"RBI's Independence Vital, Should Not Be Politicised": Arvind Subramanian | Read

Former Chief Economic Advisor Arvind Subramanian speaks to NDTV's Prannoy Roy on a range of issues in front of the Indian economy today. From the bad debt crisis in the banking sector to the growing agrarian distress, Dr Subramanian weighs in on the good, bad and ugly of Asia's third-largest economy. "The GST design and implementation could've been better," he says. And even though he doesn't go as far as saying that the demonetization was a bad idea, he says, "Demonetisation was meant to be extreme... but if political capital could be better spent I'd suggest that (over demonetisation)".

On the controversy over the independence of the Reserve Bank of India, the former Chief Economic Advisor says "The RBI's excess capital should go to recapitalise banks and not to the government. Financing government's budget deficit would be raiding RBI."

In a significant warning, he also says that the "RBI's independence is vital and the board should not be politicized."

However, one area where the government deserves praise is the new bankruptcy law, Dr Subramanian says. "Centre and states should work together on agriculture like they did for GST," he says. He also backs a radical idea: "Farmers should get universal basic income."

Here are the highlights:

Here's what we are going to discuss in the programme today, says Prannoy Roy

- The underlying problems in front of the economy
- A look at the various sectors; and
- A look forward



The three underlying problems in front of India's economy today are:



Arvind Subramanian says the bad loans problem has been festering for a while now. "About 8-9 years and counting," says Dr Subramanian.

India's bad debt problem is bigger than earlier thought:



The government deserves credit for the new bankruptcy law, says Arvind Subramanian.

Arvind Subramanian says there was a delayed response on part of the RBI in tackling the mounting bad debt. However, the former Chief Economic Advisor praises how ex-RBI governor Raghuram Rajan handled the situation.

Was the IL&FS crisis India's Lehman Brothers moment? "Not really. India is a resilient economy. The crisis is not big enough," Arvind Subramanian said.

So how does he suggest India should handle its bad debt crisis? "My proposal is for a deep dive into NBFCs (Non Banking Financial Companies) and do an AQR or asset quality review," Arvind Subramanian said.

"There was a delay in acting. IL&FS came out of the blue but where were the regulators?" Arvind Subramanian said.

Analysing India's journey so far, Arvind Subramanian says India went from an era of crony socialism to stigmatised capitalism.

"There was a time when there was lot of government regulation and corruption in that. But after we overcame that, we went to an age when the private sector carries a stigma from a feeling that fat cats will get away," Dr Subramanian said.

On the problems faced by farmers, Arvind Subramanian says, "I don't think we fully understand why prices are falling. But old remedies of MSP etc. are not working."

"Why not have direct benefit transfer to farmers?" he suggests.

Arvind Subramanian says the centre and states should work together on the agriculture sector like they did for GST. And then he backs a radical idea: "Farmers should get universal basic income."

India's agriculture productivity far behind China, US - at "terrifying" levels in dollar terms, says Prannoy Roy.



How realistic is Prime Minister Narendra Modi's vision of doubling farmers' income in a couple of years?

"Increasing productivity is difficult but you can do it through measures like the universal basic income," Arvind Subramanian says.

"We should re-evaluate cow policies," says Arvind Subramanian, when asked about systems that prevent farmers and the rural population from things like selling a dairy cow once it has lived its age.

Was demonetisation a bad idea? Arvind Subramanian gives us an insider's view. "Demonetisation was meant to be extreme," a diplomatic Dr Subramanian said.

But would he recommend demonetisation to any government? After much prodding, Arvind Subramanian gives us this: "If political capital could be better spent I'd suggest that (over demonetisation)."

Arvind Subramanian speaks out on his reservations with the Goods and Services Tax. "GST is a great idea but design, implementation could be better. The idea of one rate is not practical. But the ideal GST rate for India will be one main rate and one each for high, low," says Dr Subramanian.



Arvind Subramanian on his meeting with Finance Minister Arun Jaitley on Saturday evening: "I just mentioned to the minister - Is the GST doing well? And budget has made some unreasonable demands 16-17% (of total revenue)."

On the RBI vs government rift, Arvind Subramanian says the central bank is one of most respected institutions in India. "But RBI independence requires cooperation," he says.

On the critical point of contention - the RBI's reserve - Arvind Subramanian says the central bank's excess capital should be used for banks and not for the government's budget deficit. "There are excess reserves but only for recapitalisation of banks and only if there are bank reforms," he says.

"Financing the deficit would be raiding the RBI. But I also ask, why didn't RBI voluntarily say we'll use this to solve bad bank crisis?" Arvind Subramanian says.

So what does he think about the political appointments to the RBI board? Arvind Subramanian starts with the disclaimer: "I don't like to get personal".

But significantly, he gives us this: "To maintain its autonomy, RBI's board should not be politicised. And it should not be seen to be done either. And not for some foreign investors but for ourselves."

When it comes to looking ahead, the three main points we discuss are these:



On how India's tax redistribution has gone up since 1992, Arvind Subramanian, in his new book, makes a surprising point.



On the debate over what measures will count as freebies and welfare handouts, Arvind Subramanian says this: "Health, education have to be done in the public sector."

"The returns are huge," he adds.

And now the question, will Arvind Subramanian return to Indian? "I miss India very badly. But I live in the present, not past or future," says a cryptic Dr Subramanian.

To finish up, on a bit from his new book "Of Counsel", about speaking truth to power, Arvind Subramanian comes down heavily on the "fawning elite". "After every budget, publicly, they will say that this was the best budget, but off-camera, they will call it a lousy budget," he says.