New Delhi: Farm loan waivers should not form part of poll promises as has been the trend of late, former Reserve Bank of India (RBI) governor Raghuram Rajan said on Friday at a press briefing organised by the University of Chicago Center in Delhi. Rajan is among 13 independent economists of international repute who have come out with an economic strategy to spur public debate and build political consensus around economic reforms that India needs to carry out in the next five years.
The intervention comes ahead of 2019 Lok Sabha elections. Raghuram Rajan said he has written to the Election Commission that such issues should be taken off the table.
Other than Rajan, the 13 economists, working at various institutions around the world and in India, are: Abhijit Banerjee, Pranjul Bhandari, Sajjid Chinoy, Maitreesh Ghatak, Gita Gopinath, Amartya Lahiri, Neelkanth Mishra, Prachi Mishra, Karthik Muralidharan, Rohini Pande, Eswar Prasad and E. Somanathan. The have contributed in their individual capacity.
Farm loan waivers and an increase in the minimum support price (MSP) of cereals were again part of the manifesto of some political parties in the recently concluded assembly elections in five states.
“I have written a letter to the Election Commissioner saying that it (farm loan waiver) should be taken off the table. Certainly there is reason to think about farm distress. However, they (benefits of welfare measures) often go to the best connected. Second, it obviously creates enormous problems for the fiscal (health) of the state once those waivers are done. And I think, unfortunately, it inhibits investment down the line," he said.
The strategy paper advocated moving to a fixed cash subsidy per acre cultivated to address distress in the farm sector. This would be done by digitizing and identifying plots as demonstrated by the Rythu Bandhu Scheme of the Telangana government, replacing costly, ineffective and distortionary price support schemes.
The economists advocated improving access to land for development through computerized land mapping, government-guaranteed titling, the creation of land banks, and use of auctions for land acquisition. “The model of the GST Council can be used for sharing best practices between the Centre and state, as well as for formulating national actions such as land titling reform," said the strategy paper.
The economists also held that India’s record on primary education is dismal and called for repealing all input-based mandates for schools under the Right To Education for both public and private schools and changing the approach to regulation of private schools based on transparency and disclosure. “Such an approach will facilitate the expansion of quality private-school providers. It would also facilitate localized cost-effective innovations by government schools, which may be made difficult by the RTE," they said.
Rajan in his paper on banking reforms said “simple" solutions such as privatizing all public sector banks may be no panacea. “Banking reform should tackle four broad areas: (1) Clean up banks by reviving projects that can be revived after restructuring debt. (2) Improve governance and management at the public sector banks. (3) De-risk banking by encouraging risk transfers to non-banks and the market. (4) Reduce the number and weight of government mandates for PSBs, and banks more generally," he said.
Rajan termed the uncompensated government mandates imposed on PSBs as “lazy government". “If an action is worth doing, it should be paid for out of budgetary resources. The government should incentivize all banks to take up activities it thinks desirable, not impose it on a few, especially as the privileges associated with a banking licence diminish. Along these lines, requirements that banks mandatorily invest in government bonds should continue to be reduced, substituting it instead with the liquidity coverage ratios and net stable funding ratios set by Basel," Rajan wrote.
Given India’s continental size, the economists said it need not follow an export-led growth path. However, the reorientation of the US away from dependence on China gives India an opportunity to position itself as an alternative for cheap sourcing of goods and parts and expand its share of world exports, they said.
“But this would require macro and industrial policy reforms of the kind just outlined that remove existing impediments to India becoming a valued partner in global supply chains. Rolling back the recent increases in import tariffs along with a renewed commitment to resisting protective policies would be a good way of signaling this goal," the strategy paper said.