You are taking charge in very challenging times. What is your vision for NITI Aayog?
I have come here to implement the vision of the government which has high expectations from the institution. This is also reflected in our name, National Institution for Transforming India (NITI). India needs to achieve sustained growth so that a dividend – a fiscal dividend, an employment dividend – can be made to ensure a decent standard of living for all Indians. That said, India does not grow, India’s states grow and when India’s states grow, India grows. The role of NITI Aayog is to create a coherent vision about future developments and then work with multiple change agents. These are both central and state governments, and actors from outside the government, the private sector and civil society, so that diagnosis and analysis can be turned into action on the ground.
How do you propose to bridge the deep gulf between the Center and some states that have refused to implement some of the flagship schemes?
I was able to meet the state chief secretaries at their conference in Dharamsala and I was deeply impressed by their belief that the policy should be a neutral platform to assist all states or union territories to pursue their own transformation agenda can. All governments, regardless of their public stance, recognize that political success is strongly linked to economic and social performance. Yes, they are prone to populist schemes, but seen in an international context, India has strong constitutional protections against disastrous fiscal populism. For me, the issue is less of financial stability, and more of the cost imposed on growth performance. If NITI Aayog has enough to offer, and if we can field real expertise, and create a voice platform for collaboration, then we will get a hearing. If we can give a quantitative sense (through indicators) of where each state stands in comparison to its peers, if we can also tell them where they stand in a global context, I don’t think politics alone can prevent us from getting a seat at the table. Another insight from the Chief Secretaries’ conference was that during this Planning Commission The days he used to attend meetings, thinking that he was preparing for an exam. I’m hoping to make it a relationship of more equality.
You touched on the issue of populism. Going away from the state, giving free electricity, announcing many schemes new pension scheme, Does this need to be controlled through some mechanism?
When the current cadre of civil servants look at what their predecessors enjoyed, it is all too tempting for the party in power to say, ‘We are going to give you this too’. Unfortunately, the full financial impact of such a move will be felt much later. But, if we talk about other short term decisions like mess in State Electricity Boards, the stress arising out of these pitfalls expresses itself through poor quality of service, can NITI Aayog come up with clever mechanism? , so that poor quality service can be somehow more visible? This is where competitive, rather than cooperative, federalism comes into play.
How do you see the financial position of the states? Do you see some in deep tension?
Without commenting on specific cases, the long-term solution is that states should have incentives to protect their credit ratings and borrow based on their balance sheets. It may be worth studying how long it took the US and Australia to borrow based on their own creditworthiness.
Does the quality of expenditure in the states or some kind of white paper require an outcome assessment?
I’m not sure what we would add compared to CAG. NITI Aayog undoubtedly has a reputable Assessment Office. Any executive body, whether it is a one line ministry at the Center or in the states, does not like to have people looking over its shoulder. There is a need to differentiate between the accountability task and the learning task of evaluation. NITI Aayog should focus on the learning task for the state and leave the accountability task to more appropriate constitutional bodies.
There are concerns about the pace of recovery and inflation. What are the long term structural changes needed and how can policy help?
Inflation targeting as a principle was first invented in New Zealand, and then spread widely to advanced large countries. The US is an informal inflation target user and is focused on managing inflation expectations, out of concern that inflation in labor negotiations may normalize if inflation expectations are de-anchored, because then you will lose the wage price. Enter the spiral. We also have an inflation target in the Indian context. We have some research evidence that it has had a stabilizing effect on inflation expectations but our measures of inflation expectations are urban, they are not rural. Another important point is that our current informal labor market does not provide the machinery for the wage-price spiral that India has today, if demand falls short. Instead, you need to reduce the impact of inflation on real living standards, as inflation affects the poorest the most.
What other structural measures can be taken?
It’s fashionable, but I’m liberal at heart. One way is to use inflationary growth as an opportunity to open up. Even though there is inflation on the outside world, imports provide competition in both agriculture and manufacturing. Firms need to be disciplined from the threat of imports. On the trade more widely, the world has learned a lesson about not putting all your eggs in one basket, that basically you have to diversify your sources of supply. The tricky question is how much to deliberately aim for import substitution through crop diversification, through PLI or whatever. NITI Aayog can play a useful role in identifying some anomalies.
Are institutions like the GST Council needed to engage more effectively with states on other issues?
We shouldn’t be umpires, we should be conveners. Australia has had an interesting experience with councils, formalizing them. I just want to be a little careful that we don’t create councils that become tools to stop development.