Avoid the adventurous path

Any aggressive attempt to widen the fiscal deficit will land India’s economy in problems

The sharp deceleration in the growth of the economy as revealed by the first quarter estimate of GDP released a month ago has been widely commented upon. The policy prescriptions needed to reverse the trend depend on our understanding of the factors responsible for the slowdown. Among other things, one factor that stands out is the steady and sharp decline in the investment rate. The Gross Fixed Capital Formation (GFCF) rate has touched the level of 27.5% in the first quarter of 2017-18. A year ago, it was 29.2%, and a decade ago, it was 10 percentage points higher. In recent years, public investment has shown a small rise. The decline in the investment rate has been largely due to a decline in the private investment rate, both corporate and household.

Fiscal and revenue deficits

Given this situation, policy initiatives must be directed towards raising private investment. However, some have argued for a strong fiscal stimulus through an increase in public investment by relaxing the fiscal deficit. It is also suggested that what is relevant is revenue deficit and that there is no rationale for having a fiscal deficit target. There are two problems with this argument. First, the focus on fiscal deficit is mainly to ensure that the private sector has sufficient borrowing space. This is clearly set out in the Report of the Twelfth Finance Commission (TFC) chaired by the first author and which was reiterated by the recent Report of the Fiscal Responsibility and Budget Management (FRBM) Review Committee chaired by N.K. Singh, former Revenue and Expenditure Secretary and former Member of Parliament. The argument in the TFC was that when the transferable saving of the household sector relative to GDP is 10% and an acceptable level of current account deficit 1.5%, containing the aggregate deficit of the Centre and States at 6% and providing 1.5% to the public sector enterprises would leave 4% borrowing space to the private sector.

Similarly, the target of debt-GDP ratio at 60% in 2023 from the present level of 70% (with the Centre and States required to contain their ratios at 40% and 20%, respectively) is supposed to be achieved by limiting the fiscal deficit at 3% of GDP in the first three years and 2.5% in the next two by both the Centre and States.

Second, over 60% of the estimated fiscal deficit at the Centre in 2017-18 (1.9% out of 3.2%) is revenue deficit. At the State level, when the impact of loan waivers, additional interest payments on account of Ujwal DISCOM Assurance Yojana (UDAY) and possible impact of pay revision is considered, the revenue deficit may increase by 1% of GDP. Thus, the problem of proliferation in revenue deficit continues. The golden rule which the U.K. wanted to follow set no limit on fiscal deficit. But borrowing was limited to only financing capital expenditures. The implication is revenue deficit will be nil. We are far from this.

History of fiscal laxity

Indian economic history is replete with instances of adverse effects of fiscal expansion on inflation as well as the balance of payments. The huge fiscal expansion in the late 1980s, with the fiscal deficit at more than 10% of GDP leading to the macroeconomic and balance of payments crisis requiring the adoption of structural adjustment programme in 1991, has been very well documented. The recent episode of fiscal expansion after 2008-09 and 2009-10 is fresh in memory. After substantial improvement in the fiscal situation during the period 2004-05 to 2007-08, the implementation of the Pay Commission recommendation, expansion of rural employment guarantee for the whole country and the introduction of the loan waiver led to derailing the process of adjustment in 2008-09, and the fiscal deficit of the Centre increased from 2.5% in 2007-08 to 6.1% in 2008-09. It further ballooned to 6.6% in 2009-10 and the consolidated deficit was 9.4%. This was one of the important reasons for the inflation rate increasing to 10.2% in March 2010, and the average increase in wholesale price index in 2010-11 was 11.1%.

Declining financial savings

The Annual Report of the Reserve Bank of India (RBI) gives the latest estimate of the financial saving of the household sector for 2016-17 at just about 8.1% of GDP. And if the foreign savings of 2% is added, the transferable savings is just a little over 10%. The aggregate fiscal deficit at the Central and State levels budgeted for 2017-18 is about 6% of GDP, but this is likely to go up after the impact of loan waivers and increase in house rent allowance at the Centre and possible revision of pay scales in the States are taken account of. The annual report also estimates the impact of loan waivers alone at 0.5% of GDP. Taking 6.5% of GDP as the aggregate fiscal deficit and leaving aside 2% for public enterprises, the private corporate sector is left with a borrowing space of just about 1.5% of GDP. At a time when the need is to stimulate private investment, to restrict the space available for it may be counterproductive. In such an environment, there is hardly any scope for reducing the interest rates by the RBI, and even if it did, financial institutions would be unwilling to lend at lower rates. The liquidity crunch may eventually result in monetising the deficits, if not directly but indirectly.

Shortfalls in Centre and States

As it is, adhering to the fiscal deficit targets set out in the Budgets is going to be challenging. There will be a sharp reduction in the dividends from banking and financial institutions. The RBI has announced that against the expected ₹58,000 crore, the actual dividend will be ₹36,905 crore, and given the difficulties in the public sector banks, there will be shortfalls in the dividends from them as well. There will be a shortfall in disinvestment and tax revenue collection, if current trends persist.

The problem of adhering to the fiscal deficit target is not confined to the Centre alone. At the State level, the combined fiscal deficit for 26 States is budgeted at 2.2% of GDP excluding the deficit arising from taking over the power distribution companies (discoms) loans. However, as mentioned earlier, the expenditure on account of loan waivers is estimated at about 0.5% of GDP. Furthermore, following pay revision at the Centre, some of the States may revise their pay scales which could add to the fiscal pressure. There could be a slippage of about 1% GDP in fiscal deficits.

Road map ahead

The solution to the current slowdown in growth lies in reviving private investment, recapitalising banks to enable them to lend more, and speedy completion of stalled projects. Fiscal policy can at best play a role in creating the appropriate climate. Fiscal prudence is one of the elements in sustaining growth over an extended period. The fiscal deficit rules that we have evolved are consistent with the level of savings and the demands of the various sectors on those savings. Our adherence to the fiscal rules has been weak. They have been more honoured in breach than in observance. We are passing through a difficult situation. Even to maintain government expenditures at the budgeted levels, there will be a slippage in the fiscal deficit budgeted because of the likely fall in revenues. The slippage in fiscal deficit by a few decimal points may not matter but any aggressive attempt to widen the fiscal deficit will land us in problems. Our history is witness to it. We should avoid being adventurous.

C. Rangarajan is Former Chairman of the Economic Advisory Council to the Prime Minister and Former Governor, Reserve Bank of India. M. Govinda Rao was Member, Fourteenth Finance Commission and is Emeritus Professor, NIPFP

good initiative for aasan barrage

good initiative for aasan barrage

efficiency in financial matter is necessary for timely implementation

efficiency in financial matter is necessary for timely implementation

Nobel-winning team spots merging neutron stars

Nobel-winning team spots merging neutron stars
For the first time, a cosmic event has been observed with gravitational waves and also light waves.

The LIGO-VIRGO collaboration, three members of which won this year’s physics Nobel Prize, strikes again, this time, to detect the merger of two neutron stars — extremely dense, massive but tiny, objects. What is more striking is that gamma rays bursting from the event were observed by nearly 70 ground and space-based observatories.

This is the very first time that a cosmic event has been observed with gravitational waves as well as the light emanating from it. Earlier observations made by LIGO have been of black hole mergers, and as no light can escape from a black hole, there was no such light counterpart to the measurements.

According to a press release circulated by the collaboration, “On August 17, LIGO’s real-time data analysis software caught a strong signal of gravitational waves from space in one of the two LIGO detectors. At nearly the same time, the Gamma-ray Burst Monitor on NASA’s Fermi space telescope had detected a burst of gamma rays.”
“The fact that these two signals [the gravitational waves and the gamma ray bursts, which are essentially light waves] arrived at nearly the same time tell us that the speed of gravitational waves is extremely close to the speed of light. This was predicted by Einstein, but it is the first time we are making a direct measurement,” says P. Ajith, of International Centre for Theoretical Sciences, Bengaluru. Dr. Ajith is one of the leading contributors to the theoretical studies on gravitational waves. In all, the LIGO-VIRGO collaboration includes about 1,500 scientists and of this about 40 are Indians.

The neutron stars of the signal detected on August 17 were located about 130 million light years away. As these neutron stars spiraled together, they emitted gravitational waves that were detectable for about 100 seconds. When they collided, a flash of light in the form of gamma rays was emitted. This “gamma ray burst” was seen on Earth about two seconds after the gravitational waves were observed. As a result, the gravitational wave detectors caught the signal which is the longest “chirp” heard so far — it lasted 100 seconds.

Neutron stars are the smallest, densest stars known to exist. These could be about 20 kilometres in diameter and have masses much greater than the Sun. A teaspoonful of neutron star material could hold a mass of a billion tonnes. They are formed when massive stars explode in supernovae.

“From informing detailed models of the inner workings of neutron stars and the emissions they produce, to more fundamental physics such as general relativity, this event is just so rich. It is a gift that will keep on giving,” David Shoemaker, spokesperson of the LIGO collaboration, is quoted as saying in the press release.

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Nutrition Value of Food under MDMS

Nutrition Value of Food under MDMS

The cooking cost which includes the cost of vegetables, pulses, oil, condiments & fuel is being upwardly revised annually since 01.04.2010. The cooking cost has been enhanced by 7% w.e.f. 01.07.2016 and it now stands at Rs.4.13 and Rs.6.18 per child per day for primary and upper primary stages respectively. Besides the above, the Central Government provides 100% funding for foodgrains, transport assistance, kitchen devices and Management/Monitoring Expenses. Several State/UT Governments are also contributing additional funds over and above their minimum mandatory share under Mid Day Meal Scheme.  Food grains under mid day meal scheme are provided through Food Corporation of India (FCI) to States/UTs at rates under National Food Security Act i.e Rs. 2 and Rs. 3 per kg for wheat and Rice respectively.  The economic cost of wheat is Rs. 23.45 per kg and that of rice is Rs. 32.67 per kg.

The Central Government has notified the Mid Day Meal Rules, 2015 in September, 2015 under the National Food Security Act, 2013.  These Rules, inter-alia, provide that hot cooked meal provided to children shall be evaluated and certified by the Government Food Research Laboratory or any other laboratory accredited or recognized by law so as to ensure that the meal meets with the prescribed nutritional standards and quality.  The samples are to be collected at least once in a month from randomly selected schools or centralized kitchens for testing by such laboratories.

The Mid Day Meal Guidelines prescribe the following nutritional content and calorie count to achieve the objectives of the Scheme in the mid day meal: 

Items	For children of Primary classes	For children of Upper Primary classes
A) Nutritional Norms (Per child per day)
Calorie	450	700
Protein	12 gms	20 gms
B) Food Norms (Per child per day)
Food-grains	100 gms	150 gms
Pulses	20 gms	30 gms
Vegetables	50 gms	75 gms
Oil & fat	5 gms	7.5 gms
Salt & condiments	As per need	As per need

This information was given by the Minister of State (HRD), Shri Upendra Kushwaha today in a written reply to a Rajya Sabha question.

Robust Statistical systems – A Tool for Good Governance

Robust Statistical systems – A Tool for Good Governance

The role of Statistics in formulation, monitoring and evaluation of developmental policies needs no emphasis.  Statistics is also required for improving transparency and accountability in the implementation of policies through better understanding and control on delivery of public services. To cater to the requirements, a robust statistical system needs to be in place for collection, validation, compilation and dissemination of data. The roots of statistical system in India can be traced in Kautilya’s Arthsastrha and AbulFazal’s Ain-i-Akbari. During the British era, the Indian statistical system started getting the shape and Prof P. C. Mahalanobis ‘father of Indian Statistical System’ laid the foundation of modern statistical system. I also acknowledge the contribution made by Prof. P. V. Sukhatme particularly in the field of Agriculture Statistics.

Keeping the importance of statistics in view, the Ministry of Statistics & Programme Implementation (MoSPI) was created in the year 1999 by bringing the Department of Statistics and Department of Programme Implementation under one umbrella. To oversee the entire gamut of official statistics, the National Statistical Commission (NSC) was set up in 2005.

            At present, India has a laterally decentralized system of statistics over different Ministries at the Centre and a vertically decentralized system between the Centre and the States and the Union Territories. The authority of collection of statistics on any subject generally vests in the organization that is responsible for that subject. My Ministry through Central Statistics Office (CSO) and National Sample Survey Office (NSSO), plays a pivotal role in streamlining of collection of statistics over activities under its direct control, while we also assist the other agencies wherever such assistance is required.

The adoption of UN Fundamental Principles of Official Statistics by the present Government is a reiteration of its commitment to good governance. In keeping with the spirit of considering official data as Public Goods, the Ministry is making available data of various large scale surveys to users. While all published reports are available for free download from the Ministry’s website, detailed data of surveys is made available at nominal charges to academics, researchers, etc. However, while doing so it is ensured that identity particulars of survey respondents are not shared, thereby honouring the principle of maintaining confidentiality of respondents.

The NSSO of my Ministry conducts regular socio-economic surveys on various subjects across the country. During last three years, surveys were conducted on Domestic Tourism Expenditure and Household Consumption Expenditure on Services & Durable goods, Unincorporated Non-Agricultural Enterprises and Enterprise focussed Survey of Services Sector. Based on the experience and understanding acquired during the ‘Enterprise Focussed Survey on Services Sector’ carried out in 2016-17, the possibility of conducting an Annual Survey of Services Sector in line of Annual Survey of Industries will be explored. In the year of 2017-18, NSSO is undertaking surveys on Household Consumer Expenditure and Household Social Consumption on Education and Health. In 2018, two surveys, one on Disability and one on Sanitation, Hygiene & Housing have been planned. To assess the conditions of farmers and villagers, a Situation Assessment Survey of Agricultural Households and a Debt & Investment Survey are proposed to be undertaken in 2019.

One of the major initiatives taken by the Hon’ble Prime Minister after assuming office was the Swachh Bharat Mission. NSSO conducted a rapid survey on Swachhta Status during May-June 2015 covering 3788 villages and 2907 urban blocks. The survey gave the baseline position of the situation on the availability and accessibility of toilets and solid waste and liquid waste management.

The data collected by NSSO on employment-unemployment in India is presently available at an interval of about 5 years. Considering the importance and the fact that the employment data is required more frequently for effective policy interventions, we have launched the Periodic Labour Force Survey (PLFS) from April 2017. Now, the employment data for urban areas would be available every quarter, while that for rural areas on annual basis. This survey will also give data on distribution of workers by industry and occupation, as also on workers employed in informal sector, besides condition of employment of the workers. In this survey, we have replaced the traditional approach of using paper schedules for filling-in information at the field level by the Computer Assisted Personal Interviewing (CAPI) method.

The data will be directly entered into Tablets from the field by the field workers using a specialised software developed by my Ministry in collaboration with the World Bank. By combining the tasks of data collection and data entry, this process will save substantial time. We intend to extend this technique to various other surveys of NSSO in due course of time.

Recently, we have also revised the measurement standards of Gross Domestic Product (GDP) to make them better compliant with the United Nations System of National Accounts (SNA), 2008. Further, due to advancement of the Budget session to 1^st February, 2017, my Ministry has revised the Advance Release Calendar of Annual and Quarterly Estimates of GDP and policy of revision of Annual & Quarterly Estimates of GDP and related Macro-economic Aggregates to make available the estimates before the presentation of Budget 2017-18.  Work has been initiated towards revising the present base 2011-12 to 2017-18.

To reflect the structural changes taking place in the industrial sector more accurately, the base year of Index of Industrial Production (IIP) has been revised to 2011-12. The new series of IIP with base 2011-12 was released in May 2017. The methodology has been changed in the new series to make the indices more robust and representative. We are also planning a web portal for collecting data from the respondent units. On operationalization, this will considerably reduce the time lag in release of the monthly index from the current 42 days.

My Ministry has also revised the Base Year of the Consumer Price Index (CPI) from 2010 to 2012. The revised series was launched in January 2015. The Reserve Bank of India uses Consumer Price Index (Combined) as the key measure of inflation for formulating the Monetary Policy of India.

To ensure standardisation of procedures, National Accounts Division of CSO and Survey Design & Research Division of NSSO have been certified ISO-9001:2008 compliant for quality of performance. The Ministry has also been making all efforts towards e-governance. Some of the achievements are:

§  To facilitate the users, new website of the Ministry was launched last year which has been designed and developed as per the prescribed guidelines.

§  Bharatkosh, e-receipt portal gateway, is being used by Indian users for dissemination of Unit level data of NSS, ASI and Economic Census. The process of online payment by non-Indians for supply of data has been initiated.

§  Creating of a web-based Survey Data Catalogue/ Micro Data Archive to disseminate NSS Survey, ASI and Economic Census Data.

            The Programme Implementation Wing of my Ministry deals with implementation of Members of Parliament Local Area Development Scheme (MPLADS), monitoring of Central Government’s projects costing more than Rs. 150 crore and the Twenty Point Programme (TPP).

            My Ministry has been responsible for the policy formulation, release of funds and prescribing monitoring mechanism of MPLADS. A new Integrated MPLADS Portal has been developed for use of all stakeholders, namely, Hon’ble Members of Parliament, State Nodal Authorities, District Authorities and Citizens. This Portal is an attempt towards ensuring transparency and making Citizens aware of the implementation of the Scheme. The MPLADS Portal also provides an opportunity to the Citizens for suggesting the developmental works in their areas to the Hon’ble Members of Parliament. To give a boost to completion of works undertaken under MPLADS, particularly old pending projects, officers from my Ministry are visiting the States to review the progress with senior officers of State Governments, including the Chief Secretaries. To imbibe systemic improvements in the design and implementation of the Scheme and to ensure optimum utilization of Government Funds, the Guidelines on MPLADS have been modified with changing requirements as well as on advice / feedback received from the stakeholders, including members of public, Hon’ble Members of Parliament, Comptroller and Auditor General of India (C&AG), etc.

Our Government is committed to the welfare of the less privileged. It has been made mandatory for the durable assets created under MPLADS to be friendly to persons with disability, wherever feasible. Retrofitting in existing durable assets created under MPLADS to make them friendly to persons with disability has also been permitted. All moveable assets specifically permissible under Guidelines on MPLADS such as school buses, ambulances, etc. procured with MPLADS funds must be friendly to persons with disability.

My Ministry monitors the ongoing Central Sector Infrastructure Projects costing Rs150 crore and above on time and cost overruns, through its Online Computerised Monitoring System (OCMS) on the basis of information provided by the project implementing agencies. The OCMS serves as a reliable MIS tool for review of projects by the Administrative Ministries and Cabinet Secretariat, as well as the PMO through its PRAGATI meetings. A number of other steps have been taken to ensure timely completion of projects. It is because of these measures and painstaking efforts that the cost overruns have come down from 19% in March 2014 to 11.2% in January 2017.   

            My Ministry’s future roadmap envisages a large number of important initiatives.

Firstly, Technology will increasingly be used in data collection through the technique of Computer Assisted Personal Interview (CAPI) on cloud server, online web portals, etc. and for maintaining the activity of Ministry for Digital India/e-Governance/e-Kranti.

Secondly, we have initiated actions on formulation of National Policy on Official Statistics consistent with the United Nations Fundamental Principles of Official Statistics. Adoption of these principles aims to ensure data quality through consistent and transparent procedures in data collection, compilation and compliance with the laid down practices.

We are also exploring developing a framework for bringing out National Factsheet of the Indian Economy with 100 indicators, on a quarterly basis using data provided by various source Ministries/ Departments through a dynamic user-friendly Dashboard, and 13 indicators on annual basis.