 Hello and welcome to Newsclick. Today we have with us Prof. Prabhat Patnaik and we'll be discussing the state of the Indian economy, particularly as we are now in the run-up to the state of the economy document itself, which the government, civil government presents, and of course the budget. Prabhat, looking at the last two, two and a half years, and I think that's really the crux of what's been happening, we have seen a sharp drop, dip in the economy, particularly because of the pandemic, but we have little, some rise and again we have again a situation where again the pandemic is here and the Omicron has taken its toll on the economy. So looking at all of this, how do we look at the impact it has had, particularly on the working people, because it also seems to have had a very differential impact. We have had really rise of the stocks, we have had rise of the big capital in the country, their wealth seems to have grown and also we have a number of what are called unicorns, we have apparently got a huge amount of money from the stock market or the capital market, something like 24 billion dollars. So how do you see this level of growth of the rich as opposed to the drop in the income of the poor? You see even before the Omicron crisis hit us, there is no doubt that the recovery that was occurring in the economy was completely stunted. As a matter of fact, some people talk about a K-shaped recovery, which basically means that you come up to a certain level, then you go down again. And the reason for that is very clear, namely that during the pandemic, large numbers of households, particularly working people households, they got into debt. They got into debt because they were left without any income, they were left without any accommodation and so on. So to maintain their existence itself, they had to borrow. Now when you do that, then when you do get some income, then your priority is to pay off your loans. As a result, the multiplier impact of whatever the government spends or whatever investment occurs in the economy is something that is incomplete. In other words, the multiplier impact itself is actually stunted. Now when that happens, then you do have a certain amount of investment, but consumption does not come up, peri-pasu, exactly to a corresponding level. And when that happens, then investment itself tends to slow down. So you have this peculiar situation where in any case, even before the Omicron, this was clearly visible. People kept talking about how high the growth rate was, forgetting that it was high from a point where it already had gone down substantially. Even now, the most optimistic estimates, which of course now have all been scaled down because of the pandemic, the most optimistic estimates basically suggested that the economy would come up at the most to the same level where it was in 2019-20. It had gone down and now it's coming up. And the idea was that even if you take, for instance, the estimate which was made by the State Bank of India, that 9.5% growth rate in this year, 1921-22, it would have really more or less brought it up to the same level where it was in 2019-20. But now everybody is scaling it down even further. When you talk about the recovery not taking place and the K-shaped recovery, but it has affected the poor and the rich very differently. So you do see that, for instance, Mr Ambani's wealth has increased significantly. So have others who have gained even during the depression that we have had for the last two years. And you also see that, for instance, a huge amount of liquid money being really, what shall we say, grabbed or siphoned off or entering, what are called the unicorns, which are really taking advantage of the fact that you have a stay at home for a large number of people. You have edutech sectors, you have other sectors which are distributing goods or foodstuffs during the pandemic. So a lot of the fact that you have different kinds of lockdowns, we also have this effect that rich have actually, in terms got richer at the time, the poor have, the income of the poor have actually dropped. Absolutely, absolutely. Income as well as wealth of the rich has actually increased quite substantially during this pandemic, while the poor have actually become much worse off. And that is precisely what is going to affect the economy. Because if you look at the figures that, for instance, were made available about the previous quarter, you found that the consumption good sector was the one which really had not come up. Even when I said that it would have come up through the 2019-20 level, the consumption good sector would not have come up. In fact, these were basically carryover investment projects and consumption good sectors would not have come up precisely because the poor are the main consumers. They are the ones who actually buy the bulk of the consumer goods. Mr. Ambani or Adani's consumption is hardly something which is driving force from the economy. As a result, I mean, something which, by the way, the government does not understand, and the government has actually been pursuing a fiscal policy, which is quite perverse in handing over money to the Ambani's and the Adani's in the belief that that's going to stimulate the economy. The economy gets simulated only when there's purchasing power in the hands of the poor, and it is this which really has gone down. The role of the central government in terms of its own fiscal policy, where it's getting the money for the yearly expenditure it incurs, now that is we are seeing also the expense of the state governments because the large part of it seems to come from essentially stress, which is put on the oil sector, which doesn't get to the states because that's not redistributed in the way that other taxes are. So do you think there is also an element in this particular sets of policies that have taken advantage or during the pandemic to put the burden not only on the poor but also on the state governments? Absolutely. In fact, this burden is put into is one, as you mentioned, is the fact that those commodities from which the taxes are being raised by the central government are commodities whose revenue is not shareable with the states. The second is that even the due that should be made available to the states like GST compensation is just not being paid to the states because that was a promise which was made on the basis of which many of the state governments agreed to forego the taxes they were having earlier, which constitutionally had been given to them, but they decided to forego it on the presumption that five years they are going to be paid GST compensation, but the central government having got the states to agree to GST by making this promise now is reneging on this promise. So in both ways, by denying them resources which in any case should have come to them and what is more by using revenue sources which are not shareable, the central government is really squeezing the states. And additionally, you see what happens is that basically we are in the midst of an agrarian crisis where in the midst of course of an epidemic for both of which you find that the state governments are required at this very time to undertake larger expenditures because after all, if the pandemic has to be managed, the state governments have to spend more. If the agrarian crisis is to be managed, then of course the state government has to spend more. And precisely when the expenditure responsibilities of the state government are going up, they are being squeezed of resources is something which is hurting state government finances immensely. As you see, the center also has been pursuing a sort of perverse fiscal policy where what they do is that they have been giving tax concessions to the embodies and to the rich generally. What explains this perverse policy of this government? Do you think it's just an ignorance about the economic economics? Or is it either ideology is such that if you used to see the facts that are in front of them? You know, the one obvious reason of course is a kind of cronyism. And the cronyism is fairly bloody minded when you're actually bent upon giving concessions to your cronies and making up for it by squeezing the poor. But bloody minded cronyism certainly is there. It's an important consideration perhaps in the government's mind, but the way they justify it generally to the public is that giving more money to the capitalists would enable them to invest more. Now, capitalists don't invest more if they have more money. They invest more if the demand is growing, if the market is growing, if there is no recession in the midst of a recession. If you actually ask the capitalists to invest, you'd be stupid to do it. And this is why investment itself would be sustained precisely by doing all these things which are supposed to make them invest. So Prabhat, if you were in the government, you were an advisor, what would you have advised at this moment differently than what the government is doing? You know, the first thing I would suggest is either to have a wealth tax or to raise the corporate income tax to tax the capitalists. And this is all the capitalists themselves are saying, you know, at Davos, many of them actually said that you please tax us more and use it for education and health expenditure, which is required for the poor. Now that's a minimum which a government concerned about the economy, concerned about the people and the poor should be doing. And I think that it would be my starting point that either a wealth tax or a corporate tax hike is something which is essential to raise revenue. And then you use that revenue. Earlier we talked about transfers to the poor, but now one can even think of larger expenditure. We're talking about a budget, we're not talking about an immediate kind of relief measure. Spend more on education and health and things of that kind, where expenditure is a proportion of GDP. If anything has marginally gone down in the last few years, last couple of years, even earlier it was an abysmally low but constant level. And as a result, this is something which comes in the way of the constitutional obligation of the country to provide equality of opportunity. That if you have a poor kid who can't go to school because the government is not spending enough on building schools or a poor kid who can't go to a hospital because not enough hospitals are available, that is a disgrace. So basically I would suggest that tax the rich and use the proceeds for spending on things like education, health and other such avenues. Prabha, thank you for being with us and we'll be in touch with you for more discussions, particularly as this is the budget season. Thank you very much.