Arvind Subramanian’s prescription to engineer TN economy to $1-trillion mark

CHENNAI: Former CEA and member of TN's Economic Advisory Council, Arvind Subramanian, says Tamil Nadu's $1 trillion dream might be lofty, but certainly not beyond reach. “As I said, we support the aspiration, not the number. I did not give the number, to be honest, nor did the EAC. Sometimes simple numbers have an appeal. This is not among the things to be cynical about, when it comes to the government," the ex-chief economic advisor said on Monday. In a media interaction, the economist candidly shared insights on diverse matters ranging from reforms, vision, renewable energy, political compulsions and more.

Being bullish on TN

I had made a conditional statement, that if there was any state that could actually achieve the trillion target, it would be TN. The time is now thanks to the opportunities presented by China. It has changed the outlook for all nations, including India and TN in particular. States such as UP also have been setting ambitious trillion dollar goals. Maybe all those states that are announcing these numbers, if they are backing it up with efforts then we should just wait and watch. Some are really doing well and backing it up with data. Monitoring of such efforts is paramount.

Clothing and footwear are two traditional businesses that transformed poor countries into rich ones. China has a 40 per cent marketshare in the global apparel ecosystem, which it mirrored in other industries. In the last decade, that number has come down to 37 per cent. Vietnam, Bangladesh and Indonesia took the cue and capitalised the newfound opportunity while India failed to do so. India's share in the global apparel export market is a mere 4 per cent.

On doles/incentives given by TN

I think what is particularly impressive about this government is it has taken great pains to ensure that the targeting is good. You don’t miss out on the poorer women. TN’s bureaucratic capability is particularly very high. In this case, what they actually did was to combine five or 6 or 7 databases that they had to make sure that the targeting is as good as possible. So, from both from an accomplishment of administrative efficiency as well as the fact that you are reaching the most vulnerable, I think it is a very laudable effort.

Managing resource constraints and methods to augment revenues

Firstly, when we think of a state like TN, and of revenues, there is a component that comes from devolution. Then, there is a component that you generate your own taxes. And, TN has been doing a decent job over time. Its own tax collection, as a share of GSDP, is not bad. You mustn’t overlook the fact of garnering revenue by raising the taxes but you also by stopping the discom losses, which are huge in TN.

So, let’s put three pieces: there is a devolution component, you generate your own taxes, and there are all these outflows, something like a universal basic income – is a necessary expenditure – but if you look at some of the subsidies that are being given, which you are going to be surprised at – who gets these subsidies? Both – the magnitudes are very high and it is very regressive. Lot of rich people are getting these subsidies. Subsidies too have to come under the raising revenue ambit.

And in TN, the power sector is so big, that actually this makes a huge contribution to the overall revenue generation. Of course, there is a devolution component, which is more complicated… a political issue and as I said earlier, in the devolution that the states get from the central pool, over time, what you find is that more and more of that devolution is re-distributive. Supposing a state like TN, generates revenue. It should kind of get back the quantum it generates. In fact, if you go back to the discussion of the Constitution, this is called Origination. If economic activity originates somewhere, then the taxes kind of belong to that.

Short note, the government can change, in fact to give government credit, they have asked me to look at revenue augmentation.

They first asked me to look at the power sector, we worked a year on this and wrote the report and discussed and asked now (second) as to how to improve GST, not just that, look at stamp duties and property taxes. Of course, I would love to, at some stage, also get into liquor policy, but so far, I don’t have a need for doing that.

Why hasn’t the report been made public?

It is for the government to decide when to release it. They are serious about some of the recommendations. On the distribution front, essentially, it is something which most other states are doing. TN is one of the three states, that combines generation and distribution. Second, in many states, they have more than one discom. Unbundling is very important. All monopolies are bad, whether it is public sector or private sector. They are giving serious consideration to this aspect of it. Most difficult side of it for the government, to be fair to them, is on the tariff side. It is the only state along with one or two states that is giving power free (to agriculture). And that is a politically difficult issue. When it came into power, the DMK administration raised and indexed the power tariff. Subsidised power comes at the expense of honest taxpayers.

TN’s strengths on energy biz

TN has solar, onshore wind, offshore wind and something to solve the intermittency problem – need a battery, pump storage (equivalent to battery). We are almost reaching the limits of the potential when it comes to onshore and offshore wind. Solar, TN has the potential especially with agriculture, but ultimately, you can’t compete with Rajasthan or Gujarat. Why? Because they have given the whole desert… in fact, the Rann of Kutch and Thar desert to Adanis. The big bet is offshore for TN, but that is very capital intensive. You will need to involve the private sector. So, that is why you need a strong utility. Only way to incentivise them is guaranteeing purchase. Offshore wind in TN will give a huge boost to manufacturing also.

On manufacturing

There are plants, two to three (Vietnamese) coming up in TN, employing 20,000 to 30,000 people. There is opportunity for footwear based on artificial materials – synthetic leather. I am surprised about these developments that are happening in TN and to some extent in Karnataka. I think all these big players are coming employing 10,000… 15,000 people…especially women. People ask me if India can revive manufacturing. The TN model makes me sit up and say, maybe we can because things are happening. There is investment coming into manufacturing with scale of operations, which earlier we did not have.