Interview: Rajiv Kumar, NITI Aayog Chief, Defends Demonetisation

Speaking to The Wire, Kumar also defends the Modi government's handling of GST, and its record on employment and GDP growth.

Karan Thapar: Hello and welcome to a very special interview with the vice chairman of NITI Aayog, Rajiv Kumar. November 8 is the first anniversary of demonetisation and a critical question we shall ask today is has it achieved its initial objectives or is it just a step too far to make that claim? That’s one of the key issues I shall discuss with Dr Kumar. I also want to talk to him about GST (Goods and Services Tax) and about ease of doing business. I want to talk to him about the government’s hopes to recapitalise banks and, of course, about the wider state of the economy.

Dr Kumar, let’s start with demonetisation. On November 8 last year when the prime minister made the announcement, he initially identified three objectives – tackling counterfeit money, tackling terror funding and black money. Subsequently, he added to that an attempt to reduce dependence on cash. Let’s start with the first two. I put it to you that in terms of tackling counterfeit money, and in terms of tackling terror funding, demonetisation has either failed or it hasn’t produced impressive results.

On counterfeit money

Rajiv Kumar: Neither, Karan. Because clearly there is much less counterfeit money and you’ll know that, you would know that by a visit to Kathmandu. Where a huge reservoir of counterfeit money was being produced – our neighbouring countries. And you will see that all the old sort of 500 and 1000 rupee notes are not in circulation any longer, and on the terror funding –

Thapar: Let’s take –

Kumar: And on the terror funding –

Thapar: I’ll come to terror funding in a moment, let me counter what you’re saying about counterfeit money. The government’s estimate of counterfeit money, as the government revealed in its Supreme Court affidavit, comes from the National Investigative Agency Survey of 2015. That survey says that at any one given point of time, only 400 crore of counterfeit money circulates in the economy, which is 0.028% of total currency. CNBC has calculated that only 0.0007% of the 1000 rupee notes that came in and only 0.002% of the 500 notes that came in were counterfeit. The total counterfeit was just 41 crores, which proves that either there was no counterfeit, or it hasn’t been detected. That is clear failure.

Kumar: No, not at all. Because the point is the initial estimate was made by 2015, you know, you wouldn’t know whether that was based on some firm data, and neither would you know the CNBC figures, because RBI hasn’t given out any figures. These are estimates, and specially, one of the reasons why the RBI hasn’t come out with the estimates is because the entire issue of currency circulating in Nepal is still being investigated.

Thapar: That’s one explanation. The other is that the RBI hasn’t come out with figures because it knows that if it were to do so it would actually be embarrassing because the proof would then be available, that very little, if any, counterfeit money was detected.

Kumar: Not at all, not at all, not at all. As I said to you earlier, the proof of the counterfeit money is that there are… You see, let me put it to you like this. The very fact that those two currency notes are not in circulation now, at this point of time, means that whatever counterfeit currency existed, is now gone. So where are we, why are we trying to do this, three decimal places or four decimal places –

Thapar: Well, yes. Now gone could mean not detected. Back into the system without being detected.

Kumar: No, no, it couldn’t be back in the system because it just doesn’t exist any longer. Those notes you will not take.

Thapar: Can I put this to you.

Kumar: Hang on, hang on

Thapar: You are surmising to defend the position of the government.

Kumar: No, no, just a second. Anybody using a 500 or a 1000 rupee currency note today cannot use it, right? So that if you had–

Thapar: But 99% of it has come back, so what I am saying is that, if it was counterfeit, it’s back in the system.

Kumar: Hello, hello, but the point is not that it has not come back to the system, at worst, it is sitting somewhere in the bank vaults, and is not in circulation.

Also read: The Vast Difference Between What Demonetisation Achieved and How it was Perceived

Thapar: Quite right, but it hasn’t been detected. The figures that I am quoting to you, done by CNBC, are based upon what the RBI put out on the 31st of August. RBI hasn’t put out –

Kumar: What are we more interested in? Are we more interested in the counterfeit money not being in circulation, or are we interested in the fact that the some people who had that counterfeit money may have now an equal amount in, in their –

Thapar: Well, if it’s the second then you’ve completely failed. Because if the counterfeit money has been put into banks and they’ve got proper money returned, it’s completely failed.

Kumar: No, no because the, because the use of cash is always through its velocity and not in its store. So what you don’t want is counterfeit money being circulated, you know, sloshing around the country.

Thapar: But what you also don’t want is counterfeit money being exchanged for real money, because then it becomes genuine.

Kumar: No, no of course not you don’t. But this is where, this is where you come to the point that all these are estimates, and I don’t think we should.. You know, given what you had said of 400 crore in 14.86 lakh crores..

Thapar: That is an estimate the government gave the Supreme Court in its affidavit.

Kumar: I think, I think this is a typical case of taking the speck and counting it as one of the stars. Why would you want to waste so much time in an interview?

Thapar: Except that is an estimate the government gave the Supreme Court in an affidavit.

Kumar: Why would you waste so much air time on an issue which doesn’t even.. in the tenth decimal place of the currency in circulation.

Thapar: Alright.

Kumar: And this just is a case of completely wrong priorities.

On terror funding

Thapar: Alright, let’s come then to the second thing, which is to do with terror funding. Now on September 1, just the day after the RBI had released information that pretty close to 99% of the money had come back into the system, the finance ministry issued a statement. And this is what it said, I am quoting, “As a result of demonetisation of specified bank notes, terrorist and Naxalite financing, stopped almost entirely.” No proof was given, so this is simply an assertion. The problem is, terror continues. We’ve had terror attacks on the BSF camp in Srinagar in October, we’ve had terror attacks in Pulwama in October, on the fourth of October. A terror attack, on the BSF camp near Srinagar airport, a nine-hour battle. By the way, as we are recording this interview, there’s a terror attack happening in Pulwama at this moment, on Saturday, at roughly 6 o clock. There was a terror attack in Pulwama in August, there was a terror attack on the Amarnath yatra, five killed. There was a terror attack in Pulgaon district in February, four dead. In fact, the South Asian terrorist portal, one of the most respected sites, says that deaths from terrorist fatalities have actually gone up by 8.5% this year compared to last. So clearly, terror funding hasn’t diminished. Or if it has, it only happened –

Kumar: But you’ve just quoted one state, what about the left-wing extremist activities?

Thapar: We don’t know anything about that at the moment, unfortunately.

Kumar: Okay good, because there will be none.

Thapar: Isn’t that a good –

Kumar: No, it’s not, there hasn’t been any, there hasn’t been any reported. But I think because of, I suppose your insistence on being sensationalist, you will insist on not seeing the positive, but only seeing the negative.

Thapar: I am not, I am not –

Kumar: You are free to do so.

Thapar: I am not being sensationalist.

Kumar: No no, you are.

Thapar: I am discussing –

Kumar: You are, because if you look at the incidence of terrorism, even in the state that you’ve quoted, it has come down appreciably. You could, of course, say that, “Oh this stone pelting was not because of you know, there is no funding involved there.” I don’t know what your defence would be there, but the fact that you don’t cite, or you don’t quote, the complete cessation of left-wing extremist activities, which was there before that, shows that there is a huge bias in what you are saying.


Security personnel in Kashmir. Credit: PTI

Thapar: There is not, I am quoting figures given by the government about Kashmir. In fact, Mr Ahir.

Kumar: But, but, but you’re not quoting–

Thapar: Mr Ahir has actually said in the parliament that the incidence of violence in Kashmir has gone up this year compared to last. I am only talking about terror, not violence.

Kumar: Hello, but that’s also terror. Or you don’t call the left-wingers terrorism?

Thapar: No, I am not talking about left wingers, I am saying incidence of violence in Kashmir.

Kumar: No, you didn’t say that to begin with.

Thapar: I did.

Kumar: You did not.

Thapar: You may have missed me but I did.

Kumar: No you did not, you said that the claim the government made was that one of the objectives of demonetisation was, to, you know, to attack terrorist funding.

Thapar: And the government said that it was ceased entirely, almost entirely.

Kumar: Almost is the operative word.

Thapar: But if terror continues –

Kumar: But the fact is that a large part of that activity was the funding of people out on the street, you know..

Thapar: And that you’re saying is stopped.

Kumar: Apparently so.

Thapar: Let’s then –

Kumar: Which you’ll not acknowledge.

Thapar: No, I am raising questions, it’s not for me to acknowledge or not acknowledge. Its for me to raise questions for you to answer.

Kumar: No, but the point is –

Thapar: I am presenting government facts.

Kumar: The point is, Karan the point is to raise questions which are unbiased. Rather than take it in a direction which, you know, which seems that there is a premeditated attempt at proving a step to be wrong –

Thapar: Dr Kumar –

Kumar: Which I have always supported.

Thapar: Dr Kumar, I am raising questions based on facts and figures that the government made available, first about counterfeit currency, and secondly about the incidence of terror or violence in Kashmir.

Kumar: But you know –

Thapar: I am not raising biased facts, these are government facts –

Kumar: My support for the demonetisation had always been that it was a huge attack on the pervasive culture of illegality and illegal income.

Thapar: Let’s come to that because that was the third big objective the Prime Minister set on the 8th of November, that it will tackle black money.

On black money

Kumar: It will tackle black money, but also to me, it would tackle this very pervasive and almost systemic culture, of legitimising illegal activities and, giving the private place to those who had earned money from wrong –

Thapar: You are identifying two things we will tackle. Let’s take them one by one so that the audience can understand. Let’s first take the target of eliminating or reducing black money. Now that we know that officially that almost 99% of the demonetised money is back in the system, the government has to identify what portion of it is black, and then, tax it. That means, it will take, first of all, years to do the identification, and secondly, you could end up with litigious court cases. At this moment, therefore, we don’t know how much will end up identifying as black and what the gain to the exchequer will be?

Kumar: Yeah, so how would you have gone about it otherwise? You know, I mean, there are people, I suppose you, you included those who would’ve rather had bonfires of currency and the currency floating down the rivers and the nalas in this country –which had started in the first week after the 8th of November, and which, if it had continued, would have meant social riots and bloodbaths in the streets because of the pervasiveness of the black. Hang on. Of the black currency, of the illegal currency in the system. Instead, what has happened, instead what has happened, that this, dubious, black currency etc. is now deposited in 80 lakh accounts, apparently.

Thapar: But how do you identify –

Kumar: Of which, of which..

Thapar: But how do you identify which is black and which is white, because that’s the challenge now.

Kumar: No, no. It is not. I therefore used the word dubious. Now what you’ve done therefore, or the CBDT has done, it is verified 13 lakh of those, and if you, I am telling you from data, that it has verified 13 lakh of those and issued notices to them, and in the end –

Thapar: No, that’s not on the basis of –

Kumar: And –

Thapar: Forgive me sir, those notices are not on the basis of verification, those are simply questions that are being asked.

Kumar: No, they are, that was, that was –

Thapar: The CBDT made that clear.

Kumar: That was done to the 18 lakh, and they have reduced that and done this to 13 lakh, of which for example, 4000 accounts have been actually seized as illegal and 5000 crore have been seized and not questioned and no litigation –

Thapar: Can I, can I –

Kumar: Just one second. Moreover, what the issue is that given the big data analytics and the technology that you have, this whole assumption, that this will take years and it will not get solved etc is wrong.

Thapar: But let me tell you why I make that assumption. It’s not one that I make myself. It’s made on the basis of what Sudhir Chandra, a former chairman of CBDT said to The Hindu in December last year. His exact words were that, “The CBDT only analyses 3 lakh accounts a year.” The prime minister has revealed that 18 lakh are under scrutiny, after that he’s also revealed that some 2.1 lakh companies are also closed down, this means that the total, at the rate of 3 lakh a year, will take the government six or seven years to do.

Kumar: No, why would you say that Sudhir Chandra did not tell you that there 30 crore, 300 million bank accounts opened in about 15 months. That was also done with using the technology –

Thapar: There’s a difference between opening an account and scrutinising to establish black money. Scrutiny is a more difficult process.

Kumar: The issue, the issue is the use of technology Karan, and the issue is not to assume a linearity from old times to new.

Thapar: No sir, what you–

Kumar: But, but –

Thapar: What the use of technology can do is to identify accounts where there are dubious or inexplicably large deposits, and therefore you raise questions about them. That doesn’t mean you actually identify that as black money. The identification requires some proof, the proof requires going into possibly court cases, because people will contest them, and that’s why the process can go on for 6-7 years.

Kumar: If on the other hand technology enables you to come up with proof and evidence which is not really contestable, and which the court will admit, doesn’t mean the court will carry on like that.

Also read: One Year After Demonetisation, Modi Government’s Claims About It Have Clearly Been Proven False

Thapar: You’re saying something very interesting. When you talked of 13 lakh accounts where notices have been sent, and you’re saying these are different to the 18 lakh where questions were asked. You’re actually revealing something that hasn’t been in the papers, you’re saying something completely new. So I am just going to question that, you are absolutely sure that there are 13 lakh accounts to which credible questions have been asked on the basis, not just of spot questioning, but on the real doubt that the money is black?

Kumar: That the money is dubious, and there are, there are questions about those accounts where the money has been deposited. And therefore Karan, what you’ve got is, about four and a half lakh crore of so-called black money, at least turned into grey. And not, and not this, you know, this talk that’s going on that everything is being turned from black to white etc. Hang on, just one second. The more important thing is also which, that the number of people submitting income tax returns has gone up from three and a half crore to nearly 6 crore this year.

Thapar: It’s very interesting on the income tax figure because, different elements of the government have made different statement about the size of the increase of the people filing income tax. The finance minister said, “91 lakh new people.” The prime minister in his Independence Day speech said 54 citing CBDT. But in the economic survey, the chief economic advisor said 5.4 lakh. So there’s a big difference, 91, 54, 5.4 –

Kumar: Because that was in February 2017, what the figure that Mr Jaitley gave you is probably September. And the figure that I am giving you is around October of 20th. And that number, the fact remains that for some godforsaken reason, you guys are not giving demonetisation the credit for cleaning up this economy, for cleaning up this economy and reversing this huge, immoral activity of generating black money.

Thapar: Credit cannot be given if information is not shared. You have made available for the first time details about this 13 lakh bank accounts, to which specific, detailed queries have been made, these are no longer questions being asked, as in the case of the 18 lakh. This is something new being revealed for the first time –

Kumar: Because Karan –

Thapar: You need to share information for people to appreciate that you have done something.

Kumar: That is being done, except of course, I think very often that people look at information, sort of rather in a, you know, rather in a biased manner or –

Thapar: No no, forgive me, information can only be looked at with bias, if its available to look at, in this instance, what you’ve revealed is so new, I didn’t know it, it’s not been in the papers, and I am accepting it as a fact, because you’ve told me, you’re vice chairman of NITI Aayog – and its a credible thing you’re saying, that 13 lakh accounts have been specifically identified, not simply to ask spot questions, but to be proceeded against, which means actually there is a case there, where you do some processing. And therefore, there’s good reason to believe this is black money. That is definitely something to the government’s credit, I wish the government had made it public, but you made it public.

Kumar: Part, the government.

On reducing dependence on cash

Thapar: Absolutely, but you’re doing it in an interview where mercifully, and thankfully, you’re giving me news. Let’s come to the fourth objective identified by the prime minister, which was to reduce dependence on cash. Now, there is no doubt that after the first few months after November the 8th last year, digital transactions, both in terms of number and value, did go up, fairly sharply. But then they began to decline thereafter, March onwards. And I am not denying that, in fact, there’s been some success. But I am saying that it’s not spectacular or dramatic. There has been success –

Kumar: How do you define spectacular or dramatic? By the way, and use your definition carefully Karan, how do you define spectacular or, what did you, what is the other word you used?

Thapar: Dramatic

Kumar: Dramatic, in the case of a reduction of cash to GDP ratio.

Thapar: Let me, let me give you the digital transactions.

Kumar: No, what would you define as spectacular.

Thapar: Let me give you the digital transactions – 671.49 million in November, rising to 957.50 million in December, that was the high point, and then they shrunk back by July, August to 862.3. So I am not denying that they have gone up, but having gone up, they’ve also come down.

Kumar: The fact of the matter, however, is that the cash to GDP ratio in this economy, which is one of the highest in the world, about 12.4 or 12.3%, has come down to 10.8%. And that the economic activity has begun to increase again. So there you are. The, use of cash, and I repeat myself, the pervasive culture, of illegality, has been attacked.

Advertisements of Paytm, a digital wallet company, are seen placed at a road side stall in Kolkata, India, January 25, 2017. Picture taken January 25, 2017. Credit: Reuters

Advertisements of Paytm, a digital wallet company, are seen placed at a road side stall in Kolkata, India, January 25, 2017. Picture taken January 25, 2017. Credit: Reuters

Thapar: Except for the fact that shopkeepers are now reporting, not just from major towns like Delhi, Bombay, Calcutta and Chennai, but also from small mofussil towns and certainly from even villages, from where PoS machines were in use immediately after demonetisation, that now, people prefer to pay in cash. And these people, who’ve invested in those machines are now complaining that they are not getting the return that they had hoped for. They are in the papers.

Kumar: I haven’t seen –

Thapar: They’ve been reports in the papers, in the Economic Times and the Business Standard.

Kumar: Well, I, these, these anecdotes don’t mean anything to me, because I am giving you, solid numbers. And the fact is that India has for the first time in 20 years seen a reversal in the use of cash, as compared to the GDP figures.

Thapar: So, just to sum up..

Kumar: And this is, this is very big deal.

Thapar: So, just to sum up, clearly you are saying to me – I am asking you to establish whether I have understood you correctly. You are clearly saying to me that in terms of reducing dependence on cash, demonetisation has been very successful, the cash to GDP ratio has come down from 12 to 10.8%. That, if true ..

Kumar: Not 12, 12.4%.

Thapar: 12.4 to 10.8%.

Kumar: These are important numbers –

Thapar: Absolutely, and that is a substantial reduction.

Kumar: Yes.

Thapar: Right? However, in terms of black money, I have accepted what you said, that 13 lakh accounts have been identified, they have been proceeded against, that is the case the government has to pursue. That being the case, that is also, I deem it, a success.

Kumar: Yes.

Also read: Modi’s Cashless Economy Is Still a Distant Goal

Thapar: When it comes to counterfeit currency being identified –

Kumar: You will continue –

Thapar: The government statistics suggest a different thing.

Kumar: You will continue to rattle the little toy that you have.

Thapar: But it’s not the little toy, it’s the government’s figures.

Kumar: No, no.

Thapar: The government’s figures given to the Supreme Court.

Kumar: This is a typical case of a person having said, “Oh I’ve admitted to the two big ones, but I must have my little say.” Okay, go ahead.

Thapar: Well it’s kind of you to be so generous in putting it that way. But you’re not being generous, you’re trying to belittle me, but that’s your prerogative. That’s your prerogative and I grant you that.

Kumar: Your prerogative is to try and prove that the demonetisation, which I think is one of the most historical steps that this government has taken and has had the courage to do so. You will continue to deny the credit, for, I don’t know which reason.

Thapar: I am not denying credit, I am asking questions. You’re assuming that behind the questions is a denial of credit.

Kumar: Because –

Thapar: I am asking –

Kumar: Because of the nature of the questions.

Thapar: No, the object of the question is to put the opposite of your viewpoint to you. It would not be an interview, it would not be an interview if I give you lollipops.

Kumar: No, of course.

Thapar: The idea is to challenge you, not to present your case to you.

Kumar: You could’ve challenged me, and we could have discussed in much greater detail, is why four and a half lakh crore of money in dubious accounts is probably equal to the amount that was swirling around in illegal economy.

On impact of demonetisation on economic growth

Thapar: Let me put this to you, beyond the four objectives, that we’ve discussed, there is also another element of demonetisation that concerns people, and that is the hit to growth, the hit – to jobs and the human suffering. Let’s leave human suffering out, because people who stood in queues have done it and that’s over with.

Kumar: And, supported it. While standing in queues, in the sun, unlike us, who were in our air-conditioned comforts and continued to crib.

Thapar: However, since then its emerged, that growth has stepped down to 5.7% –

Kumar: Demonetisation –

Thapar: And the Centre for Monitoring the Indian Economy claims that in the months from January to March, something like 1.5 million jobs were lost.

Kumar: You should’ve been there to overhear the conversation between the chief statistician Dr TCA Anant and Mahesh Vyas, where Mr Anant pointed out to him that, “Did you take the seasonality into your account, Mahesh?” There was no answer.

Thapar: So you are saying that CMIE was wrong, and that they made a basic error, of not taking seasonality into account.

Kumar: Yes, and please consult, and contact the chief statistician of the country. Hang on, the second one–

Thapar: Can I just –

Kumar: No no, I must answer this.

Thapar: Okay, happily.

Kumar: As Meghnad Desai, one of our good economists has pointed out, “Demonetisation lasted for six weeks precisely, and after that remonetisation had begun.” And therefore –

Thapar: Dr Kumar –

Kumar: And therefore, therefore, all this talk about despotic act –

Thapar: Dr Kumar –

Kumar: And loot and plunder, I think it’s just, it’s just–

Thapar: Dr Kumar, as we talked, the Business Standard for the last three days has been doing surveys of critical industries, that they believe reflect the way in which small businesses have been hit by demonetisation. They’ve done a survey of the leather industry in Kanpur, the knitwear industry, they’ve done a survey of the hosiery industry in Ludhiana and regularly they do surveys of the textile industry in Surat. It seems cumulative from the surveys –

Kumar: Add the diamond industry –

Thapar: It seems cumulatively that the losses, just in these four sectors, are in tens of thousands. Cumulatively it might mean –

Kumar: Losses of what?

Thapar: Jobs.

Kumar: Oh.

Thapar: People laid off, tens of thousands. You could even say it adds up to perhaps a hundred thousand. Now, these are people who have lost their livelihood.

Also read: One Year Later, There Can Be No Monetary Value Attached to the Destructive Costs of Demonetisation

Kumar: And these are people who are now earning their livelihood, livelihood in legal formalised sectors of the economy. And these are people who will not be supporting, you know, the black, the generation of the black economy in the country. Hang on. Am I hearing from Karan, that he really supported people working in the parallel economy? And not, and not, you know, contributing, to this economy?

Thapar: Karan, Karan, is not making a statement of who he supports. Karan is asking questions to suggest that in fact, the hit on growth, and the hit on jobs is pretty sizeable, even though some of the gains haven’t materialised as yet. They may down the road when the black money is detected and the tax paid and the exchequer gains.

Kumar: The biggest gain –

Thapar: But at the moment, the losses are apparent, the gains are not.

Kumar: The biggest gain is, and I repeat myself, one, I am not repeating myself – to start the process of formalising the economy and pushing back, the whole, the whole, black, parallel illegal economy. And the biggest, and the other big gain is that there is for the first time, those who were working honestly and earning an honest living can hold up their heads, and not be having to say that those who, you know, just become rich somehow are my social icons.

Thapar: I am happy to say, amen to that, but let me quote to you the Business Standard and The Economist. The Business Standard said on September 1, “Demonetisation was a blunder, poorly thought through and badly executed.” The Economist, in the most recent issue, which came out earlier this week, says, “It caused great hardship and disruption, without any clear benefit.”

Kumar: Completely disagree, and I think these are the people, who for some, I don’t know their motives, but I think they are, they are people who are not in favour of this, the Indian economy, getting on to a sustained, transparent, clean, and you know a legal basis.

Thapar: So these are biased opinions?

Kumar: Absolutely.

 On ease of doing business

Thapar: Alright, let’s leave demonetisation aside, let’s come to the good news we’ve had this week, about ease of doing business. There’s no doubt, that when it was announced that India’s ranking had moved in just three years, from 142 –

Kumar: The Business Standard has endorsed it I suppose.

Thapar: Not just the Business Standard, everyone in the country has endorsed it.

Kumar: Including the Business Standard?

Thapar: But you have to still let me ask the question, because you are still suggesting, that I am asking questions, not as an interviewer, who’s presenting facts that are awkward, but because there is a bias in me. And that, I question, but you have a right to think I am biased, I am simply questioning it. Let’s come back to the –

Kumar: When somebody quotes to a single source all the time, and not other sources–

Thapar: I haven’t quoted a single source all the time–

Kumar: No, but you did for the last, last whatever minutes.

Thapar: No, I quoted the Business Standard once to you just now and I quoted The Economist as well. It’s not all the time, just once. Just once.

Kumar: We’ll have to rewind and see that you’ve done it before.

Thapar: I haven’t done it in this interview. I may have done it conversationally, and some other time, but not in this interview. But anyway, let’s come to ease of doing business. There’s no doubt that when India’s ranking improved in just three years from 142 to a 100, that was a remarkable achievement. And in fact the vice president of the World Bank has said so in so many words. On the other hand –

Kumar: There you are –

Thapar: On the 30th of October, sitting beside Arun Jaitley, Sunil Bharti Mittal, one of India’s highly regarded industrialists said, and I am quoting him, “The ease of doing business remains a major concern.” And the example he gave was that in Ghana, in just three days, you can get permission for a merger, even though one of the companies is based in the Netherlands. In India, he said, even when both companies are wholly Indian, permission for a merger can take over five months. So my question is that beyond the ranking, which we are all very pleased with, is there actually a genuine change on the ground? Cause Mr Mittal is suggesting there isn’t.

Watch: World Bank Rankings – The Myths and Realities of Doing Business in India

Kumar: Yeah. So, in the ease of doing business, there are several aspects. One let me say, that ranking is different from a score, and there are ten different categories that ease of business has. And a country like India’s score towards the, towards the, you know, the frontier has been improved in nine out of ten, as it has done in this case, and yet, its ranking may not show that, because others may have improved as well. So ranking is relative, score is absolute and we should’ve looked at the score, you know, in looking at these things. First point. The second point, of course, is that, we’ve just improved from 136 to 100, we are not yet there in the top ten.

Thapar: 142 actually, if you combine full three years.

Kumar: Yeah, 136 last year and 142 before. 136 was questioned because you know, the base is not the same etc. Nonetheless, we are still 100 on those rankings. That means that there is a lot more to do. And this is being done. And, for example, in one of those cases, we’ve become, we’ve actually declined, due to enforcement of contracts – now that’s a judicial problem. Now that problem is – exist with us, for years to come because there is a new ball game out there.

Thapar: In fact, it’s just not a decline in terms of enforcing contracts, when it’s a question of starting businesses, our position is 156.

Kumar: Yes.

Thapar: Out of 190, that’s pretty bad.

Kumar: Hang on.

Thapar: When its the question of construction permits, we’re 181.

Kumar: Can I –

Thapar: Can I just, can I just finish, there are many areas, where in fact, we are not making it easy to do business.

Kumar: Has anybody in the government made the claim that the ease of doing business work is, we have achieved what we wanted to achieve?

Thapar: But you haven’t let me finish the question, the question I was putting to you is the one that arose on social media, and I think it’s also being brought up by one or two columnists in papers. That because there are simply ten areas where in fact your score, your ranking is judged –

Kumar: Nine out of Ten.

Thapar: Now, now, you can actually, concentrate on just those and game the system. And the question that was raised, and I am putting it to you, is was there a sense in which, and this not a criticism, was there a sense in which we very clearly gamed the system and identified areas that we can target, get improvement on and make sure our ranking goes up?

Kumar: In positive terms, if you care to, if you look at it that way, it’s also called going after the low hanging fruits. And that is supposed to be clever, and that is not just –

Thapar: I am just asking, did we do that?

Kumar: We went for the low hanging fruits that we could achieve. Now we can’t change the judiciary overnight, you and I know that. But, but, the more important one, cause that’s where I know a lot of improvement has been done – it’s on starting the business. What has happened is that, you, the respondents are prima – principally, a great majority of them are those who are already in business. A very small segment of those as a percentage of the business sample, come from those which have just started the business last year. So, this comes out of memory of those who have been in business for a few years, and you will see, that there will be a radical this year, or the year after as newer entrepreneurs who have benefitted from the changes, get sampled and interviewed.

Thapar: That’s what I want to ask you about, because if you look at the ranking of other countries, The Botswanas and Zambias are in the mid 80’s. Bhutan is at 75. Rwanda, and most Indians won’t even know where Rwanda is, Rwanda is at 41.

Kumar: Sure.

Thapar: When are we going to catch up with them?

Kumar: I don’t know. I can’t say, it depends upon what they do and what we do. But we are going to try for sure.

Thapar: But they are doing something terribly right.

Kumar: We are going to try for sure, and we are going to fulfil the prime minister’s objective, of being in the top 50, within the next few years. And, and–

Thapar: Well, actually, in 18 months.

Kumar: No, and by the way, a lot of it, and this is where, I honestly believe that comparing Rwandas and Botswanas and Mozambiques, or whoever, or Ghanas is so completely out of place Karan.

Thapar: But that’s what this system does.

Kumar: Hang on, hang on just a second.

Thapar: This system does, this system does it –

Kumar: Yes, because you are a continental economy, and all of those indices are much more dependent on the state governments than on Delhi. And therefore to pull them all along, if Rwa – you know, if you, I mean, this is where I just fail to understand why our learned interviewers and columnists fail to –

Thapar: Don’t turn it now to your learned interviewers, but thank you for the compliment, you’ve called me learned, which is an adjective that I am flattered by, but actually, what you are suggesting. Let me finish professor Kumar. What you are suggesting is that don’t pay too much attention to the ranking between different countries, because actually, we’re a continent-sized economy, Rwanda is a small little, wee little state. Right? Bhutan is even smaller. The problem is that actually it is the government that pays huge attention to the ranking, and the government wants its ranking to go up. You’re saying the opposite of the government, you’re saying, don’t pay attention to ranking, the government pays nothing but attention.

Kumar: I am saying that the effort required to move an oil tanker, learned interviewer, is far bigger than to turn a little, small dingy around. And there, you have to appreciate that, and for the first time in 70 years you’ve got the central government getting 29 governments on the same page and filling up, and putting their data on the portal, around 98 variables, telling us where they, how they are trying to improve the ease of doing business.

Bullet train

Thapar: Alright, you honourable interviewee, I hope you allow me to be Chinese and repay you the compliment. Let’s come to another subject. An issue that is in the news, it’s one that has captured the imagination of the Indian people is the bullet train. Now there’s a debate among economists, some say, that in a country where 30% live below the poverty line and where many begin to feel that perhaps the railway system, particularly in terms of safety, is now in a state of shambles, a bullet train is the wrong priority. Others say, given India’s ambitions, this is the right sort of investment to make for the future. Where do you,  as chairman of NITI Aayog, come in on this debate?

Kumar: On the latter, because I saw the same criticism being made on Rajiv Gandhi when he wanted to introduce laptops into the system.

Thapar: And it was the BJP that said, ‘We want, we want, potato chips, not computer chips.’ I am just putting that in because it was the BJP and L.K. Advani who made that criticism.

Kumar: Having flattered me by calling me a professor, honourable interviewer, don’t bring in now spurious and extraneous activity.

Thapar: It is not spurious, extraneous I believe.

Kumar: You asked me a question, I gave you a straight answer.

Thapar: Go ahead, go ahead.

Kumar: For an economy, which is aspiring to be on the frontline of global technology, and which is aspiring to leapfrog the technological, you know, stages, that are, you know, in front of us –

Thapar: This is a wise investment?

Kumar: This is a very wise, symbolic investment.

Thapar: Let me then put two concerns about this to you, and again, these are concerns that have been in the media. The first is to do with the fact that the prime minister has made a lot of the fact that Japan is giving us a loan for some $13.5 billion, which is roughly 88,000 crore in rupees – for a 50 year period, at an interest rate of just 0.1%. And the prime minister said in one of his speeches, this is practically as good as free.

Kumar: Biswajit Bhattacharyya in The Wire –

Thapar: But let me finish my question, and then you can answer it. And you’re absolutely right, I will end up at some point quoting him, but not at this moment. At this moment, I am saying something else. The point I am making is this, the prime minister thinks that an interest rate of 0.1% is practically free, but if you know, as you do, that the Tokyo Interbank offer rate is 0.06%, and Japanese government bonds barely get a yield of 0.04%. In Japanese terms, an interest rate –

Kumar: You’re good at quoting decimal figures.

Thapar: But I can’t help it, cause that’s how the Japanese system works. That’s not my problem with them. But in Japanese terms, a 0.1% interest rate is making good money. Because actually, there they charge 0.06%. Yields are 0.04%, so I put it to you, when the prime minister says this is as good as free, is he mistaken, or is his description misleading?

Also read: How the Japanese Loan for India’s Bullet Train Is a Rip Off

Kumar: You got it completely wrong. You know, and the reason is that if you are a millionaire, and you have your marginal utility of – I hope you are conversant with that view, with that concept, a marginal utility –

Thapar: I am not conversant, unfortunately, with being a millionaire, I would like to be, but I am not.

Kumar: I am, I am sure you are conversant with both. Being a millionaire and with the marginal utility of money declining as your money goes, money increases. You’re giving me a thousand rupees, means nothing to you at all. But me receiving a thousand rupees, the poor government servant that I am, means hell of a lot. So, in a country where the rate of discounts, social discount, and rate of interest that the government pays is more than 8%, receiving something at 0.1% is practically free money. Moreover Karan, the fact is that if you look at the social discount rate at 6-8 or whatever percent and extend it for 50 years, the net present value of 18,000 crore would actually turn out to be zero.

Thapar: That would work perfectly, but for the fact that we aren’t sure what will happen to the rupee, vis a viz depreciation against the yen. This is where –

Kumar: And Biswajit Bhattacharyya, I know what you’re –

Thapar: Sir, sir, but the audience doesn’t. It’s only fair that the audience should hear the questions, so that they know what you’re answering. Biswajit Bhattacharyya has pointed out that in fact the great danger could be that if the rupee depreciates against the yen, India’s debt burden could escalate hugely. He points out and I am making this point for the audience, that in fact today, the rupee –

Kumar: You’re misleading the audience.

Thapar: Let me, you can answer that when I’ve made the question. He points out, in an article for The Wire that one rupee today buys 1.72 yen – ten years ago it bought 2.80, in 85 it bought 19.77. And he says that if the rupee similarly depreciates over the next 50 years, we will be returning to Japan not the 88,000 crore we borrowed, but arguably, possibly, 300,000 crore, and that’s not counting the interest.

Kumar: What a foolish recession to have made. Because that, the basic assumption there is, that your currency will continue to depreciate, at the same rate, that it did for the last 32 years. Without recognising the fact, and I don’t know, I have not met Biswajit, hang on, without recognising the fact that as economies grow, productivity improve, and as productivity improves, as happened in the case of Japan for example, in 1964, it was I think it was nearly 380 yen to the dollar, and it has now come to the lowest. It came down to 84 yen to the dollar. The same thing happened to the Chinese currency, why should Mr Biswajit Bhattacharyya assume, even for a minute, that if we are going to achieve our growth rates going forward, our currency will not stabilise –

Thapar: So clearly –

Kumar: And improve.

Thapar: There’s a gamble or an assumption.

Kumar: No, no.

Thapar: On the a) stabilisation and b) on the improvement of our currency vis a viz the yen. And assuming it will be in our favour, not against us, that’s an assumption.

Kumar: The only assumption, the only assumption, Karan here is that you will achieve  your target, of, of your GDP growing by the, by by much higher amount, and your productivity improving. Remember, Japan is already, at more than, nearly $15,000 per capita. Their productivity improvements cannot be as high as yours. Cause you’ve got a huge gain here. So that Bhattacharyya assumption is completely false.

Thapar: You are maybe right in saying that his assumptions are false, but all doubt will be removed, if instead of relying on a Japanese loan, we had used $13 billion, out of our $400 billion-plus reserves. Should that not have been the preferred route?

Kumar: Not in a, not in a world where your northern neighbour has about $4 trillion in reserves, and uses that war chest against you all over the place, in all sorts of geo-strategic manner. This is talking out of your head.

Thapar: So Chinese –

Kumar: And this is why Raghuram Rajan has said that it is better not to touch your reserves, cause these reserves are your guarantee, that you will not get the shock of people moving out, and your portfolios moving out, and you will not get into an external finance problem.

Thapar: So you endorse, as far as this point is concerned, Raghuram Rajan’s position about using reserves.

Goods and Services Tax 

Kumar: Of course, of course.

Thapar: Let’s then come to GST –

Kumar: And I hope Biswajit Bhattacharyya also uses that.

Thapar: Alright. Let’s now come, to GST. You know better than me that there are great concerns about the number of rates, there are great concerns about, the way those rates equate with individual items, there’s great concern about the fact that small companies have to go through cumbersome procedures which they find difficult to handle. And finally, there’s great concern about the efficiency and functioning of the GST and network. And this has led many people to say the government shouldn’t have rolled out GST on the 1st of July. It should have waited till September so that the system was more prepared and ready. So that these problems were hopefully eradicated. Did the government roll out GST somewhat hastily?

Kumar: No, not at all. And the only thing is that one must recognise that policymaking is the art, is is, the art of, the best, making the best in the world –

Thapar: You’re suggesting policymaking is trial and error?

Kumar: No! I am just suggesting that the first best answer would have been a single rate, as everybody has said, including the Kelkar Committee, which first proposed GST, I think about 11 years ago or something. But policymaking is to find the best in the world of second best. And and this is where, just a second, just a second, see achieving a consensus across all our states and getting there is like putting your foot in the door and opening your door to the biggest historical change, both in economic and political terms – and the fact that the GST counsel is acting, is responding sensitively, means that you would get to the first best.

Also read: With Prices Rising Post-GST, Has the Government Taken the Public for a Ride?

Thapar: Dr Kumar, your argument would be very convincing, but for the fact that since GST was rolled out in January,on the first of July, we’ve had over 40 amendments and notifications, over a hundred cases, the rate has changed. Clearly, to many people this suggests, proper, careful, meticulous thinking was not done in advance. It was hastily rolled out, and now, the government is having to correct, what it should have actually put in the place the first time. And by the way, there is another GST council meeting on the 9th and 10th, where more amendments and corrections will happen. So that’s my point, shouldn’t more time have been spent, more effort made?

Kumar: They will continue, because in a case as complicated as GST being applied to, you know, again, to assert again, on a continentally diverse economy, there will not be ever a situation where you would have been able to work out, everything in advance. Because there are, millions of commodities, millions of products –

Thapar: So it’s better to start and get it a little wrong and correct it, rather than wait to get it perfect because you can never get it perfect.

Kumar: It’s better to start, and, and having waited 17 years, have the courage to do so.

Thapar: In other words, don’t make the perfect, the enemy of the good.

Kumar: Touche.

Thapar: Let me put it like this, there’s a lot of concern about the impact of GST on exporters and exports, and on small businesses. How serious are those concerns?

Kumar: The concern about the exporters is very serious, and which is why the council, actually, removed that. And exempted the exporters from registering under the GST and –

Thapar: And the small businesses? And the jobs that they create?

Kumar: The small businesses already have a lot of exemptions. There is a whole scheme of composite GST whereby they can just pay 5% and and not even file their returns monthly. These small businesses have been a special focus of this government, that they are not harmed.

Thapar: But actually the composite scheme eligibility is to be increased from one crore to 1.5. And the taxation is to be reduced to a flat 1%. All of that is a proposal for the 9th, so it seems that even now further changes are needed, to secure small businesses.

Kumar: Because as the government sees.. Look the GST council actually is responding with so much alacrity and so positively –

Thapar: After the problems created, couldn’t they have foreseen the problem and acted in advance?

Kumar: This is, this is exactly what I am trying to tell you, Karan, that you cannot foresee everything in as complex a subject as GST.

Thapar: So this was inevitable?

Kumar: And the complexity has arisen because of your attempt to get equity into the picture. You could have said, hang on, you could have said, flat 12% or 15%, and be done with it. You didn’t, why did you not do it? Because you said, “Oh, there are millions and millions of people.”

Thapar: I can’t be unfair to the poor, hence I make it more complicated. Hence there will be problems. And you’re saying–

Kumar: Would you rather not do that?

Thapar: And you’re saying to me that these problems were not just inevitable, but they couldn’t have been foreseen and, attended to, in advance.

Kumar: Given the complex structure that you chose to go with, in the interest of equity. And I cannot see anybody, and I cannot see anybody challenging the government for having safeguarded equity in this economy.

On the state of the economy

Thapar: There are, by the way, many who write newspaper columns who’ve done that, but leave that aside, they’ll defend themselves, I am just pointing it out for the audience. Let’s come quickly, because we are running out of time, to the general state of the economy. Since May, sorry, I beg your pardon, since, March of last year, right? The growth of the economy has fallen fairly considerably, from something like 9.1% to 5.7%. Over a similar period of time, manufacturing has declined from 10.8% to 7.9%. Construction from 5% to 1.7%, whilst the value of stalled projects has gone the other way. It’s increased from 10.7 lakh crore to 13.2 lakh. Now you know better than me, that gross fixed capital formation is stuck somewhere at 38.4%, bank credit –

Kumar: 38% is too high –

Thapar: It’s even lower?

Kumar: Oh yes, because 38% was the peak.

Thapar: So there you are, it’s even lower.

Kumar: 38%, oh 38% is the peak, and you know, it has come down unfortunately.

Thapar: You’re making my point for me now, and I am very grateful for that and bank credit growth is just marginally above 5%.

Kumar: Public sector bank credit growth –

Thapar: Absolutely.

Kumar: Please correct yourself. And, and growth from the HDFC –

Thapar: But the question I am asking you is how do you, as vice chairman of Niti Aayog, view this economic picture?

Kumar: I am very troubled by the fact that the economy had gone down, but we did start this government’s tenure with a legacy of 4.1% – is what we were handed over. After the BJP government of Atal Bihari Vajpayee handed over to UPA a growth rate of 8.3%. Now, rather than quote 9.3%, you could’ve said –

Thapar: Under the way of calculating GDP, 4.1% went up considerably higher but you’re not using that.

Also read: Even the Optimism of Official Economists Cannot Ignore the Warning Signs

Kumar: No, in the last three years, the average is 7.1%. I’ve said this many times, I have seen the economy bottoming out in July. And that, you know, the last, the first quarter number that you got at 5.7%, is the result of many contingent facts, includin –

Thapar: Will the next quarter be higher?

Kumar: Absolutely.

Thapar: What do you think it’ll be? I know I am asking you to guess, but roughly.

Kumar: About 6.2%.

Thapar: And what do you think we’ll achieve for the year as a whole by March of 2018?

Kumar: Nearly 7%.

Thapar: Nearly 7%. So it’ll actually be under 7%? Nearly 7% means under 7%.

Kumar: About 7%.

Thapar: About 7%. 6.8%, 6.9%?

Kumar: 7.1% maybe.

Job creation 

Thapar: Okay, another key concern is to do with jobs. One frequently hears commentary that India is simply not creating enough jobs, and now, depending upon whether you go by newspaper, anecdotal reports, or you go by the centre for monitoring the Indian economy, jobs are also being lost. How worried are you about the job front?

Kumar: I am so worried about the job front that in NITI Aayog we have just started the process of trying to collect as much high-frequency data as we can to get a better handle on what’s happening to the jobs.

Thapar: Do we not have good data on jobs?

Kumar: We don’t. Unfortunately, not. And in all these –

Thapar: Can I ask you why do we not have good data?

Kumar: Because, we the elite, you and me don’t give a damn about those who are not employed. That’s it.

Thapar: Well this is actually the irresponsible attitude of our class or our –

Kumar: Because why wouldn’t you have had employment data once in five years otherwise? Tell me that.

Thapar: So, the –

Kumar: NSSO comes up with this very thick round, where he gets the actual data, once in five years and then thin data, once in two years. Why would you have not got the data?

Thapar: So you’re actually saying to me that we do not have a good idea, of how many people have jobs and how many people don’t.

Also read: How to ‘Skill India’ When the Jobs are Bad

Kumar: And this is why my predecessor, Arvind Panagariya, shared a task force, set up by this government, to try and collect much better data, and that’ll be coming out next year.

Thapar: I tell you why I am surprised by what you’re saying because you’re making it crystal clear, we do not have a good handle or hold, on how many jobs exist and how many don’t. How many are being created, and how many not. But just –

Kumar: Especially because a lot of jobs are being created on contract basis which has been legalised, and yet not reflected perhaps.

Thapar: But how do you know they are being created on that basis when you also say to me that we don’t have a proper idea about what the job situation is? You can’t say both things.

Kumar: No you can, because you can make some estimates. Which is what I said –

Thapar: Estimates or assumptions?

Kumar: Estimates, very different from assumptions.

Thapar: I’ll tell you why I asked that question.

Kumar: Now hang on, just a minute.

Thapar: Sure.

Kumar: The EPFO figure says that their numbers have gone up by about ten million this year. You know, this is employment, EPFO is the Employment Provident Fund Organisation. Similar figures come out of ECI etc. And for example, let’s, if there are, if there are let’s say, I don’t know where to get the numbers, that if there are for example, you know, a hundred thousand trucks sold every month, they would need drivers. I don’t see that data anywhere.

Thapar: Well yes, and that’s an assumption. But let me put it like this, why I asked you this question, seven to eight weeks ago, Amit Shah said at a rally, that something like seven or eight crore jobs had been created in the unorganised sector. Where he got that figure from, he didn’t say. And, let me just, let me just finish. He made this statement, it was picked up by the papers and he is president of the BJP. In May, when Bandaru Dattatreya, speaking as labour minister, as he was then, said the following, ” The current growth is jobless growth. Growth is being reported, but it is not reflecting in employment generation.” Now, either Mr Shah is right, or Mr Dattatreya was right, but they both can’t be correct.

Kumar: I of course can’t comment on either one of them. What I can say that as the vice chairman of the NITI Aayog, which is the body which is responsible for getting better data in the economic system, we have started a process with the help of the Ministry of Statistics and Programme implementation, to collect much better data, you know, through our –

Thapar: And you are seriously worried about the job front, as you said a moment ago?

Kumar: I am, I am more seriously worried about getting the right data so as to know whether there is, whether there is, how big is the problem, it could be big –

Thapar: When will you have the data?

Kumar: Next year, I think around this time.

Thapar: So we will be in state of semi-limbo till next year this time?

Kumar: As we’ve been for the last 70 years.

Thapar: As we’ve been for the last 70 years. But it will take another full year, before you, as vice chairman are happy, that you’ve got the data and taken a step.

Kumar: But in the meantime, as I told you, to begin with, I am trying to plug this gap, by collecting as much high-frequency data as I can, using big data analytics for it, I have set up a group with some of the best minds in the country, to help me with that and you will see numbers coming out of NITI Aayog, before the end of this year.

Thapar: So this is a key priority, for Rajiv Kumar.

Kumar: This is a key priority for the government. Because for our young population, their aspirations must be met, and the only way to meet them is to get them productive, good quality jobs.

Thapar: Rajiv Kumar –

Kumar: And this is why, we’ve had the MUDRA, the MUDRA scheme as well.

Thapar: Rajiv Kumar, on that point, we have to end this interview, unfortunately, we don’t have time to raise questions about the recapitalisation of banks. That we’ll have to leave for another occasion. But we’ve been through, fairly comprehensively, all the subjects we’ve touched on, and I am deeply grateful for the time you’ve given me.

Kumar: Honourable Mr Karan.