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    Hello and welcome to the webchat with Mihir Sharma on the government’s reform push post the Bihar election


    Hello, everyone

  • S


    Concerns expressed by the Congress on GST are rational, such as statutory dispute readdress body, opposing extra levy of 1%, cap on tax rate around 18%. Rather than revenue neutral rates, why is the government not accepting the demands, which may provide greater economic growth?


    Some of the concerns of the Congress are certainly rational - for example, the 1% levy. I have argued here that it would be better this moth-eaten version of the GST not pass. But the government feels - perhaps with some justification - that the Congress also just wants to delay GST to make the NDA look weak. Some other component's of the Congress' demands - such as putting the 18% cap in the Constitutional amendment itself - are unjustified. (The govt also knows that accepting some of the demands will mean that it has to call its own state governments in Maharashtra and Gujarat and whip them into line. These are the ones who have demanded the 1% extra levy. For some reason nobody outside the BJP understands, Narendra Modi cannot tell Anandiben Patel and Dev Fadnavis to sign something that would help the country! )

  • S


    Can you explain the role of IPR in investments, and how China that has worse security for intellectual property than India, attracts more high-end manufacturing than India? What should be direction of policy to be?


    Just a note: China has indeed attracted manufacturing that's more high-end than India, but it is not high-end by global standards. Its manufacturing is now struggling to move up the value chain without updating the country's IPR system. I suspect we will see China transition to a high-IPR regime surprisingly quickly. For us, we have to work on both innovation in India and manufacturing in India. The first needs robust IPR protections. The second needs a somewhat lax approach to backward-engineering. Getting the balance right is tricky, I agree.

  • R


    what do you suppose will be the effect on the GDP over the next couple of years and consequently over the next decade due to the inclusion of Jan Dhan Yojana / GST / E transfer of subsidy etc. Talk us through the tail winds affecting the economy due to policy improvements in your view


    Very interesting question. I think the GST will have a slight inflationary impact when it first comes in. If some of the Congress' demands are accepted and we get a real GST, then I expect that a few years after that we will get a big, big boost from making tax compliance much easier, and from cutting down the costs associated with inter-state trade. Direct benefit transfers have already been successfully tried out in several areas. If a political case can be made for them, and they are implemented, in kerosene and fertiliser as well as food (as a choice for citizens) then it will not just help stop leakage, but create accountability and efficiency at various points in the system. Finally, financial inclusion more generally, if the government works out the many kinks that many including Debashis Basu in the Business Standard have pointed out, will hopefully start raising India's savings rate, and allowing more poor people access to savings and loans at reasonable rates. If structured properly, this will help boost investment and entrepreneurship. I'm extremely hopeful about the long-term prospects of these three - if we get them right!

  • K


    How would you rate the government's performance on the economic front on a scale of 1-10?


    Jagdish Bhagwati, an economist who has been largely friendly to this government, recently rated the government's performance as 6/10. I think that's by and large fair.

  • G


    Now that all economic indicators are showing an uptick, why do you think there should be further reforms? Will status quo not work?


    Two things. First, not all economic indicators are showing an uptick. Exports are down, and even the quality of the recovery in manufacturing is disputed - the PMI manufacturing data released yesterday shows a *22-month* low ( In the recent manufacturing numbers, private final consumption expenditure actually fell. Second, the economy has benefited from a favourable global phenomenon - lower oil and commodity prices. This is exactly the time when you need to make structural reform - so when the bad times come, as they inevitably will, you can deal with them better.

  • D


    The scope and the situation of the BIMARU states is quite alarming...the plummeting INR to US dollar is another issue. So how can the mixed working of the tertiary-cum-secondary sectors that are still together making 42% of the total LFPR be brought in communion with the agro base? Can the ultra-FDI in retail sectors or railways help in boosting the languorous economy? How can the cess charged as a part of public responsibility be helpful in income and how can the informal sector be lessened and red tapism be brought to its feet and nipped down?


    A lot of quesitons. 1. on bringing agro closer to manufacturing and services, the only answer is to reform agriculture in such a way that it becomes more productive, and farmers themselves can invest in food processing or allied activities - and their sons and daughters can leave the farm. This requires better roads, crop insurance, a market for land so holdings can be consolidated and sold, and a common national agricultural market. 2. FDI in multi-brand retail would certainly help boost the economy, and particularly rural infrastructure. Qns 3,4 and 5 are extensively answered in my book, 'Restart'. ;)

  • D


    Mr Tharoor recently said and talked about reparations from Britain. Do you really feel that what Naoroji remarked in "poverty and un-British rule in India" was so huge that if we they owe us reparations of the harsh rule and if we get them back, our economy will go skyrocketing?


    I generally am not a fan of group monetary reparations in any context, and I think that Mr Tharoor made several very arguable assumptions and statements. Naturally, India had a great deal of actual liquid capital expropriated during the colonial period, and that's cost us; but getting it all back, even if it were possible (which it isn't) would not help us become truly prosperous. It might just raise prices! True prosperity comes from raising the productivity of each Indian worker - through better education, health, and opportunities.

  • A


    Hello Mihir. It's quite clear this government will not go in for large-scale reform. In that light, what are the incremental reforms you'd like to see in the next budget? Also, how do you think the government should handle the recommendations of the the 7th Pay Commission considering they need to stick to the fiscal consolidation path and maintain capital expenditure?


    On the Pay Commission: Sadly, the govt is going to have to accept the Pay Commission salary recommendations, with the associated hit of at least 0.7 per cent of GDP to the fiscal deficit. Doing otherwise would likely mean street protests that make the OROP ones look mild. Truthfully, the Seventh Pay Commission has been relatively unambitious when compared to, say, the Sixth (in terms of the fiscal impact) and the Fifth (in terms of reform recommendations). The really important thing is for the govt to use a pay hike to introduce greater accountability. The Seventh Pay Commission's suggestion is to introduce performance-related pay associated with robust evaluation schemes. If these are genuinely robust, and include an element of public input, that would be a big plus. On what needs to go into the next Budget, I think that even if big structural reform is off the table, I would at least like to see a drastic simplification of the tax code. That at least can be justified politically and otherwise. I also think that it is close to Mr Jaitley's core competence, and something that he personally favours ideologically. A commission has been set up under a retired judge to help redraft the code and it must be pushed to submit its recommendations in time to be incorporated into the Budget.

  • V


    If reforms start working (jobs are created), then do you think BJP will go all out to push its cultural agenda? Will the conciliatory tone that the PM/HM *seem* to project right now be abandoned for an even more aggressive Hindutva agenda?


    I disagree strongly. If reforms start working and jobs start being created, then the BJP will not *need* to push a polarisation agenda in order to win the next election. The real danger is if job growth doesn't take off, and basic political instinct returns to centre-stage. This is why those who oppose the BJP's cultural agenda must whole-heartedly push it towards economic success.

  • V


    What reforms would you like to see from the government and how do you rate Arun Jaitely's performance so far?


    On reform, Mr Jaitley gets a lot of criticism that I think more fairly should be directed at the PM. In this government, the tone, direction and pace of policy is set at the top. And as I said earlier in this chat, I think Jagdish Bhagwati's assessment of 6/10 for the govt as a whole on the economy is fair. What needs to be done immediately: compromise on the GST, and pass it. Pass the bankruptcy bill. Publish a timeline for phasing out kerosene and urea fertiliser subsidies. Create a 'bad bank' for stressed assets and a timeline for privatising a few state-owned banks. Some of these are on the govt's agenda, some have been taken off it because of political and ideological timidity.

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