 Hello and welcome to NewsClick. I am Paranjwai Gohar Thakurtha and with me here I have economist Gurbachan Singh. Professor Gurbachan Singh teaches economics and he is a member of the faculty. He is a visiting member of the faculty of the Indian Statistical Institute in Delhi and today we are going to discuss the state of India's economy after covid the recession and what are the policy lessons that India could draw from the experiences of other countries. Thank you so much Professor Gurbachan Singh for joining us. Now the first question to you is we know that the Indian economy is going to shrink India's national income or gross domestic product or GDP is expected to shrink. Now it has been slowing down for the last several years and now on account of the covid pandemic and the ongoing economic recession there is an expectation that India's economy could shrink or contract. Now the amount of the proportions vary some people say 4.5% others are saying 12.5% so there's quite a range. What are your views what are your expectations to what extent do you expect the Indian economy to contract in the financial year that will end on the 31st of March 2021. So the estimates depend on the assumptions made and the 4.5% estimate was given by the IMF and 12.5% is the estimate given by Dr. Pranab Singh and Dr. Pranab Singh made the assumption that if there are no further government expenditures no further stimulus from the government then it could contract as far as 12.5% but subsequent to his statement there have been some more fiscal stimulus in one form or another. So going by the methodology of Dr. Pranab Singh it may not go as far as 12.5% but it can be very significant it can be more than the IMF estimate of 4.5%. Okay now you know how do you define recession the Americans and the West defines recession as negative growth I mean that's a tautological phrase I mean the economy does not grow it actually shrinks for two successive quarters that means for a six month period but many people argue that what we are going to see is not just a recession but a deep recession perhaps something in the nature of a depression. What are your views Professor Singh? That is very true in fact at the time that people were invoking the US definition here the finance minister had said that while the West is looking for a possible contraction I'm talking about the earlier years before COVID-19 and that time she said in our case only the growth rate has come down but it is still positive well beyond zero however post COVID the situation has seen dramatically so we are talking about negative growth rate and not just negative it is significantly negative so one could describe it as depression the only qualification that I will add there is that the usual notion of depression is a prolonged phase as had happened in the 1930s here even though the contraction is going to be very likely to be very large however as of now the hope is that it is not going to be prolonged for seven years so that is the same increase. Now Professor Singh a lot of people say that what is bound to happen is that the fiscal deficit as a proportion of our gross domestic product is going to go up now instead of being a three percent or three and a half percent it would go up to seven seven and a half percent now conventional wisdom says that you know at if the fiscal deficit goes up that's not good it spurs there is inflationary that are inflationary pressures and this is unsustainable but at a time like this when we are looking at a deep recession which we don't know how long it will last everybody irrespective of their ideology left right center all believe that the fiscal deficit must go but so far what the government has announced so far the so-called 20 lakh crore package of measures and then that that is coming to roughly 10 percent of India's gross domestic product what our GDP is projected to be roughly 200 lakh crores but the fiscal deficit when you see it going and what are your views I mean how I mean can the how to what extent can the government really now in a sense effectively print notes to revive the economy that the so-called Keynesian model of reviving the economy firstly that 10% of GDP is not fiscal stimulus it is financial package now that financial package includes fiscal deficit but it also includes lending by the banks to the companies so some people have estimated the true fiscal stimulus component of the financial package and that is not likely to be more than 1% of GDP it's not 10% of GDP rest of the 9% is other things so one should bear that in mind so what that means is that the implications for fiscal deficit are not as huge as the figure of 10% may suggest the second thing here is that while there is a near consensus that there is a need for additional government spending there is a difference between additional government spending and deficit so I also agree that the government needs to spend a lot more in this situation however the deficit the spending may be financed by borrowing or it may be financed by some other measures and it is these other measures which I have written about at some length and I'll just briefly mention these here so first is that the foreign exchange reserves are much larger than they need to be so there is hope for reduction of foreign exchange reserves second there is excess land holding with the government which this is land which is not utilized there is there is a study which was done by Shubhashish Gangupadhyaya at India Development Foundation and I should give some figures here so 13 major port trusts have about 100,000 hectares international airport authority of India has 20,400 hectares the ministry of defense has 283,280 hectares and the Indian railways have some 43,000 hectares which were valued in 2016 at rupees 3 trillion so the point of this is to say that there are places where the government can tap and get funds so that it can spend which is indeed required okay professor Gulbachan saying what about taxing the rich or as you rightly pointed out it's not a 10 lakh crore package but actually it could be really a 2 lakh crore or or maybe a little more or a little less than that but the short point is this government seems to believe that the way it can revive the investments and the growth impulses in the economy and revive the economy is not by taxing the rich or as you have pointed out utilizing the foreign currency reserves or the surplus land that are lying with various government authorities but in privatizing in privatizing all the public the entire public sector and even there is talk about privatizing the Indian railways that seems to be the ideological the ideological driven agenda of this government what are your comments so privatization can be an ideological matter and it may well be however I am not arguing for it as one of the measures in terms of any ideology it's not the pure economics as I said the land is not utilized or underutilized the excess land which the various government agencies have and the foreign exchange reserves are huge and they earn very little money for the RBI so in a sense when we hold foreign exchange reserves we are lending to the government of the United States now imagine the situation why imagine this is what is happening so what we have is a situation in which the poor Indian RBI in government of India are lending money to the US government at about one percent interested or even less apparently so there is good economics behind that but the other part that you said where I where you have a very valid and very good interesting point which is about taxation now in India we don't have an inheritance tax we used to have wealth tax which was abolished now we have capitalist economies in the world the united states the european countries which have both of these taxes in one way or another and we are a mixed economy and we don't have either of these taxes now it is this which needs to be tapped and this in us this particular time could be a good time to impose or reintroduce such a tax because we're going through a crisis if you're going through a crisis and as a nation we need to share with each other which is to say that if there are if there aren't taxes that are in place then they need to be imposed I just add a little bit people are objecting to a higher income tax that objection may be quite valid however what they are not saying is that there is no wealth tax or inheritance tax which is where there is scope Professor Singh you know you have in your articles and your academic papers you've talked about the experiences of other countries you've talked about the experience of the united states europe other developed countries now what are there any lessons for india I mean india does it have to follow the kind of examples of other countries in the world I know what should be our own policies what should be our own strategies to revive investment everybody knows that until and unless you revive investments and revive revive consumption demand there is no way that the indian economy will improve so if you could briefly summarize the experiences of other countries the lessons for for india and what we need to do here in this country so the important lessons that we have are from japan which faced a very serious recession in the year 1989 1990 that's the time they also went through a big asset price crash and post that they started what subsequently came to be called as quantitative easing and they also moved in for large fiscal deficits and huge public debt somewhat similar policies were followed by the us after the global financial crisis and also by europe at least since 2012 now people argue that japan us europe all these countries have adopted quantitative easing they have gone for large public debt and yet they have not had inflation or fiscal crisis having observed that now people are saying that india currently is going through that severe contraction somewhat like depression and so we should also follow similar policies what people are forgetting is that japan would never return to high growth rates the growth rate in europe is low the us growth rate though not as bad as japan and europe it's still lower than what it was earlier so while these policies restored macroeconomic stability they ensured somewhat full employment or near full employment where they had an adverse effect is on the growth rate so it was not sustainable recovery and growth so what the lesson is that we have to have policies which look at recovery not just from the current situation but it has to be a sustainable recovery a need to restore growth so in that context these policies are not appropriate what we need to focus on is demand as you had in mind in one way or another that demand needs to be kept in mind however that demand can be in the form of consumption or investment from a humanitarian angle we need consumption demand because the poor are in a difficult position currently they are in a difficult situation anyway it's just got worse so from that angle consumption demand is required however from the viewpoint of sustainable recovery and growth investment demand cannot be ignored so there is a mix of consumption and investment that is required an optimal mix and if there is a limit to how much the government can borrow or is willing to borrow then some other resources could be tapped in order to push the consumption and investment so you mentioned just I'm not adding investment all right Professor Gurmachan Singh you mentioned employment we already had a situation for the last several years actually one could even argue for the last several decades growth had not led to job creation I mean it was not really labor intensive our pattern of growth I mean we had actually jobless growth or close to jobless growth after the lockdown began according to the center for monitoring the Indian economy we had reached unemployment reached record levels one out of four persons in this country was unemployed and and with the migrant the the movement of migrants the internal migration that took place that started in in in late March and continued right through May and June I mean what many believe we what we've witnessed in India in the recent past is the biggest internal migration of its kind in the history of humankind even after the partition of I mean part the partition of India and the experiences of other countries we are far far higher that I mean I mean we can debate on how many crores of people have left so under the situation as you pointed out the humanitarian aspect providing food providing essentials the government does I mean what what is how do you sort of how do you evaluate the recent experience of this country and what the government has done and what the government should have done after announcing a lockdown on the night of the 24th of March giving people a few hours less than four hours yes so I think here there is this is more an issue of public administration rather than economics and it is a case of mismanagement it is a case of administration that has not done well the governance has been poor the planning has been poor now some of it one can understand because it was a very very new situation but then that was only in the very early stages fortunately in a sense we faced covid after other countries had so we had some lessons to draw from other countries but what I want to say here is that this is more a failure of public administration governance which is the core function of the government and the central government and several state governments though some state governments have done better than others but this is not really so much an issue of resource conflict I would not say that the government of India is not so poor that it cannot afford some spending on these issues you have in fact pointed out that the government of India does indeed have fiscal space broadly defined and even if you take into account like laws like the FRBM at the fiscal responsibility and budget management act two questions which was this act which was enacted in 2003 is it finally time to scrap the act all together and then secondly how I mean if you believe the government does indeed have that space that fiscal space to increase spending on not just humanitarian purposes but most importantly our completely broken healthcare system I mean we have been spending so little on our healthcare that even now it seems whether I mean I wonder whether the government has woken up to the terrible situation that we are in and the pathetically low public investment that is taking place in healthcare yeah let me talk about the FRBM at fiscal responsibility and budget management act 2003 now there was a reason that this was put in place and there were good reasons and I am of the view that those reasons remain valid this is not to say that the government should not spend more don't get me wrong please I am saying the government should not scrap this act but it should spend and it should finance that spending through reduction of foreign exchange reserves sale of excess land and some disinvestment given the crisis situation that we have and also because there is an economic underutilization of the resources and now the reason why I am saying the FRBM act should not be scrapped and many people have a rather wrong conception on that let me clarify that first what people are arguing is that 3.5% fiscal deficit is something that works for US Europe so it's something that works for India now there is a basic difference between the two cases in Europe in Japan in the US the tax to GDP ratio is much higher than it is in India now because the tax to GDP ratio is much higher than that in India the comparison becomes very lock-sided so what I mean by that is that if it's 3.5% fiscal deficit in say Europe then that translates to some percentage of fiscal deficit as a proportion of the tax revenues now when we come to the Indian case the 3.5% fiscal deficit can mean a very large percentage of tax revenues so just to give you some number sense of the numbers so it's something like 35% if you take the deficit if you take the fiscal deficit in India as a proportion of the tax revenues of the government of India then it's about one-third or there about I don't remember the exact number but it is that very high that is not the situation in US or of Japan so what I want to say is that the fiscal situation is really bad let me give you another figure the interest payments are about one-third of the total expenditures in India at the central government that's a huge figure what I want to say is that the fiscal situation is not good and it is in this context then one is saying that the FRBM Act should not be inscribed however given the COVID crisis given the recession or near-depression situation that we have the government should spend but it should spend out of foreign exchange reserves excess land foreign exchange and that kind of that kind of hope okay thank you very much Professor Gurvachan Singh for sharing your views with the viewers of Newscrate and keep watching Newscrate