Pronab Sen, India’s former chief statistician and the newly-appointed chairman of the Standing Committee on Statistics, says the economic situation is “very bad” and adds that it’s possible that things could get a lot worse before they get better.
He says the present economic crisis is a direct result of two policies of the first Modi government – demonetisation and the Goods and Services Tax. He agrees that the crisis has been created by the government’s handling of the economy and adds that it has been made worse by the government’s refusal to accept the problem and its denial of the consequences of demonetisation and GST.
In a 53-minute interview to Karan Thapar for The Wire, Prof. Sen also says that post 2016-17, India’s economic statistics measuring GDP growth are “largely guess work”. This is because the informal sector, which is said to be 45% of the economy, is measured on the basis of a projection of the performance of the formal sector. At a time when we don’t know how badly the informal sector has been hit by demonetisation, this projection could be entirely wrong.
Prof. Sen expressed particular concern about youth unemployment, which according to recent surveys has jumped from 9 million in 2011-12 to nearly 25 million in 2017-18. He said the problem of youth unemployment has been exacerbated by the impact of demonetisation on the informal sector. This is because most young people first find jobs in the informal sector and then, after a few years of training, hope to move into more formal areas of the economy.
However, post demonetisation the informal sector has stopped hiring and this means that for the last three years young people, who would have obtained jobs in the informal sector, have been left unemployed.
Prof. Sen said that both industrialists and young India were losing confidence in the economy and in the outlook for the future. The fact that the growth of investment will be under 1% and the investment rate is just 28.1%, the worst in 15 years, is a clear sign industrialists do not have confidence. He also said the fact that unused capacity in existing industry was at its highest meant they will be in no hurry to invest. In this connection, he said that the corporate rate cut was done at the wrong time. As he put it, it has failed to encourage investment but it has diminished government revenue. In other words, the government has got the downside without obtaining the upside.
Prof. Sen said that in a very real sense this loss of confidence was also true of India’s young who are unemployed and a very large number of whom have stopped looking for employment. They too have lost confidence in the economy and the future and are instead disheartened and disillusioned. He accepted that this could raise questions about what has so far been regarded as India’s demographic dividend.
Prof. Sen said the most urgent action needed by the government in the forthcoming budget was to boost demand by putting more money into MNREGA, PM Kisan and rural roads. These were guaranteed ways of ensuring money gets down to ground level where its most needed and will be most immediately spent.
Prof. Sen firmly opposed suggestions that the government should cut personal income tax. He said this would, first of all, only affect a very limited section of 30-50 million people and, secondly, these were high savers and, therefore, only a small percentage of what they save in tax would be spent on fresh consumption.
Prof. Sen said he also supported the need to spend money on infrastructure, but added it was very important to carefully select the projects that were funded. Rather than start new projects, where the gestation period was likely to be long, he said more money should be spent on existing projects that are underway, perhaps by ensuring that projects intended for completion in two years are finished in just one.
Finally, Prof. Sen made a strong and passionate appeal for lifting the mood of fear that has begun to grip both industrialists and wider sections of society. Specifically referring to Rahul Bajaj’s famous statement, Prof. Sen said such fears were impeding investment. As he put it, an investment is a long term commitment which industrialists will not make if they are insecure and fearful.
Prof. Sen also spoke about the wider apprehension that the government is intolerant of dissent and often vindictive in its attitude to critics. He said that recent developments at Jamia, AMU and JNU were examples of this. He agreed with the point made by Dr. Manmohan Singh in a recent Hindu article that apprehension and fear curb economic growth.
Finally, Pronab Sen said that he would have no problem if, to boost demand by increasing expenditure on schemes like PM Kisan and MNREGA and infrastructure, the central government’s deficit reaches 5.5%. He agreed that, along with the deficit of state governments and PSUs, this would push the overall national deficit to 11.5%. As he put it, this is the critical need of the hour. He said he firmly disagreed with the view expressed by Arvind Panagariya in the Times of India (9/1) that the fiscal deficit target must be maintained at all cost. He said the prime duty of the government is to revive economic growth rather than protect the fiscal deficit target.
Prof. Sen said that whilst he was in favour of land and labour reforms the present economic crisis was the wrong time for labour reform. He said giving industrialists the right to hire and fire would lead to substantial proportions of their workforce being laid off and that would only add to the present crisis. He said such reforms should be done after the economy has recovered not at a time when it’s in the doldrums.
Prof. Sen ended the interview by saying that a 5 trillion economy by 2025 was “simply out of the question”.
The above is a precis of Prof. Sen’s comments except, of course, where direct quotations are used. Please see the interview for precise quotations. There’s also a lot more in the interview than has been covered by the above given summary.
Here is a link to the full interview: