 Welcome to NewsClick. Today we are going to discuss what used to be a hot item for discussions. The Gujarat versus the Kerala model and it involved at one point Bhagwati as well as Sain, the two leading economic names in India or in expat Indian circuits. We have with us Professor Prabhat Patnaik. Prabhat, good to have you with us again. The Kerala versus Gujarat model was a hot topic say in 2013-2014, but 2014 onwards been clearly a shift to imposing the Gujarat model on the rest of the country. I will say the last five years, more than even the preceding ten years, we have seen a much sharper, shall we say, trajectory going towards the Gujarat model, that cut workers, cut various benefits, hand over more and more resources to the capital. What do you think the current situation would be if we look at both these models? You know this shift you are talking about, very true. It is based on a complete misconception. In fact, if I may say so, even in 2013, the discussion which took place or 2014, that itself was based on a misconception and the misconception is the following. There is a view that the Kerala model produces better results in terms of distribution, welfare and so on, but not in terms of growth, while the Gujarat model produces much better results in terms of growth. Therefore, over a period of time, the means at your disposal, which can be potentially handed to the poor, keep increasing faster than in the Kerala model. Now, this is a misconception because I made a calculation comparing the growth rates of Kerala and Gujarat between 2004, 5 and 11, 12, over much of which Kerala had an LDF government and therefore was actually practising an economic strategy that was distinctly different from that of the LDF and of Gujarat. You find the following, that over that period, the per capita real state domestic product of Kerala increased at a rate which was faster than that of the Indian average and which was about the same as that of Gujarat. So, this whole myth that the Gujarat model gives you faster growth is actually nothing else but a myth. Now, particularly I am talking about Kerala model in the sense that the model that the LDF puts into practice, not what happens in the UDF period, much of it continues but still with some kind of deviations, but the left strategy in Kerala is not only better from the point of view of distribution, but in fact it is as good in terms of the growth rate. So, what would you attribute? Shall we say the improved growth rates too because the Gujarat model is very clear. Give the capitalist land, give them, you know, force the workers to work at less wages, remove all the shall we say the welfare measures which are taken to protect the workers or others and use that capital for the capitalist. So, what explains this? In fact, you can think in terms of two alternative scenarios. Suppose you have a hundred rupees with you in the budget. You can either hand over the hundred rupees to the capitalist saying come and invest here and you know buy land or give them land or whatever, they undertake some investment, you have given them a subsidy and so on that way growth is created. What the Kerala model did is that you hand over those hundred rupees directly or indirectly as additional purchasing power to the people. By indirectly I mean the following, that for instance precisely in the period I am talking about there was a big expansion of public health care. Prior to that the UDF had run down the public health care system but it was revived. As a result what people do is that they stop going to the private health care system, they come to the public health care system. In the process there is an additional purchasing power coming into their hands which they spend. As a result you find that demand increases and to meet this demand there is a substantial increase of local small scale production of all kinds. During that entire period there was no big project undertaken by any major capitalist group in Kerala. There was some public sector investment, Virengem and so on but there was no big project but nonetheless it was a very high rate of growth and comparable to that of Gujarat. So injection of purchasing power into the hands of the people can have a gross promoting effect which is no less while of course is better in terms of distribution than what you do when you give that purchasing power to the Tata or somebody else. So it stimulates the local economy. Absolutely. The other thing that you said about the health care systems. UDF also ran down the education system, there was a shift from the people putting their children more into private schools which is a pattern all over India except perhaps marginally with the Delhi government which seems to have also invested somewhat in education. Same effect because now that the LDA has come back they have really put it in. A lot of investments in the school system and it's a huge drain particularly for the middle class to pay high fees with the private schools were doing. Absolutely. In fact I think in Kerala it is the fact that the government put in more money into education, the LDA government and into health care is something that was really appreciated by society at large. As a matter of fact subsequently when there was some effort at running down expenses in hospitals there was massive protests including by the doctors. So the point is that and this is very similar to what you found for instance in England when Margaret Thatcher trying to demolish the NHS there was a massive protest including from the medical profession and the same medical profession that had originally been opposed to Anurain Bevan's introducing the NHS. So I think at a certain point they begin to see that it is socially beneficial and I think the same thing in Kerala has now become common belief in the sphere of education as well as in the sphere of health care. Let's take the reverse of it. If you do not do these run down the health as well as the public education system what are the consequences of society both in terms of growth and in terms of what the impact on the people are? You see the first thing which happens of course is that you know you will have a combination of two things. There would be some exclusion naturally many people would not be able to afford and therefore they would drop out. But even more important those who really would be sending their children to the private health health care or education system would do so by reducing their expenditures in other avenues including on food. In fact one of the reasons why there's not just Kerala everywhere in India one of the reasons why hunger has increased is precisely I believe the privatization of these essential services. So you find that therefore purchasing power which could have been diverted either to allaying hunger or to buying local goods is something which now goes into the pockets of the private providers of education or health care and therefore this actually has a growth restraining effect. Also we have seen for example if there is any disease which can be considered serious then there is also a descent even among the lower middle class or shall we say the section which is not exactly poor descending into absolute poverty as a consequence of sudden loss of income or a huge expenditure which they have undertaken. Oh yes absolutely in fact that is as a matter of fact that is one of the main reasons for peasant distress over large parts of India. In Kerala again during that period we brought in a bill in order to provide debt relief. In fact we set up a debt relief commission. I was a part of the government that's why I'm saying we. So you were the vice chairman of the Kerala planning board at that time. Yes so we set up this debt relief commission and one of the issues which was raised in the assembly is that look a lot of the debt is incurred not because of agricultural operations but because of health expenditures and so on. So should the state be taking over the responsibility for the debt that is incurred for non-agricultural purposes through an agricultural debt relief commission to which of course the answer was that when the agriculturist is concerned his economy is a total economy. You know you don't really have a separation of agricultural accounts from non-agricultural accounts. So you are absolutely right that the increase in expenditures in these ways is a very important reason for distress and debt. So you do think that the farmers distress. Part of this reason is actually things like health. Oh absolutely absolutely in fact this is something which is true all over India. Newspapers are full of stories that you know people somebody's child suddenly gets a serious illness. So say in the neighborhood of Delhi they bring the child to Max hospital where the child is admitted. Fairly soon you have to pay the bill. So they go and sell the plot of land or take a debt mortgage in the land and bring it back and that's just enough to pay the past bill and then the child is released despite being sick dies. So the parents have lost both the land as well as the child. So heart-rending stories are there and I think privatization of essential services is one of the most kind of distress causing factors in current Indian economy. But it is also the it's also the succession of the middle class that the lot of the middle class fascination for neoliberal economy is because the section has benefited and they don't want to go to government hospitals. They don't want to go to public schools or send the children to public schools and you also have at different levels of the government now acceptance that the private hospitals will provide also the government servants with private healthcare. You know but I think there is a chicken and egg problem here that you see if you have public expenditure being withdrawn from public healthcare if you have public expenditure being withdrawn from public education and so on in that case it is automatic that you actually run down these facilities in which case naturally the middle class goes there but the middle class would be averse to a good public healthcare or education system and the same we have having say in the case of universities now if you actually don't provide funds to public universities then naturally you want to privatize the education system so everybody would start sending their children to private universities. So it's a very deliberate action and the thing about the Kerala model is that it did not go down that path. Second set of questions is that having gone down that path which we have both and Manmohan Singh and later on even more so under Modi what we see is that what was expectations that there would be growth of industry jobs and so on has not happened. So if we take the other part of it that growth would be generated but distribution is poor but growth is actually not being generated. Yes absolutely and I think that is also something which behind it there are also developments in the world economy. I mean I think basically post 2008 there has been a slowing down of the growth rate of the world economy. Initially countries like China and India appeared to be not suffering from that slow down but that is no longer the case. Even the Chinese economy which is so dynamic all these years in terms of growth rates and so on has slowed down. So has India. What is more in the case of India even the period of high growth was one in which employment was not being generated in any noticeable way. The period of slow down the employment generation has slowed down further and on top of that when you add the effects of demonetization and GST and so on which has really dealt huge blows to the small production sector. Informal sector. Informal sector or the petty production sector. You find that really we have a huge employment crisis on our hands. So this other issue that if you take quote unquote the Gujarat model where you give incentives to big capital it does not take into account what happens to the informal sector which is the mainstay of actual employment in the country and do you think that this is also one of the reasons that what you talked about earlier about the local economy as in terms of generating demand for it but even in terms of actual investments which people could make GST as well as the demonetization the two major things that Modi government did has really dealt a huge blow to the informal sector. Yes absolutely it has dealt a huge blow to the informal sector. The indebtedness which a lot of peasantry got into at that time because you remember demonetization occurred just around the time that they were going to buy their inputs and so on they took it. That indebtedness remains like an albatross around the peasant's necks all these years but what is more I think now the Gujarat model even in terms of successfully attracting big ticket investment is not one that has much of a future because I think big ticket investment itself is beginning to slow down. So that from every point of view that is an avenue which does not have much of a future. So unless we stimulate demand it is not going to happen and stimulating demand means more purchasing power in the hands of the people and state investment that's two major ways of doing it both of which is barred under shall we say neoliberal policies of either Mr. Chidambaram or Mr. Modi. I would not count Jack Lee in this because I don't think he has much of a voice in this. No no I think that is absolutely right. I mean I think it's quite interesting one of the things in Kerala which is worth seeing is that you know how does a state government have some leeway even within a broadly neoliberal paradigm to actually enlarge its expenditures in that period 2004, 5 to 11, 12 the government did enlarge its expenditure. I know because when we started we developed a concept of free plan outlay. You know the plan is quite big and all kind of expenditures which are committed and so on which are not really in your hands to allocate between ABC is all counted as part of the plan. Our free plan outlay when we started was about 300 crores and when we ended in the fifth year it was over 2000 crores so we actually raised resources. But the point is that now that kind of thing neoliberalism is trying to stop because one of the things GST does is to remove the state government's capacity to raise taxes as they like. So therefore the ability or the leeway that you have is much more restricted today. Thank you very much Prabhupada for being with us and hope to have you in our studios again. This is all the time we have a news click today. Do keep watching news click videos and do visit our website.