PNB scam fallout: Probably some PSBs no longer need to exist, says Debroy

With certain quarters demanding privatisation of public sector banks in the aftermath of the alleged fraud at Punjab National Bank (PNB), Economic Advisory Council to the Prime Minister Chairman Bibek Debroy tells that reducing government equity even to zero would not mean giving up of government control over these banks. Edited excerpts.

After the PNB scandal, there has been demand for privatisation of public sector banks by certain quarters. Does that merit a view? Is there a great deal of trust in the private sector?

I don’t think there is. Public sector banks (PSBs) are reminiscent of the broader problem of public enterprises. I do not see how the governance structure of PSBs can be improved in the present scheme of things. It is not a question of ownership. If I were to sell a PSB with its present assets and liabilities, how many takers would there be? Second, one must recognise that banks are not under the Companies Act but the Bank Nationalisation Act and as such, government equity has nothing to do with government control. It is also patently obvious that there will have to be a shake-up. Some PSBs probably no longer need to exist. We need to wait for the finance ministry to make the announcement, as it has linked recap with reforms.

Recent jobs data provide some relief to the government in the sense the figures show a surge. What is your sense of the situation? 

You will never get satisfactory employment data from enterprise surveys. There is a large amount of employment in the informal, unorganised sector and substantial self-employment in our economy. Only way you could get satisfactory data is through household surveys. The earlier household survey from the National Sample Survey Office goes back to 2011-12. You won’t have credible data until probably the end of 2018 or beginning of 2019.  CMIE data show two things – one is that I am looking for a job but can’t get it and, second, that I am qualified but not opting for a job. Many people have spent money on education. The moment I do that, my expectation of a wage or salary goes up. What is also probably happening is that the market isn’t offering me salaries as per my expectation and I am voluntarily opting out.

There was a big farmer protest in Maharashtra. The sector is in distress in many parts of the country. What is the solution? Is farm debt waiver a part of cure?

Generally, there is a rural bit and an agriculture bit. Construction, trade, and transportation are also sources of employment in rural areas and parts of these segments saw a temporary slowdown. There could be some discontent because of that. Agricultural problems have been on for some time. Within agriculture, there are land holders and agricultural labourers. I have not seen any data from credible surveys to substantiate that suicides have been happening among agricultural labourers. The story for the land holder is while the price of the output has been going up, the cost of input has been going up much more. A large part of the increase on the  cost side has been due to labour, not necessarily due to MGNREGA, but for many other reasons. One needs to introduce various reforms to address these problems and the solution to all this is not to have farm loan waivers. 

Post budget, there has been a lot of talk around protectionism coming back due to customs duty hikes. Is that interpretation correct?  

There is nothing illegal in what has been done (hiking customs duty)… illegal in the sense of violating WTO-bound rates. Second, trade negotiations are based on reciprocity. Why should I reduce my import duties in advance and give away a bargaining chip? The third point is if I want to encourage manufacturing in India, I should liberalise investments, including Foreign direct investment, and I do not want imports to happen. Fourth, we are in a period of transition, the goods and services tax (GST) process is still not complete. Now, countervailing duty has been replaced by IGST, decided by the GST Council. If in the process, I feel the need to change the basic customs duty, then at the logical level, what is your problem?  Now, I am not saying any of this in a protectionist sense. 

What about Trump’s reciprocal tax?

These are still early days. What is already floating around is largely speculation. I cannot see any particular reason why India should be unnecessarily alarmed just because of what the US is doing. But obviously, if this escalates, that is bad news for not only India but everyone. I don’t think we are at the edge of that cliff.

Do you think the Centre will be able to rope in states for ModiCare? What will be the premium that?

This is being handled by Niti Aayog and the health ministry. So, I am not going into details. I am just flagging some issues. If I am going to use SECC (Socio Economic Caste Census), it is satisfactory on the rural side but not very on the urban side. SECC is also dated — 2011-12. I must have a cut-off criteria, that these would be beneficiaries if I am using SECC. This raises the point — should we use SECC or use some kind of universal health coverage where I am not going to use cut-off but I will make it tenable by limiting it to, say, general wards? There are ways of self-targeting.

There is turmoil in the bond market. What is your sense of it?

I will leave it with a statement that the bond market is a reason for worry and there are several things that need to be done.

UPA-2 left the economic growth at 6.4 per cent and the second advance estimates have pegged the economy to grow by 6.6 per cent in 2017-18. So what is the improvement in the first four years of the NDA government in terms of economic growth-- just 0.2 percentage points?

I think we will end with about 7.5 per cent in 2018-19. Broadly there are four sources of growth -- public expenditure and because of fiscal oncerns there is limit on what you can do here. There is consumption and there are signs that it is picking up. There is investment and there are signs that it is also picking up. Then, there is net export, which is a real worry. Economic Survey has pegged economic growth at 7-7.5 per cent this year, I am inclined that it will be closer to 7.5 per cent. I am not saying it will be 8.5 per cent. No, way until net export picks up. Economic growth of 6.5-6.6 per cent in 2017-18 means that first half had roughly 6 per cent and the second half will have 7 per cent. There has been a structural growth problem that has been going on for fairly long time. The question is not what growth rate has been delivered, but about fiscal consequences of that growth. The question about the UPA growth was not about the growth figure, but about the way that growth happened. 

Even on fiscal deficit, former finance minister P Chidambaram has questioned the fiscal deficit target for 2018-19, given in the budget. In a column, he said fiscal deficit might reach 4.14 per cent instead of 3.3 per cent, projected in Budget Estimates. Where is fiscal consolidation?

That is his opinion. He has been proved wrong in the past also. Let us wait and see. 

There have been concerns over terms of reference of the finance commission that these  are lop-sided against states?

Constitutionally, finance commission is the only organ to devolve resources to states. But, over a period of time there was plan versus non-plan distinction. Substantial amount of devolution used to happen by the Planning Commission.  Top of that, centrally sector central sponsored schemes used to be decided by the planning commission on a discretionary basis.  Now, you have a sub-group of chief ministers which have determined 30 such schemes.   Every state now has this question -- how do I rationalise state level schemes, particularly because tax devolution has increased from 32 per cent to 42 per cent. This is going to end in 2020 when we need to ask how are we as a country after plan versus non-plan distinction has gone, is the basket of centrally sponsored schemes the right one, how states have performed in terms of rationalising their schemes.   The new finance commission has to address these concerns. New finance omission  is somewhat different from the earlier ones. 

You had earlier said this is not the perfect GST. How do you now rate the GST system in the context of slow down of revenues, frequent changes, GSTN portal collapsing sometimes, problems in e-way bill etc.?

There is no country that has reached perfect GST fast. There are only 6-7 countries which have GST. Of those, India and Canada are the only ones which have federal GST. Even Canada has not got complete GST yet. My comment on GST was taken out of context. Industry chambers were saying that economic growth is going to increase 1.5-2 percentage points due to GST. What many of them forgot that this calculation was based on the GST model worked out by the finance commission headed by Vijay Kelkar and NCAER. Today, we don't have that ideal GST. Half of the products are not part of GST and we have too many rates. As an economist I would like to see the single rate. No country in the world has single rate. So, I am prepared to accept that there would eventually be three rates for reasons of pragmatism, not economic rationality.