'It is to some extent a base level effect'- Montek Singh Ahluwalia

Montek Singh Ahluwalia, Dy. Chairman, Planning Commission in a special and exclusive interview with Vivek Law, Editor, Bloomberg TV India on Path to Progress for India

Sunday, December 16, 2012 | 4:46:33 PM IST (+05:30 GMT)   |  Copyright: india-forums/ tellybuzz  |  Comments 2 Comments  |  1004 Views

Montek Singh Ahluwalia Shares his views on India's GDP, world economy, National Investment Board and Aadhar Cash transfer

 Q- The topic that we are talking about is path to progress for India. You have just come out of a meeting where we have had another set of big bang reform announcements. Is India getting out of the clouds of despondency, etc that had kind of enveloped us?

I certainly hope so, we have been going through a slowdown and I think the government's recognized that. I think the government's also recognized that, although this is actually more than people think, a global slowdown. I have just come back from where I spent two days at the G20 Sherpas' meeting doing a thorough review of what's happening in other countries and the news isn't good anywhere else either but forgetting that, our view is that yes, the global situation has not been all that supportive but I think there have also been a lot of domestic problems and the government's recognized that and is setting about trying to correct those. A Number of announcements have been made, some things are still in the pipeline but I am hoping that over the next few weeks enough people will be able to say ,'well, in these areas there has been movement'. Many people will say 'well, which should have happened 6 months earlier' but that's not the point. I think that when we see that movement there is a good chance that the mood will change. But these things don't happen instantly. Until about a month ago, everyone was bemoaning the industrial production Index, then the Industrial production Index shoots up, then everybody says 'Oh! But this is base level effect'.

 

Q- Do you believe that?

It is to some extent a base level effect.

 

Q- Is it the beginning of greenshoots?

The two are not inconsistent. Nothing stops greenshoots coming on the back of a base level effect. The actual growth rate that you see in the industrial production Index is huge by any standard. So, if some of it was actually base level, if you take that out I think that's certainly consistent with the view that the economy is bottoming out. I had said that sometime in September or early October that I think it's bottomed out. What you now seeing is data coming up for that period, all that we are seeing is consistent with the view that the collapse isn't continuing.

 

Q- Are you pleased about the fact that you don't read or hear policy paralysis much any more?

I am less concerned about perception because we are concentrating on getting a lot of the things we are talking about actually implemented. In any policy you have a period when the government hasn't even recognized the problem. Then you have a period when they recognize the problem. Then they outline what they are going to do about it. But the most important thing is, when we say this is what we are going to do, a) do we do it? and b) when we are trying to do it does it actually work? That has yet to be tested out but we are very aware that this is the time where supportive action by the government could lead to significant change in economic performance in the second half of this year.

 

Q- You talked about the global situation. How deep is the problem? What is your assessment?

Let me just give you some numbers. The global perception is that, what they call 'extreme tail risk' has been reduced in the sense that people don't really think that the Euro is going to collapse. So the willingness to make sure that the Euro stays as a currency is there but I think economic management in Europe is not at a level where you can assume that there is going to be any kind of healthy growth, not just this year but most people think not for two or even three years. So you are talking about at least a two to three year period of really sub-par growth in the Euro zone and it could be zero to negative in the current year. The U.S. is definitely doing a lot better, no doubt about that. But they have got this looming problem of the fiscal cliff. The good news from the investors' point of view is that most people… the markets some how think that because the administration is just got re-elected, somehow they will fix it and certainly we should hope so because some of the estimates I have seen of what would happen if they don't fix it, a negative impact on U.S. GDP of 2% points, that's not something to sneer at. China before the crisis, the average growth rate was 11.6%, this year its 7.5%. So that's a huge drop of 4% points compared to what they were doing before. In our case, this year I hope we will be better than 5.5%, whether we will reach 6 is what people are wondering about but that's still a more than 3% point drop compared to what we were doing prior to 2008.

 

Q- Do you believe we will reach 6?

I said between 5.5 and 6. Actually it's a nice game to play-'will we reach 6?', but in my view the most important thing is the turn around. A two month delay in the impact of policy means you won't reach 6 but if people could see that its turned around, I think most people believe that India could very easily go back to 6.5% and after that it requires some special effort. So our focus should be making sure that that turn around is there. But other countries…Brazil, less than 2%. So the world is not in good shape. We are not in good shape at the moment but we are in a lot better than many other countries.

 

Q- And would you agree that perhaps the biggest reform that has come out is the fact that… and the biggest criticism was that projects were getting delayed, they were not moving, infrastructure was delayed and therefore this decision to actually now be able to set up this committee is something you believe would be able to put it back on track?

I think it's extremely important. Sometimes what happens is that decision making gets gummed up and this can be… democratic decision making can get delayed simply because most bureaucrats feel that their decision would be subject to too much scrutiny and the fact of the matter is that we have created a situation where nobody would be accused of not taking a decision and certainly not punished for it. On the other hand if he takes a decision it can become controversial. So in that environment it shouldn't surprise any one that some major acts of collective decision making are necessary.

 

Q- And right at the highest level of the output?

Absolutely. Now you are referring I take it to the new cabinet committee what everybody earlier called the National Investment Board, it was actually a cabinet committee. The fact is that there are way large number of projects that are stuck and when you talk to each ministry they always tell you that 'oh, it's not stuck because of me, it's stuck because of some one else and you know files moving from here to there'. The bottom line is, the project's not moving. And I think that if this committee at least identifies and sets some time lines for some key projects, the net effect of that will be; first of all, faster decision making. I believe that even if somebody has to say No to a project I think the system will learn something when there is a no and that no is then questioned, than the present situation where nobody said no but nothing is happening. So I believe that the NIB will make a huge difference. It will create a forum where whenever people are uncertain, rather than delaying things they will be able to go to the NIB and say 'look, this is the problem, there are some conflicting signals'. Now my feeling is that if this new committee speeds up five projects the precedent that sets will speed up everything else automatically. I don't have the view that the role of this committee will be to sit around over viewing everybody and taking decisions that others should have taken but maybe it will be to make some very clear decisions, set a precedent. Once a precedent is in a well functioning bureaucracy, once a precedent is set, everybody could say 'well, you know on the basis of that thing that was done by the cabinet committee, this project should go through or it should go through with these conditions' and it will also be very clear to people what those conditions have to be., half the problem is in my view is that its very non-transparent and we have a large number of people operating as filters and its very easy to say no or just say 'it doesn't meet my criteria'. And it's not a problem solving decision making process and that's what you really need. I am not saying we should not care about environmental issues, I mean obviously we should, in fact in the whole 12th plan we are calling it 'faster, more inclusive and sustainable growth' but you need to address the issue and decide 'yes, no or yes but'. Most of the time it would be 'yes, but'. You want to do this, well you got to make these changes, do some more compensation something like that and I think that will happen.

 

Q- Perhaps one of the biggest reforms that your government has stayed committed to has been the whole Aadhar cash transfer, the whole mechanism and we are probably reaching the last leg of it where a lot of the work in terms of enrolling people has been done and we are probably now going to start seeing the inclusive growth that you talked of. How would you explain that in the context of financial inclusion for the country? You have been somebody who has seen the institutions and the development of it over the last two decades. We don't seem to have made much headway takeaway with this recent effort On the whole financial inclusion bit, more specifically on this, how do you see the scenario building?

It's a very good question. I do think that the government's decision to roll out beginning January 1, we say January 1 but what we have said is that beginning January 1 in something like may be 34-35 districts, it could be little more, for about 25 government schemes, we will actually be transferring the money electronically in bulk in nano seconds. Now, in my view this is hugely important and this is hugely important because it's a proof of concept. We are not going to start moving from the delivery of subsidized commodities to delivering the benefit through some kind of a cash transfer or electronic credit to start of with, but we want to essentially put a large number of existing programs on what I call an Aadhar enabled bank transfer. I want to sort of clearly indicate what we are doing. Let's take any individual scheme. There is a list of beneficiaries eligible for that scheme, so district by district and this will be done scheme by scheme. The list of beneficiaries has to be digitized, so it's got to be available in digital form. In addition, we need, the jargon they use is to seed this list with an Aadhar number and also a bank account. Now district collectors will organize camps where maybe gram panchayat by gram panchayat they have got the list of beneficiaries to find out -do you have an Aadhar number. Now since this being done in districts where Aadhar penetration is quite high, the probability is many of them will. But remember, we are not interested in whether a 100% of the district is enrolled but we do want 95% of the beneficiaries to be enrolled and even if they are not, that's very easy to get done because you are dealing with a defined list. When that is done, when they have all got Aadhar numbers, parallel with that, they will actually get a bank account through a business correspondent who will be there and I think RBI in the last week has in fact made it amply clear that anybody with an Aadhar number which could actually need not even be certified by the actual production of a card, it could be certified by an electronic KYC. So you could have a situation where you have got enrolled, they have recorded your bio-metric, you haven't yet got your card but by electronic conveyance through the business correspondent that yes, this guy is enrolled and this is his number you can actually get yourself a no frills bank account. Now if we succeed in doing that what it really means is that the government will make the payment to a common sort of Aadhar payment gateway. So money corresponding to what is due to the list of beneficiaries will get transferred to this Aadhar payment gateway which will then move it to whatever bank account the beneficiary has indicated. Now in that payment gateway, other benefits would go to the same bank account, I mean an individual could have six bank accounts but for purposes of receiving benefits he would indicate which is the bank account with which he wants the payment gateway to be seeded and that will be the same for all the different benefits. This wouldn't be such a huge advantage if the business correspondent revolution hadn't happened because if I am a sort of ordinary person with a bank account and the bank branch is 10 kms or, 15 kms away, it doesn't help very much to know that I have got money into my bank account because where and how do I get the cash, I am certainly not signing cheques and giving them and its very difficult to go all the way to the bank to draw cash. And that's where the business correspondent model is supposed to make all the difference. Because the guy goes along and sort of says look this is my bank account number and I am so and so and here is my thumb print that proves it and I am now transferring via your mini; we have got a lot of machines out there, I am transferring a thousand rupees into your account and will you please give me a thousand rupees as the other leg of the transaction. And basically, not only would this happen without having to go to the bank but this same person could do it anywhere in the country because these are all inter-operable. I don't have to go to business correspondent in my village. If I am visiting some one else and there is a business correspondent there, maybe a business correspondent of a completely different bank, I can still use this inter-operable system to get cash out of my bank account. Now that is huge and by the time its really rolled out, because we will start with a few scholarship related schemes, etc., but when it gets rolled out to MNREGA payments, national social assistance and in due course move the Kerosene subsidy to a cash sort of system. The number of people that will actually have accounts in banks and will be operating them will be enormous and I don't think there will be any other country in the world which in so short a time would have enrolled so many people directly into the banking system. Basically, because large sums of money which at the moment go out in a very de-centralized way will be going out through this common method.

 

Q- There are concerns that are we somewhere creating multiple architecture and I want to understand this from you because perhaps it's just a sense of confusion in our own minds. For example, you have already had a Rajiv Gandhi health scheme which has enrolled more than 30 million people biometric, already delivering a health insurance, perhaps in some cases even a life insurance. Many of them are still banked; they don't even have a bank account. Are we saying that we are going to demolish certain existing architecture and create a whole fresh one or are we going to somehow find place for all the architectures already built in what we are trying to do?

No, my judgment would be that whenever you need to identify a beneficiary the logical method or identification would be Aadhar based. Now this may well require that for certain kinds of processes where you are not actually using the biometric identification, you will have to put in a mechanism that will do that but it would be a common architecture and basically the architecture is simply the UID with the biometric identity. The use of the Aadhar payment gateway which has been now authorized by the government in the sense that the controller general of accounts is willing to acknowledge that if ministry A for scheme B wants to send 50 crores to a particular district, the instruction that it goes to the Aadhar gateway will be deemed to be an expenditure. Otherwise you can't just send your money anywhere. So all the requirements to make this method of making payments conform to government rules has already been done. So that's a huge momentum will build up when that happens.

 

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  • Posted on: 17 December 2012 at 3:57am-RD-

    Is this really A TB interview? Or has IF diversified into promoting political parties?

    Edited on:17 December 2012 at 3:57am

  • Posted on: 17 December 2012 at 3:36amanil1234567

    wtf...is india-forums about tellywood or politics? please stop posting political news.

    2 member(s) Liked the above comment :
    -RD-, .ByGod.Nancy

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