A data big bang
GS Paper III
Topic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
Prelims:
Mains: reforms required in real, fiscal and financial sector to overcome from economic slowdown
What’s the News?
As the government responds to the challenges posed by the economic slowdown, there’s an ignored area of reform in real, fiscal and financial sectors. Most importantly there is need of reliable data for guiding government action.
Reforms in real sector:
- On the real sector, measurement of GDP, employment, and consumption have all proved problematic.
- To remedy this, the government should set up a committee under the leadership of Nobel Prize winner Professor Abhijit Banerjee to propose improvements to data collection and statistical methodology, which could be implemented in conjunction with the planned updating of the base year.
On the fiscal accounts:
- The government should use the next budget as an opportunity to present a revised and cleaned-up set of fiscal accounts, allowing it to put behind the problems of the last budget.
- The aim should be to clean up not just the flow (deficit) numbers but also the stock (debt) numbers. Particular attention should be paid to identifying — and paying — arrears to suppliers.
- A sound budgetary accounting system needs to be institutionalized by creating a Fiscal Council.
Need of Fiscal Council:
- Various cesses and surcharges are becoming disproportionate proportion of overall divisible revenue.
- There should be some mechanism to ensure that the basic spirit of the devolution process should not be undercut by clever financial engineering or taking recourse to traditions.
- There is a need for coordination between the finance commission as well as the GST Council, which he termed as the only federal institution in the country.
- There’s need for coordination between Finance Commission and GST council.
- GST Council has no clue of what the Finance Commission is doing and Finance Commission has even lesser clue of what the GST Council is doing.
On the financial sector:
Asset quality review:
- Reserve bank of India inspectors check bank books every year as part of its financial inspection process. However a special inspection was conducted in 2015-2016 in the august- November period. This was named asset quality review.
- The RBI believed that asset classification was not being done properly and that banks were resorting to ever-greening of accounts which resulted in mounting losses for the banking sector.
- second Asset Quality Review (AQR): the spate of problems from Nirav Modi to Punjab and Maharashtra Cooperative Bank to Dewan Housing and NBFC financing of real estate, and, above all, the behemoth that we have now discovered IL&FS to be, has to work extra hard to regain trust, and transparency about stressed assets.
- A second AQR will allow government and RBI to allow find problems in not just the NBFCs but also the banks, which are experiencing renewed stress from the real estate, steel, power and telecom sectors.
Conclusion:
Running an economy, especially one that is in a predicament such as India’s today is infinitely more complicated and the data demands are hence commensurately greater.