 Hello and welcome to NewsClick. Today we have with us Prof. Prabhat Patnaik and we will discuss some of the issues which are relevant to the four years of Modi's government. Prabhat, we have had four years of the Modi government, lots of promises, lots of jhumle as they are there as was being said regarding his election promises. But if you look at the really the broad brush picture, do we see really any change in what has happened or do you see a change for the worse or are there some things which have improved? You know there are two things about the Modi period we should notice. One is that this is a period in which internationally the Indian economy had a lot of things going for it. You know the very very very propitious period in at least two ways. One is that the oil prices were very low for much of this period and the other is that the US interest rates were very low, close to zero because of which there was no problem of financing your current account deficits, no problem of getting capital inflows. So your balance of payments were really on a pretty sound footing. If you remember the last balance of payments problem that arose was in 2013 and after that it has been a very smooth period as far as the balance of payments are concerned. So it was a very favorable period in terms of the international conjuncture. But the fact that in this period there has been really an absolute worsening, I made some calculations on it in the conditions of a substantial part of the population, almost more than half the population, notwithstanding GDP growth rate figures and so on which are given is something which is extremely significant. In particular if you look at let's say agriculture, you take the entire agriculture dependent population roughly half of our workforce is in agriculture. If you take the workforce population ratio to be more or less the same uniform across sectors then half of our population just would be dependent on agriculture. Now if you take simply the in many terms the gross value added in agriculture with the incomes of everybody who works in the sector and you look at the amount of physical goods that this income commands by which I mean you deflate this gross value added in money terms by a consumer price index you find that there is actually a decline between 2013-14 and 2017-18. So essentially farmers, agriculture, labour even the small landlord shall we say all of them would have lost income in the actual terms. This is the reality. Yes. If you take the sector as a whole there is this decline I was talking about. One can presume that the big landlords and so on would not be losing incomes. As a result the other people namely the peasantry on the whole, the agricultural labourers and so on they must have become worse off in this period. And that's the reason for the agrarian distress, the rising anger, the farmer struggles all over the country. In fact I think farmers' anger is probably the most noticeable feature of the current period. And you know Prabha, the other part of it which may not be so well registered is the fact that the attack on shall we say anything to do with the tau economy, whether it is leather, whether it is milk, all of it is also suffered because of this so-called attempt to make Muslims as a cow eaters, target them and therefore the lynchings that we have seen and the kind of decline therefore anything related to leather, meat, all of this milk industry. Absolutely. In fact the figure I was giving you is really agriculture and allied activities which includes livestock productions. Agriculture economy has taken a real hit, real hit. Then you find things like demonetization which really you know in other words that does not even get captured in the figure I am talking about because what happened with demonetization that suddenly the peasantry found itself without cash. They had to borrow in order to really begin the next round of cultivation to buy the pesticides, the seeds and fertilizers and so on. Now as a result that is their debt has gone up, I mean that is a kind of stock adjustment not just in terms of income flows, this is stock adjustment. So not only is it the case that their income flows in real terms in terms of the bundle of consumer goods commanded less now but what is more they are much more indebted now at least large sections of them are much more indebted now because of demonetization which really pushed them hard. When we come to the industrial economy the other part of shall we say the productive part of the economy what is the picture there because it could be that while agriculture is declined maybe industry other production is increased has that happened? No on the contrary the industrial sector proper has actually been in a state of stagnation for a long time. It is not very surprising because you know with agriculture in decline the demand for industry is low then world economy has been in a kind of recession because of which the exports demands have not been very high. So industry has not done too well anyway you know it has been in virtual stagnation and what is more in order to revive the industrial economy the government has had a theory which is as follows that really we have to revive the infrastructure sector in order to revive the industrial economy. For infrastructure sector the government could spend itself much more on infrastructure investment but a bizarre reasoning is given which is as follows that if the government borrows more to spend on infrastructure that is a larger fiscal deficit which is bad but if the private sector borrows more to spend on infrastructure that is alright for the economy. Now this is absolutely no economic basis but on this kind of a reasoning the government actually has made the banking sector particularly public sector banks extends substantial loans to the private sector private capitalists for infrastructure investment much of which have simply been looted by the capitalists themselves that is right and which is the main reason for the so-called NPS. So the government has not only witnessed a period of industrial stagnation but his efforts to revive the economy have taken a form in which virtually the public sector banks are saddled with enormous NPS and the financial sector is in a mess. In fact what is interesting when you say this is the tip of the iceberg is near of both Ibalia's but it actually involves the Manees, Anilam Manees companies it involves various other companies in Kudigadhani's all of them are deeply in the hawk to public sector banks and this is being recycled or their so-called NPS are being hidden by some kind of shall we say white washing so it is not so apparent but the crisis is really much deeper and it really are the favoured shall we say friends of this government. Yes exactly in fact if you may remember the government at one point even wanted the state bank of India to give a loan for an infrastructure project in Indonesia. Australia. Australia yes yes yes because that has yeah. It's a famous Caramichael project from the state. So the thing is that you know that the government's putting pressure on public sector banks to do this kind of lending to favoured capitalists is of course a major factor behind NPS even when those capitalists are not actually looted you know I mean have not apparently looted in any clear sense like Malia and Nirav Modi have done. But the thing is that you know that as a result the economy now you see because now two things are going to happen one is that the U.S. interest rates are poised to go up the other is that world oil prices are going up these things coming together would actually mean that our balance of payments current account deficit would not only go up but would not in fact be financed by the kind of capital flows that may be happening already you see capital finance beginning to flow out which is why the which is why the rupee is depreciating and with the depreciation of the rupee there would be expectation of other depreciation which is why actually finance would further flow out now we are actually on the edge of a precipice so this period in which the conditions were favorable we're wasted we're wasted and what is more actually if anything the petty production sector has been squeezed in a manner which which which which really has left them worse off and and now when you have things becoming worse really the economy is going to be in a complete mess the two things one of this thing is of course because of the economic headroom it had which it didn't utilize at least the inflation rate was relatively low with the oil prices going up we'll also likely to see the inflation rate go up which means the consumption of the people are going to be further depressed second thing is that it seems indications are oil will go from ninety dollars to hundred dollars a barrel within the next two months or so so how do you think this is going to play out in the economy yes you know one of the reasons the as you as you know one of the reasons the oil prices were low was that opaque was divided the Saudis in particular wanted to keep the oil prices low now the Saudis themselves are saying that hundred dollars is what they would like to settle that so I think since the others in any case wanted an increase in oil prices I think we can very realistically look at hundred dollars a barrel now is hundred dollars a barrel actually it's going to be quite serious in terms of our current account deficit as well as inflation because you see the government could keep the final goods prices low by cutting down on his taxes but on the other hand now we have this idea that whenever there's a rise in prices it gets passed on the government is not willing to reduce taxes as a result the oil price hike is going to not only have a balance of payments impact but also have an inflationary impact and that is again going to make the conditions of the large numbers of people much worse and this is a year of which the government is not will not be able to give major largest of the people as you would normally expect an election year or if it does it leaves the next government background is that the possible to act act the body government could be one of the things that they could do perhaps is to breach the fiscal deficit target but on the other hand in the balance of payments become serious in that case the fiscal deficit target become very crucial for Moody's and other credit rating agencies and so they dare not do that you see one of the things is that you know you can have a spin in terms of you know projecting this that and the other you can claim all kinds of things but on the other hand on issues like balance of payments spin doesn't work because you know they are pretty smart fellows all these movies and so on even the public TV cannot spin it too much exactly exactly so so so that is going to be quite serious I really imagine I really see the balance of payments as the serious most serious problem in the coming months so the preceding use for the Indian economy and perhaps for Mr. Modi as well Mr. Modi as well but you know the thing is that that that if you have a balance of payments problem there are kind of two ways of dealing with it one is that you deflate the economy you create unemployment you squeeze incomes and so on which is the way they would do the other is that you can have protection you can you can kind of you know reduce your imports and so on but that's moving away from the neoliberal paradigm now to an extent Trump is talking about it that actually gives us an opportunity to try some of that route without being called a wrong straight because the US that would have called you a wrong state itself is doing all that but I don't think these fellows would do that. That's an interesting point that you make because even in the WTO there is this possibility of protection and imposing the essentially duties particularly from a balance of payments issue or foreign exchange rate issue and Bolivia has done this and that's the next you know route that Bolivia has already taken so that does appear even without being called a rogue state you could still use it but that's not likely to happen with the juggles or shall we say the bodhis of the world hippie moody is in mind systematically we have underutil we have not even had tariff rates going up to the tariff bounds permitted under the WTO systematically we have actually been you know kind of good boy is in the sense of not even reaching up to the levels that we were allowed but that's happening shall we say the secular way across the UPA and Diego absolutely in fact the policies are pretty much the same starting from watch me or even a single yeah but but but the real issue is that you know now we're having a no holes barred neoliberalism because the current government is really without any economic imagination you know in in other words even the little maneuvers that you could do in the earlier period you can't do now because these people are completely without any economic imagination intelligence and imagination shall we say it's not the hallmark of scuff that I know exactly I mean demonetization is the clearest example of that and followed by the GST as well or the way GST has been followed yes thank you very much for about for being with us hope to have you again on on this click and do keep watching this click do see our use a website and a YouTube page