 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 is 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 had 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 you 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 well 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 and 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. Paripasu is actually 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, the 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. Even if they hadn't scaled it down, that earlier bringing up to the 2019-20 level could not have been sustained because investment could have fallen. You see, nobody adds to capacity if the output that is produced from that capacity is no higher than what it was in 2019-20 since when there have been some additions to capacity. So, unutilized capacity would have been much higher today with the same level of output as two years ago and therefore investment plans would have been reduced and so you would have had a situation where the growth could not have been sustained. That's the case here. But now with the Omicron, of course, it's added to that whole business, that whole problem. So, when we talk about the recovery not taking place and the case of 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 stayed at home for a large number of people. You have edutex sectors, you have other sectors which are distributing goods or food stuffs 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, the income of the poor have actually dropped. 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 the consumption goods sector was the one which really had not come up. You see, even when I said that it would have come up to the 2019-20 level, the consumption goods sector would not have come up. In fact, these were basically carryover investment projects and consumption goods sectors would not have come up precisely because the poor are the main consumers. You see, 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 for 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 stimulated only when there's purchasing power in the hands of the poor. And it is this which really has gone down. So that is the terms of the economy. Simple core sense in the economy would be give consumption the ability to consume in the hands of the people, give them money which they can then use for consumption. That is one. And secondly, that if that does not happen, we'll see neither the economy expanding nor the people, the bulk of our people in that sense being able to even keep up to the standards they had before the pandemic. So this is one part of the story. The other part of the story is that if we look at the central government, 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 taking 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're in the midst of an agrarian crisis we're 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 the wealth tax was abolished finally abolished in 2016 now it's true it was not giving much revenue but it was simply done away with in 2016 while now you find everybody including in the Davos summit even billionaires saying you must access more but that's not what the the government actually did away with wealth tax additionally in 2019 it actually brought down the corporate tax rate from 30% to 22% now the revenue loss on account of all this is thought to be made up by precisely increasing indirect taxation on the poor through things like oil price hike and so on now when you do that you have a number of things simultaneously occurring one of course is that this kind of substitution can very rarely give you the a reduction or even the old fiscal deficit that you wish to maintain I mean if you if you give away 100 rupees of tax concessions to the rich and you wish to raise 100 rupees through indirect taxes from the poor then in the process of raising those 100 rupees of indirect taxes you have to raise prices that's precisely the way indirect taxes operate so you stimulate inflation when you stimulate inflation since the purchasing power in the hands of the working people is not growing therefore what happens is a recession so you have an inflationary recession like you're having to do and at the same time because of the recession you don't even get as much revenue as you had originally thought you're going to get because of which even your fiscal deficit widens so all the phenomena that you find in today's economy a wide fiscal deficit a recession and inflation all of it is linked to this perverse fiscal stance which the government has of actually taking purchasing power away from the people and putting purchasing power in the hands of the rich through corporate tax concessions as you said the rich unfortunately do not consume at least in large amounts and therefore the bulk of the people if they robbed of their purchasing power it means you are of course going towards a you know a recession and that's exactly what you see what you said inflation the mind with the recession which is really a for any economy it's about the worst case scenario in fact very few economies in the world are at this moment pursuing such a policy of actually shifting the tax burden from the rich to the poor you look at Biden for instance you know I mean precisely at a time when Biden was trying to get agreement on an internationally agreed corporate tax rate Indian government was lowering the corporate tax to 22% Biden's originally proposal to was to have a much higher tax rate but eventually the settle that at a lower at about 15% but including all the tax havens and so on so the point is that you know that this is not what any major capitalist government at this moment is even thinking about what explains this perverse policy of this government do you think it's just an ignorance about the economic economics or is it ideal 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 it's but bloody minded cronyism certainly is there is 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 capitalist 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's no recession in the midst of a recession if you actually ask the capitalist 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 Brahmat, if you were in the government you were an advisor so what would you have advised in 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 sort of 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 and 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 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 used to talk 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 on 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 at an abysmally low but constantly and as a result this is something which is which which 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 in a hospital they're available that is a disgrace so so basically I would suggest that tax the rich and use the proceeds for spending on things like education health and other such avenues so those who are following the discourse of the prime minister he has said recently that we should think about our duties as citizens not talk about our rights at a time when the children of our country are not able to access education with two for the last two years what we are hearing is their education has taken such a hit most of them haven't really learned much you have also increasingly a gap between what is the requisite amount of food a child needs to have malnutrition is actually grown has a various other things all of it of which is the right they have it's not a duty that they have to do it's a right the state has as its duty towards its citizens now I think the government needs to really think about all of this but given the past budgets given the kind of statements we hear from our leadership in the government I don't think we are going to see a significant change in the way the budget is going to be framed looks like we'll have more of the same let's hope it won't but not much optimism on that count with that we close our discussion with professor Prabhupratnaik Prabhupratnaik thank you for being with us and we'll be in touch with you for more discussions particularly as this is the budget season