Post-demonetisation, focus now on flow of black money: Arvind Subramanian

CEA said government was mulling at taking strong action to arrest the bad bank scenario

Avoiding any comments on the note ban process undertaken by the Centre, Chief Economic Advisor Arvind Subramanian on Friday said that the focus should now be on arresting the flow of black money.

Speaking as part of his lecture 'The Surprise that is the Indian Economy' at the Indian Institute of Management, Ahmedabad (IIM-A), Subramanian said the focus on the flow of black money may involve some carrot and stick methods.

"Black money has two dimensions including money made from prohibited activities and that made legally but not disclosed. There is a stock and flow of black money. Now that demonetisation is done, we should now focus on flow of black money and it is going to need sticks and carrots method," said Subramanian while answering a question on black money.

As part of his lecture, Subramanian paraphrased the Economic Survey that was tabled earlier before the Union Budget and highlighted some of the anomalies of the Indian economy as against the rest of the world. For instance, according to him, while India's demographic dividend had a gentler rise and fall on a national level, within the country, there were some states ageing faster than the others.

"We may need more migration in India due to some states ageing faster than the others. The demographic dividend in India will peak at 2020 and then start declining and we need to act fast," he further stated.

Subramanian also talked about government initiatives such as Jan Dhan and Aadhaar and their effectiveness on financial inclusion.

"Despite Jan Dhan and other schemes, we are still far away from getting perfect financial inclusion. We have made progress in the last two and a half years with Jan Dhan and Aadhaar. The possibility of making strides in that are far more optimistic. Now you have UPI where mobile can become the real effective means of financial inclusion. But the shocking statistics is that 350 million people in India neither have smartphones nor any other kinds of phones. But we can make progress in the near future," said Subramanian.

Later, addressing mediapersons on the bad banks scenario, Subramanian said that the government was mulling at taking strong action to arrest the situation.

"For the last many months, there has been a recognition of the fact that one of the major challenges of the macro-economy is what we call the twin balance sheet problem. Many firms have unsustainable debt and that in turn effects the banks and hence both the balance sheets have debts. It is having an effect on the economy in terms of reducing private investment and growth and so the government is now going to see how to improve this problem and there are many ideas being given. I think in the months to come the government will be taking some good strong action against this problem," he said.

Meanwhile, talking about the reduction by the Centre in its spending on health, Subramanian said that with the state governments also receiving higher share after 14th Finance Commission, they were required to make higher spending as well.

"Health spending is done by both Central and state governments. After the 14th Finance Commission, states are getting more share. Hence, it needs to be seen how much is the combined spending on health by both Centre and state. The Centre's envelope to spend has been reduced but we have to see how much everyone is spending. The states should also increase spending. Resources needed for such spending require more growth. And all the efforts that the Central government is putting for growth will provide resources for spending in health and education in the medium term," he stated.