 Hello and welcome to NewsClick. Today we have with us Prof. Vikas Rawal and Prof. Shurijit Majumdar and we will be discussing the state of the economy, really a year end review of what has been happening in the Indian economy. Good to have both of you with us. Thank you. Shurijit, let us start with you. How do you look at this year in terms of the economic performance of the Indian economy? Taking into account, we have had two major shocks earlier, the demonetization, it is really end of last year and this year the GST. So, how will you evaluate the performance in broad terms? Well, of course, when assessing the state of the economy in this current year, one has to of course account for the fact that all the data is not available. But from what is available, one can say that an economy which was already experiencing in large segments of that economy extremely sluggish performance in terms of both growth as well as employment generation, that there is clear evidence that demonetization and GST have aggravated the problems of the economy. That there are clear signs of in the, so if you look at… What will you take as a clear sign, when you say clear? Well, there are evidences of distress in the agrarian sector. You had in like spontaneous protests of farmers in several parts of the country. The industrial sector's performance very clearly has been very poor. We have the data from the index of industrial production to tell us that growth performance of the industrial sector is extremely poor. So these are clear signs that the economy is not doing very well because agriculture and industry of course account for a significant part of the economy. We also know that this sector which has in the last 25 years absorbed the largest number of people who have moved out of agriculture, which is the construction sector, has been doing badly and has been doing badly even before demonetization. But of course that has now got aggravated. So in terms of an economic process which would generate gainful employment for large sections of the population, the performance of the economy is extremely poor. Would you say that the growth is now picked up in the last quarter and we are hoping to see as the finance minister says that India will emerge with a stronger economy now and this is all temporary shocks? Or do you see long term underlying crisis still continuing? No, I think the long term underlying crisis continues. Let me put it this way, that the growth figure that you get is of course from the new GDP series which has been controversial. So we really do not know whether this is the growth rates that we used to measure earlier or is it something different. So there is a lot of opinion that this is an inflated growth rate. So even in terms of that however you do see a slowdown having happened in the last two quarters for which data is available. But in addition to that if one forgets about the aggregate and looks at two major sectors of the economy, agriculture and industry and looks at what is happening in them over a long period of time then you see a virtual stagnation in both sectors. Coming to the agrarian situation, we have had an agrarian crisis clearly the farmers agitations have crossed the country, very serious struggles that have taken place. At the moment there is also a crash of agriculture prices. So what explains again the underlying crisis of agriculture? Why is agriculture prices crashed? Why are the farmers on the roads? What explains all of this? You see I think in some sense the impact of demonetization has actually really played out in 2017. So the ruby crop that was harvested in April, May, June, April, May is the crop that actually suffered the most because of demonetization. Because farmers are simply not able to buy seeds, buy fertilizer, buy, spend on things like electricity, irrigation, pay wages, pay the guy who brings the tractor and things like that. So it was the ruby crop that was affected the most. In some cases there is also the problem of the fact that farmers were not able to invest and on the other hand the problem of demand. So you actually also had the situation where farmers who were growing particularly perishable crops, crops like potato, tomato had to virtually abandon the fields. So midway of the crop the farmers actually decided it was not worth spending even for example for picking their tomatoes and so on. So you had first a crash of prices, then for some crops a sudden sort of burst in prices because the crops had been abandoned and it turned out the production had suffered very badly and we did not have even enough to meet. So in fact what has happened through the year is that the prices have actually been going up and down. Coming back to the inflation issue which is the other issue that suddenly seems to be looming again on the Indian economy. It appeared that the inflation was going to be low for quite some time. It is again starting to pick up. So is it related to as we are saying agricultural prices, is it related to the fact that oil prices have gone up. So how what again explains the rise in inflation? Well actually the decline in the inflation rate that happened over the previous two years or so was primarily a result of two factors. One was of course the decline in international oil prices which has got reversed now. So oil prices have firmed up compared to what they were sometime back and the second was the extremely depressed kind of demand conditions in the economy. So there wasn't sufficient demand for most products to so therefore there was no condition in which prices would get pushed up. What Vikas has actually said is indicating a certain change in which you have prices actually crashing because of demand further adverse effects on demand of demonetization which means that the farmers don't get a good price but because of the destruction of the crops that can happen when it comes to the consumer actually buying you can have a situation where there's a shortage and that's kind of reflects scenario as far as the Indian economy is concerned where either you have I mean you have essentially not enough production of most things happening. At times it doesn't lead to inflation because the demand is also extremely depressed at times the equation can go the other way when suddenly production is or supply is affected adversely. So I think that seems to be what is happening now and partially one might see in the case of certain commodities also the effect of the GST. The fact that you have now the certain things on which may be taxes were not as high earlier as the GST regime has introduced. So some products you might be seeing in effect of the GST also on the prices. Out of the GST in inflation and other issues going back to what you earlier wanted to discuss the revenue situation the revenue expenditure situation of the FISC how do you look at this today now we have a nine months or you know at least almost three quarters of data that we have. Well it seems that the revenue position of the government this year is going to be worse than they anticipated in the budget. As far as direct taxes are concerned we have very clear evidence that income tax growth performance is not been as spectacular as was expected to be the result of demonetization and the so-called reduction of the impact of the black economy. So the finance minister had budgeted for a 25 percent increase in income taxes in this current financial year up till October the picture is that it is the growth is only about 16 percent and partially that is basically the effect of the pay commission on tax revenues. So there is no evidence that income taxes will be growing there is indication that the impact of GST at least this year on revenues is going to be adverse particularly after the center compensates the states for losses of revenue. So as far as the center is concerned it would appear that the revenue position is poor. What has also happened is that because of the advancing of the date of the budget the expenditures this year in the first half have been higher than compared to the budget estimates then used to be the pattern earlier which is the reason why the combined effect of these two is that the fiscal deficit in the first half of the year is already 96 percent of what has been budgeted. What this means is that if in the second half of the year but as an effect of the GST and other factors the revenue position remains depressed. If the government is interested in meeting the fiscal deficit it will have to ensure that the expenditures also remain within the limits determined by what is the revenue situation because they cannot increase the deficit anymore if they have to meet that particular target. And keep the financial institutions happy. Yeah which means that if you're going to depress expenditure in the second half of the year that means the second half of the year the demand situation in the economy is likely to be even worse. So the pump priming is not really. Why the opposite would be. Also the impact of increase in oil prices is going to adversely impact the revenues because that was one instrument that Jetli is used for the in his first three budgets that was the only source of money which he had and they kept collecting excise so that's going to be an area which would also. They could increase the duty and not let the prices fall to the extent that was should have happened based on the oil price. And because of that they kept popping up money to meet their fiscal targets which they will not be able to do coming also to the issue of agriculture if the government does not have the ability to invest in agriculture then the only thing that they can talk to the farmers about is loan waivers which already is distressing with banks in distress there is a limit to how much they could do. And it's going to come repeatedly in the cycle that you farmers in distress loan waivers give them loans and again loan waivers. But the underlying crisis of that of agriculture would be that you need to invest in agriculture in productive assets which is what they're not able to do. In fact probably I think in agriculture we have a very very dire situation now and you basically have a situation where farmers are left totally high and dry. They have nowhere to go. I mean look at this year you cotton farmers in North India were suffering from white fly infestation cotton farmers in Telangana and Maharashtra were suffering from pink ball worm infestation chili farmers in Andhra and Telangana were suffering from a collapse of prices sugarcane farmers were suffering from a collapse of prices where do you turn you have nowhere you literally have nowhere to go potato prices I mean today that you have newspaper article saying that potatoes have been left on the road and farmers literally have nowhere to go and look at what the government is doing. So 2010 they shifted the fertilizer policy they made an important change in fertilizer policy and decontrolled the prices of phosphatic and potash fertilizer which has meant that phosphatic and potash fertilizer prices have gone many folds in the last six seven years. Now that has obviously meant that the imbalance in fertilizer use which has been historically a problem in India farmers use too much of urea has actually worsened because now urea is all that you can afford so farmers are actually using a lot more of urea what does the government propose to do for it what the government has done is they have instructed all fertilizer companies to reduce the size of bag basically saying that farmers are idiots then use a certain number of bags per acre of their land so you know we will give them smaller bags and they will know. So if we ask question that all economists would really dread because it's much easier to say what's wrong with the economy than what should be done what would be your two recommendations to this government or what they should do in order to revive the economy. Well if the economy is to be revived if the economy is to revive the first thing that the government has to do is to forget about what is its topmost priority today which is to meet the fiscal deficit target because that's the one priority which is eliminates all possibilities of dealing with this particular problem because if your problem is that there isn't enough demand in the economy because of the absence of demand private investment in the economy is stagnating and has been doing so for a long period of time and there's no sign of a pickup in investment happening so which also indicates that even the corporate sector doesn't think that the prospects of the economy are very good because they're not voting with their money whatever they might say in their statements so if that is the situation then you have to have some ways of expanding demand and the ways you have of expanding demand by spending out of I mean public expenditure has to be stepped up those are also ways in which you can address other deficits in the economy whether it's deficits in the social sector education health deficits in infrastructure so the areas where you have substantial deficits in the economy can be addressed if you step up public expenditure if you step up public expenditure then there also generates employment and demand which has multiplier effects on the economy so that's the one thing that is necessary but that's the one thing they don't want to do because do you think that somewhere the BJP ideologically is closest to the financial institutions because their ideologically always had a trading mentality to shall we say the growth of capitalism that's where they really came from originally and though they have worn the shall we say the clothes of development because industry and so on a very pally with the industrial big houses but at the end of it the financial institutions and shall we say the original ideology of the BJP really come together in the kind of shall we say Mr. Jaitly's economics that we tend to see absolutely I think in fact it's quite incredible the extent to which this government has gone to to give benefits to private finance capital enlarging crony capitalism even further but incredible I mean the way the only change you bring back for example in the agricultural insurance system which has been a mess I mean it it simply does provide it has never provided relief to the farmer but the only change that you do is to bring in its ambit the private insurance companies so they can get windfall gains massive handouts being paid by the government to private insurance companies for doing nothing some things something like 15,000 crores in a year is just handed out to to to private insurance companies for paying nothing to anybody you know so so you know you are really working to to transfer money to to private finance capital in ways like this and you're using even things like agricultural insurance health insurance and things of that kind to to you know transfer public money education health agriculture insurance all of these are in effect to help a wrong theory economy develop even further at the expense of the state so one hand tax consumption other hand transfer money to these these sections which do not lead to productive investments and that's the crisis we tend to see today that whatever investments are going in it's not generating jobs it's not generating in an expansion of industry or agriculture thank you very much both of you to be with us we'll continue to discuss in the new year as well what the Indian economy will do and what industry and agriculture will do the two pillars of what should be the economy this all the time we have a news click today please join news click and our news visit our youtube page our facebook page and also our website