 Hello and welcome to NewsClick. Today, we are going to discuss the state of the Indian economy and the fact that now people have started to say, don't panic, the things are not so bad. The question is, are things really bad? Whether we panic or we don't, do we have any cause for it? To discuss this, we have with us Professor Prabhat Patnaik. Prabhat, how do you read what people are now talking about the panic scenario? What is really happening to the Indian economy? We seem to see what are real indicators of a downturn. Well, you see to start with unemployment rate is higher today than it has been over the last 45 years. 45 years ago was the first oil price hike and that oil price hike coincided with a bad harvest and that was a very bad year. So you had an oil shock with the bad harvest. So you had a 30% inflation. So it was an inflationary recession and there was unemployment. But this unemployment is something which is really a part of the system. It is not a shock from outside. It's a part of the functioning of the system and the fact that you're having such high levels of unemployment is one indicator. The other is that this unemployment is increasing. We know several sectors in which people are being retrenched. Automobile is obvious one that people keep talking about and then you find that even for a number of consumer goods the demand has not been high. Industrial production is virtually stagnant and what is more now we know even from what the former chief economic advisor said that even the GDP figures have been grossly overestimated. So if you have a GDP growth rate of not more than 4.5% over the last several years, if you have an industrial growth rate that's virtually very, very low and you have extremely high unemployment, that is all indicative of a very serious crisis in the economy. There are two other issues that have been raised in this context. One is that we are not seeing inflation taking place. So that is one thing which could help at least the government that inflation creates immediate unrest. Other is also that the informal sector which is not so visible in the statistics as it were, that has also suffered real slowdown or a loss and the factor of course the real estate sector is in doldrums. Also means a part of the informal sector construction activities are not at the moment taking place. So how do you see these two factors as well? Well, let me just take the second question first. Construction was one of the sectors that did provide a lot of employment. So when construction sector declines then that actually adds very seriously to the unemployment scenario and that's extremely serious. Taking the first question, you see the point is that this is therefore a very classic case of demand shortage. In other words, typically what happened in the old days, what used to happen is that you would have, by old days, I mean pre-liberalization days, you used to have let's say a crop failure. Food prices would rise. Therefore the government would cut back on its expenditures on the level of demand. So you will have inflation in the food market coexisting with a recession and unemployment as a way of counteracting that inflationary process. But here what you have is a very classic case of overproduction. That agricultural stocks are there, industrial unutilized capacity is there, unemployment is there and all of it because you have insufficient demand in the economy. So this is a classic demand driven scenario. And this is unusual for the Indian economy to have this kind of slow down which is essentially lack of demand. You see this is something which is typical of a capitalist economy. It was not typical of the pre-liberalization Indian economy because a pre-liberalization Indian economy was not a typical capitalist economy. There's a lot of state demand created by infrastructure and other projects. And you know it was agriculture constrained. It was not a demand constrained system. But now with liberalization India has become, in terms of its modus operandi, much closer to a classical capitalist economy. And classical capitalist economy is always demand constrained. That demand constrained has now become much more intensified. You know the other part of it which we can talk about is that government earlier massaged the statistics. It did not let before the elections the unemployment figures come out. It what the former economic advisor now says massaged the GDP figures to make it look much better than it actually was. Do you think that this sort of myth making as it were is now failing and it's impossible to hide what the real state of the economy is? You know that's one of the points about economics. I mean you know you can actually let's say on Pulwama or Balakot you can say something and that is very difficult to contradict it. But on the other hand on the economy it becomes very difficult to actually say something which cannot be contradicted because things are visible. They affect your lives in a very palpable way. You can't hide it behind anything. So I think the very fact that the government massaged the data is now becoming apparent. The very fact that the chief economic advisor former said it is indicative of your inability to hide certain things. And now other than the die hard government defenders, almost everybody recognizes that the data are not worse than the paper they are written on. You know you talked about Pulwama and Balakot. I will also refer to another part of it. The Indian past. You can create a mythology about the past. It's difficult to keep a mythology about the present. And that's something that we are seeing. Do you see also that earlier there were international reasons oil price shock and other things. Do you think an external environment is also contributing to the crisis or it can intensify given the kind of say interest rates of the United States or other such issues the trade war that is taking place. Yes. You know I think obviously this crisis is linked to a global crisis. I'm not saying it's only because of a global crisis. But on the other hand the two are clearly related. The global crisis is one of insufficient demand and that has arisen because of a massive shift in income distribution from the working people to the big capitalists including the finance including the financiers. Now any such shift tends to reduce demand because consumption of the working people is much greater out of a rupee and consumption of the capitalists or the rich. So there is a global tendency towards stagnation anyway. This has been there for a long time but it was hidden in the 1990s because of the dot com bubble. It was hidden this century up to 2008 because of the housing bubble. With the collapse of that bubble you have actually had more or less a steady low level of activity and high level of unemployment. This gets hidden in America because there is a reduction in the labor force participation rate and you know because of the discouraged worker effect. If you're unemployed you don't even register yourself as looking for work and therefore the unemployment rate is low but actually there is a lot of unemployment. Now so this has been generally there, a kind of stagnation in the world economy post 2008. Now that stagnation is turning into a recession. This is a global phenomenon and to that our economy is linked and that's actually also happening in our case because of the fact that global demand for our goods is also going down. And services. And yeah goods and services and because of that you have a reduced level of activity here. But I think additionally the same kind of factors which are playing a role in the world economy are also important here. There has been a massive increase in income inequality. At the same time the agricultural sector has been virtually stagnant in real terms if you take the value added in agriculture agriculture and deflate it by the consumer price index number for rural India then per capital real agricultural output has actually marginally declined between 2013 and now. So agriculture is stagnant. There is no possibility of demand coming from there. Income distribution has become extremely uneven, unequal and for all these reasons there is really a compression of demand that is taking place in the economy. Now to some extent here again you had kind of bubbles and such like things but today you know I mean kind of splurges luxury consumption. But how long can that be sustained? And as a result now all these factors are coming together and you have this crisis. The Indian government seems to be looking at external capital flows and Indian capitalist. I think Modi has said we should think that the wealthy are the ones who creates the wealth of the nation not its people. So leaving those things out do you see anything in the government which goes beyond shall we say lip service to the economy and service to the rich? Yes I think you are absolutely right but I think the government's understanding of the crisis is wrong because their understanding of the crisis is that the capitalists are not investing. If the capitalists are induced to invest then of course there would be demand and the economy would grow. Now the capitalists don't invest unless there is an expected growth of demand. They invest in anticipation of making profits and only if therefore they expect the demand is going to grow. Now no amount of interest rate reduction is going to make the capitalists invest. No amount of tax concession is going to make them invest if it is the case that in the economy demand is not growing and therefore what is really required is an injection of demand into the economy and for that you really need an active government policy. An active government policy which directly creates demand and which also transfers purchasing power to the hands of the ordinary people and that is something this government is not willing to do. It's anathema. They will call it the dreaded socialism or they will call it the dreaded Nehru vyanbar and as you know Nehru is to be shunned even from probably the Jwaharlal Nehru University's name. So that's been some of the demands being raised. Thank you Pramod for being with us and explaining to us what the problems are and what could a possible policy be to combat it. Thank you very much. Hope to see you again on this and other issues. 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