INTERVIEW | Economic revival needs higher fiscal stimulus, not cash transfer: NITI Aayog VC Rajiv Kumar

Rajiv Kumar, Vice-Chairman of the NITI Aayog

Before giving a stimulus for growth, the government needs to instil confidence in consumers so that they step out and spend, which will rev up the economy – and this is exactly what it is doing by working on vaccine adequacy, Rajiv Kumar, Vice Chairman of the NITI Aayog, told Moneycontrol in an exclusive interview.

He said the pace of economic recovery after the pandemic would surprise people, and those who are downgrading GDP forecast would have to revisit their decision by the third quarter.

Speaking for the first time on the latest Sustainable Development Goals Index launched by the NITI Aayog, Kumar said India was well prepared to meet the developmental goals but the widening gap between the better-performing states and laggards was a cause of concern.

Edited excerpts:

How India performs in meeting its sustainability development goals this year will depend on how well the Centre and states control the spread of the pandemic and its economic impact. Not just the critics of the government or the economists, but even industry bodies which have supported the government, like Ficci, have now flagged the need for substantial fiscal support, and in some cases, direct income support to the population. What is your view?

Firstly, with regards to the downside risks, I think the biggest step that we can take and are currently taking, is the ramping of up our vaccination program. As long as that's not the case, and consumers have a fear of moving out and interacting, whatever you do, will not result in higher consumption, higher aggregate demand and higher economic activity. My colleague, Dr. Vinod Paul has said the government is arranging 210 crore doses of the vaccine between July to December. This will translate into a much higher, more accelerated vaccination program for the entire working population of the country, that is those above 18 years of age.

Given that, I contest the view of those who say that we require at this time a direct income transfer. All that income transfer would result only in higher bank deposits, and not in higher consumption spending, and that is what we don't need. This is evidenced in the rising deposits of the Jan Dhan accounts at the moment. Those accounts belonging to the poorest segments of the economy are also rising.

Where is the guarantee that 'helicopter money' if dropped, would result in higher consumption and will lead to a virtuous cycle of higher consumption, higher investment, higher growth ? I don't belong to that school of thought. Therefore, we at NITI Aayog have been insisting that yes, higher public expenditure and higher fiscal stimulus is necessary to revive the animal spirits of the economy. But this should come in sectors which will generate large scale employment and large scale backward linkages. like in construction, real estate and housing etc.

Today the Reserve Bank of India (RBI) reduced its GDP forecast for 2021-22 to 9.5 percent, down from an 11 percent growth forecast we saw in the economic survey and the budget. The finance ministry by norm is supposed to accept the RBI's growth forecast as its own. So where do you think we will end up this year in terms of growth?

I'm a bit surprised at the RBI reducing its growth estimates, because I am of the view that as the economy comes out of the pandemic, the strength of the economic recovery will surprise all of us. Therefore, I will still hold on to a double-digit growth estimate forFY22. By the time the third quarter comes, people who have reduced their estimates today will be revising them upwards again.

The Sustainable Development Index, shows India has improved its score by six points, in spite of the challenges of the pandemic. A large part of this was due to gains made in health. Do you think the significant 13-point jump in score for the 'Good Health and Well-being' goal was due to the Centre and state governments ramping up the health facilities and staffing due to COVID-19 pandemic ?

Of course. This is an improvement, which has been long coming, and it was hugely required. It has been accelerated and expedited because of the pandemic. We should in some sense, consider it to be fortunate that this has happened. I wish that this had happened over the last seven decades so that we would have been much better prepared for the pandemic. But also, this demonstrates that we are now in a much better position to deal with any disaster risk in the future.

And this will continue to be ramped up because we've learned our lessons. We need to improve the health infrastructure both at the local level and at the levels of the metro cities, and also generate a much bigger supply of health professionals. The pandemic has ensured that our target on health and wellbeing will be now met by the time we come to 2030.

Unfortunately, there has been a fall in the key economic goals of 'Decent Work and Economic Growth' and 'Industry, Innovation and Infrastructure'. How much of this fall is due to the economic impact of the Covid-19 pandemic?

It's simply a direct function of the lockdowns that had to be implemented due to the pandemic. I want to assure you that once we are out of this pandemic, we will see very significant recovery and catch up on all of these areas, because very strong foundations have been laid. This includes creating an innovative startup system under the Atal Innovations Mission, and science and technology initiatives such as permitting private industry to come into the space and satellite sector.

Also, the huge focus that the government has given on improving the quality of our science and technology research through the Council of Scientific and Industrial Research and the Department of science and technology will improve the score. Once this pandemic is over, we will be able to catch up and make up for any loss in progress that may happen now.

The Supreme Court has called the Centre's vaccination policy as 'arbitrary and irrational', arguing that those in the 18-44 age group are not being prioritized and that they have to pay hefty charges despite the second wave affecting younger people significantly. Does the Centre plan to open up free vaccination for the younger age group, independent of the exercise by the states? Also, in that case, will it happen after the 45+ age group is suitably vaccinated nationwide?

To comment on the honourable Supreme Court's directions is above my pay grade. And I therefore will refrain. My only response will be to repeat what I said earlier. The centre is very committed to ramping up vaccination and towards ensuring adequate supply of the vaccine. It has been monitored very carefully, and very regularly. Whether this is tweaked in one way or the other is for us to see going forward. It is a matter to be discussed and decided between the centre and the states. And that is what we will do. That is what will probably happen as we go forward.

As the SDG index has developed over the past 3 years, it seems that while the better performing states are exponentially improving, the ones near the bottom can only manage incremental growth with much slower score increases. How does the government hope to pull up their performance quickly?

This is an important issue. The index does show that the distance between the high performers and the low performers is unfortunately increasing. That has to be rectified in a country like ours, because we can't afford rising regional inequality across the states. For that, the modus operandi that NITI Aayog has adopted, is to not create one centralized plan or a singular large nationwide policy because that doesn't work. Each of our states are so diverse, they are large enough to be countries in their own right. So they need very focused, very specific plans of actions.

Niti Aayog is working with several states in that regard to create their development blueprints. For example, we have a Niti forum for the Northeast, which includes all the North Eastern states, some of which are in the lower ranked categories in the index. We are identifying the five or six sectors which can become the growth drivers there, trying to bring in investors and get government policies to focus on those. This is what we offer.

NITI Aayog has a repository of all the best practices in the country across different sectors, and we can share them and replicate them in those states which needs to do better. Some states are taking advantage of this. It's my request to all states to take this up, so that they can ramp up their own performance, across the sector and in overall terms.