Text of Prime Minister’s inaugural address at Delhi Economics Conclave
My colleagues in government,
Friends and Distinguished Guests from India and abroad,
I am happy, to be here today, to address the Sixth Delhi Economics
Conclave. This is a good platform for bringing together economists,
policy-makers, and thought-leaders, from India and abroad. I compliment
the Ministry of Finance for organising it.
Your topic of discussion is JAM, that is, Jan Dhan Yojana, Aadhaar and
Mobile. This JAM vision, will serve as the bedrock of many initiatives
to come. For me, JAM is about Just Achieving Maximum.
- Maximum value for every rupee spent
- Maximum empowerment for our poor
- Maximum technology penetration among the masses
But let me start by taking a brief look at the Indian economy. By
almost every major economic indicator, India is doing better, than
when we took office 17 months ago.
• GDP growth is up and inflation is down.
• Foreign investment is up and the Current Account Deficit is down.
• Revenues are up and interest rates are down.
• The fiscal deficit is down and the rupee is stable.
Obviously, this did not happen by accident. And the world economy is
not exactly doing well. This success, is the result of a series of well
thought out policies. Many of the purely macro economic reforms we
have undertaken, are probably well known to this audience. We have
embarked on a course of fiscal consolidation. We have entered for the
first time into a monetary framework agreement, with the Reserve Bank
to curb inflation. Even while cutting the fiscal deficit we have
substantially increased productive public investment. This has been
made possible in two ways. Firstly, we have imposed, carbon taxes on
fossil fuels. We took the bold step of de-controlling diesel prices and
thereby eliminated energy subsidies. We have replaced them with taxes.
The coal cess has been increased by four times from Rs 50 per ton to
Rs 200 per ton. Globally, there is much talk of carbon taxes but much
of it is just that - TALK. We have actually acted. Secondly, we have
reduced wasteful expenditure through innovative methods like the use
of technology. Some of the methods, are part of your agenda, such as
using Aadhaar to target subsidies to the deserving. These are reforms
that you are probably aware of. But our reforms are far broader, and
far deeper, than is generally recognised.
Before I elaborate on this, I would like to raise two issues. The
first is, REFORM FOR WHAT? What is the aim of reform? Is it just to
increase the measured rate of GDP growth? Or is it to bring about a
transformation in society? My answer is clear. We must REFORM TO
TRANSFORM.
The second question is, REFORM FOR WHOM? Who is the target audience?
Is our aim to impress groups of experts and score points in
intellectual discussions? Or to achieve ranks in some international
league table? Again, my answer is clear. Reform is that which helps all
citizens, and especially the poor, achieve a better life. It is
Sabka Saath, Sabka Vikas.
In short, reform is not an end in itself. Reform for me, is just a
way station on the long journey to the destination. The destination is
transformation of India. Therefore, REFORM TO TRANSFORM. And reforming
to transform, is a marathon, not a sprint.
The reforms we have undertaken, are of many types. For simplicity, I
will classify them as financial, structural and institutional. It
will not be possible for me to cover all of them here. But I will
certainly mention some of the most important.
Let me start with the financial reforms. We talk often about interest
rates and credit policy. Changes in interest rates are debated for
months. Tons of newsprint and hours of television are spent on it.
Interest rates are no doubt very important. But are they important to a
person locked out of the banking system? To a person who has no
prospect of ever lending or borrowing from a bank? And if large
sections of a country are in this position then how important are
interest rates? It is for this reason that development experts have
been advocating financial inclusion. What we have done in the last 17
months is to bring one hundred and ninety million people into the
banking system. This is more than the population of most of the
countries in the world. Now these millions are part of our banking
system, and words like ‘interest rate’ have a meaning for them.
Not only have these people been brought into the system but they have
shown that there is great strength at the bottom of the pyramid.
Believe it or not, accounts opened under the Jan Dhan Yojana today have
a total balance of almost Rs. 26,000 crores or nearly four billion
dollars. Clearly our financial inclusion reform has been
transformational. And yet this quiet revolution has hardly been
noticed.
The Jan Dhan Yojana has also transformed the ability of the poor to
make and to receive electronic payments. Every Jan Dhan account
holder is eligible for a debit card. India’s banks are also being
encouraged to operate ‘mobile ATMs’. A mobile ATM is one where cash
can be drawn and simple banking tasks done through a hand held device.
Thanks to Jan Dhan Yojana and the RuPay debit card, we have also
introduced healthy competition in the debit-credit card space. This
has traditionally been dominated by a few international players. Even
one year ago, there were hardly any indigenous card brands in the
market. Today, 36 % of debit cards in India are Ru-Pay cards.
Financial inclusion is not just about opening bank accounts or enabling
electronic payments. I firmly believe, that India has tremendous
entrepreneurial energy. This needs to be harnessed so that we become a
nation of job-creators, rather than job seekers. When we took office,
we found that 58 million non-corporate enterprises provided one 128
million jobs. 60% of them were in rural areas. Over 40% were owned by
people from the Backward Classes and 15% by Scheduled Castes and
Tribes. But bank credit accounted for a tiny share of their
financing. Most of them never get any bank credit. In other words
the most employment-intensive sector of the economy gets the least
credit! While Jan Dhan Yojana was to bring banking to the unbanked
the second reform was to bring funding to the unfunded. We are
creating a new financing and regulatory architecture under the
Micro-Units Development and Refinance Agency scheme popularly known
as MUDRA. Already under the Pradhan Mantri Mudra Yojana banks have
provided More than six million loans to small businesses for a total
value of nearly Rs 38,000 crores or six billion dollars. If one
conservatively estimates that each loan creates 2 jobs we have laid
the foundation for 12 million new jobs. Even Rs Two Hundred Thousand
crores invested in the corporate sector would not produce this many
jobs. We have now launched a programme where each branch of each
bank that is a total of 125,000 bank branches will assist one Dalit
or a Scheduled Tribe person and one woman in starting a business. We
are also creating an environment that fosters innovation and
start-ups through the Atal Innovation Mission and the Self
Employment and Talent Utilisation programme.
Another financial reform is the provision of a safety net through new
social security schemes. We have introduced three non-subsidised but
low cost schemes covering accident insurance life insurance and
pensions. Because of their massive coverage the premia are low. There
are now over 120 million subscribers.
For many of these reforms to be successful we need a strong banking
system. We inherited a system where cronyism and corruption were
believed to be rampant in banking decisions and in appointments to
public sector banks. After the first ever retreat of a Prime Minister
with bankers, known as the Gyan Sangam, we have moved decisively to
change this. Major steps have been taken to improve efficiency,
including clear performance measures and accountability mechanisms. We
have made a commitment to ensuring adequate capital.
But more than that there have been very powerful non-financial steps.
Interference in banking decisions has ended. A new process for
appointments is being put in place under the Bank Boards Bureau.
Credible and capable bankers have been appointed to head banks. For
the first time since banks were nationalised 46 years ago private
sector professionals have been appointed in key positions. This is a
major reform.
There is a whole eco-system focused on alleviating poverty. Perhaps
this can be called the ‘poverty alleviation industry’. Obviously the
intentions are good. Well designed schemes and subsidies do have an
important place. But empowering the poor is far more effective than
empowering the poverty alleviation industry. Our financial reforms
empower the poor to fight poverty themselves. I can take the analogy
of a house. The foundation and basic structure occupies some of the
costs. Then come the fixtures, fittings and furniture. If the
foundation and structure are weak any investment in nice fittings or
attractive floor tiles or beautiful curtains is unlikely to last long.
So also, empowering the poor through financial inclusion and social
security will provide a more stable and lasting solution.
Let me now turn to structural reforms in various sectors.
Agriculture remains India’s mainstay in terms of providing livelihood.
We have introduced a series of reforms. There was a tendency to divert
subsidised fertiliser for the production of chemicals. A simple but
very effective solution is neem-coating of fertiliser which makes it
unsuitable for diversion. This had been tried on a small scale earlier.
We are now moving towards universal neem-coating of urea. This has
already saved crores of rupees of diverted farm subsidies. It is an
example of how simple reforms can be very effective.
We have introduced a Soil Health Card nationally which tells every
farmer the condition of his or her soil. It enables the farmer to
choose the right quantity and mix of inputs. This greatly reduces
wastage of inputs and increases crop yield besides protecting the soil.
By reducing unnecessary chemical inputs, it is also good for health of
consumers. It enables farmers to choose the best crop for their soil.
Many farmers have been unaware that their land is actually more suited
for a different crop. In economic terms, it is a win-win-win-win. It
reduces costs, increases yields, improves the environment and protects
the health of consumers. 140 million soil health cards will be
issued, requiring a collection of over twenty-five million soil
samples. They will be tested through a nationwide network of nearly
1500 laboratories. About four million samples have already been
collected. This too is a reform to transform.
We have launched a housing for all program - one of the most ambitious
in the world. It involves building twenty million urban houses and
thirty million rural houses, totalling nearly fifty million. The
programme will make sure no Indian is houseless. It will also generate a
large amount of employment mainly for the unskilled the semi-skilled
and the poor. This multi-pronged program is also a transformative
reform.
Much has been said and written about India’s labour markets. We have
already undertaken some important steps. Many workers in the
organised sector have suffered when changing jobs by being unable to
access provident fund and other benefits. The benefits accrued
under one employer become difficult to account for under another
employer. We have introduced a Universal Account Number which will
remain with an employee even when he changes jobs. This greatly
improves labour mobility and makes life easier for employers and
employees.
We have gone a step further We have started empowering the
unorganised sector employees by giving them a Universal Identity
Number and providing certain minimum social security benefits to
them. Over a period of years, this will have a major impact on the
quality of employment in India.
Before becoming Prime Minister, I had received many inputs about the
reforms needed in India from many economic experts. However, none of
them touched on the issue of cleanliness and sanitation. Sanitation
has languished for years as a poor cousin of health or of drinking
water supply. It has often been viewed as a question of budgets and
projects and expenditure. Yet, you will all agree that poor
sanitation and lack of cleanliness is much more than an issue of
health. It touches upon every aspect of our well-being. It is of
particular importance to women. Our Swacch Bharat or Clean India
campaign will impact not only health and sanitation but also uplift
the status and security of women and above all create a powerful
sense of well-being. If this reform succeeds, as I am confident it
will, India would have been transformed.
We have undertaken major managerial improvements in the transport
sector. Our major ports have seen a 5% growth in traffic and an 11%
increase in operating income in 2014-15 despite a global contraction
in trade volume. The Shipping Corporation of India had been making
losses continuously for several years and had a loss of Rs. 275
crores in 2013-14. In 2014-15 it earned a profit of Rs 201 crores a
turnaround of nearly Rs 500 crores in one year. The pace of award
of new highway works has increased from 5.2 km per day in 2012-13
and 8.7 km per day in 2013-14 to 23.4 km per day currently. These
managerial reforms in the working of the public sector will have
large multiplier effects throughout the economy.
Another measure we have taken is to identify what can be called ‘dead
money’ and use it productively. The best example is gold. India is
well known for its cultural affinity for gold. As economists you will
probably understand that this so-called cultural affinity has a strong
economic logic. India has often witnessed high inflation. Gold is an
excellent hedge against inflation and is a highly portable store of
value. Its portability and usability, also make it a source of
empowerment of women who traditionally are the main owners of gold
jewellery. However, this micro-economic virtue, can become a
macro-economic vice. It implies a high level of gold imports. We have
just launched a series of gold-related schemes. These will provide
Indians with the inflation protection of gold along with a modest
interest without actually holding it. If the scheme reaches its
potential, it will help meet the rational expectations of the public
while moderating imports. Surely, this too is an important reform with
potential to transform.
Let me now turn to institutional and governance reforms.
For years, the Planning Commission was widely criticised. It was
generally seen as a cumbersome centralising force which imposed
central will on the states. It is another matter that some of its
strongest critics suddenly developed a nostalgic admiration for the
institution they had hated till the previous day. After coming to
power we created a new institution, the National Institution for
Transforming India, or NITI. My vision of NITI is very different from
the Planning Commission. It is to be a collaborative forum for ideas
and action where States are full partners and where Centre and
States meet in a spirit of co-operative federalism. Perhaps some
people thought this was merely a slogan. But we already have concrete
examples of its transformative power. Let me explain.
As you all know, the 14th Finance Commission recommended that states
be given an enhanced share of Central revenues as automatic
devolution. Despite some internal advice to the contrary, I decided
to accept the recommendation. This has created a need to restructure
Centrally Sponsored Schemes. Ever since the First Five Year Plan in
1952, such decisions were taken unilaterally by the Centre. We did
something very different. The task of fixing the sharing pattern of
Central schemes was entrusted not to a group of Central ministers but
to a Sub-Group of Chief Ministers in NITI. And I am delighted to say,
that in a fine example of co-operative federalism at its best, the
Chief Ministers have unanimously agreed on a set of recommendations.
This is despite the fact that this is a very complex issue, and that
they come from many different political parties. I received their
report, on 27th October. The main recommendation on the sharing
pattern was accepted the very same day and written instructions were
issued the very next day. On many other issues too, the Chief
Ministers are taking the lead in setting the national agenda. By
reforming the institution, we have transformed the relationship.
Our work on ‘Make in India’ and ‘Ease of Doing Business’ is of course
well known. Our push to ‘Make in India’ must be viewed in the
context of the very slow growth in world trade. The growth rate of
trade exceeded GDP growth from 1983 to 2008. Since then, trade has
been growing more slowly than GDP. Therefore, producing for domestic
consumption is important for growth.
You are all probably aware, that India has substantially improved
its ranking in the World Bank’s Doing Business survey. But a new
feature, is the very healthy and constructive competition among
states. You would be surprised to know, that among the top few states
are Jharkhand, Chattisgarh and Odisha. This is an example of
constructive competitive federalism.
In a break with over sixty-five years of tradition we have involved
states even in foreign policy. The Ministry of External Affairs has
been asked to work with the States. When I visited China, a
state-to-state summit was also held. And states have been asked to
create export promotion councils. Making the States think globally is
yet another reform with potential to transform.
I firmly believe that India’s people are far more mature and far more
public-spirited than arm-chair critics and experts give them credit
for. An important governance issue is the mutual trust between
citizens and the state. We made a beginning in trusting the citizens
by abolishing many requirements for ‘attestation’ of signatures.
For example, the Department of Higher Education, has permitted self
attestation by students of documents used for admission in various
academic courses. We also ended the requirement to visit government
offices for life certification for pensioners by introducing online
biometric identification. Economists have traditionally believed
that people act in their self interest. But India has a long
tradition of voluntarism. We introduced the Give-it-up Campaign
seeking the cooperation of the public in voluntarily giving up
cooking gas subsidies. We promised them that for every connection
given up one poor family currently without gas would be given a
connection. This will enable us to liberate many poor women from the
health hazards of using firewood including respiratory illness. The
response has been tremendous. Within a few months over four million
Indians have given up their cooking gas subsidies. Most of them are
not rich households and belong to the lower middle class. If any of you
in this room still have a subsidised connection let me appeal to you
to join them.
This brings me to an achievement that I think even our worst critics
do not dispute. This is the change in levels of corruption. For many
years, economists and other experts have held corruption to be one of
the main constraints on the growth of any developing economy. We have
taken decisive steps to curb corruption. I have already referred
to what has been done in public sector banks. Another major reform is
well known. This is the removal of discretion in allocation of key
resources. Our auctions of coal spectrum and FM radio licences have
produced major additional revenues. In the case of coal the major
beneficiaries are some of India’s poorest states, who will now have much
more resources for development. Interviews for lower level government
jobs have widely been seen, as a source of corruption. We have recently
abolished the system of interviews for lower level posts in government.
We will rely on transparent written examination results to decide who
will be selected. Our campaign against tax evasion and money laundering
is also well known. Rs. 6500 crores has been assessed before the new
Black Money Act was implemented. Additionally, over Rs 4000 crores
has been declared under the new Act. Thus over Rs 10,500 crores of
black money from abroad has been detected and assessed. If we can
sustain this improvement in integrity and transparency what can be a
more transformative reform?
We are also taking several steps to serve the honest taxpayer better.
Electronic filing of returns now covers 85% of all tax returns.
Earlier, electronic returns had to be followed by a paper verification
which used to take weeks to be processed. This year, we have
introduced e-verification using Aadhaar and over four million taxpayers
made use of this facility. For them, the entire process was simple,
electronic and completed instantly with no paper at all. This year,
91% of electronic returns were processed within ninety days as compared
to 46% last year. Nearly 90% of refunds were issued within 90 days. I
have asked the Income Tax Department to move to a system where not only
returns but also scrutiny is done without having to go to the office.
Queries could be raised and answered online or by Email. There should
be a visible electronic trail of what is pending with whom, where, and
for how long. This is being piloted in five big cities. I have also
instructed that the performance appraisal system, for Income Tax
Officers be changed. The appraisal should reflect, whether or not the
officer’s orders and assessments have been upheld on appeal. This will
deter corruption and also motivate officers to pass correct orders.
When fully implemented, these changes, namely online scrutiny, and
changes in performance appraisal have transformative potential.
This is a distinguished gathering. You have many interesting and thought
provoking sessions ahead. My appeal to all of you, is to think beyond
conventional remedies. We should not limit our idea of reforms to a few
standard notions. Our idea of reforms should be inclusive and
broad-based. The goal of reforms is not better headlines in the pink
papers, but better lives for our people. I am sure you with your
knowledge will come up with even better ideas. I look forward to
hearing from you of more ‘reforms to transform’ which will make life
better for the whole of India. Then not only we in India but the
whole world will benefit.
