 Hello and welcome to NewsClick. Today we have with us Prof. Prabhak Patnaik and we are going to discuss Prime Minister Modi's independence this speech as well as the state of the Indian economy. Prabhak, Mr. Modi seems to have promised 100 trillion rupees investment on energy and renewable energy doing away with various shortages as well as coal-based energy at least in large amounts. How do you take this promise of next 25 years compared to what we are doing at the moment? The point is that the government's entire thinking of investment on the economy is, I believe, incorrect. The government believes that it has to make an investment out of the resources it has because it cannot spend beyond its means in quotes and the means are limited because it is not willing to tax the rich. Obviously, if it did either through a profit tax or through a wealth tax, then its means could be augmented if the means are limited. Then, of course, it believes that your ability to spend is also limited. Now, it's for this reason that you find that the government, that the Prime Minister has been making promises or instance about infrastructure investment. He has been making promises for the last three Independence Day speeches. During the last three Independence Day speeches, he has been making the same promise but nothing has come off it. These are simply things which he promises but nothing actually comes off it and nothing is, I believe, going to come off even his latest promise. This is for this reason that during the pandemic, almost every other country, certainly every other country in the first world, was making transfer payments, universal transfer payments to all its citizens during the period of lockdown and even afterwards, including even Donald Trump in the United States. India is one of the few countries that made absolutely no such payments. There were some targeted groups to whom some pittance was given but there was no universal payments as indeed was the case with all other countries. India's transfers to the poor have been most negative. Now, again, it's the same thinking, namely if we cannot augment our resources, then we cannot spend. It's exactly like the fact that we have a certain limited budget and we have to stick to that budget and it is that thinking which is wrong economically and it has that disastrous consequence. And I have the same thinking, you have to prevent the government from pending on all these energy projects that the PM has been doing. At the moment also, we have an extra burden on the people because due to COVID-19, we have really a huge loss of jobs. We have seen the poverty figures grow up significantly. The weakest section in society have borne the major brunt of the COVID-19 pandemic. So in this context, what explains this government's inability to think beyond what you just said that A, of course, taxing the rich is one way, taxing the rich more taxing profits is one way. But other than that, also deficit financing, what you talked about living within the means, why is the government not willing? What the rich countries are willing to do today? Those who have talked about fiscal responsibility for everybody else now also switching to deficit of big amounts to sustain their economy. Why isn't the government of India or its financial thinking is so reluctant to consider this? In the United States in the current year, people expect the fiscal deficit to be 13% of the GDP. Even in the European Union, at least 5% perhaps more of the GDP. While in India, the government is still sticking as closely as possible to the fiscal deficit target. Now, there are two reasons. One, of course, is that international finance is never happy with the fiscal deficit. Now, it is one thing for the advanced countries to go ahead and do it and to tell international finance where to get off. After all, they are worried about the electability of the government. They are worried about the popularity of the government. They are worried that, you know, if they don't do this, then the people are going to be very angry and so on. But in India, we are also worried about the government is worried about the reactions of international finance. But on the other hand, lacks the courage to take on international finance. And it believes that actually as far as the people are concerned, they can be sneezed to any extent. But at the same time, because of mobilizing religious Hindu sentiments and so on, the government would continue to be electable again. So they don't place as great an emphasis on this as they should. And what explains the philosophy of trying to balance budgets of this kind? Do you think there is a misconception, as you have written, between the state financing, deficit financing by the state and household having a deficit household budget? Do you think that that's a misconception they have on it simply because of finance capital and the sphere of finance? No, I think it's a misconception which is sold by finance capital. This is the way that IMF would talk to them. This is the way the World Bank would talk to them. And they are naive enough to also accept it because their knowledge of economics is very limited. You see, this is an idea which was actually demolished by the Keynesian Revolution in the 1930s. So almost a century ago, this idea was demolished, but on the other hand, it had been revived by finance to sell to various governments the necessity to prevent fiscal deficits. Now, the argument is patently wrong because when a household borrows, the household is borrowing from other households or banks or whatever over which it has no sovereign rights. In other words, if I borrow 100 rupees from you, then fine, I have to give back the 100 rupees to you because I have no sovereign rights on you. But on the other hand, when the state borrows indirectly from its citizens, that means it borrows either directly from its citizens or from the banking system, which basically means indirectly the resources from the citizens, the state has a sovereign right on those citizens. The state tomorrow, if the push came, would in fact increase taxation on the same people in order to raise resources to pay back the loans it had made from them. So there is no question of the state being limited in terms of its borrowing from the people, the way a household is limited. And if the state is able to expand production through borrowings, then of course, you create extra wealth, which also pays back the deficit, the borrowings that you have done. Absolutely. In fact, there is a very simple formula which actually says that as long as the rate of interest of the loans the government takes is lower than the rate of growth of the economy, then there is absolutely no reason why the state should have any worry at all. Obviously, if the rate of interest is so high that it exceeds the growth rate of the economy, then at some point, the state's taxation powers would reach a limit compared to the loans it has to pay back. And if the demand has crashed due to as it has due to the pandemic, because people's purchasing power is decreased, then to keep the economy afloat again deficit makes sense. Oh, absolutely. In fact, many people, economists, civil society organizations, political parties have been demanding that it is not only for the benefit of the poor, but even for a revival of the economy, the government must hand over purchasing power to the people through an income transfer scheme. You see, because during the pandemic, because the government did not hand over any such purchasing power, unlike in other countries, people got into debt. And when they got into debt, they have to now, even if you provide them with income, they have to repay that debt. Therefore, they will not be able to spend as much. Therefore, the multiplier value of the incomes they get is extremely limited. So even if you have a revival of the economy, that revival would be still bought, that revival would in fact beat around. And that's why everybody has been saying that, look, you must hand over purchasing power to the people, so that over and above anything that they may get by way of their income, they must be. So the whole argument that, look, now the lockdown is over, now that the pandemic is over, now that people are going to get their jobs back, because the economy is going to automatically revive. Let us actually not talk anymore in terms of transfers to them. That entire argument is completely wrong, because that would mean that even if people get their incomes, there would be a still born recovery. Unless we create additional purchasing power and therefore create additional demand, essentially that will be the way forward. And also investments in infrastructure, that would be another way of doing it. So the promise in 1947 should be preponed, brought forward to at least promise in the next three years and concretely so that we really see some extra demand in the economy. And we also see development in certain areas which we do badly, including public health, which is crying out for more investments. Many people have been arguing that during this period, even the Indian economy should have actually had a fiscal deficit, which is in excess of 10%, not 10% to 13%. But the government in fact lacks the courage to do that or the understanding. Well, I guess it is a bit of both, one being subservient to the financial centers of the world, that is one, and also a simplistic understanding of the world, which is derived from, unfortunately, the word Arthashastra. And this Artha part is, I think, the part that's a problem for them. So I think that is where the limitation of this government comes. A very simple understanding of the world, geostrategically, or in terms of the economy, or in terms of politics, and of course, in terms of history, as we know. Thank you very much for being with us. We hope to catch up with you on these issues again. Thank you. This is all the time we have a news click today. Do keep watching news click and do visit our website.