Strategy documents like our Plans and other vision documents have a lot of good statements. In fact, even political manifestoes have begun to have similar contentof late. The real problem is execution. Words are easy to say, but they tend to be divorced from reality. This is why several great initiatives taken by the government, such as UDAY and Indradhanush, though encouraging in scope and spirit, have not delivered much. Now when the NITI Ayog speaks of a strategy for New India @75, one should take it in the right spirit.
The strategy document talks of 8 per cent growth, with the caveat that employment has to be generated. This is a tough one because we have seen that job growth has lagged income growth with all new methodologies, providing an upside to output growth but real employment continues to lag. In fact, the private sector is not hiring people at a commensurate rate, the government is not replacing the unskilled staff, public-sector banks are not creating jobs with automation, and so on. Therefore, balancing growth and employment is going to be challenging.
The strategy rightly says that we need to have a 36 per cent investment rate. But how can we achieve it if the banking sector is in a mess and one of the reasons for this is that the same system lent heavily for infrastructure and to industry when the capital formation rate was 36 per cent. Therefore, ideally, the movement should be a gradual one. And, expecting the rate to jump from 28.5 per cent to 36 per cent in the next 4 years should not be at the expense of the quality of the banking system.
The tax analysis is good, and the NITI Ayog is speaking of increasing taxes. But this also looks difficult: The government has data to show that the number of assesses has increased after demonetisation and GST, but that does not reflect in tax collections yet. Also, with a move to lower GST rates, things will get tougher. This also goes back to the question of whether or not we are creating jobs to increase income and spending. Both are required to increase tax revenues. Creating jobs at the lower level in construction and retail is a good sign, but only when low salaries and wages would be out of the tax bracket. This is a conundrum that we have to expect.
Another point spoken of is to increase exports from $478 billion to $ 800 billion. This may be too ambitious, given that the word is getting closer and every nation is trying to protect their industries and jobs. This being the case, pushing exports will be challenging. Brexit and Donald Trump are two clear cases of how the world will move in future, given the political equations, and we have also seen China buckle.
The focus on agriculture is compelling, but when reading the approach we get a feeling of déjà vu, as we have heard it so many times before but not been able to crack. The piecemeal approach we have taken needs to change and, unfortunately, has not found many takers. ENAM is one part but has to be linked with other issues across the value chain in a concerted manner.
How then should we look at this strategy? It is always good to have such sign-posts but they have to be backed with action plans. That is the clue. Otherwise it leads to disappointment and such plans remain on the shelf or (today) on the file server.
Madan Sabnavis is Chief Economist, CARE Ratings