'Don't exacerbate the problems': Raghuram Rajan's advice to Modi 2.0 on economy

Listing out his views on economic agendas for the new government, former RBI governor Raghuram Rajan has said the new dispensation needs to address the fiscal gap and revive agriculture, power and banking sectors. In his latest blog post, which was co-written with Abhijeet Banerjee, Rajan said both the Centre as well state governments should target to reduce fiscal deficit to FRBM (Fiscal Responsibility and Budget Management Act)-suggested 5 per cent by 2023. For this, there is a need to create better compliance and progressive taxation, he said. He also suggested that a Centre-state council modelled on the successful GST Council could be formed to ensure fiscal federalism.

To address the problems in key sectors including agriculture, power and banking, the former top banker has advised against adopting measures that often cause distress. He said the use of tools such as loan waivers, inflated MSPs without adequate procurement, and input price subsidies in agriculture often "exacerbate the problem". "In addition to enhancing investment in new technologies and irrigation, a government move toward lump-sum payments to farmers for holding below a certain limit, in the spirit of Telengana's Ryathu Bandhu scheme, will be an improvement," the write-up suggested.

For the power sector, Rajan said the distressed state-owned power distribution companies need to adopt measures like better metering, less distorted pricing of both the power as well as energy inputs, and the use of new, cleaner technologies for distributed production.

Vouching for a better business environment to create jobs or to ramp up inadequate exports, Rajan said the country needs to learn from state experiences about what works in areas like land acquisition, industrial regulation, provision of power and logistics, and environmental clearances. "A Centre-State Productivity Council can be useful for this; such a Council could revive the idea of Special Economic Zones where coordinated land, environmental clearances and transportation infrastructure are available on a 'plug-in' basis," he added.

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On the issue of skilled workforce, he said it's needed not only at higher levels but also at lower levels. "More lateral entrants, merging into the permanent civil service, are desirable near the top. At lower levels, too many youth waste years taking competitive exams for government jobs that most will never get," he said.

Rajan said India must address the coming explosion of non-communicable diseases, which would require engagement with the frontline providers. "The vast majority of these (frontline workers) have no formal qualifications, but the evidence suggests they can be trained and pushed towards practising better medicine," the blog post added.

Edited by Manoj Sharma

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