Chief Economic Adviser to the NDA government Arvind Subramanian Chief Economic Adviser to the NDA government Arvind Subramanian

Merely going after black money could create wrong perceptions about India and it is more important to understand why black money is created and address those issues, Chief Economic Adviser to the NDA government Arvind Subramanian said here today.

“I don’t understand black money. Politicians spend a lot of time and money on it. What I would say is that the way to think about black money is as a stock problem and a flow problem,’’ Subramanian said on the sidelines of a series of talks on ‘Economic Survey: Taking stock of the Indian Economy’ that he has been delivering around the country.

The whole agenda of going after black money — an election promise of the BJP later described as a jumla by its president Amit Shah — “could actually compound some of the perceptions about India,’’ Subramanian said after his talk at the Indian Institute for Human Settlements.

One of the problems addressing the issue of black money is that India’s tax system could be perceived as being arbitrary, the chief economic adviser said. “For example, our tax system is seen as somewhat arbitrary. The whole going after black money could play into that and I think we need to be very careful about that,’’ he said.

“Much more important thing about black money is to understand why do we create black money in the first place and address those things. To me, black money is more important in terms of what it signals we are doing — arbitrariness, tax rules, discretion, corruption, all these things. We need to be very serious about addressing them,’’ Subramanian said.

In his talk, he described macroeconomic conditions as positive and said that India will record growth in the current fiscal irrespective of whether growth was being measured by the old GDP series or the new GDP series. He, however, expressed concern over stagnation of export growth especially in sectors like IT services.

“The ratio of exports of services to GDP, after growing in dollar terms at a rate of almost 30 per cent for about eight to nine years, has now flattened out and may be even declining. That is really worrying,’’ Subramanian said. “For one percentage point growth of demand globally our exports have plumeted sharply,’’ he said.

“There is something going on on our exports side including services exports, IT exports which I think we need to understand much more. There is something fundamentally wrong in terms of our competitiveness. This is a challenge we need to be alert going forward,’’ he said.

On the scale and pace of reforms, Subramanian said: “India is not in crisis and the expectation of big-bang reforms is quite unrealistic. India, as you also know, is a vibrant democracy, frustratingly vibrant democracy,’’ he said.

“One of the things that I have learnt over the last few years is that for all the talk of centralization of power under the new government, the irony is how difficult it is to centralize power in New Delhi. Power is just completely dispersed not just vertically between the Centre and the state but also horizontally across institutions, across the bureaucracy and across regulatory institutions as well. So, actually, it is very difficult to think about big-bang reforms in India,’’ Subramanian said.

Any government must be judged on the basis of changes they are able to affect using levers they have complete control over and incremental changes in other areas, he said. One of the challenges before the government is in extending direct benefit transfers on the lines of LPG subsidies to other goods.

The first-mile challenge is to invest in IT infrastructure projects like Aadhaar to identify the beneficiaries and the last-mile challenge is to build on schemes like Jan Dhan and Mobile money, he said.

The chief economic adviser said that progress and development have to be assessed in many different ways including on health and education parameters and added that GDP growth has a huge impact on lives and livelihood as well.

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