 Hello and welcome to NewsClick. Today we're going to discuss the economic stimulus that the Prime Minister and the Finance Minister have talked about. We have with us Professor Prabhat Patnaik and he will give us, I hope, an overview of what is happening. Prabhat, we have been talking about the stimulus and this is a series of so-called stimuli that has been offered to the Indian economy. Do you see this stimulus, the 20 lakh crore package which is being topped off as an economic stimulus which will set production as well as money in the hands of the people? No, in fact this is not a stimulus at all. The word stimulus used for this package is a complete misnomer because at the moment the Indian economy is essentially constrained severely by a shortage of demand. This was the case even before the pandemic began and this has now become even more serious because there are lots of people with no incomes whatsoever and therefore there is a shortage of demand. The whole idea was really to stimulate demand by putting purchasing power in the hands of the people and for this the government had to play a proactive role in ensuring income transfers to the people and in ensuring other kinds of welfare expenditures. This is not what the government has done. If you look at the total fiscal effort of the government, the total expenditure that is involved in the stimulus that actually or in the so-called stimulus that actually comes to less than 2 lakh crores which is really just about a bit less perhaps than 1% of the GDP. Now this is not only trivial compared to the kind of percentages with other countries are giving in the form of fiscal stimuli for their economies but this is also trivial compared to the requirements of the economy faced with this extremely serious humanitarian crisis. Basically the package consists of a whole lot of changes in policy in favor of private capital and multinationals and a lot of offer of bank credit to the business which in itself doesn't help in stimulating activity. The question that we have here is that instead of transferring purchasing power to the people therefore providing a push to the real economy which is production and consumption what we have here is essentially expansion of credit for the capitalist class big business or now medium and small scale as well though that has been redefined but we really are not going to see production pickup unless there is ability to purchase. Yes exactly and because of that even the credit offers are unlikely to be taken up because after all business requires credit in order to expand production. Credit is required to work in capital and so on. When demand picks up then there is the possibility of the business expanding output that's when it requires credit. Credit is a lubricant in actually the production process simply offering credit does not make people reduce more as a result even these offers of credit are unlikely to be actually picked up by the producers unless there is a stimulation of demand. So effectively what we have done apart from what has been offered to the medium small scale industries who at the moment cannot even pay their wage bill or cannot buy raw materials there is I think about a three and a half lakh crore being offered to the MSMEs that might see some offtake but otherwise there is really no incentive for anybody else as you said to even avail of the credit. Yes exactly you know even the offtake of credit that may be required because let's say wages have to be paid and so on is something which would really kick in only when people get employed and once employment increases that's really with a view to producing both. Now when that begins to happen then of course credit becomes relevant that will begin to happen only when there is the promise of being able to sell it on the market which means an expansion of demand or the books start increasing lengthening. So the second part of the issue of course is that the centralization we have seen of the government has meant that transfers to the state governments are also not taking place even the ones which are supposed to take place in any case like the GST devolution for example that the GST funds have to go to the states in the proportion they were promised. So that has stopped and the states out of the so-called stimulus and so-called expansion that the government claims to be making nothing has been left really in the state's kitty. Yes that's absolutely true because the states are now let's look at the condition of the states not only is it the case they haven't got the GST compensation which was actually legally their due which was which was solemnly promised to them when they signed on to the GST. Not only has that not been given but what is more their revenues have really drastically fallen in this period of closed down and so on while on the other hand they are having to make very substantial amounts of additional expenditure both for healthcare for hospitals and also for even for the for transporting migrant workers and all kinds of purposes of that kind they are being made to bear the brunt of this pandemic in fiscal terms as a result the states are in a desperate financial situation they cannot print notes and as a result it was essential for the central government to hand over larger amounts to the states and to finance it immediately by printing notes. So the key issue really is that while the central government can print notes increase its fiscal deficit thereby create liquidity the state governments don't have the power they can't print notes they cannot increase their deficit infinitely in the sense. No in fact they actually cannot increase their deficit without the center's permission in other words no state government can simply on its own enlarge its fiscal deficit if they would require permission from the center to borrow in the market and of course mind you this is the situation where borrowing in the market even if their fiscal deficit is enlarged borrowing in the market is not the best of options because to borrow in the market at a certain interest rate now that interest rate must exceed the rate of growth of the net state domestic product for the states not to fall into a debt trap now at this moment everybody knows we know that actually the rate of growth of state domestic products is not going to be very much probably close to zero if not negative and in this kind of a situation to borrow in the market is really out the reserve bank should actually give them concessional finance even for the fiscal deficit part of it that but in addition the center has to make resources available to them based on its own borrowings from the from the reserve bank of India that would be an immediate help to them. So these are the two aspects of the larger financial and economic question facing the country and from what we see the government seems to have a very accounting understanding of the economy which you saw also the monetization demonetization part that they seem to think accounts is finance accounts is the economy and which it is not and this is essentially what underlines the understanding of the stimulus as well as what is being called the credit being painted as stimulus would you agree that this is really the problem that is there absolutely but but there is one difference between the demonetization situation and now both are examples of the mindlessness on the part of the central government but demonetization was as it were its own its own original mindlessness where now there is a fear of the credit rating agencies which is involved in other words they are terrified and this is amazing because this entire package has been presented as a kind of means towards self-reliance as a matter of fact the package is what it is the total inability of the government to provide larger expenditure but to rely on borrowings is because they do not want the credit rating of the country to go down because they do not want to offend globalized finance and therefore they want to link the face of billions of people to the wins of credit rating agencies and to globalize finance they are worried that if they enlarge expenditures the fiscal deficit goes up in which case finance would leave the country now finance is already leaving the country very important at this stage is to actually think in terms of putting controls on financial outflows that the Modi government doesn't have the option to do which is why they are actually doing this kind of miserliness the other part of it is of course this they have used to do exactly what they wanted changing labor laws holding essentially labor hostage to capital it's not no longer waste slavery they want to really impose slavery higher and fire at will to 12 hour and sometime 14 hour weeks and it's also being supported by people like Narayan Murti who said labor should I agree to 60 hour week of course Azim Premji has said something different so at least one capitalist has spoken out that this is not in the interest of capital to hold labor hostage in this particular way and also in this particular time but you know this this mindset we also see in privatization of the public sector you are talking of self-reliance you are asking in international capital to come up to 74 percent in defense and space the two areas which were essentially government preserved till now and this is an amazing example to talk and call it self-reliance atman their barbaric particularly all that you are getting is offshoring some assembly in the last shall we say the last mile into India and calling this self-reliance yes I completely agree that you know the mendacity underlying this entire package and its its its publicity is just quite amazing because you claim for it something which is just the opposite of what it is meant to do and what is more what it is you know it would not even succeed in attracting substantial amounts of investment into India because in the international economy itself now the investment levels are down the world economy is moving into a very serious recession now in this kind of a situation in any case there is very little chance for investment productive investment to come into a country so no matter how much you open up you're not even going to get that but in the process you would have smashed your labor and you have you'd have withdrawn your labor laws and so on you'd have actually introduced a repressive labor regime for again that would not even arise I mean first of all it's doubtful if if if you can call it again of any kind but secondly it would not even come in the point I want to make is that you know this suppression of labor rights is really part of a whole range of other suppression suppression of democratic rights arrests of anti-caa activists this trend of the communal virus in the midst of this pandemic itself is part of the same mindset and that mindset is not just a mindset of course the mindset but additionally I believe it's going to grow because there'll be objective basis for it has been prepared by the government you see look at other countries in this period when people are in distress they're all coming with all kinds of relief packages here what happens when people are in distress there's no relief package now it does no relief package the legitimacy of the government is really on the question when it is questioned you therefore require other kinds of props for your legitimacy and one obvious prop is that the Muslims are behind this and we are anti-Muslim therefore you trust us and so on so it will try and seek public support all kinds of grounds other than its ability to provide relief therefore I I see this as a movement towards greater and greater authoritarianism and this be the the the smashing of the I mean the withdrawing the abrogation of labor laws really part of this whole scenario it's also interesting because what it will do is of course reduce employment if you have 12 hour day then of course you need less labor and if you have less labor you have less employment and then we come back to the issue where is the demand where is the buying purchasing power of the people if they don't have jobs so it's really that vicious circle again it's in fact it would actually reduce employment in the economy as a whole because any reduction in wages you see after all the whole purpose of all this ultimately is to shift income distribution away from the workers towards the capitalists I mean that's the as it were in a nutshell what all this supposed to achieve every such shift in income distribution reduces demand because the rupee shifted from the workers to the capitalists is if so fact to demand reducing of course there is one one further point here namely that it would not necessarily reduce the demand only for the corporate segment or only for the monopoly segment they may bear a bit of the brunt for the reduction in demand but they would make up for it through the increase in profit margins think of the non-corporate capitalists they would face the brunt of the reduction in demand but at the same time their profit margins are now going up in any way as the petty producers the small capitalists and so on and their also entails a shift in income distribution from the smaller capitalists and petty capitalists to the monopolists in the corporate segment and that is has been the political base of this political party the vjp for a long time is the petty trader petty commodity producer base or small capital but that's also being squeezed as also is the middle class although it is also another vociferous supporter of the communalization and authoritarian authoritarian trend that we see which is going to be hit but as long as others I guess are hit harder they may not therefore feel the pain so much so thank you Pramod for being with us and sharing your thoughts with us any last thoughts on which way India is now going to go well you know you can see that the traders have not welcomed this package so the traditional base in the vjp is not welcoming this package on the other hand of course the corporates are welcoming it and the corporate donations in the vjp gets are really very very substantial so we hope to make use of that so let's hope that the larger population in the country is slowly going to understand this package is not helping and we need something else as policies in order to fight the larger question arising out of the pandemic pandemic has triggered a larger set of questions and how we face it as people and nation is going to be the question thank you Pramod for being with us hope to see you again soon on this is the time we have today do keep watching news click and do visit our 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