'NPR-Related Mistrust – A Big Problem For Census, India's Growth Plans': Pronab Sen

In an interview with Karan Thapar, former chief statistician Pronab Sen says that Nirmala Sitharaman’s budget was “not the budget the country needs” and that “it simply tinkers” with the problem of growth.

The green shoots the Finance Minister believes she can see are only temporary and will probably perish soon, says Prof. Pronab Sen, former Chief Statistician and Chairman of the Standing Committee on Economic Statistics. He says previous upticks in the industrial production index have all reversed and, at the moment, the index is in negative territory. These upticks do not indicate a trend. He expresses the same scepticism about purchasing managers indices, FPI investment and foreign reserves. FPI investment has increased because of global liquidity and not because of the attractiveness of the Indian economy. Foreign exchange reserves have increased because of interventions in the currency market which have attracted foreign exchange.

In a 55-minute interview to Karan Thapar for The Wire, Prof. Sen says Nirmala Sitharaman’s budget was “not the budget the country needs”. He says “it simply tinkers” with the problem of growth. Speaking about the Finance Minister’s strategy to boost growth by pushing investment he says that this will yield results after a lapse of time which could be as much as two or three years and much depends upon the sort of projects the investment is put in. Those details, he says, have not been revealed.

Speaking specifically about the increase in government capex of 18%, Prof. Sen says this has happened at the cost of necessary consumption expenditure and, therefore, whatever is gained by increasing capex could be lost because of the reduction in consumption expenditure, particularly the Rs 9,500 crore smaller allocation for MNREGA and the fact that PM Kisan has the same allocation as last year.

Referring to the commitment to spend 100 lakh crore on infrastructure over the next four years, Prof. Sen says this is only “a gilded figure”. We don’t as yet know what proportion of this Rs 100 lakh crore will be government investment and what is expected from the private sector. Equally importantly, the government does not have a model or game plan for attracting private sector investment. The old model or architecture “has broken down”. A new one is needed but as yet it has not been revealed by the government.

Speaking about the Pradhan Mantri Gram Sadak Yojana, which has seen an increased allocation of Rs 5,500 crore, and rural housing, which has gone up by Rs 1,000 crore, Prof. Sen said that these are very small if not marginal allocations. They would have a minimal impact. The allocations should have been considerably greater because this is the sort of investment that would immediately boost growth. Additionally, it would also boost consumption.

Prof. Sen said that because the crisis in growth is the immediate problem facing the economy the Finance Minister should have done more to boost consumption. He said, repeating a point he made in an interview to The Wire in January, that he stood by his advice that the Finance Minister should have allowed the fiscal deficit to rise to 5.5% so that more money could be provided for schemes like PM Kisan, MNREGA and Pradhan Mantri Gram Sadak Yojana.

In the interview to The Wire Prof. Sen also spoke about the Finance Minister’s projections for next year. He said the belief that we will see 10% nominal growth in GDP is “optimistic”. The projection that gross tax revenues will grow by 12% is “unrealistic”.

Finally, the expectation of Rs 2.1 lakh crore from disinvestment was “not likely to be fulfilled”. Prof. Sen was particularly doubtful about the disinvestment of Air India. He said domestic players are unlikely to buy the troubled airline and foreign investors would be put off by the stipulation that control by any foreign airline could not exceed 49%. Prof. Sen was also sceptical that the procedures necessary for disinvestment of LIC could be completed in time to ensure disinvestment happens by March 2021.

Consequently, he felt that if the government’s growth, tax revenues and disinvestment targets seem questionable, the 3.5% fiscal deficit target will be breached and, as a result, the budget’s maths will go “awry”.

Speaking to The Wire about issues the budget has not effectively tackled, Prof. Sen said the first was unemployment. He doesn’t see any sizeable impact on the problem which, the Centre for Monitoring the Indian Economy says, averaged 7.4% last year. He is particularly worried about youth unemployment and believes that the Finance Minister’s claim that youth are now job creators and not job-seekers suggests she has not understood the size and scale of this problem.

Speaking about the problem affecting public sector banks and the NBFC sector, Prof. Sen was particularly critical and outspoken. He said we have not asked fundamental questions such as what has gone wrong and why has it gone wrong. Consequently, he said that not just the government but the country as a whole was “at a loss what to do”. He said this meant that these two problems would continue for several years unless there was a fortuitous exogenous uplift in the economy. However, in the absence of an increased fiscal deficit such an uptick would be “almost a miracle”.

Prof. Sen was critical of the additional tariffs the government has imposed on a range of imported goods. He acknowledged that the Finance Minister faces irresistible political pressure to act but should have opted for allowing the rupee to depreciate, which would have taken care of the import/dumping she was worried about and, additionally, boost India’s exports. The latter, he said, would have acted as an engine for growth which, at the moment, is badly needed.

Prof. Sen said that neither would farmers’ income double by 2022 nor would India become a $5 trillion economy by 2024. However, he made a very interesting point when he said that the steps necessary to attempt to double farmers’ incomes in three years would kick up inflation to a minimum of 6% which would force the Reserve Bank to push up interest rates and, as a consequence, the economy “would tank”. So the two goals are very difficult to achieve in tandem.

Instead the government should set a credible target to improve farmers’ incomes which, he said, would be a 4 or 5% increase per year. This would also boost consumption which, in turn, would boost growth.

Finally, speaking as Chairman of the Standing Committee on Economic Statistics, he said he was “very worried” about the resistance and even violence field enumerators have encountered while working on official surveys in at least four states. This, he said, has serious implications for the houselisting survey that will happen later this year and the census that will follow next year.

Prof. Sen said that because of suspicion and mistrust of the NPR, which is scheduled to happen at the same time as the houselisting survey, the work on the latter could be seriously compromised. If that happens the census which follows next year would also be badly affected. In turn, that would have a very damaging impact on a whole decade of NSS household surveys, all of which depend upon the accuracy of the census.

Prof. Sen’s advice to the government was that the NPR must be postponed and not conducted at the same time as the houselisting survey. In fact, it should be postponed till after the census is completed. If this was not done Prof. Sen said that the adverse impact on the houselisting survey and the census and, thereafter, on a decade of NSS surveys would mean India’s ability to draw up plans for development would be badly compromised.

The above is a paraphrased precis of Prof. Sen’s interview to The Wire. Please see the interview for accurate details. Here is the link: