Congress economic agenda not a political manifesto: Data Analytic Dept’s Chakravarty

A 5 percent "cess" on the "super rich", simpler GST regime, "higher" spending on education and healthcare, "stricter" oversight of PSU banks and a promise to "win back the economic freedom for India's entrepreneurs"--- the Congress party's draft economic resolution at the end of its 84th plenary is certainly long on intent.

While the party has launched a scathing attack on the Modi government's handling of the economy, it has stopped short of giving details on how it would like to get India back on the high growth path.

To understand the Congress prescription for growth, CNBC-TV18's Shereen Bhan spoke to the Chairman, Data Analytics Department, Congress Party Praveen Chakravarty.

Below is the transcript of the interview

Q: There is a lot you have spoken about in the resolution of economic situation in India, several pages from GST, to paralyzed banking sector, to agriculture and job creation – Talking about GST and what the Congress party proposes -- you talk about how this is a flawed GST, you said Indian National Congress stand for a much simpler GST with a much simpler GST framework with a moderate and reasonable standard rate of tax, the abolition of cesses outside GST structure and transparent mechanism for revenue sharing with states and a robust system of refunds. What should that mean in terms of rate because the governmnent's argument is that in a country like India it is not possible to tax a ‘hawai chappal’ and the BMW at the same GST rate, so what is the Congress proposing – Are you proposing a single rate of 18 percent, 15 percent what?

A: On the GST, the Congress party has made its position very clear in parliament and outside, which is they stand for a much simpler GST—true to its name a good and simple tax, which is a standard rate of 18 percent with a merit rate and a demerit rate.

To the answer the question about taxing the hawaii chappal and BMW, it is a fallacious argument, we are talking about indirect taxes and indirect taxes hurt the poor much more than the rich, they are inherently aggressive as any economist would tell. So it is even more prudent to keep an indirect tax such as GST lower and have progressive direct taxes varying to the size and scale of incomes.

Q: Then how will you sell the fact and the idea that you will an 18 percent tax on things which are currently being taxed at 12 percent and 5 percent?

A: The concept of GST as one tax, when you take a portfolio food, goods, services and we need to start thinking about a simpler tax rate. What was the very premise of GST – it was to collapse thousands of different rates across different states in the country to a much simpler framework. So, when we step out to do that we have surely thought about this question even then because that was the premise of GST. So sure there are some that would now attract a higher tax rate and that would be large items that would attract a lower tax rate. That as a concept is well understood by most people.

Q: The fact is Congress has represented in the GST Council, every decision of the GST Council has been a unanimous decision and hasn’t come down to a vote even for a single decision. If the Congress felt so strongly on rates issue – why did you not take that forward at the level of GST Council?

A: If you look at all the Parliamentary debates and the arguments put forward by Congress Party and not just the Congress Party but the government’s own chief economic advisor called for a 15-16 percent rate, so it was not just the Congress party’s position. It is also true that world over GST is about a few tax slabs.

It is not right to say that the Congress Party did not make its position clear.

Q: I am talking about the GST Council where the Congress Party is represented by State Finance Ministers and there every decision has been a unanimous decision. However, moving on to the other critical issue and under your heading you call it the paralysed banking sector and you talk about how because of the unwarranted criticism of telecom, coal and power sector policies of the UPA government we are in the predicament that we are in today but if I could talk about the road ahead, what is it that the Congress party envisages when it comes to public sector banks, are you at all looking at the possibility of bringing down government ownership below 51 percent, are you looking at the possibility of consolidation which is what this government talked about, hasn't gone through with the exception of State Bank of India, what is the prescription as far as the public sector banks are concerned?

A: State of the banking sector and banking sector world over, whether it is private or public, go through these bouts of crisis, it is not unique. Economic history will tell you that the financial services sector or the banking sector has gone through such bouts. So, I think we have to separate the arguments or banking crisis and public versus private sector banks. It is a little misleading to conflate the two.

The fact of the matter is that this crisis has been fostering for some time. This was no secret that this required immediate attention. Had the Budget of 2014-15 acknowledged this problem and set out to address it, we wouldn't have been in the mess that we are in today where Rs 2.6 lakh crore have been written off, Rs 4.5 lakh corporate loans have been restructured, so we wouldn't have been in this mess. So, I think the initial assumption that the economy will boom and the rising tide will lift all boats has proved flat.

On the issue of private versus public, my own research which I have done when I was fellow earlier has shown that there is no empirical evidence that public sector ownership is what triggers higher NPAs. The fact is that nearly three quarters of corporate lending in the country is by public sector banks. Corporate loans tend to go bad twice as much as personal loans. The private sector banks do not lend enough to the corporate sector.

It is not very clear to me that had the private sector banks also indulged in the amount and size and scale of lending as the public sector banks, their NPAs would be any better. We do not have evidence of that. Having said all of that, I completely acknowledge that there is rot in the public sector banking system and we need tighter regulation for that which is what the economic resolution calls for - both tighter internal and external regulation of all banks. So, let us not mix this about public sector versus private sector.

Q: If I can ask you to explain to us what you mean when you say we need to strengthen internal and external regulation and oversight of Indian banks? Give me specifics, because we have been doing this series here on CNBC-TV18 and whether it is former RBI governors or it is somebody like Montek Singh Ahluwalia former deputy chairperson of the Planning Commission, their view is that forget the ownership issue, what needs to happen for the public sector banks to in a sense be made much more effective is that the control needs to move from the ministry of finance, from the department of financial services to the RBI and this is something that governor Urjit Patel has spoken off as well that the RBI has more control and supervision over private sector banks than it does over public sector banks. So, what do you mean when you talk about strengthening regulation and on this specific issue on RBI versus finance ministry exercising control over public sector banks?

A: That is exactly what I mean, separate ownership from regulation. Today we are mixing the two together. Ownership is independent of regulation and it should be independent of regulation. Any regulatory body, investigative agency, should be independent of the executive. So, that is what we mean when we say tighter internal and external regulations. We are not saying tinker with the ownership itself, we are saying today it all seems very mixed up and jumbled, let us have a very clear separation between the two.

Q: Are you then saying that the department of financial services and the government should not exercise any kind of administrative control over public sector banking and it should just be the RBI, is that what you are saying?

A: No. I don't understand what you mean when you say control. As long as you own the bank, you will make certain decisions about appointment of executives, you will make administrative decisions. You will not make decisions about regulating these banks, that is what I mean by separating the two. We use the word control very loosely. If you are the owner of a bank, you will be involved in administrative decisions and I think that is perfectly justifiable.

Q: What about consolidation, are you in favour of consolidation within the public sector banking space?

A: I am not so sure what exactly that would achieve other than saying maybe it is easier to regulate one bank versus five other banks. If that is the sole reason, then we will have to think about it much more harder but at this point of time I have not studied that issue well enough to be able to offer an opinion.

Q: 51 percent or below in public sector banks, is that at all on the agenda if the Congress were to come to office?

A: I think all these are wrong starting points. We have to acknowledge that we are trying to cut the feet to fit the shoes. We have a problem, banking sectors go through problems world over and that been in history. If we do acknowledge that it is an ownership problem then we will have to deal with that but right now it clearly is a regulatory problem and we have to deal with the regulatory aspect of it.