 Hello and welcome to NewsClick. Today we have with us Prabhat Patnaik, a well-known economist and who's been with us discussing the economy now for a number of years. Prabhat, good to have you with us. Thank you. Mr Modi claims that the economy is well on track and it's all the fault of the critics and the naysayers who are making it out to be a dismal picture. What's the picture of the economy now and how much of the slowdown is visible? Well, you know Mr Modi's diet tribe was really all over the place. In some places he suggests that there is a setback in the first quarter. In other places he suggests that this is something which is going to overcome very quickly. In still other places he suggests that it is only the critics who are kind of making all this up that in fact there is nothing wrong with the economy. But as a matter of fact governments own statistics. These are not statistics manufactured by any of the critics. The government's own statistics show that firstly there is a distinct slowdown in the growth rate. 5.7% in the first quarter by the new method of estimating GDP and apparently if you use the old method it's even less 3.7%. And the new method of estimating GDP has been much criticized by economists and statisticians. And if you look at even sectorally you look at manufacturing it's virtually stagnant. Again if you take the older method then it is literally stagnant with the new method it's very slow growth rate. In agriculture if you take at least the last 3 years of the Modi government in real terms the rate of growth of the agricultural sector is just about the same as the agricultural population growth rate. In other words per capita incomes in the agricultural sector in real terms have remained unchanged. When you add to it the fact that agricultural prices have actually fallen then the command over commodities is something which is really likely to have even marginally declined. So altogether it's a very bleak picture of the economy and you add to it the fact that employment growth rate has not only slowed down but now is in a negative region. So altogether the economy is in a pretty desperate state. So Modi had promised jobs when he came into power. So when you say the employment has turned negative that means compared to the number of young people who are coming to the job market there is actually a squeeze on physical employment or is it only in the shall we say the more established manufacturing sector and so on that the jobs are falling. But the services sector is able to provide some amount of cushion to this. No if you look at the macro picture the rate of growth of employment earlier was about 2% you know let's say until 2004-5 annually and then it came down if you compare the NSS reports of 2004-5 and 9-10 to 0.7% per annum. So even at the best of times when the economy was growing rapidly you actually had a rate of growth of employment which was much less than the rate of growth of the workforce. Now if you take the macro picture again in the last 3 years according to the labour bureau's data employment actually has come down in absolute terms. But the point is that this is not only employment in the agricultural sector or in manufacturing. This is true even in employment in all those industries which at one point appeared to be very promising in terms of providing jobs to the educated and so on. So there is an overall slowing down of employment which is really quite serious. If you take both of this together do you think that the Modi period is qualitatively worse than what happened at the Malmohan's period or do you see this is a secular decline as it were which has come to a crisis now? Well to start with of course there is a slowing down of the world economy and that belatedly is catching up with economies including China, China, India and so on. The emerging market, the emerging economies. But the point is that you know that the slowing down begins before you know sometime ago it really begins in the Malmohan period. But on the other hand what you do find is that the Modi government instead of doing something about the slowing down has actually worsened things because of its measures of GST and demonetization and so on. All of which are severe body blows to the economy particularly to the small informal sector, petty production sector, small capitalist sector and that in turn has multiplier effects on the formal sector as well. So the Modi government has actually worsened the situation which in any case was deteriorating even before. It's interesting what you say because demonetization was really a huge blow to the informal sector and it translates to the formal sector relatively little later or you see it in the statistics a little later. In the case of GST people haven't registered but it's a huge blow to the informal sector. In fact it weighs entirely the economy in favor of the formal sector against the informal sector. Yes, absolutely. In fact which is why the GST was being demanded. You see nobody demanded demonetization but big business, international agency they were all demanding the GST and it has been tried in other countries. So in a sense GST was a much more thought out measure in terms of strategy, a measure which would favor the formal sector, the expense of the informal sector. It was a measure of centralization as far as the economy is concerned but on the other hand even that measure is now being criticized by everybody because the blow to the informal sector is so great that before the formal sector could possibly take advantage of it. In fact it is suffering from the multiplier effects of that blow. Now do you see any way out that the government is thinking of or do you see it as more concessions to the rich as the model that they would likely be to follow? Yes, I think they are talking about this giving some fiscal stimulus to the economy. Now to the extent the fiscal stimulus simply takes the form of transfers or tax concessions or transfers of various kinds to the capitalist to boost in quotes their animal spirits then that of course is not going to have much of an impact because capitalists invest if there is demand and if you have no demand then no investment is going to come about. In fact as you know the investment has been so badly hit that the capital goods sector in the economy now is having negative growth rates. But what is more, there is another aspect which has not received the attention it deserves namely that international finance does not like fiscal deficits. Now if you have fiscal concessions which are actually financed through a fiscal deficit in that case there would be an outflow of finance. If there is an outflow of finance and if this outflow is further compounded by an increase in interest rates in the US which the Fed is likely to announce then you would find that it will become very difficult to finance our current account deficit which as you know has really increased quite significantly. One of the factors contributing to this slowdown and when that happens then the government the rupee would come down. Already the day the government announced a fiscal stimulus there was a drop in the rupee. When the rupee comes down the government would then adopt austerity measures of various kinds to shore up the rupee. So I think a fiscal stimulus that they are talking about if it is to be meaningful would require capital controls of some kind which to my knowledge the government is not thinking of. No stimulus regarding spending for the poor or for public infrastructure except of course the bullet train which as you know is a fiscal stimulus for the Japanese industry not for the Indian one. Much of the demand generated for setting up the bullet train would be leaking out to Japan anyway. So it's not likely to create much of an impact on the Indian economy. And any other stimulus that you think could help in this current situation not what the government is doing but could do if it had some sense. You see they are actually attacking the small scale sector. On the contrary what they should be doing is to really put demand back into the economy by transfers to the poor. I mean enlarge health expenditures enlarge education expenditures as a matter of fact health expenditures in India are really among the lowest in the world. Instead of a 3% of GDP which is normally seen as the target for health expenditures you actually still have way below 3%. Likewise education which the Kothari Commission had said 6% of the GDP you have way below not more than 4% is the total expenditure in education. So you have this kind of a situation where the government is withdrawing from these critical areas which are of great potential benefit to the working people and handing it over to the private sector that actually fleeces them. Any other thoughts on what Mr. Shauri has called the 2.5% government Modi, Amit Shah and the in-house lawyer being the half? You know normally of course I mean these people of course have no ideas of the economy. Normally in India used to have a fairly intelligent economic bureaucracy which really advised and so on. After all finance ministers or prime ministers did not often know much about the economy. What has happened now is that the economic bureaucracy has also tended to become increasingly psychophantic. In other words instead of giving independent thought out correct bold opinions they tend to echo what the leadership wants to hear and that is something which is really quite disastrous. Thank you very much Pramath. We hope to have you more with us on this and other issues. This is all the time we have for Newsclick today. Do keep watching Newsclick.