Watch | 'Economy After March Is Substantially Worse Than It Was Expected to Be'

In an interview to Karan Thapar for The Wire, the former member of the PM-EAC said in a situation where demand has shrunk, services are functioning below capacity and consumers are unwilling to spend, it is wrong to come to such conclusions.

One of India’s top economists, who until the 2019 elections was a member of the Prime Minister’s Economic Advisory Council, has debunked talk of green shoots emerging in June.

Rathin Roy, the Director of the National Institute of Public Finance and Policy, says: “Never draw conclusions from a single data point…ignore anyone who talks of green shoots, it’s not prudent to conclude from a month’s data.” He says in a situation where demand has shrunk, services are functioning below capacity and consumers are unwilling to spend it neither makes sense to talk about green shoots emerging in June nor of the momentum slowing down in the first two weeks of July.

As Roy put it, the truth is “the economy after March is substantially worse than it was expected to be.”

In a 60-minute interview to Karan Thapar for The Wire, where he also talks substantially about his reasons for resigning as the director of the NIPFP and confirms that he was told off for criticising the finance minister’s first budget and advised not to talk to media that are considered critical of the government, Roy said that in the worst-case scenario, nominal growth for the full year could fall between 14-17%. In the best-case scenario it would fall 12%. Assuming inflation is 5% (the latest CPI figure is 6.09%) this means real GDP growth will fall by a range between 7% and 12%.

However, Roy told The Wire that whilst he is reluctant to accept any of the data that others have used to claim green shoots are visible, he does believe that agricultural data is “much more credible”. Nonetheless, he made a point of saying he cannot understand how it’s claimed that the acreage under kharif has gone up by 44%. As he put it, this suggests that 44% wasn’t cultivated last year.

Roy said that if community transmission of COVID-19 in rural India does not happen till September 80% of agricultural output can be saved.

Speaking about the economic crisis’s impact on poverty, Roy said it was complicated because each year some people are lifted out of poverty whilst others fall into it. The reasons for the latter are often personal tragedies and illness. This year, however, there would also be the additional pressure of COVID-19 and the collapsing economy. Therefore, although he would not cite a number, the number of people who would fall back into poverty would grow. It definitely would be more than last year.

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Answering a question whether a greater fiscal stimulus is required, Dr. Roy said that there were two approaches open to the government to lift the economy out of the hole into which it has fallen: credit support or income support. He said the government chose the first. He was particularly reluctant to say whether the government had made a mistake. Instead, he raised a different question: whether greater fiscal support would have meant better delivery rather than a greater waste of money.

However, when specifically and repeatedly asked whether the concern that a bigger fiscal stimulus would increase the fiscal deficit and lead to a ratings downgrade was a good reason for not enhancing the fiscal stimulus, Roy made crystal clear that he disagreed. “If that was the reason I don’t accept it at all,” he said.

Roy said the economy will be judged by its resilience and “income support would have had a salutary effect on GDP”. He also said this was not an ordinary time and credit rating agencies would have understood the growing fiscal deficit because it was a one-off incident rather than something that would happen regularly.

In a sharp criticism of the Central government’s attitude to state governments, Roy said, “the Central government has made a fundamental error in not being more generous supporting state finances”. He told The Wire that imposing conditions reflects a loss of confidence in state governments. This, he added, was unjustified. He said state governments spend money better than the central government. He added that’s where the money should have been put.

At one point, Roy suggested that a possible reason why more funds were not made available to state governments was because income support – if that is what the government had chosen to do – would have had to happen via state budgets.

Roy said the states should not be asked to borrow. The Centre should provide interest-free financing.

Asked whether the economic crisis was an opportunity to push through reforms that otherwise would be difficult, Roy told The Wire that India must “stop thinking in one-year bursts”. He said India needs “a three year strategic plan”. However, this was not forthcoming from any quarter, from neither the government nor the industry.

Asked by The Wire whether the government had the right advisors who can devise such a plan, Roy said that India certainly has plenty of advisors who can give right advice but added: “the government chooses the advisors it wants to choose.” Asked by The Wire if this means the government’s advisors have chosen not to devise or propose a three-year strategic plan, he replied: “That must be”.

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In part two i.e. after the commercial break, Dr Roy spoke about why he has resigned as Director of the National Institute of Public Finance and Policy. He said he was in his early 50s, an age when finding a new job is as difficult as when you are in your 20s. He is coming to the end of his second term as Director and has decided to accept an offer made by the Overseas Development Institute to be one of its two managing directors.

When questioned whether he was resigning because of problems he has reportedly had with the government, Roy admitted to The Wire that an article he wrote for the Business Standard immediately after Nirmala Sitharaman’s first budget in July 2019 had upset the government. As he put it: “Were some people unhappy? Unquestionably yes.” However, he added that the person who told him off was not in government any more thus suggesting it was a senior civil servant. He then added that the bureaucracy is wary of external inputs that will suggest to their political masters that all is not well. He said the bureaucracy can then cast doubts on you.

Roy also revealed to The Wire that he was strongly opposed to the first budget’s proposal of raising sovereign bonds abroad. He said the finance ministry can be “wrong-headed” and this proposal would have “exposed the country to grave risks”. He said he “went up to the highest level of not just the government”. He, therefore, made it clear that he had spoken to important people outside the government who can exercise influence on the government without naming them. However, he also said he had written to the Prime Minister’s office. Equally importantly, he said he accepts some of the credit for ensuring that the sovereign bond proposal was not acted upon.

Under questioning by The Wire, Roy revealed he had been told not to speak to media organisations that were deemed to be critical of the government. As he put it: “It was conveyed to me sometimes that the particular outfit I spoke to was not one which would gather me many plus points.”

Asked if he was deliberately choosing a job in Britain rather than staying on in India, Roy said he would have preferred to stay but had not found any employment he could gainfully take up. Asked if he would be prepared to return one day as, perhaps, chief economic advisor, he said, whilst not talking of any particular job, “if there is a job to be done in national interest” he would always be available.

The above is a paraphrased precis of Rathin Roy’s interview to Karan Thapar for The Wire. Please see the full interview for further details.