The Niti Aayog has said average annual growth of 8 per cent during 2018-19 to 2022-23, with the concluding year yielding 9-10 per cent expansion, is needed to generate sufficient jobs and make India a $4-trillion (Rs 285 trillion) economy.
In a document titled ‘Strategy for New India @75', it suggested this growth rate be achieved through increasing the investment rate, improving the ratio of taxes to Gross Domestic Product (GDP), raising export, continued exit of the government from non-strategic public sector units and further liberalising the Foreign Direct Investment regime.
The acceleration in economic growth, it has said, must be inclusive, sustained, ‘clean’ and formalised. The investment rate should be raised from the present 29 per cent of GDP to 36 per cent by 2022-23, of which half must come from public investment. Government contribution to capital expenditure should be raised to 7 per cent by 2022-23, from 4 per cent at present
“The strategic document will be followed by a vision document, which will spell out the 15-year growth trajectory India needs to follow. The main focus of both documents is to ensure as to how reforms and the best of government initiatives reach the bottom of the pyramid,” said NITI Aayog Vice Chairman Rajiv Kumar on Wednesday.
The document is silent on farm loan waivers but has suggested the concept of a minimum support price for produce be replaced with that of a Minimum Reserve Price. The latter should be the starting point for auctioning at official wholesale markets, so that farmers get at least a basic income.
"The government should consider replacing the Commission on Agricultural Costs and Prices (CACP) by an agriculture tribunal in line with the provisions of Article 323B of the Constitution," it said.
The strategy paper also called for having flexible fiscal deficit targets, based on prevailing economic conditions. It bats for governance reforms in public sector banks, through independent and commercially-driven boards of directors, performance assessment of executives and increased flexibility in personnel policy. Private investment in infrastructure should be focused on through a renewed public-private partnership model.
The economy is projected to grow by an average of 7.4 per cent during the five years of the current government, 2014-15 to 2018-19. The latest year it had crossed eight per cent was in 2015-16, when it grew 8.2 per cent. Nine per cent annual growth has been rare. In the old-series data, base 2004-05, a nine per cent growth rate was recorded in the successive years of 2005-06, 2006-07 and 2007-08. These rates have since been revised. A double-digit growth rate — of 10.2 per cent — was recorded only once, in 1988-89, on a low base.
The document replaces the now-defunct five-year plans. The 11th five-year plan of the erstwhile Planning Commission also talked of scaling up economic growth to 10 per cent, in the concluding year of 2011-12, but this was not achieved.
“You can’t get growth of eight per cent and more on a sustained basis unless all sectors grow simultaneously. Things like raising the investment rate from 29 to 36 per cent, of which half will come from public investment, requires a sound policy environment,” Pronab Sen, the government's former chief statistician, director for the India programme of the International Growth Centre, told Business Standard. More important than the target is the government’s road map towards this.
Earlier, the Aayog had issued a three-year action agenda, for 2017-18 to 2019-20.
On the suggested raising of investment, especially public investment, it has said two areas which could absorb the latter are housing and infrastructure.
To enhance public investment, the country should aim to increase its tax to GDP ratio to at least 22 per cent of GDP by 2022-23, from the current 17 per cent, the paper has said. The average among OECD countries is 35 per cent. India's is low even when compared to other emerging economies -- Brazil's is 34 per cent, South Africa has 27 per cent and China 22 per cent.
It called for efforts to rationalise direct taxes for both corporate tax and personal income tax. "Simultaneously, there is a need to ease the tax compliance burden and eliminate direct interface between taxpayers and tax officials, using technology." The document said demonetisation and the goods and services tax (GST) would contribute positively to this.
States, it said, could undertake greater mobilisation of own levies, such as property tax. And, improve administration of GST, to increase tax collection. It called for complementing domestic savings by attracting foreign investment in bonds and government securities. Regulatory limits could be relaxed for rupee-denominated debt, the paper suggested.
Gujarat International Finance and Tech City (GIFT) should be leveraged to push financial sector liberalisation. It is an opportunity for onshore trading in rupees and other derivatives, which currently happens outside India for regulatory reasons. If GIFT succeeds, it said, such liberalisation could be extended to the rest of the country.
It called for the government to exit from non-strategic public sector enterprises (PSEs) , saying this will attract private investment and contribute to the exchequer, enabling higher public investment. "For larger central PSEs, the goal should be to create widely held companies, by offloading stake to the public to create entities where no single promoter has control. This will both improve management efficiency and allow government to monetise its holdings, with substantial contribution to public finances."
Export of goods and services, it says, will have to be increased to $800 billion a year, as against the existing $478 bn, to achieve the growth target. While at the same time removing barriers to farming and converting farmers to ‘agripreneurs’, codification of labour laws and scaling-up of apprenticeship programmes.
To double the income of farmers, the country’s agriculture needs to grow at 10.4 per cent annually in real terms between 2015-16 and 2022-23, it says. It talks of working with states to amend their Agricultural Produce Marketing Committee (APMC) laws and focus on sustainable agriculture practices. And, that the Pradhan Mantri Fasal Bima Yojana needs to promote weather-based insurance.
“We are planning to sit with the agriculture ministry to link government support to various states, based on the reforms they have taken, such as amending their APMC laws,” said Niti Aayog member Ramesh Chand.
The paper also set an annual inflation target of two to six per cent by 2022-23. This is also the mandate for the Reserve Bank of India.
On infrastructure, establishment of a Rail Development Authority needs expediting. The share of freight transported through coastal shipping and inland waterways needs to double by 2022-23.
The aim should be to for all government services to be digitally delivered to the gram panchayat level. On health, the Ayushman Bharat programme needs implementing, with the help of 150,000 health and wellness centres. Affordable housing in urban areas should get a huge push in the coming years.