GS3: Planning, Resource mobilization

GS3: Planning, Resource mobilizationPlanning commission replacementBudgeting: FRBM, DisinvestmentShort termStroke of a pen reforms. e.g. POSCO, Border 100km environment clearanceMedium termVia budgetLong termVia legal-regulatory-Administrative reforms.Types of Reforms

Toothless. Failed to implement land reforms or industrializationReduced poverty by juggling lineDesigned CSS schemes in One size fits all. No pilot projectsNamesake interaction with statesGeneralist IAS/IES with short tenureTheory: Laxmikanth Why replace?Planning

9% growth 2005-07: global boomOnly in 2013- reforms done like reducing # of CSS, 10% flexifund, direct transfer of money to statesModi: PC beyond fixing. Need National Development reform commission. (NDRC)Moily: NDRC only good for China. Better restructure PC again.Why replace?Planning

Makes macro-economic policy (FM, RBI)Approves investment & construction projects (CCI, FIPB)Energy & oil policy (DG Hydro)Looks after Poorer Western Provinces (NE, BIMARU)Parent: State council (Cabinet)National Development reformNDRC

Statutory bodyReview laws, regulations, processes continuouslyPublish report cardsAdvanced economies have such bodiesNo more piecemeal approach to reformsProductivity CommissionLong termSlow growing economies: GDP doubles every 20-25 yearsBut India's GDP doubles in every ~10 years

6Short termStroke of a pen reforms. e.g. POSCO, Border 100km environment clearanceMedium termVia budgetLong termVia legal-regulatory-Administrative reforms.Types of Reforms

Department gets funding viaNon-plan Expenditure = FMPlan Expenditure = PCSub optimal allocationDiffused accountabilitySolution: UNIFY Budget making @FMWhy reform?Budgeting

FEEDBACKLoopBudgeting

Budget AllocationDepartmental workReport card by independent agency (OECD-PISA-Maths-Sci-X)Change / Penalty / bonus in next budget

FeedbackLoopBudgetingCommittee 4 tax clarityHigh level Committee under CBDT (retro)Advance pricing agreementAdvance tax ruling (AAR)Tax reform bodiesBudget 2014BudgetAccountability @FMFeedback loopFRBM, Debt Management

Sukhmoy Chakravarti: 97-98 Budget DeficitFiscal Deficit + Market Borrowing- Interest PaymentsPrimary Deficit

Fiscal DeficitFDI relaxSubsidy lessInfra. PPPPrivatizationpurchasing power DownUNEMPLOYMENTCrowing OutToll tax, social unrest14Fiscal DeficitSubsidy sameInflationMonetizing DeficitREPO increaseExpensive LoansUNEMPLOYMENTToll tax15Fiscal DeficitSubsidy sameInflationMonetizing DeficitReal Interest rates NegativeGold/Real EstateBlack MoneyLess Business expansionToll tax16

Revenue deficit0% by 31/3/2008fiscal deficit3% of GDP by 31/3/2009FRBM Act 20032012 amendmentERD 0% => 2015, 31st March (present 1.6%)FD 3% => 2017,31st March (present 4.1%)FRBMPlanning & Resource mobilization

ProGovt. control =efficiency Lossmaking, OverstaffingFiscal deficit AntiPrivate monopoliesDividend income declinesUnion oppose

ArgumentsDisinvestment

Reducing Government shareholding in PSUs91 Industrial policyRangarajan; GV Ramkrishna98- VajpayeeStrategic: nopeNon-strategic: phased

TimelineDisinvestment

Profit making: nopeSick units: RevivePSUs to be given autonomyLeft allies oppositionUPA-12005-09DisinvestmentAll PSUs can be disinvestedUpto 49%Money=>NIF =>Bank recap., metro rail, nuke energy, EXIM-NABARD-RRBTarget: 40k crore but only 16kReasons: file pendency, sharemarket downSolution: CPSE-ETFUPA-22009-14Disinvestment

ETF: Exchange Traded Fund

Portfolio Goldman SachRs.10Rs.10Rs.10

ONGC, CIL, GAIL10 CPSERs.3000 croreNFORs.20

BSE-NSENAV fluctuates daily256 bogus shutdown: HTM watches, Hindustan Photo films etc.Rs.1000 crore as VRS5 loss making to be revived: HMT ToolsNHPC, CIL, ONGC: 5-10% disinvestment via direct selling @Stock exchangeAbki BaarDisinvestment

Planning & Resource-mobilization

Petrol, Diesel, Kerosene sold @below international pricesOMC loss: under-recovery=>Oil Bond2010 Kirit Parekh CommitteeLPG, Keroseneadministered pricesPetrol deregulation: OMC+Petro MinistryDiesel deregulation: Jan13. 50 paisa per month.

Fuelsubsidies

Jan 2013: Diesel 50 paisa per month.Oct 2014: Market linked. Rs.3 cheaper than Sep.2014=inflation declineRBI may cut rates=>cheaper loan=>boomDiesel deregulationsubsidies

Less fiscal deficit=>credit rating improve=> more FDI, FIIUnder recovery gone=>Biz.expansionReliance-Essar can sell diesel. (till now relied on state-OMC bcoz they did not get subsidy)Fuel efficient car, no more blind purchase of diesel vehiclesMore Usage of Public transport.Diesel deregulationsubsidiesPer cylinder basis.XPer kg basisMigrants and slum folks use small cylinders.Small cylinders did not get subsidy. But eligible in /KG.LPG /kgOct 2014Subsidies

2013: Aadhar Linked DBT (12 cylinders)2014: Selected districts: Modified DBT. Dont need Aadhar.1/1/15: all IndiaLPG subsidy amount transferred to bank account (Rs.568)If no Aadhar: Bank account / LPG customer idWill burden by 15%LPG /MDBTNov.2014Subsidies

Subsidies Budget 2014

Food: 1.15L~74kFuel: ~64kLPG: 48kPlanning & Resource-mobilizationFor 2014-15No 5-star hotels for conferencesOnly cheapest fare air-travelFreeze on new vehicles & appointmentsTotal Non plan: ~12 lakh crorePlan: ~6 lakh crore

10% cutdownNon-planFiscal deficit

Planning & Resource-mobilizationFSLRC: Present vs Future AgenciesRBIRBIDebt MgmtSEBI FMC IRDA PFRDAUFA

SATFSATFRA

Resolution Corp (DICGC)FSDCFinancial Data Management CentreUnited financial agency (UFA)Financial Redressal Agency (FRA)B. N. Srikrishna (2008-2013)FinMin (2011-13)resolution corporation would charge a fee to all firms based on the probability of failure. 37

Government securities

AuctionSLR + above SLR due to financial repression

PDMARecommended by BN SriKrishna (FSLRC), Vijay Kelkar (13th FC)Most advanced economies have it- Sweden, NZ, Germany, Dens.2010: Bill pending2014: Interim Budget announced body by Executive order.Modi budget silent.

Argumentsin FAVORPDMA

Only RBI expert, can manage both Union and State debts.Separate body still conflict of interest bcoz Govt=largest shareholder in PSUs and BanksCounter: PJ Nayak bring down shareholding below 51%

ArgumentsAGAINSTPDMA

Short termStroke of a pen reforms. e.g. MoEFMedium termVia budgetLong termVia legal-regulatory-Administrative reforms.Types of Reforms

Border: LAC 100kms, BRO permittedNaxal: forest land 5ht. Convert for public buildingsWeb portal for file clearanceGIS system forest clearanceGanga basin-5 states: industries to install emission monitoring systems.

Environment MinistryShort termIndian EconomyBanking side topicsNew GDP; PPPUrjit Patel, Jan DhanMahil Bank, New bankNachiket

New GDP calculation with base year with as 2011-12Will include unorganized sectorWill give higher GDP number.

GDPSide topicsTo replace WPI. Will include service sector= broader coverageExperimentation began in banking, postal, telecom and railwaysAgro. Will be difficult to track

PPISide topics

Indian EconomyBanking side topicsNew GDP; PPPUrjit Patel, Jan DhanMahil Bank, New bankNachiketPeople dont have many investment alternatives. Commercial banks have high deposits. Unorganized money market; Shroff; lack of financial inclusionMonsoon uncertainty, cyclone, flood, draughts => Supply side constrainsMonetary Policy: limitations (Developing-countries)Crude oil, gold importFiscal deficit; public borrowingsubsidy leakage, Black money, underground economySolution: Urjit Patel Committee

Monetary Policy: limitations (Developing-countries)

Bi-monthlyPolicy2014MSFRepoRR RepoCPI targetfirstApril987startedsecondJune987thirdAugust987fourthSept,30987Monetary policy under RajanJanuaryCPITarget20158%20166%Challenges:60% El NinoGeopolitical problemsSubsidesOctober 2014: CPI 6.45 (expect RBI to cut repo)Monetary policy under RajanIndian EconomyBanking side topicsNew GDP; PPPUrjit Patel, Jan DhanMahil Bank, New bankNachiketBANKINGSavings & payment-through branches, ATM, cheques, e-transferCREDITLoans at affordable interest rates.INVESTMENTmutual funds, pension plans, child investment plans etc.INSURANCELife insurance and non-life (general) insurance.What is financial inclusion?Why financial inclusion?Savings into investmentUnforseen circumstancesJapan, S.Korea, USALack =>money lender, Ponzi scheme, MLM, Saradha Chit fundSocial harmony, women EmpowermentE-Payment: Cashless subsidies, payments, salaries: Rs.1 lakh cr (Mckinley study)Fin.inclusion attempts in past: Nationalization, RRB, Coop banks, BCA, Swabhiman, Swavlamban, MFI (24%), No-frills account, 25% rural branch rule, BMB, Bandhan, IDFC.Still 49% families- no account; 55% rural dalits borrow from money lenders @34% rate.

WHY?Jan Dhan

Dept of Fin services. 15/08/14; 7.5 cr families in 1 year; 6 pillars strategy1.Sub-service area to cover 1000-1500 families within 5 kms distance2.Each family 1 account, rupay debit card, 1 lakh accident cover, 5k overdraft if good credit history.3.fin.literacy campaign; 4.credit guarantee fund to cover losses 5.sell micro insurance product 6. DBT.WHY?Jan Dhan

Insurance cover only if rupay card used /45 days. (NPCL)BCA model 2% commission, misconducts by RBI report. 47% untraceable.Hawala via smurfing (sending money overseas in small units) and money mulesCRITICMJan Dhan

6 pointsVision StatementBank accountA UEBA by 1/1/2016Access to bank15 minutes walking distance (400)Payment BanksEasy loansPSL 50%investmentWholesale Banks1/1/16Broker model, Cross-KYCinsuranceconsumer rights(FRA)

Universal electronic bank account59Minimum Capital required 100 croresFDI limits, voting rights similar to regular bank

Small banks and Payment banksSmall banksDeposit, loan, small areaSmall farmers, MSME, unorganized sectorMFI, NBFC can convertEven individual with 10 years experience in bank/cooperatives25% rural branching50% loans to MSMEOnly CASA, Net banking, prepaid cardsFD/ Loan.X=> G.SecPayment, remittance for poors, migrants, unorganizedMax balance Rs.1lakh/customerPayment BanksGS3: Farm subsidiesWTO: Bali Summit, Peace-clause, TFAMSP-FCI-ProcurementFertilizer subsidy & Suger pricing issueNFSA Act (Poverty Hunger)

MNREGA Rising income= more fruits, veggies, edible oil, milk, egg, proteinBut Govt focus on cereal MSP, electricity, fertilizers=> More cerealsSupply demand mismatch=food inflation from non-cerealsFCI open ended procurement but lack of shortage capacity=rotten grainLeakages in PDS=blackmoney + inflationIssuesProcurement

Remove MSP, give direct cash transfer to farmers, include urea in NBSmore R&D to raise productivityLand reforms, Shift labour to MFGfarm mechanization (=new jobs in rent + repairs)@FARMERLevelProduction

Following already existDecentralized procurement (90s but yet to pickup)Existing: PEGS- private entrep.guarantee schemeGrameen Bhandaran100% FDI in warehousingWarehousing receiptOffload in open market (Modi started)@FCIStorage

Food stamps/DBT to poorNo more leakage or hidden hungerAllows PDS shows to sell other items (done in Delhi)CCTV, online monitoring of stocks & trucksPDSDistribution

Reform APMC act. Allow- private yardsAllow farmer-SHG to direct sellCold chain, Food processing- value additioncreate national market for agriculture (Budget 2014)online info on pricingstable export policies

APMCRETAIL

Nutrient based subsidy- on weight of macro/micro nutrients. Farmer gets tailormade fertilizer.Modi=> Soil card.

FertilizerNBSsubsidies

Urea not covered, NBS subsidy not given quicklyExcessive urea demand and usesoil NPK ratio disturbedSubsidy bill increased to 70k+crHigher import=CADSmuggling to neighbors

NBS why fail?Fertilizer

Fair and remunerative price (FRP)Rs.220 Per QuintalState Administrated PriceRs.280 Per Quintal

Mill owner has to pay this price or higher to farmer=LOSSBcoz retail price declined

SEFESU interest free loans to mill ownersTo clear ARREARS

Ranga wants him to stop SAP & join FRP system insteadGS3: Farm subsidiesWTO: Bali Summit, Peace-clause, TFAMSP-FCI-ProcurementFertilizer subsidy & Suger pricing issueNFSA Act (Poverty Hunger)Timeline97: TPDS2000: Antyodaya Anna Yojana2013: NFSA (consumer affairs)NFSM= agro ministry, to raise production of 5: rice, wheat, pulses, millets, commercial.

Food security

featuresNFSA

Cereal / AllowanceCereal / AllowanceIdentify beneficiariesDistributeProcurementStorageSupply to StatesTotal 67% Population covered

Wheat Rs. 2/kgRice Rs. 3/kgCoarse grain 1/kg

Antyodaya Anna 35 kg / FAMILY / MonthPriority households5 kg / PERSON / MonthRice @Rs3/kgWheat @2Coarse @1EntitlementsNFSA

Antyodaya Anna 35 kg / FAMILYPriority households5 kg / PERSON / MonthRs. 6000Free meals & rationsGrievance redressal @district and stateTPDS: ICT, doorstep deliveryFull: Haryana, Rajasthan, PunjabDeadline: October 2014Extended: April 2015Issue: identifying beneficiaries (SECC)

AccountabilityNSFA

Fiscal deficit: 1.15lakh =>88kFCI storage cap=>rotten grain=>inflationHidden Hunger: No pulses, edible oil, fruits, veggies, milkGPS truck-tracking, CCTVnoIdentifying beneficiaries. SECC incomplete.Eco.Survey: food stamps

CriticismNFSARank 55/76BUT Reduced # underweight children, people, CMRCredit: MNREGA, NHRM, ICDSBooming economy=>social services improveBut others fared better. (Mexico, Brazil, Thailand etc)Global hunger report 2014Hunger

Not just carbohydratesVitamins and micronutrients>50% women & children: AnemiaSolution: iodized salt, fortified flour, bio-fortification of crops (nutrifarms), PDS reform, Education.National Nutrition mission 2014 to reduce AnaemiaHidden HungerReport