matter that employment has fallen by 15
million people in six years
doesn't matter the shops are closing it
doesn't matter that enterprises are
always shutting shop because GDP is
growing how do we know JIT will believe
us this budget was extraordinary because
it was all based on false numbers
similarly we in India we don't tax our
rich enough we don't have any wealth tax
we don't have any inheritance tax we're
one of the few countries in the world
that doesn't have these taxes this is
not a regime that has given me a lot of
confidence in their economic management
[Music]
from the ramparts of the red force on
August 15 Prime Minister Narendra Modi
reiterated his ambitious target to
achieve 5 trillion dollar economy dream
now on the other hand macroeconomic
indicators are suggesting a visible sign
of the slowdown in the economy so the
question is would we be able to achieve
the 5 trillion dollar economy dream of
Prime Minister Narendra Modi or what
exactly is the scale of the economy
crisis and how should we tackle it to
talk more about it we are joined in by
one of the world's leading economist
jayati Ghosh who is a professor at the
Johanna Nehru University New Delhi and
as the discussion is ongoing in the
India right now that are we heading into
the recession the ongoing slowdown so my
first question to you is how do you see
the economic situation right now in
India like it's a slowdown it's a
structural arras iclicker are we heading
into a recession
I think these dichotomies are wrong it's
obviously a slowdown there's no question
about it I think it is worse than we
getting from the GDP data because the
GDP data doesn't match with all the
other indicators it's not just
employment it's sales it's investment
everything is down it's been happening
for a while it's not new and therefore I
would say that it is systemic it's not
just some you know or cyclical suggest
that it will automatically rise again it
won't so basically you are saying that
it's it's a structural
it's a structural and serious concern
so can we draw interpretation out of
this that we are heading into a
recession well you know at recession
technically is just a decline in GDP for
two successive quarters so that itself
is not a very I mean you can have a
recession and still be in a cycle you
can still come out of it this is
slightly worse because this could even
just be a significant stagnation it
could may be more than just a recession
it could be something where actually it
then also might metamorphosis into a
crisis of some kind so according to what
are the various factors that are
aggravating this crisis and what went
wrong in last four and a five and a half
years when the modi came into the part
it's not let me be honest it's not
beginning with mr. Modi it is certainly
that they have added to the problems but
it didn't begin there the basic problem
is that we had a growth that was very
unequal so it led to a lot of increase
in GDP but it didn't generate much wage
growth some not enough and it not enough
employment growth so already by about
2011-12 there were concerns that this is
not growth that was generating too many
jobs what happened after that is that we
didn't see any more expansion in job
growth in fact we got a worsening so
what mr. Modi did or what this the
regime did was to really bad policy
moves which is to say the monetization
and the GST that was very poorly
implemented which made the informal
economy suffer disproportionately now
the informal economy employs about
eighty-five percent of the workers about
95 percent of the workers are anyway in
informal jobs you do something that
deprives them of liquidity credit demand
etc for a year and expect no impact
that's impossible so what happened is
that people who lost their jobs people
who got worried about the future stopped
spending and that had what we call a
negative multiplier effect
you stop spending the shopkeeper stopped
selling he stops buying his supplies the
people producing it cut down their
spending their production and so on and
so forth so those negative multiplier
effects I have now started feeding and
through the formal sector you see all
this time the formal sector was less
affected but that fall in demand in
agriculture in informal activities that
has now affected the formal sector so
now it's the formal sector which is
crying and it's not just automobiles now
it's everything from toothpaste to
biscuits to tea right everybody is
crying that no one is buying anything so
recently a comment was made by vice
chairman of media out that we are
witnessing unprecedented slowdown in the
last 70 years and the reason for that is
in discriminate lending that started in
the UPA regime so what's your quick
comment on that well yeah this is a bit
like blaming Nehru for what is happening
today sure there was indiscriminate
lending sure the banks needed to be
cleaned up why weren't they
five and a half years later we have now
more MPs than we had then so something
is clearly going wrong in the way you've
handled it the banking system is in a
serious problem you have allowed
non-performing assets to grow you let
bad loans expand you're trying to clean
it up but you're not doing it properly
so yes there is a problem in the banking
system which is adding to this demand
problem but the immediate crisis is
nobody has enough purchasing power
there's lack of demand I mean the next
question is that it when this budget was
about to be presented by Nirmala
Sitharaman many people had this hoped
that this budget will tow a lot of
stimulus so do you think that this
budget lived up to the expectation of
the different sectors of the economy and
how do you see this budget no clearly it
didn't right because even the stock
market tanked and everything tanked this
budget was extraordinary because it was
all based on false numbers so you they
they didn't tell the truth about the
taxes they had collected in the previous
year they made crazy estimates about the
taxes they would collect in the coming
year they we don't know how much they
actually spent because they haven't we
don't know what the numbers they've
given us at
or not and if you were going to make
crazy estimates about taxation then you
can't take these spending estimates
seriously either
so it was very hard to take this budget
seriously I don't what we analyzed it
and then I sat back and thought why am I
wasting time on this because none of
these numbers is valid now it turns out
that the 1.76 lakh crore that was the
big hollow somehow very neatly the RBI
has decided to transfer exactly that
amount that is the humanists
committee recommendation yeah where the
magellan recommended that you can
transfer a larger amount but they didn't
say 1.76 like Crowe
this nice neat amount has now been
handed over to the finance ministry to
fill up the gap in their budget and
there's any be it's like the many
discussions went on that the whole
problem lies in the NBS is that NBS is
have stopped lending to the people so
the step taken in the budget about in
relation to the nvac sector do you think
that that are enough to take them out of
gloom you see again you have to go back
to the origin of this how did all this
begin it began just after D monetization
when the banks were not lending at all
yeah credit collapse so the government
pushed the NBR sees that you go out and
lend especially to small and medium
enterprises and they turned a blind eye
to all excesses including il NFS which
then had a spectacular collapse so that
also is actually a fall out of that
crazy D monetization now if you have to
fix that mess you can't simply say go
out and lend again you have to first
deal with all of the bad loans that
they're sitting on and mam recently K V
Subramanyam mean in a in a panel
discussion said that people should not
expect a fiscal stimulus it's not
necessary to tackle the economic
slowdown because it's would be lead to a
moral hazard so what would be your
comment on that
obviously it's completely innocent of
microeconomics what can I say it's
embarrassing to have to respond to a
statement like that first of all
obviously the government itself doesn't
believe him because they are just
they're trying to do fiscal stimulus by
getting the RBI to transfer reserve
right first point second point in a
macro economy you have to look at these
sources of the demand if the private
sector and households are not spending
there's only one agent left that's the
government that has to spend it's kind
of obvious these are macroeconomic
balances the question of moral hazard
will arise really with respect to things
like you know taking over bad debts not
making irresponsible a fiscal stimulus
what has that got to do with moral
hazard he went on to add that when discs
eventually lead to losses industries
would come running back to the
government for support every time now
that's a different issue altogether
whether that if you want fiscal support
for specific enterprises that's
different from a fiscal stimulus yes it
leads to moral hazard
we know that bank bailouts lead to moral
hazard we also know that there are
situations where if you don't bail out
then the whole system collapses like
Lehman Brothers okay so there is a fine
line that you have to trade but clearly
talking about a fiscal stimulus as a
moral hazard indicates complete
ignorance and today ma'am RBI approved
that the magellan committee's
recommendation that will transfer 1.7
lakh Road to the government how do you
see this is this going to have a
long-term impact in the economy like
it's going to improve the situation
because now the government will have the
funds that they are like from very long
time there they were saying that we want
to have a fun we're running short of fun
sure they're running fourth what it will
do is help them sort out the mess they
are made in tax collection yeah GST is
way below target they're not collecting
other taxes when the economy is slowing
down you collect less taxes anyway so
they've made a mess
this will help them deal with that mess
basically that's what this will do now I
am in favor of a fiscal stimulus so I
have no problem with the RBA
transferring resources this is it's like
monetizing the deficit it that's fine I
don't have a problem with that however
if you know it spend it in the right
ways then it won't help you resolve the
problem today the problem is lack of
effective demand you must put that money
to use in solving that problem right
first ensuring that this demand
in the system and I mean this budget
nebulously Thurmond proposed about the
sovereign like the very debatable issue
about the sovereign bond and FBI is
increasing as a child and led to FBI
pull out in the starlight markets so
what's your comment on that about the
sovereign bond first in a net surcharge
on FBI like she rolled back well this
sovereign bond thing is a ridiculous
dangerous and completely unnecessary
idea so I would say that I'm very glad
that the government has had second
thoughts about that and I hope that they
stick to the second thoughts because it
is risky at a time like this when you
see countries like Argentina and Brazil
basically going down the tube because of
these excess debts it's absurd to say
that we can actually float bonds and
we'll be fine
that we can just go and spend happily
because of those that's the first on the
tax on the portfolio assets I think that
was a perfectly reasonable tax there's
no problem with it but it's interesting
that of all the things that she changed
that was one of the first things that
she rolled back because they are
obsessed with the stock market as the
indicator of success now in fact the
stock market has not been a good
indicator of success it's been
performing wonderfully last year when
the economy was already in very bad
shape so to rate and it doesn't
translate into more investment so when
the stock market was scaling new highs
all of last year investment was falling
absolutely funny it doesn't mean that
you will get more investment so I don't
see why she has to go out of her way to
placate foreign portfolio investors
because it does no advantage to the
economy remember what about the ha hni
people only the super rat with
super-rich tax position similarly we in
India we don't tax our rich enough we
don't have any wealth tax we don't have
any inheritance tax we're one of the few
countries in the world that doesn't have
these taxes so it's absurd and yet we
have some of the top richest people in
the world right regularly the top
billionaires and
we have these five or six in there so
it's absurd for us not to tax them and
then the next question is that the
capital infusion of 70,000 crore in the
public sector banks and the additional
liquidity into cash cashed out NBA's do
you think that they are enough to pull
pull public sector banking and bxy out
of the gloom and kickstart the lending
no it's not enough it's not enough yet
each time they give some money it's
always not enough so they give 20,000
and then they gave 30,000 now they
giving 70,000 Crowe they already
announced this in the budget didn't make
any difference right all they all she
said now is that I'm going to
front-loaded that is I'm going to give
it to them right now now the issue is
this it will help them to resolve some
of the bad loans but what's happening
today is that the people whom banks are
willing to lend to don't want to invest
because the economy is slowing down
where's the market so you talk to any
big or small industrialists none of them
has an investment plan so who's going to
borrow and they there was also debate
that the the level of the super-rich
taxes amongst highest in India like
world the India is charging right now so
people like investors in recipes were
thinking to relocate from India to some
other country where the Texas is a
little bit lower look we are not the
highest in the world we don't tax the
rich we don't have a wealth tax we have
most countries have a wealth tax
we don't have an inheritance tax most
countries have an inheritance tax the
tax that we have on the rich is what 33
percent plus a surcharge surger still
well below 40 percent most of Europe has
above 50% above 50 percent many
countries in the world have in excess of
70 percent so this is not a high rate at
all sure rich people will always choose
low tax or no tax jurisdictions that's
the way which people are yeah I would
say that we can put stringent rules if
you want to operate in India and make
your money in India you pay tax in India
if you don't want to find recently Raghu
Ram Rajan said that that this one going
slow down is very worrisome and there is
a need of a fresh reforms so according
to you what are the fresh reforms that
the government should immediately take
you know this idea that you can only
kickstart growth through neoliberal
market-oriented reforms I think that is
wrong I would say the things you need
right now there's a crisis in demand so
what you do you infuse demand where do
you infuse it to people who will spend
the money so double your Employment
Guarantee increase your spending on
health and education these are
employment intensive these create more
jobs these will have strong multiplier
effects you will create more demand okay
that's the first step is that a reform
yes it's a reform in the way you think
about public finances and public
spending okay second thing you do you
clean up the banking system and make
sure they start lending in a viable way
to small and medium enterprises at the
moment
small and medium enterprises cannot
access funds and the rich guy is who can
access funds don't want to invest so
that's per second trade you improve the
public investment in the areas that
matter you know in in roads in basic
infrastructure in electricity in
renewable cities and you do it in a
green way so one of the absurd things in
the measures she announced is that the
government is going to start buying cars
this is the same government that has
declared that four years from now we're
going to be all entirely electric
vehicles so at least say we will buy
electric vehicles no we will buy cars
combustion engine cars where is the
planning are you thinking about moving
to an ecologically sustainable future
apparently not and then they like few
months earlier like there was a
controversy stirred up after Arun
Subramanian said India's GDP number is
overestimated by 2.5 percent and that
this went on to like come up with a lot
of papers Prime Minister Economic
Advisory like if he butted that entire
fact by fact and they came out that it's
prevalent everywhere so GD Birla wrote
an article and all these things how do
you see this entire GDP numbers game you
know Sergey Paulo is the person who's
been saying India doesn't have any
poverty we reached all the goals that
are sustainable development goals and
everything we've reached 10 years ago we
don't have any poverty so that's the
kind of economists we're talking about I
would say that
I don't know exactly 2.5% lower or
whatever but I would say that the basic
arguments that Arvind Subramanian made
are all extremely plausible which is
that we look at a set of indicators to
understand how an economy is doing a GDP
is always an estimate because you're you
know in a such an informal economy
you're making all kinds of guesses about
the size of the informal economy and all
kinds of things right so we know that
these are estimates we know that
everything else is showing us a decline
so it is extremely unlikely that GDP
will be growing at 6% or 7% if it is it
would be particular sectors that are
disproportionately growing that don't
reflect material well-being
maybe finance is growing maybe I don't
know some other sector is growing which
doesn't reflect material well-being I'm
talking about Finance Minister Nirmala
Sitharaman being aluminized of aluminous
of JNU herself she is an appropriate
choice in the finance and look I don't
wish to comment on that we've had all
kinds of finance ministers I don't even
believe that the economic decisions or
any decisions in the government I made
in ministries anymore I think they're
all made in the PMO so I wouldn't blame
her alone for what has happened I think
the budget was a mess I think what the
finance ministry is doing at the moment
doesn't indicate great economic thinking
but I wouldn't blame that on the finance
minister I would blame it on the Prime
Minister I believe the economic
decisions have been made by a very small
group of people and it's like this she
also told it a few days back in a press
conference that we are among the like we
are growing at a very good growth rates
among all other countries in the world
and like this is a kind of a solace that
she provided amid the economic turmoil
so do you think that is this a reason to
is that this is the whole point that
first of all you cook up your data so
that you show very rapid rate of GDP
growth then you say see we're growing
GDP so it doesn't matter that employment
has fallen by 15 million people in six
years doesn't matter the shops are
closing doesn't matter their enterprises
they're all shutting shop because GDP is
growing how do we know did piss-drunk
believe us
sangeeta gopinatha recently said that
us-china trade war has a lot of
opportunities as well so what's your
comment on that certainly countries like
Vietnam Philippines actually doing
better India has not been able to take
advantage of this so far we've had one
or two you know companies moving shallow
relocating to India but very few because
we have poor infrastructure we still
don't have you know it's really very
difficult for countries to companies to
relocate to India so we have not been
able to take advantage in that sense if
anything we are losing because we used
to export a lot to China that would
react sport to the US now that has come
down so some of our exports have
actually come down while we continue to
import a lot from China my last question
is now like do you think that this
situation is getting over somewhere in
the future like the economic slowdown it
all really depends on how the government
tackles it so far this is not a regime
that has given me a lot of confidence in
their economic management thank you
thanks for joining us in
[Music]
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