I was invited to the Mint Budget Meet in the Oberoi, Delhi yesterday. Not that I’m important. I submitted an entry the folks at Mint liked, and I felt great that they gave me a pickup and drop back to faraway Gurgaon. The folks on the panel were fairly hi-fi and there’ll be video archives, but here’s a few of my takeaways from the session: (Note that none of these are items everyone agreed upon, since economists don’t tend to agree about anything. These are my notes)
- India didn’t have too much of a stimulus last year – less than 1% of GDP. But the real stimulus was in the tax cuts in the two prior years. And going forward, the direct tax code is yet another stimulus.
- We need to perhaps temper growth rate expectations instead of trying to grow like crazy and then start worrying about bridging deficits or inflation.
- Tamal B – the guy who writes about banks and stuff – moderated the discussion. At one point he said: Revenue is more or less accounted for with GST and Direct Tax Code amendments happening in the next or further fiscal, so we should focus on expenditure (of the govt.). The panel disagreed – hajaar revenue stuff can be done – i.e. how to increase what the government makes. Deficit 101: If the government makes less money than it spends, that’s a deficit.
- Revenue can be perked up by removing some of the stimulus – the tax cuts in service tax and certain industries for instance. And then there’s 3G. Public Sector Disinvestment. And we could even introduce an inheritance tax.
- Pronab Sen, ex-Chief Statistician of India, said we aren’t really out of the woods; Private consumption is not picking up, credit growth isn’t anywhere close to where it should be, exports turned positive only because of the low base effect; nothing makes us so confident that we can remove stimulus without worries.
- Why do we concentrate all our measures on a budget in Feb? It’s silly. We should do mid-term corrections, and even the RBI should have mid-month changes if required.
- Confidence matters. Signalling matters. If we have a major change in stance the industry may not react positively, and that will undermine growth. But if we don’t signal anything inflation or other factors will work against us; we can signal to the market that there *will be* action taken, and people will heed, the bad elements will get tempered. I find this to be slightly wishful thinking because the world isn’t in a signalling mood; they’ll step off the pedal only if forced.
- Someone said India’s debt-to-GDP is 90%. According to the finmin site, it’s 60% or so – 30 trillion (lakh crore). Certain other pages mention 75% if you include state debt (but why? no one else does). Need more data here.
- Suman Bery was quite categorical that he cared about nothing but the current account deficit. Current account = net trade inflow + net remittances + net income from abroad. We have a –2.2% deficit right now.
- In India, financial inclusion has always been about transfer of money from the rich to the poor; NREGA and subsidy wise.
- Government employment in India always seems too high? Consider that India has 18 million public employees and if you ditch the quasi-govt. institutions like the railways you have just 12m employees at the government level. The US, a country 1/4th our population, has 18 million public employees! Meaning, we are understaffed.
- That’s also because we don’t have any serious stuff being done at the municipal/state level. In the US More than 50% of the 18m are employees at state/muni levels. In India out of the 12m, only 2million are state level. We definitely need reform there but politically it will be difficult to sell.
- A question I asked: Is there a chance or reason for another amnesty scheme? Pronab Sen said no; the last VDIS was a failure and an exercise in futility. Plus, there’s not as much black money generation now, only assets are being rotated. (As far as I know, the scheme in 1997 got them 9,700 crores, of a total direct tax collection of 95,000 cr. This year they are likely to collect about 400,000 cr. in direct taxes – at that rate we should be able to get 50,000 cr. directly as tax. So I will disagree here)
Post session were some interesting other revelations over dinner:
- There’s a lot of excess cash lying around. It’s got to go somewhere. That might just be property. Prices are likely to go up, and go up like mad. (I will not hold my breath here)
- There’s almost no press on the disgusting increase in food prices. Merits a longer post but: we bought hajaar wheat when prices were up, but refused to flood the public distribution systems to keep prices under control. We EXPORTED sugar when there was major shortage in the country. There is no hoarding at the wholesale level, that may have been shifted into the middleman zone at the retail/intermediate level. The government simply refused to signal that they were serious about limiting prices – food and vegetables have gone up considerably since.