term as well, there would not be any populist spending. Indians will have to understand the concept of Tax Payer’s money and its sanctity. These are governance issues involved with the exchequer.

Government is the biggest borrowers. Giving out doles, with this money will be inflationary and fiscal deficit will rise. If the government borrowing is used for asset creation, it expands the economy. When we say that in the next 5 or 10 years, we will go for 100 lakh crores of investment into infrastructure, it is sustainable and will help economy.

In fact, our focus has been on increasing the efficiency of government expenditure. For example better targeting through Jan Dhan account and direct benefit transfer (DBT)We did not announce farm loan waiver in our manifesto and still won with such a huge majority. We believe that good economics is good politics.

Q6. What should be the new government’s immediate big idea on economic management?

Answer 6. Financial resolution and deposit insurance (FRDI) has to be implemented. We also need Development Financial Institutions (DFI) to finance long-term gestation projects. We will certainly do that.

Big-ticket reforms in the factor market mobility; like land, labour and capital is very important for the industrialization of the country and would step in that direction. The Centre is pushing for digitization of land records and land lease agreement; it is helping in establishing ownership of land. On the labour front there have been efforts on the formalization of labour. 93% of our labour force is in informal sector. The working conditions in this sector are very poor. Provident Fund (PF), ESI, job security, social security etc. are not available. Government has plans for consolidated Labour Code and promotes fixed term contracts.

There is stress in the agricultural sector.

There is stress in the agricultural sector. Food grain production in the country has moved from shortages to surplus. But the Agricultural policies are still being formulated with a deficit mind set. We will drastically change this. Earlier all our commodity import export policy was aligned with the requirement of consumers. Our import export policies are being aligned to ensure that the farmers get better price for his produce.

Is Good Economics Bad Politics!

Economics relates to allocation of resources to various segments of the economy. It can tell you the methodology or the means of allocation of resources for enhancing production, efficiency in distribution and equitable consumption. There is always a tradeoff between competing demands in any economy as the resources are limited. Good economics implies following such economic policies that pushes the ‘Production Possibility Curve’ outwards. Politics can broadly be understood as the means to the political power. Success in politics is achieved by taking steps that increases the possibility of winning elections.

Good Economics ensures larger benefits to the large population. And if political parties work towards the wellbeing of large sections of society winning elections thereby, it is good economics and good politics. The effective communication with the electorate about the outcome of economic decisions and level of awareness & education of the citizens, determine, whether good economics is good politics.

In a democracy, where demands are generated by different stakeholders, there is a political cost to every decision. Technocratic prescriptions can ignore the political economy but a politician will always keep an eye on the political consequences of any economic policy.

Political cost to economic decisions can be reduced through better communication skills of leadership; successful leaders are generally good orators. Cost reduction can also be achieved by increased educational outreach and higher level of awareness amongst the electorate. The time frame for impact assessment of economic decision will also determine the correlation between the economic decision and its political cost. Because the result of some of the steps taken by the government might take years to be reflected in changed ground realities, but the elections have to be won every five years. In India the problem is further compounded by the fact that we have multiple elections at the Centre and the States.

At times, powerful interest groups with high stakes in maintaining status quo, exists within a Nation. Their own compulsions take precedence over economic decisions leading to bad politics. Sometimes divisive forces in a society raise their head and bog down the decision making process of the state, creating chaos. Existence of strong public institutions and pillars of democracy is a safeguard for decision-making process. The selection criterion for the right candidate by the electorate at the elections, influences the considerations for decisions of the political parties. In an ideal democracies good economics is always good politics, but rarely such situations exists, otherwise how you can explain farm loan waivers and subsidies instead of investing resources in infrastructure for better quality of life.

Mostly, the form of governance and prevalent political structure, determine, whether good economics is good politics. Nations should build sustainable institutions to; safeguard

minority interest and maintaining balance of power between pillars of governance and holding free & fare elections. Countries spending on education, transparency, information sharing and disclosers establish a healthy and a vibrant political system. Then alone a positive relationship between good economics and good politics is sustained.

By Political System we mean a system of government. Political System is a complex system of categories involving the question of who should have authority and ownership of resources and what the government’s influence on its people and economy should be? And Political Structure refers, to institutions or groups and their relations to each other, their pattern of interaction within political systems and to regulations, laws and the norms present.

Out Constitution specifically says that Political Democracy has no meaning till we achieve Economic Democracy. Economic Democracy means that the benefits of economic development reach to all the segments of society, across caste, religion and geography. This equity can only be achieved by good economics.

In a mature and just nation, Good Economics is Good Politics; Economic Democracy and Political Democracy coexist in an efficient governance model. If this healthy relationship is non-existent, then there is lot to be desired from the institutions, government, political parties and the citizens, all taken together.

Gopal Krishna Agarwal,

National Spokesperson for Economic Affairs, BJP

Email: gopal.agarwal@bjp.org

NRC: The Soul of Assam Accord

October 1, 2018

Opposition parties are once again looking for political opportunities in a situation, which has the risk of blowing up because of their incendiary rhetoric. Every attempt is being made to create a crisis where it does not exist. It is grossly premature right now to speculate on the future of the people who are being authoritatively identified as illegal immigrants. Religion, region and caste have always affected politics but governance has to be above it.

A perfectly legitimate exercise by the Assam government under an Assam accord has now led to a deplorable and condemnable reaction from the opposition parties. The Congress Party and its national president Rahul Gandhi must make his stand clear on the issue of illegal immigrants from neighboring countries. Historically, both Mrs. Indira Gandhi and Mr. Rajeev Gandhi had committed, that post 25th March 1971 migrants would be detected, identified and deported. It was the Congress that had agreed to the preparation of NRC but later did nothing in this matter because these immigrants were mostly Muslims and it cultivated this group as its vote bank.

For its vote bank, Congress was encouraging illegal immigrants left, right and center. It also tried to subvert Foreigners Act 1946 by bringing Illegal Migrant Determination by Tribunal (IMDT) Act, 1983 which was stuck down by The Supreme Court in 2005 in the case filed by the present Chief Minister of Assam, Sarbananda Sonowal vs UOI (2005), by stating that IMDT “has created the biggest hurdle and is the main impediment or barrier in the identification and deportation of illegal migrants”.

The Conduct of Congress in the whole affair requires a closer scrutiny. The IMDT Act had virtually made it impossible for the government to identify and deport illegal immigrants. The constitutionality of this Act was challenged in the Supreme Court of India, in the affidavit filed by the Assam Gana Parishad (AGP) led Assam Government on 28^th August 2000, stated that the State Government has been persistently writing to the Central Government that the IMDT Act was operating against national interest and therefore the Central Government should repeal the IMDT Act. In May 2001, AGP was defeated in the Assam elections and the Congress led government came to power. On 8th August, 2001, the Congress government of Assam moved an application in the Supreme Court praying that the State of Assam be permitted to withdraw the earlier affidavit and be allowed to file a new affidavit, stating that ….the IMDT Act is constitutional and there is no question of either repeal or striking down of the Act.”

At the Centre, The Atal Bihari led NDA government filed its affidavit in the matter on 18^th July, 2000, in which has it stated that a proposal to repeal the IMDT Act was under consideration of Government of India. However, after the Congress led UPA government came to power at the Centre in 2004, another affidavit was filed in the matter on 24^th November, 2004 wherein it was said that though in the earlier affidavit a prayer was made to examine the constitutional validity of the IMDT Act, but on reconsideration the Central Government had taken a decision to retain the IMDT Act in present form in its application to the State of Assam. Ultimately Hon’ble Supreme Court stuck down IMDT act in 2005. The Court further observed: “The dangerous consequences of large scale illegal migration from Bangladesh, both for the people of Assam and more for the Nation as a whole, need to be emphatically stressed. No misconceived and mistaken notions of secularism should be allowed to come in the way of doing so”

It would not be an exaggeration to say that at the root of every socio-politico problem in the country lies the myopic politics of the Congress. The flip-flop resulting from this myopic vision is evident on its stand on Triple Talaq, Supreme Court judgment on maintenance to Shah Bano, illegal immigrants from Bangladesh, Ram Temple at Ayodhya, plight of Kashmiri Pundits, Minorities having the first right on the national resources, etc. Communalizing Indian politics to the core.

Similarly, Ms. Mamta Banerjee’s ambitions have also pole-vaulted in recent times; she sees it as an opportunity to consolidate her Muslim vote-bank in West Bengal. She has dishonestly compared this as a restriction on interstate movement of citizens of India and is trying to make it a Hindu-Muslim issue. We hope she explains her stand on the issue of illegal immigration from Bangladesh. Earlier on 4^th August 2005, she had stated in the Lok Sabha: “The infiltration in Bengal has become a disaster now. You can see the Bangladeshi as well as the Indian names in the list. I have both the Bangladeshi and the Indian voters list. This is a very serious matter. I would like to know when would it be discussed in the House?”. The silence and ambivalence of other political parties like the CPI, CPI (M), BSP, SP, RJD also reeks of hypocrisy.

Under governance parlays, how much does it matter if 70 percent of the people left out from NRC are from the Muslim community? After all, the illegal immigrants, who came in hordes into Assam, are not refugees. The movement under the banners of AASU AAGSP had emerged because the unabated influx of illegal foreigners in to Assam had raised substantive fears in the minds of the local people about its adverse effects on their social, political, cultural and economic life. The 2011 Census of India shows Assamese-speakers have become a minority in their home state. Between 1991 and 2001, their population had declined from 58 percent to 48 percent. In terms of religious communities, the Muslim population of Assam had increased from 25 percent in 1951 to 34 percent in 2011.

All political parties should express their stand on the issue of illegal immigrants into India in no uncertain terms so that we all know where they stand on this matter. Fear mongering and hyperventilation would not serve the interests of the nation, as would keeping quiet on the issue.

Gopal Krishna Agrawal

National Spokesperson of BJP

gopal.agarwal@bjp.org

The Economy Deplomacy Is a Key To Enhancing Nepal – India Relation

September 16, 2018

Gopal Krishna Agrawal,

Gopal Krishna Agrawal is the National Spokesperson on Economic Affairs for ruling Bhartiya Janata Party of India. How does he see Nepal-India economic relations? How can this relation be enhanced? Mahavir Paudyal and Kosh Raj Koirala spoke to him on Nepal-India economic ties and other aspects of bilateral relations while he was in Kathmandu last week.

How do you see the current status of Nepal-India relations?

We are working on making Nepal-India relations much better than what it is today. Nepal is very important country for India’s international relations. This is why Prime Minister Narendra Modi visited Nepal right after assuming office in 2014. We find so many common issues with regard to economy between Nepal and India. Thus we can have a very good business and economic relations. Economic relations are much important for these countries because economic relations are becoming more important between and among the countries across the whole world. Economic issues can be more easily identified and they are as easier to resolve because they are based on give and take and mutual benefits. There will be few contentions in business relations than would be with political relations. You say so but Nepal has had huge trade deficit with India.

I was recently speaking on foreign direct investment issue here in Nepal. Across the world, every country is looking to attract more FDI. FDI is one of the criteria which decide what will be the future of country’s economy. It is important for capital formation and building of infrastructures. India has been successful in attracting huge FDI over the last few years. We have been able to get 62 billion dollars of FDI, which is the highest FDI across the world. But a country cannot raise FDI rate simply by asking others to come and invest. Most of such investments come from the private sector. And private investment comes to those places where you have strong regulatory bodies. They look into which regulatory set ups are there that can come to their aid when something goes wrong with business. Foreigners are ready to invest in India because we have strong and autonomous set ups in many of the fields such as banking, capital market, insurance, telecommunications etc. For each of these sectors, we have a separate regulatory body to boost the confidence of the investors.

Thus the more you build autonomous and independent regulatory institutions the more it will raise confidence of foreign investors. And the more you will be able to attract FDI. I think this applies to Nepal as much it does to India.

The importance of FDI is obvious but how can Nepal reduce trade deficit with India?

One of the ways would be if the two countries maintain relations with industrialists with both sides, instead of focusing on only government-to-government relations. It’s better for Nepal and India to organize bilateral economic conclaves at a reasonable frequency so that they can discuss issues and find solutions. Private sector bodies of Nepal can have direct contact with Indian investors through Indian business organizations. If they talk with each other directly, many things can be settled. The government of Nepal can also communicate their policies directly with the Indian industrialists. If Nepal establishes direct contact with Indian industrialists, it would know their concerns and also find out the factors that have hindered investment in Nepal. The government will also come to know directly what their concerns are and how those concerns can be addressed. Equally important is to incentivize the investment. Creating Special Economic Zones, cluster development models, integrated supply chain models with global suppliers etc are some incentivizing factors. They have done a lot for India. Such ideas might be as useful for Nepal.

Many Indian investors are willing to invest in Nepal. Nepal has a lot of hydro potentials. After the success of Arun III more companies are interested to come to Nepal and invest. Indian companies are also interested to invest in tourism, education and many other sectors. Private education industrialists can set up their institutions in Nepal. If two countries have good business relations it will directly contribute to minimizing tensions, if any, on diplomatic and political fronts. Economic diplomacy can become a key tool in further enhancing Nepal-India relations. This is what is happening globally. Leaders across the globe are now more focused on economic issues. Through economic cooperation and considerations it is easier to build better diplomatic relations.

The demonetization drive was criticized by some sections at one time. How has it helped Indian economy?

You cannot look into any initiative in isolation. When our party took over, there was a problem with regard to tax compliance and large part of business transaction was not being channeled through financial institution mechanism. There was a need to push transaction through digital banking. We had to establish the audit trail of business transactions. And there was a need for identifying the concerns of liquidity and the issue of shifting the informal sector into formal sector. Several other steps together with demonetization helped into creating an ecosystem whereby we are moving informal sector into formal sector. The GST could not have been as successful if we had not made concerted efforts to moving towards digital economy and digital banking.

Cumulatively, demonetization has created an ecosystem that has greatly helped minimize corruption. We have been able to establish audit trail of all transactions. The government has deregistered around four hundred thousand companies found in money laundering. Because of these steps, we now have more transparent and corruption-free eco system and it’s easier to do business in India. Most of all, tax compliance has increased, thanks to audit trail.

Demonetization has affected a lot of Nepalis. The government of India has refused to exchange Indian currency possessed by many Nepalis.
I think this is for Reserve Bank of India to decide. Central banks of Nepal and India should work to resolve issues related to Indian currency in Nepal.

One of economic issues in India at the moment is depreciation of Indian rupees against US dollars. This might have direct bearing on Nepali economy for our currency is pegged with Indian currency.
Rise of petroleum price and depreciation of Indian rupees against dollars are two issues facing us at the moment. There are global factors behind it. This could have been addressed by direct intervention by the central bank but the government has decided it is not yet time for intervention for domestically we are in better situation. Our GDP grew by more than 8.2 percent. Inflation is well under control. It is 3.6 percent at the moment. Our foreign exchange reserve is more than 24 billion dollars, which is very healthy. Our current account deficit is well within the limit. And we are getting a lot of FDI. Depreciation is largely driven by external factors. Our domestic factors do not require us to act for immediate strong measures.

Exporting ginger to India from Nepal has rarely been a hassle-free undertaking. Now and then Nepal-bound containers are held up in Kolkata port.

You should not take one or two sporadic incidents and make a judgment. The intention of the Indian government is very clear. Our focus is on smooth trade between the two countries and establishing even better connectivity for this. We are developing connectivity infrastructures including with Nepal to enhance trade relations. India has put BBIN in priority for the same purpose. The government is open to resolving all kinds of issues. Media reports sometimes create completely different perceptions. We need to read them critically. We have good trade relations even with countries with which India does not have so special relations. We have special relations with Nepal. There is no reason why we cannot have smooth trade with the neighbor with which we have a special relations.

One of the persistent concerns of your party has been regarding Hinduism in Nepal. One of the former Nepali prime ministers recently said India imposed blockade on Nepal in 2015 because Nepali leaders failed to address India’s concern related to Hindu state.

I think it is unwise to link what you call blockade with Hindu concern. Indian government has consistently denied blockade. Yes, India showed some concern for people of Tarai but at the same time India has always maintained that it’s up to Nepal to do whatever is best for Nepal. The opinions of general people should not be equated with opinions of the government. As for Hindu state, we had always appreciated Nepal as a Hindu state because over 85 percent of Nepalis are Hindus. India is also a Hindu dominated country. So there have always been positive sentiments among Indians regarding Hindu state status of Nepal. But that too, like I said, is the public opinion. India is a secular country. We cannot say what should be the status of Hindu religion in Nepal. It’s for Nepal to decide. The government does not have any position on this. What individual leaders say are individual opinions. They should be understood as such.