It’s a no green signal from the farm world

Himanshu

In a virtual rally, the Prime Minister blamed the Opposition parties for misleading farmers about the three Bills on agriculture, in Parliament. While the Opposition may have taken up the cudgels recently, the fact is that farmers have been protesting against the Bills ever since it was promulgated as ordinances in June. These are The Farmers' Produce Trade and Commerce (Promotion and Facilitation) Bill, 2020, the Farmers (Empowerment and Protection) Agreement of Price Assurance and Farm Services Bill, 2020, and the Essential Commodities (Amendment) Bill, 2020. The resignation of Food Processing Industries Minister (and Shiromani Akali Dal MP), Harsimrat Kaur Badal, from the Union Cabinet, and dissenting voices from various mass organisations affiliated to the Rashtriya Swayamsevak Sangh suggest that the opposition to the Bills may not be politically motivated; rather, it may be a reflection of the genuine concerns of farmers.

In brief, the Bills aim to do away with government interference in agricultural trade by creating trading areas free of middlemen and government taxes outside the structure of Agricultural Produce Market Committees (APMCs) along with removing restrictions of private stockholding of agricultural produce. Attempts to reform the APMC are not new and have been part of the agenda of successive governments for the last two decades. Most farmer organisations also agree that there is excessive political interference and there is need for reform as far as functioning of mandis are concerned.

No consultation

Several reforms at the level of the central government as well as at the State level have been introduced and welcomed by farmers. However, in this particular case, the issue is not about the Bills; it is also about the process of their introduction. As was pointed out by Ms. Badal, the government has failed to have or hold any discussion with the various stakeholders including farmers and middlemen. This is also true when it comes to consultation with State governments even though the subject of trade and agriculture are part of subjects on the State list. The attempt to pass the Bills without proper consultation adds to the mistrust among various stakeholders including State governments. While the lack of consultation has certainly added to the element of mistrust between the government and farmers, some of the issues raised by farmer organisations are also genuine; recent trends in agricultural prices and incomes have only confirmed these fears.

While farmer organisations see these Bills as part of the larger agenda of corporatisation of agriculture and a withdrawal of government support, the immediate concern has been the attempt to weaken the APMC mandis and eventual withdrawal of the Minimum Support Prices (MSP) guaranteed by the government. Although the government has clarified that these Bills do not imply withdrawal of procurement by the State at MSP, there is a genuine fear among farmers about the true intentions of the government. The mistrust is not unfounded given the track record of this government on many issues including demonetisation of 2016, the introduction of Goods and Services Tax and so on. There may not be direct evidence of crony capitalism, but the entry, in a big way, of two of the biggest corporate groups (Adani and Reliance) in food and agricultural retail and the timing of the Bills have not gone unnoticed.

Reflects poor understanding

The idea of allowing greater participation of traders and farmers outside the APMC has already been in place in different form. Even otherwise, APMCs account for less than a fourth of total agricultural trade. But APMCs do play an important role of price discovery essential for agricultural trade and production choices. The vilification of APMCs and the middlemen who facilitate trade in these mandis is a poor reflection of the understanding of functioning of agricultural markets. The middlemen are a part of the larger ecosystem of agricultural trade, with deep links between farmers and traders. Most farmers are familiar with the functioning of mandis and see it as an essential part of agricultural trade despite shortcomings. While the proposed Bills do not do away with the APMC mandis, the preference for corporate interests at the cost of farmers’ interests and a lack of regulation in these non-APMC mandis are cause for concern. The absence of any regulation in non-APMC mandis is being seen as a precursor to the withdrawal of the guarantee of MSP-based procurement.

The Bihar example

The dominant concern in this regard has been expressed by farmers in Punjab and Haryana. Farmers in these States have genuine concern about the continuance of the MSP-based public procurement given the large-scale procurement operations in these States. These fears gain strength with the experience of States such as Bihar which abolished APMCs in 2006. After the abolition of mandis, farmers in Bihar on average received lower prices compared to the MSP for most crops. For example, as against the MSP of ₹1,850 a quintal for maize, most farmers in Bihar reported selling their produce at less than ₹1,000 a quintal. Despite the shortcomings and regional variations, farmers still see the APMC mandis as essential to ensuring the survival of MSP regime.

While retail prices have remained high, data from the Wholesale Price Index (WPI) suggest a deceleration in farm gate prices for most agricultural produce. This has happened despite increased procurement through the MSP-based regime for paddy and wheat. Decline in basmati rice prices by more than 30% and despite higher international prices suggests the limitation of market intervention in raising farm gate prices. For most crops where MSP-led procurement is non-existent, the decline has been sharper. Even cash crops such as cotton have seen a collapse in prices in the absence of government intervention. With rising input costs, farmers do not see the market providing them remunerative prices. At the same time, ad hoc interventions by government such as raising import duties on masur and a ban on onion exports also raise suspicion about the intent of the government to leave the price discovery mechanism on the market. The protests by farmers are essentially a reflection of the mistrust between farmers and the stated objective of these reforms.

Himanshu is Associate Professor, Centre for Economic Studies and Planning, School of Social Sciences, Jawaharlal Nehru University, New Delhi

Faced with severe challenges to the economy, the government has proved to be clueless and timid

P Chidambaram

The so-called tax concession given to the income tax payer in the lower brackets has cluttered the tax structure and created confusion.

Budget 2020-21 was presented on February 1, 2020. It made the headlines and was the subject of editorials on February 2 but, on the next day, it practically vanished from the front pages of newspapers and from television channels. It was like a movie that bombed on the first day.

The BJP, the Prime Minister and the Finance Minister have to blame themselves. They cannot blame the Chief Economic Adviser (who gave some sound advice in the Economic Survey) or the economists and the businesspersons who met the PM for pre-Budget consultations. There were many ideas on the table. Reflecting the buzz in the markets, I had, in my column of January 26, listed 10 things that the FM could do in the Budget.

If the FM did not heed the advice of the CEA or the economists or yield to the demands of businesspersons, it was because of the following reasons:

1. The government is in denial

The government has not accepted that demonetisation and a flawed GST were monumental mistakes that killed MSMEs and destroyed jobs. It has not acknowledged that the slowdown is due to declining exports, instability in the financial sector, inadequate credit supply, lower household savings and reduced consumption, collapse of mining and manufacturing, and pervasive uncertainty and fear. Unfortunately, the FM made no reference in her speech to these negative features of the economy.

2. The government’s assessment of the state of the economy is hopelessly wrong

The government believes that the slowdown of the economy is due to cyclical factors and the upturn will happen if they do more of the same — scrounge for money, put more money into on-going programmes, and announce new programmes. If the causes of the slowdown are more structural than cyclical — as many economists believe — the government has virtually foreclosed the options it had to revive the economy.

3. The government’s ideological pre-dispositions are obstacles to revival

The government believes in outdated philosophies like protectionism, import substitution, a ‘strong’ rupee etc. It does not believe in the multiple benefits of external trade and seems to have given up the effort to find ways to boost exports. It has embraced the retrograde idea of increasing import tariffs. It also appears reluctant to let the rupee find a more realistic level. Given these pre-dispositions, the government finds itself short of solutions.

4. The government is unwilling to reverse measures that have deepened the distrust between the government and business

The government has criminalised many economic laws. It has conferred extraordinary powers on even the lowest-rung officers of the tax-collecting departments and the investigating agencies. Tax collection has become tax terrorism (remember V G Siddhartha). The process of contesting or paying the taxes that are demanded — the process itself — has become the ultimate harassment. The Charter of Rights of Taxpayers promised by the FM has provoked a cynical reaction — why doesn’t the government simply withdraw the carte blanche given to the authorities and agencies?

5. The government has proved itself to be an incompetent manager

From demonetisation to GST, from Swachh Bharat Mission to electrification of homes, from Ujjwala Yojana to UDAY, every programme has serious shortcomings. Unfortunately, the government lives in an echo chamber and hears only adulatory responses. Hence, while humongous amounts of money have been spent on these programmes, the outcomes have been unsatisfactory. The administrative machinery lacks the capacity to improve the implementation or report the true outcomes.

Therefore, there is no surprise that the FM settled for a lacklustre Budget, modest nominal growth of GDP and misplaced optimism about tax revenues. While nominal GDP is estimated to grow at 10 per cent, gross tax revenues are estimated to grow at 12 per cent — an unlikely outcome. Further, the estimated revenues were distributed among a number of programmes — good and bad — as a result of which there was little scope to allocate more funds to programmes that would have ensured that more money reached the hands of the poor quickly. Funds have been unspent in the current year or slashed in the next year for MGNREGA, the Mid-day Meal Scheme, food subsidy, PM Kisan Samman etc. I do not foresee a rise in rural incomes/wages or household consumption.

The so-called tax concession given to the income tax payer in the lower brackets has cluttered the tax structure and created confusion. The estimated benefit of Rs 40,000 crore is not certain and, any way, too small to be impactful.

Nor is there any incentive that will boost private investment. The abolition of DDT has merely shifted the burden of the tax from the company to the shareholders. Besides, when capacity utilisation in manufacturing is at about 70 per cent (thermal power generation is at about 55 per cent of installed capacity), there is little scope for new investment.

In sum, the FM has not addressed the needs of a demand-constrained and investment-starved economy. Nor has she appreciated the multiplier effect of boosting exports. She was compelled to rely on one engine — government expenditure — but that engine too is short of fuel and the spectre of fiscal instability looms over the government. She has also ignored the two most pressing issues — massive unemployment and closure of MSMEs.

Faced with the most severe challenges to the economy in recent years, the self-proclaimed strong and decisive government has proved to be clueless and timid.

A Brief Exercise in Not Taking the Economic Survey 2020 Seriously

S. Subramanian
This is a quick summary review of the latest Economic Survey (2019-20). I have to admit that this quickly-written assessment is a product of an equally quickly-read Survey. If I have not quite pored over it, it is because I found no evidence in the Survey to suggest that it is a document that was intended to be taken seriously – solemnly perhaps, but not seriously. Under the circumstances, I hope I will be forgiven for having spared myself the ordeal of a detailed study of the Survey, and the reader the even greater ordeal of a detailed review of it. Hence this considerately brief commentary.

The Survey is in two volumes, Volume 2 being given over to a purported assessment of the state of the economy, and Volume 1 to the—ah—philosophical perspective guiding it. As far as one can tell, the Vision directing the enterprise seems to be inspired by an infatuation with the perceived virtues of wealth creation and the market. These virtues are seen to be embedded in our civilisational origins (there is much talk of Kautilya and the Thirukural in this tract), and they are extolled with a somewhat startlingly passionate ardour for freedom of the market and against intervention by the government.

In the event, Volume 1 reads like a bewildering advertisement of ancient wisdom seeking and finding endorsement in an essentially rudimentary business school view of the world. This combination of ideas and orientations, executed in somewhat individualistic prose, is inspiring—or at least weird if, like me, you are an elderly codger groping in the dark, and old enough to remember that this country once had a CEA of the likes of Ashok Mitra.

And when you encounter reference to our ‘dalliance with socialism’ (presumably in the dark ages before this New Dawn), then things begin to fall into place a little more clearly: you are enabled to see that if the ‘democratic’ and ‘secular’ aspects of our republic, as vouchsafed in the preamble to our constitution, are currently under a new fix, then so is its ‘socialist’ aspect. That, regrettably, is when the jaw starts sticking out and you begin muttering to yourself.

Not that that’s of much help in enabling you to understand why the Survey believes that there is no basis to the criticism that recent growth rates under the NSO’s revised methodology might have been overestimated. Yes: there is actually a chapter in Volume 1 titled ‘ Is India’s GDP Growth Rate Overstated? No!’ All that stuff on civilisation and culture and tradition must have been infectious, because when I encountered the chapter, I was reminded of that old Tamil saying: ‘my father is not in the granary’ (this being the young boy’s defensively blurted declaration in the story about the debt-collectors from whom the lad’s father was hiding).

In the bibliography to the chapter, I found references to quite a few articles taking issue with Arvind Subramanian’s recently expressed reservations on growth rate estimates, but one will search in vain for any engagement with the work of R Nagaraj, the most consistent and meticulously careful commentator on the subject. Just saying.

Finance minister Nirmala Sitharaman is flanked by junior finance minister Anurag Thakur as she arrives to present the budget in Parliament in New Delhi, February 1, 2020. Photo: Reuters/Altaf Hussain

The best is reserved for the last chapter of Volume 1. The chapter, titled ‘Thalinomics’, is an affecting reminder of the Survey’s continuing concern, first reflected in its 2018-19 number, for the common man: ‘What better way to continue this modest endeavour for forcing economics to relate to the common man than use something that s(he) encounters everyday—a plate of food?’ In this cause, we are treated to an extraordinary exercise. Vegetarian and non-vegetarian thalis are constructed and costed in terms of the quantities and prices of their respective ingredients.

A linear trend line for the cost of a thali at current prices is fitted on price data from 2006-07 to 2015-16, from which point in time the price of the thali tends to fall away from the trend line. The difference between the trend (‘counterfactual’) price and the actual price in 2019-20 is calculated, and annualised estimates of the difference—for both a vegetarian and a non-vegetarian thali—are computed and presented as gains to the common man from benign government policy on thali prices: these gains, one understands, are notional estimates of savings arising from things being not as bad as they might have been under a particular, different scenario. The greatest good that can be done to the common man, it appears, is to invite him to count his blessings, considering that things might have been a good deal worse than they are.

Having said this, there is something else in the numbers put out on thalis by the Survey which seems to have quite completely escaped its authors. From Figure 1 (‘Thali Prices at all-India Level’) of Chapter 11, it appears that the cost of a vegetarian thali in 2019-20 is in the region of Rs. 23, and of a non-vegetarian thali, Rs. 37. With weights of 0.3 and 0.7 for vegetarian and non-vegetarian thalis respectively—these are the population proportions of vegetarians and non-vegetarians in India—the weighted average cost of a thali for 2019-20 might be taken to be in the region of Rs. 32.8. The Survey allows for two thalis a day per person, which works out to Rs. 65.60 as the cost of food per person per day.

The Tendulkar Committee poverty lines favoured by the Niti Aayog are Rs. 27 (rural) and Rs. 33 (urban)—or, crudely, say, an average of Rs. 30—per person per day at 2011-12 prices; allowing for a 150% rise in prices (which is roughly what is displayed by the Consumer Price Indices of Agricultural Labourers and Industrial Workers) between 2011-12 and 2019-20, the poverty line in 2019-20 at current prices would be of the order of Rs.45—which is less than 70% of the Rs. 65 (according to the Survey’s own estimate) that would be needed to avoid hunger! That is to say, a person with an income that is 144% of the official poverty line can keep hunger at bay only by completely emptying out his pockets. Thalinomics, in short, shades off into Khalinomics. My apologies, but as indicated earlier, the mood and language of the Survey tend to be painfully catching.

As for Volume 2, well, it doesn’t always quite tally with what a number of economists have read into recent trends in the economy. No doubt it is benighted, if not downright sinister, to entertain the thought that we are looking at a profoundly demand-constrained downturn in the economy, marked by serious rural distress, depressing tendencies in manufacturing output and exports, unprecedentedly high levels of unemployment, opaque estimates of the fiscal deficit, and governmental suppression or/and criticism of data sources that paint an unflattering picture of the economy.

The Labour Force Participation Survey was released only after the elections, and no doubt it would be sensible to wait for the budget to be presented before releasing the NSO’s Consumption Expenditure Survey for 2017-18, the leaked report for which presents a sorry tale of consumption downturn between 2011-12 and 2017-18. As for what the long-term term effects of demonetisation or the continuing impact of GST on the economy might be, why delve into recent history when we have the comforts of ancient history to see us through? Even the IMF and the World Bank, not to mention various credit-rating agencies, have downgraded projected growth beyond what the Economic Survey will do.

And why not? This Survey is about wealth and entrepreneurship and free markets and privatisation, not about poverty or inequality or public employment schemes. The philosopher P.G. Wodehouse frequently reminds us of the girl Pollyanna who was given, at all times, to being ‘glad, glad, glad’; and like his immortal character Gussie Fink-Nottle, we too must set our faces against pessimism. That would be in the spirit of the Economic Survey, which has no use for the low opinion of his fellow-humans’ interest in their own wellbeing that a scurvy fellow like David Hume (unlike Kautilya, apparently) entertained. Indeed, the reader is exhorted along the following lines in the Preface: ‘We hope readers share the sense of optimism with which we present this year’s Survey.’

In one of his essays, Albert Camus describes a brutal boxing match which is preceded by the soothing strains of a violin. He calls it ‘the sentimental music before the massacre.’ For all that the reader might have been led to believe otherwise from this review, the Economic Survey is just like that. It is the sentimental music before the massacre.
 

For on the day after came the budget, with its distressingly inseparable twin, the budget speech.

The author is an economist, independent researcher, former National Fellow of the Indian Council of Social Science Research, and a retired Professor of the Madras Institute of Development Studies.

Continuity and fiscal follow-through

M.Govinda Rao
The appointment of the Fifteenth Finance Commission by the President of India under Article 280 of the Constitution was notified on November 27, 2017. It was required to submit the report by October 30, 2019 for five years for the period 2020-21 to 2024-25. However, due to various political and fiscal developments, notifications were issued first, on July 27 extending the tenure of the Commission up to November 30, 2019, and again on November 29 requiring it to submit two reports, one for 2020-21 and the second covering the period of five years beginning April 1, 2021 and further extending the tenure up to October 30, 2021. The first report submitted by the Commission was placed in Parliament by the Union Finance Minister before presenting the Union Budget on February 1, 2019.

Basis for extension
There were good reasons for extending the tenure of the Finance Commission as making medium-term projections in the current scenario would have entailed serious risks. First, the abolition of Statehood to Jammu and Kashmir required the Commission to make an estimation excluding the Union Territory. Second, the deceleration in growth and low inflation has substantially slowed down the nominal GDP growth which is the main tax base proxy; making projections of tax revenues and expenditures based on this for the medium term could have posed serious risks. Finally, poor revenue performance of tax collection and more particularly Goods and Services Tax combined with the fact that the compensation agreement to the loss of revenue to the States was effective only two years of the period covered by the Commission’s recommendations posed uncertainties.
On projections

The Commission has continued with the approach and methodology adopted by the previous Commissions for tax devolution and revenue-gap grants. It has made projections of revenues and revenue expenditures of the Union and individual States, applied selective norms to the latter, recommended devolution of taxes to the States from the divisible pool, and recommended revenue deficit grants for the States which had post-devolution gaps. Although there were apprehensions that it may deviate from past practice as the terms of reference of the Commission had indicated, “The Commission may also examine whether revenue deficit grants be provided at all”, it continued with the past practice.

By stating that, “…stability and predictability of resources is an essential component of good long-term budgeting for both Union and States”, the Fifteenth Finance Commission continued with the recommendation of the previous Commission relating to vertical division of taxes, and adjusted the States’ share to 41% to exclude the share of Jammu and Kashmir. There were media reports that the share would be reduced and by maintaining the share, the Commission has avoided controversy.

However, for the period 2021-25, it has stated: “Our recommendation in the final report would undergo changes and adjustments as appropriate, in the light of subsequent data and analysis”. For the horizontal shares, however, the formula has been changed to consider “fiscal needs, equity and efficiency”.

Addressing States’ concerns
In addition to income distance, population and area and forest cover, it has used two additional factors — demographic performance and tax effort. It has assigned 15% weight to the 2011 population, reduced the weight of income distance to 45%, increased the weight to forest cover and ecology to 10% and 12.5% weight to demographic performance and 2.5% weight to tax effort. There was considerable controversy over the terms of reference of the Commission requiring it to use 2011 population in its formula by the States that had taken initiatives to arrest population growth.

By keeping the weight of 2011 population at 15% and giving an additional 12.5% to demographic performance which is the inverse of fertility rate, the Commission has shown sensitivity to the concerns of these States.

In terms of relative shares in tax devolution, among the major States the biggest loser is Karnataka followed by Uttar Pradesh, Kerala, Telangana and Andhra Pradesh. Kerala and Andhra Pradesh have post-devolution gaps and hence qualify for revenue gap grants. The major reason for Karnataka and Kerala losing on devolution is that their per capita income growth has been faster than most other States. The difference from the highest per capita income in both Karnataka and Kerala is just about 10% now as compared to 34% and 23%, respectively, for the two States when the Fourteenth Finance Commission made the recommendation. In the case of Karnataka and Telangana, as the projected transfer (devolution and revenue-gap grants) in 2020-21 were lower than 2019-20, the Commission recommended a special grant of ₹5,495 crore and ₹723 crore, respectively. However, the government has not accepted the recommendation and has asked the Commission to reconsider it.

Local body grants
The recommended grants for local bodies amount to ₹90,000 crore comprising ₹60,750 crore for panchayats and the remaining ₹29,250 crore for municipal bodies. All the three layers of panchayats will receive the grant and 50% of the grant is tied to improving sanitation and supply of drinking water; the remaining is untied. In the case of municipal bodies, ₹9,229 crore is allocated to cities with a million-plus population and the remaining ₹20,021 is allocated to other towns. In the case of disaster relief, the Commission has recommended the creation of disaster mitigation fund at the

Central and State levels. For disaster management, a total of ₹28,183 crore has been determined of which the Central contribution will be ₹22,184 crore. Inter-State allocation is made based on past expenditures, area and population and disaster risk index.

The Commission has worked out a framework for giving some sectoral grants as well. For 2020-21, it has recommended ₹7,735 crore for improving nutrition based on the numbers of children in the 0-6 age group and lactating mothers. In the main report, it has proposed to give grants for police training, modernisation and housing, railway projects in States taken on a cost-sharing basis, maintenance of the Pradhan Mantri Gram Sadak Yojana roads, strengthening the judicial system, and improving the statistical system. The States are required to prepare the necessary grounds. It has also presented a broad framework for recommending monitorable performance grants for agricultural reform, development of aspirational districts and blocks, power sector reform, and incentives to enhance trade including exports and pre-primary education. The challenge, however, will be to design and dovetail sectoral and performance grants with the existing plethora of central sector and centrally sponsored schemes.

M. Govinda Rao is former Director, National Institute of Public Finance and Policy (NIPFP) and Member, Fourteenth Finance Commission

Budgeting for jobs, skilling and economic revival

Ram Singh
The forthcoming Union Budget will determine whether India’s economic engine gets the steam needed for a rebound, or the current economic situation becomes even worse. Not just the future of the economy, the future of the country’s youth depends on the Budget.

The unemployment rate at 6.1% (Financial Year 2017-2018) is the highest in 45 years. The rate for urban youth in the 15-29 years category is alarmingly high at 22.5%. These figures, however, are just one of the many problems, as pointed out by the Periodic Labour Force Survey. The Labour Force Participation Rate has come down to 46.5% for the ‘15 years and above’ age category. It is down to 37.7% for the urban youth. Even among those employed, a large fraction get low wages and are stuck with ‘employment poverty’.

Structural factors
The prolonged, and ongoing, slowdown, is the main reason behind the depressing employment scenario, though several structural factors have also contributed to the situation. The GDP growth for the second quarter of Financial Year 2019-2020 is 4.5%, the lowest in the last six years, for which a decline in private consumption and investment are the factors primarily responsible. The aggregate investment stands at less than 30% of the GDP, a rate much lower than the 15-year average of 35%. The capacity utilisation in the private sector is down to 70%-75%.

While the structural factors need addressing, in the interim, the Budget should also focus on reviving demand to promote growth and employment. Schemes like PM-KISAN and Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) are good instruments to boost rural demand. It is really unfortunate that in the current fiscal year, a significant proportion of the budgetary allocation for PM-KISAN will go unutilised. Farmers and landless labourers spend most of their income. This means that income transfers to such groups will immediately increase demand. Further, rural India consumes a wide range of goods and services; so, if allocation and disbursement is raised significantly, most sectors of the economy will benefit. And, the payoff will be immediate.

Besides, rural unemployment can be reduced by raising budgetary allocation for irrigation projects and rural infrastructure like roads, cold storage and logistical chains. These facilities, along with a comprehensive crop insurance scheme, can drastically increase agricultural productivity and farmers’ income. Moreover, by integrating farms with mandis, such investments will reduce wastage of fruits and vegetables, thereby leading to a decrease in the frequency of inflationary shocks and their impact.

Boosting urban employment
In urban areas, construction and related activities are a source of employment for more than five crore people; across the country, the sector’s employment figures are second only to those of the agriculture sector. These projects, along with infrastructure, support 200-odd sectors, including core sectors like cement and steel.

However, due to the crisis in the real-estate and infrastructure sectors, construction activities have come to a grinding halt. At present, many real-estate projects are caught up in legal disputes — between home-buyers and developers; between lenders and developers; and between developers and law enforcement agencies like the Enforcement Directorate. The sector has an unsold inventory of homes, worth several lakh crores.

Even worse, multiple authorities — the Real Estate Regulatory Authority (RERA); the National Company Law Tribunal (NCLT); and the many consumer courts — have jurisdiction over disputes. Consequently, restructuring and liquidation of bad projects is very difficult, and in turn, is a main source of the problem of Non-Performing Assets faced by the Non-Banking Financial Companies.

To revive demand for housing, the Budget can raise the limit for availing tax exemption on home loans. The ₹25,000-crore fund set up by the centre to bailout 1,600 housing projects should be put to use immediately. The funds should be used to salvage all projects that are 80% complete and not under liquidation process under the NCLT. Several additional measures can also help. For example, there should be a single adjudication authority.

The multiplier effects of spending on infrastructure and housing in terms of higher growth and employment are large and extensive. Therefore, the ₹102-lakh-crore National Infrastructure Pipeline (NIP) programme is a welcome step. If implemented successfully, it will boost the infrastructure investment over the next five years by 2%-2.5% of the GDP annually.

Private sector’s risk appetite
Here, the problem is that more than 60% of the planned investment is expected from the private sector and the States. The government does not seem to realise that for private investment, regulatory certainty is as important as the cost of capital. Many infrastructure projects are languishing due to regulatory hurdles and contractual disputes between construction companies and government departments. As a result, infrastructure investment has come to be perceived as very risky. This is the major reason behind non-availability of private capital for infrastructure.

In this scenario, where the private sector has very little appetite for risky investments and State finances are shaky due to low GST collection, the onus is on the Centre to ensure that the programme does not come a cropper. The budgetary support to infrastructure will have to be much more than the NIP projection at 1.11% of the GDP.

Bidding and contracting for new roads, highways, railway tracks and urban development projects is a lengthy process. This is also the reason why several infrastructure-linked Ministries like those for civil aviation and roads have not been able to spend money allocated to them in the current fiscal year. Therefore, rather than earmarking budgetary support for new projects, the focus should be on projects that are currently under implementation so as to complete them as soon as possible. That is, funding should be front-loaded. In addition to creating employment, a timely completion of infrastructure projects will help increase competitiveness of the economy.

The distress among Small and Medium Enterprises (SMEs) is another area of concern. For many products produced by these enterprises, the GST rates are higher for inputs than the final goods. Due to this anomaly, around ₹20,000 crore gets stuck with the government annually in the form of input tax credits. This has increased cost of doing business for SMEs, which employ over 11 crore people.

Next, according to some estimates, there are more than 22 lakh vacancies in various government departments. Such dereliction is baffling when the unemployment among youth is very high.

Job openings that arise in the private sector put a premium on practical skills and work experience. Here, popular perception is that a good job requires a college or university degree. This misperception is the result of failure of the governments to provide affordable and good quality vocational training programmes.

To stop the demographic dividend from becoming a national burden, there is a need to invest heavily in skilling of the youth. Besides, the Budget should give tax incentives to companies and industrial units to encourage them to provide internships and on-site vocational training opportunities. This work experience can be supplemented with teaching of relevant theories. at educational centres set up at district levels. Distance education mode can also used for the purpose.

Ram Singh is a Professor at the Delhi School of Economics

The budget should increase spending in rural areas, cut taxes and bring back trust in financial system

Soumya Kanti Ghosh

The Union budget will be presented in the context of an entrenched slowdown that is becoming increasingly difficult to overcome. Coupled with this, the recent increase in inflation (notwithstanding the current methodology) has complicated the budget-making exercise. We believe that this budget could make a substantial difference by challenging the conventional wisdom that does not stand the test of scrutiny.

The primary purpose of the budget is to lay out a receipt-expenditure statement and thereby the fiscal deficit estimates. This year is, perhaps, different as the slowdown has derailed the fiscal arithmetic. Our estimates show that the shortfall might be anywhere between 0.5-0.7 per cent of the GDP in the current fiscal after adjusting for revenue shortfall and expenditure rationalisation.

Given that the government is now facing such a huge mismatch, the fiscal deficit glide path is likely to be recalibrated. But, here lies strong resistance from the votaries of fiscal consolidation, which is echoed in government circles too with independent reports pegging the fiscal deficit estimate at 3.5 per cent for 2020-21. We believe the government must not target a number in FY21 that is not credible and achievable. The growth dynamics suggest that with a nominal GDP growth that could be at 10 per cent, a 3.5 per cent target will result in the absolute fiscal deficit in FY21 being lower than in FY20, and that again will be unachievable.

In this context, the fiasco in FY12 bears mentioning. The government wanted to reduce the fiscal deficit from 4.8 per cent of the GDP to 4.6 per cent. But, in absolute terms, the difference between the fiscal deficit in FY11 and FY12 jumped four times as the 3.3 percentage point collapse in growth was not factored in. Thus, the temptation of having a 3.5 per cent deficit target in the budget must be avoided at any cost as we face a similar growth slowdown. Instead, the fiscal deficit must be kept only at a marginally lower level or the same level in FY21 (vis-à-vis FY20). We must focus on growth. A large fiscal compression in the budget, through a reported expenditure curtailment of Rs 2 lakh crore, could be an unmitigated disaster for growth and will definitely raise the possibility of lack of transparency in the fiscal numbers of FY21 in the eyes of the market.

So, what are the options before the government? First, is the apparent trade-off between tax concessions and stimulating the economy by giving a fillip to the rural economy. There is now an apparent consensus that with only 4 per cent of people paying income tax, a tax concession might be a wrong approach to stimulate demand. There are, however, two fallacies with this argument. First, even when 2 per cent of the people paid income tax during 2004-08, the Indian economy expanded by close to 8 per cent on average. Second, the 4 per cent population accounted for a significant part of overall consumption, and in FY19, the overall gross taxable income of this population was Rs 46 lakh crore, which is 40.8 per cent of the overall private final consumption expenditure. Hence, it is possible to tweak both the slabs and the tax rates to increase consumption, which is key to growth. The only issue with such tax changes that could make the government wary is the revenue foregone. Our estimates suggest that a 5 per cent cut in taxes across income buckets can result in a revenue shortfall of only 0.5 per cent of GDP.

Second, the idea of a rural push through PM-KISAN scheme is understandable, but efforts must first be made to cover all the farmers under the scheme. It is quite puzzling that despite 92 per cent of the land records being digitised, PM-KISAN still covers only half of the eligible beneficiaries. As was promised in the 2018 budget, a tenancy certificate must be issued to every tenant farmer — 70 per cent of farmland is cultivated by tenant farmers, who are not entitled to any benefit because they do not own land. Third, the government should think about increasing the Rs 6,000 yearly amount in a calibrated manner (say Rs 500 per year over the next four years) as the incremental cost will be negligible. As this will create a feel-good factor across the farming community, why not start from this year itself?

Third, the government must think about the trade-off between tax adjustment and incentivising savings. When the government notified an increase in the public provident fund (PPF) limit by Rs 50,000 to Rs 1,50,000 in August 2014, its impact on household savings was enormous. For example, an increase in the 80C limit by Rs 1 lakh to Rs 2.5 lakh for individual households will lead to additional savings of more than Rs 2 lakh crore as compared to a revenue and interest foregone amount of Rs 40,000 crore. The question is thus of incentivising consumption, or savings or both?

In this context, let me also comment on the repeated fallacies of commentators who advocate in favour of fiscal conservatism on the ground that entire household financial savings are being used to finance government borrowings. The numbers suggest otherwise. Of the Rs 11.2 lakh crore of net financial savings in FY18, total claims on government were around Rs 70,000 crore, while Rs 7.74 lakh crore were claims on insurance, pension and provident funds (assuming FY17 ratios). Household claims on pension, insurance and provident funds are purely savings for the households’ retirement corpus and it is completely naïve to equate such claims as financing government borrowings. The decision of such retirement funds on where to invest their corpus is a purely portfolio-decision, just as is the household decision to investment in small savings.

Apart from such fiscal measures, the budget must announce its intent to bring back trust in the financial system. To this end, a simultaneous recognition of stressed assets of NBFCs and thereafter immediately initiating measures to help them to raise capital by initiating takeovers/mergers if required and giving the rest a clean chit, thereby, increasing the confidence to lend, is required. We must not repeat the mistake we made with banks when we first initiated recognition of bad loans through the asset quality review in 2015, then brought resolution through the IBC law in 2016, and then resorted to recapitalisation in October 2017. The sequence should have been resolution first, and recognition and recapitalisation simultaneously thereafter.

We can also think of forbearance for large NBFCs by deferment of principal repayments by systemically important NBFCs and HFCs. These NBFCs and HFCs can allow similar deferments to their clients. Since interest would be paid during this period, lenders would not make a loss. This should be adequate to get the cash flows from stuck projects going and to ensure the fulfillment of the prime minister’s vision of Housing for All by 2022.

Interestingly, as we write on the budget priorities, the Supreme Court judgment on telcos’ adjusted gross revenues could just about tilt the budget arithmetic in the government’s favour. On the flip side though, this order could lead to significant market disruptions and possibly impact consumption as well.

This article first appeared in the print edition on January 21, 2020 under the title “The deficit bogey”. The writer is group chief economic advisor, State Bank of India. Views are personal.

Hard times for sure

Renu Kohli
The early gross domestic product estimate (GDP) released this month by the national statistical agency assessed India’s growth at 5 per cent this financial year. It is the slowest pace of growth in the last 11 years, the third successive year of deceleration, and the fall in real GDP growth this year is a hefty 1.8 percentage points over last year (6.8 per cent). Still, the official advance GDP numbers were not a

surprise because all forecasters had downgraded much before, as did the central bank last December. In fact, many private analysts expect the growth out-turn to be even lower, below 5 per cent, as consumer spending failed to revive as anticipated in the October-December festival quarter and the steep decline in tax revenues has forced the government to restrict spending to one-fourth of the annual budgeted amounts for various ministries. The real worry is about what lies ahead.

Hard times seem inevitable. As the budget day approaches, all expect the government to respond appropriately to the stretching economic weakness. But rather than taxation and spending changes to stoke demand, it is the reverse or subduing effects of the withdrawal of chunks of expenditure that will play out. A retreat or slower pace of government spending exerts itself through reduced purchases, orders, and contracts whose impact radiates across other segments of the economy. The extent of such drag can be seen by the enormous spending support to growth by the government in recent times: about 45 per cent of the July-September quarter’s 4.5 per cent GDP growth came from such spending that grew an exceptional 16 per cent year-on-year and double its pace in the first quarter of April-June; minus this booster, GDP growth was below 3 per cent. Similarly, government expenditure raced phenomenally at 15 per cent and 9 per cent in the last two years (2017-18 and 2018-19); for 2019-20, estimated growth is a further 10.5 per cent.

Lower this pace and aggregate GDP will feel the pinch. The troubling thought is not only for the remainder of this year, when pressures to make ends meet typically intensify at the end. Government spending is likely to be forced to slow down next year too. This is because of the widening gap in public revenues and expenditures. Spending has expanded significantly in the past two years, especially its current or revenue component; this consists mainly of salaries, interest payments, subsidies and other transfers (for example, schemes such as the Mahatma Gandhi National Rural Employment Guarantee Scheme, the Pradhan Mantri Kisan Samman Nidhi). At the same time however, tax revenues have trended in the reverse direction, that is, slowed down. This tightens financing of expenditures, the committed component of which is impossible to cut. Tax revenues fell short by Rs 1.65 trillion last year and the deficit is likely to be larger this year — Rs 2.6-3 trillion is the commonly cited range as both direct and goods and services tax collections are hit by the rapid slowing of output. Non-tax sources, that is, divestment and asset sales, have not matched expectations so far. There are frequent reports of frantic dividend revenue-seeking by the government, namely, from oil companies and the Reserve Bank of India; plans of yet another immunity scheme allowing direct taxpayers to declare any additional incomes in the past five-six years without penalty or prosecution, and the recovering of past dues from telecommunication firms for adjusted gross revenue payments, which may be partly paid. The extent of the public revenue shortfall is unlikely to evaporate very fast. At the least, an upswing in activity is essential for higher growth in revenues. But the portents for this are uncertain and underwhelming at this point.

So even as all look towards demand support in the upcoming budget, the government does not have the wherewithal for pleasing booster shots. Over-optimistic revenue projections would erode credibility, as happened last July. Raising taxes in one segment to finance a stimulus for another part will be counter-intuitive in a slowing economic context. Moreover, fresh taxation could invite backlash, further depress sentiment in a replay of last year’s budget. Under these resource-scarce circumstances, public expenditure would have to slow down, which would be a weakening force.

Rising inflation is the next spoiler. The RBI eased policy rates by 135 basis points last year, devoting equal policy attention to ensure that the borrowers benefit from its pass-through via banks and are encouraged to spend more. But the inflationary expectations of households have adjusted quickly to food prices that are rising since mid-2019. Retail food inflation galloped from 3 per cent last August to 14 per cent in December, pushing up overall retail inflation, on which monetary policy is based, to 7.4 per cent. These developments, along with some other factors such as hikes in telecom tariffs, fuels and liquefied petroleum gas, possible fiscal expansion in the forthcoming budget, have injected caution in the otherwise softer interest rate environment. The RBI rested its easing cycle last month, turned more watchful. The bond market has reacted with higher inflation risk premium, keeping the 10-year yield — benchmark for banks’ loan rates elevated.

Many assure the food price rise is temporary; it will pass over, leaving the easier monetary situation unchanged. But matters may not be all that sanguine. If inflationary beliefs of the public get entrenched owing to the persistence of food inflation for several quarters, that

increases the risk of feeding into wages (for example, public servants’ salaries are indexed to retail inflation) and thereon to other prices. This could make things more difficult than at present: high inflation reduces real incomes or purchasing power; instead of additional spending encouraged by lower interest rates, consumers and producers are pulled down by lower disposable incomes and costlier input.

Finally, new or unanticipated risks and shocks surfaced in the past few months from civil disturbances and protests that in turn, elicited disruptive internet shutdowns and prohibitory orders by various state administrations in many parts of India. These hurt consumption and business: for example, several companies explained that their previous quarter sales suffered from store closures, lower footfalls in showrooms and disrupted supplies, last month. Food orders, restaurant visits, e-commerce were affected likewise, according to news reports. Growth in the travel and tourism industry also reduced because of cancellations and cautionary advisories from foreign governments. Output losses caused by internet shutdowns in 2019 (estimated above 100, for about 4,196 hours by Top10VPN, an internet research firm) are calculated about $1.3 billion for 2019, according to The Global Cost of Internet Shutdowns report released earlier this month; this figure is an underestimate, says the report, as the focus was region-wide shutdowns, which tends to exclude many incidents. Further repeats of such shocks cannot be ruled out ahead. It is notable that the influential global risk-assessment consultancy, Eurasia Group, has reportedly placed India as one of 2020’s top geo-political risks.

When growth falls as steeply as it has this year, and the slowing is extended to the medium-term, emerging out of it takes longer and is more difficult because households and firms are more enduringly weakened than in a short-lived, cyclical downswing. And if policymakers lack resources or policy levers to arrest the sliding, a painless recovery is harder to achieve. The current economic situation is precisely at such a confluence — the government can do little by way of fiscal responses, an easing monetary cycle expected to manage the downswing faces uncertain inflationary challenges. Unless fortune unexpectedly smiles, hard times seem inevitable ahead.

റിസർവ് ബാങ്ക് എന്ന ഗോമാതാവ്

ജോർജ്‌ ജോസഫ്‌

സാമ്പത്തികപ്രതിസന്ധി അതിരൂക്ഷമായ സാഹചര്യത്തിൽ റിസർവ് ബാങ്കിന്റെ കരുതൽ ശേഖരത്തിൽ വീണ്ടും കൈയിട്ടുവാരുകയാണ് കേന്ദ്ര സർക്കാർ. ഇടക്കാല ലാഭവിഹിതമായി 40,000 കോടി രൂപ അനുവദിക്കണമെന്നാണ് റിസർവ് ബാങ്കിനോട് കേന്ദ്രം ആവശ്യപ്പെട്ടിരിക്കുന്നത്. രാജ്യത്തിന്റെ സാമ്പത്തികവളർച്ച താഴോട്ടായ സാഹചര്യത്തിൽ ,‘അസാധാരണമായ' ഒരു വർഷം എന്ന സ്ഥിതി പരിഗണിച്ച്, പണം അനുവദിക്കണമെന്നാണ് ആവശ്യം.

സാധാരണഗതിയിൽ ആർബിഐ ഇടക്കാല ലാഭവിഹിതം അനുവദിക്കുന്ന പതിവില്ല. എന്നാൽ, കഴിഞ്ഞ മൂന്ന് സാമ്പത്തിക വർഷങ്ങളിൽ തുടർച്ചയായി ഇടക്കാല ഡിവിഡന്റ് നൽകുന്നതിന് സർക്കാർ നിർബന്ധിക്കുകയും റിസർവ് ബാങ്ക് അത് അനുവദിക്കുകയും ചെയ്തു. ഏതാനും മാസങ്ങൾക്ക് മുമ്പാണ് 1 .76 ലക്ഷം കോടി രൂപ ഈ ഇനത്തിൽ സർക്കാരിന് കൈമാറിയത്. ഇതിൽ 1.48 ലക്ഷം കോടിയും നടപ്പ് സാമ്പത്തികവർഷത്തിൽ മുൻകൂറായി നൽകിയതാണ്. ഇതിനു പുറമെയാണ് 40,000 കോടി കൂടി നൽകണമെന്ന് ആവശ്യപ്പെട്ടിരിക്കുന്നത്.
നികുതിവരുമാനം ഉൾപ്പെടെയുള്ള ധനാഗമ മാർഗങ്ങളിൽ വലിയ തോതിൽ ഇടിവുണ്ടായിരിക്കുന്ന സാഹചര്യത്തിലാണ് സർക്കാർ റിസർവ് ബാങ്കിനെ പിഴിയുന്നത്. പരോക്ഷനികുതിയിൽ, പ്രത്യേകിച്ച് ജി എസ്ടിയിൽ നിന്നുള്ള വരുമാനത്തിലെ ഗണ്യമായ ചോർച്ച ധനകമ്മി രൂക്ഷമാക്കി. ധനകമ്മി പ്രതീക്ഷിച്ചിരുന്നതിനേക്കാൾ 115 ശതമാനം അധികമാകുമെന്നാണ് ഇപ്പോൾ കണക്കാക്കപ്പെട്ടിരിക്കുന്നത്. ഫെബ്രുവരി ഒന്നിന് നിർമല സീതാരാമൻ അവതരിപ്പിക്കുന്ന ബജറ്റിൽ ആദായനികുതി ഇളവ് ഉൾപ്പെടെയുള്ള ചില ജനപ്രിയപ്രഖ്യാപനങ്ങൾ പ്രതീക്ഷിക്കുന്നുണ്ട്. ഇത് ചെലവുകൾ കുത്തനെ ഉയർത്തും. ഇത്തരത്തിൽ സാമ്പത്തികപ്രതിസന്ധി അതിസങ്കീർണമാകുകയും അത് പരിഹരിക്കുന്നതിന് സർക്കാരിന് മുന്നിൽ പോംവഴികൾ കുറഞ്ഞതുമാണ് വീണ്ടും റിസർവ് ബാങ്കിനെ സമീപിക്കുന്നതിന് കാരണം. ക്യാപിറ്റൽ റിസർവ് എന്ന രീതിയിൽ ഇത്ര വലിയ ശേഖരം ആവശ്യമില്ല എന്ന നിലപാടാണ് കേന്ദ്ര സർക്കാരിനുള്ളത്. അതുകൊണ്ട് മൂന്ന് ലക്ഷം കോടി രൂപയെങ്കിലും സർക്കാർ ഖജനാവിലേക്ക് കൈമാറണമെന്ന് ഒന്നാം മോഡി സർക്കാർ റിസർവ് ബാങ്കിന് മുന്നിൽ നിർദേശം സമർപ്പിച്ചിരുന്നു. രാജ്യത്തിന്റെ സമ്പദ്‌വ്യവസ്ഥയെ അസ്ഥിരപ്പെടുത്തുന്നതും ആർബിഐയുടെ സ്വയംഭരണ അവകാശങ്ങളിലേക്ക് നേരിട്ടുള്ള കടന്നുകയറ്റവുമായ ഇതിനെ അന്നത്തെ ഗവർണർ ഉർജിത് പട്ടേൽ ഉൾപ്പെടെയുള്ളവർ എതിർത്തു. എന്നാൽ, തങ്ങളുടെ ഇംഗിതം ഒരു വിദഗ്ധസമിതിയുടെ റിപ്പോർട്ടായി കൊണ്ടുവന്ന്, അത് റിസർവ് ബാങ്കിന്റെ ഡയറക്ടർ ബോർഡിനെ കൊണ്ട് അംഗീകരിപ്പിച്ചാണ് കേന്ദ്രസർക്കാർ തീരുമാനം നടപ്പാക്കിയത്. തുടർന്ന് റിസർവ് ബാങ്കിന്റെ ചരിത്രത്തിൽ രാജിവയ്‌ക്കേണ്ടിവരുന്ന അഞ്ചാമത്തെ ഗവർണറായി ഉർജിത് പട്ടേലിന് മാറേണ്ടി വന്നു. പകരം ഒരു പാവ ഗവർണറെ അവരോധിക്കുകയും അദ്ദേഹവും ഡയറക്ടർ ബോർഡും മോഡി–-അമിത് ഷാ കൂട്ടുകെട്ടിന്റെ താളത്തിന് തുള്ളുന്നതുമാണ് ഇപ്പോൾ ആർബിഐയിൽ നടക്കുന്നത്. വിയോജിപ്പ് തുറന്ന് പ്രകടമാക്കിയ ഡെപ്യൂട്ടി ഗവർണർ വിരൽ ആചാര്യയും കേന്ദ്ര ബാങ്കിന്റെ പടിയിറങ്ങി.

ലാഭവിഹിതം അവകാശമല്ല
കേന്ദ്രസർക്കാരിന് ഇങ്ങനെ ലാഭവീതം ആവശ്യപ്പെടാൻ അധികാരമോ, അവകാശമോ ഇല്ല എന്നതാണ് നിയമവും കീഴ്‌വഴക്കങ്ങളും ഇതഃപര്യന്തമുള്ള പ്രവർത്തനരീതിയും വ്യക്തമാക്കുന്നത്. കമ്പനി നിയമങ്ങൾ പ്രകാരം ഡിവിഡന്റ് നൽകുക സാധാരണമാണ്. എന്നാൽ, അത് ഒരിക്കലും ഓഹരി ഉടമയുടെ അല്ലെങ്കിൽ ഉടമകളുടെ അവകാശമല്ല. ഒരു കമ്പനിയുടെ ഓഹരികൾ കൈവശമുള്ള ഒരു വ്യക്തിക്ക് എനിക്ക് ലാഭവിഹിതം തരണം എന്ന് ആവശ്യപ്പെട്ട് കോടതിയെ സമീപിക്കാൻ കഴിയില്ല. അത് നിയമപരമായ ഒരു അവകാശമല്ല. കമ്പനി മെച്ചപ്പെട്ട അറ്റാദായം നേടുമ്പോൾ ഓഹരി ഉടമകൾക്ക് അവരുടെ നിക്ഷേപത്തിനുള്ള പ്രതിഫലം എന്ന നിലയിലാണ് ഡിവിഡന്റ് അനുവദിക്കുക. സാധാരണരീതിയിൽ ഇത് കമ്പനിയുടെ ഡയറക്ടർ ബോർഡ് ശുപാർശചെയ്യുകയും ഓഹരി ഉടമകളുടെ വാർഷിക പൊതുയോഗം അതിന് അംഗീകാരം നൽകുകയും ചെയ്യുന്നതോടെയാണ് ഇതിനുള്ള നടപടിക്രമം പൂർത്തിയാകുന്നത്. അത് എത്ര ശതമാനം വേണം, എപ്പോൾ നൽകണം തുടങ്ങിയ കാര്യങ്ങൾ കമ്പനിയുടെമാത്രം അധികാരത്തിൽ വരുന്ന വിഷയങ്ങളാണ്. സാമ്പത്തികവർഷത്തെ ത്രൈമാസഫലങ്ങൾ വിലയിരുത്തി മികച്ച പ്രവർത്തനം കാഴ്ചവയ്ക്കുന്നു എന്ന് വ്യക്തമായാൽ ഇടക്കാല ലാഭവിഹിതവും നൽകാറുണ്ട്. ഇത് മൂലധന നിക്ഷേപ രംഗത്തെ പ്രവർത്തനരീതിയാണ്. എന്നാൽ, ഇത് ഒരിക്കലും ഓഹരി ഉടമകളുടെ നിയമപരമായ അവകാശമായി മാറുന്നില്ല. ഒരു കമ്പനിക്ക് അവരുടെ ലാഭം പല രീതിയിൽ സൂക്ഷിക്കുന്നതിനുള്ള അവകാശ - അധികാരങ്ങളുണ്ട്.

അതുകൊണ്ടാണ് റിസർവ് ബാങ്കിനോട് ലാഭവിഹിതം ചോദിക്കുന്നത് അതിന്റെ സ്വയംഭരണ അവകാശങ്ങളിലുള്ള പ്രത്യക്ഷ ഇടപെടലായി മാറുന്നത്. അത് സ്വാഭാവികമായി കൈമാറുന്ന ഒരു കാര്യമാണ്. റിസർവ് ബാങ്കിനെ സംബന്ധിച്ചിടത്തോളം സാധാരണ കമ്പനികളെ പോലെ ലാഭ നഷ്ട അടിസ്ഥാനത്തിൽ മാത്രമല്ല പ്രവർത്തനം. അതിന്റെ പ്രവർത്തനങ്ങളിൽനിന്ന് ലഭിക്കുന്നസാമ്പത്തികനേട്ടത്തെ ലാഭം എന്ന് പോലും വിശേഷിപ്പിക്കാറില്ല. സർപ്ലസ് അഥവാ മിച്ചം എന്ന വാക്കാണ് ഇവിടെ പൊതുവെ ഉപയോഗിക്കാറ്. ആർബിഐയുടെ പ്രവർത്തനത്തിനും അടിയന്തര സാഹചര്യങ്ങൾക്കാവശ്യമായ ഫണ്ടുകളും നീക്കിവയ്ക്കുന്നത് ഈ മിച്ചത്തിൽനിന്നാണ്. റിസർവ് ബാങ്കിന്റെ ഓഹരി ഉടമകൾ കേന്ദ്ര സർക്കാരാണ്. സ്വാഭാവികമായും കേന്ദ്രത്തിന് ലാഭവിഹിതം നൽകേണ്ടത് അവരുടെ ബാധ്യതയുമാണ്. എന്നാൽ, തങ്ങൾക്ക് ഇത്ര തുക ഈ ഇനത്തിൽ നൽകണം, ക്യാപ്പിറ്റൽ റിസർവുകളായി ഇത്ര തുക സൂക്ഷിക്കുന്നതെന്തിനാണ്, ഞങ്ങൾ ആവശ്യപ്പെടുമ്പോഴെല്ലാം പറയുന്ന തുക ഇടക്കാല ലാഭവിഹിതമായി നൽകണം എന്നെല്ലാം നിർദേശിക്കുന്നത് അതിന്റെ സ്വയംഭരണ അവകാശത്തെ ഹനിക്കലാണ്, പ്രവർത്തനത്തിൽ നേരിട്ട് ഇടപെടുന്നതിന് തുല്യവുമാണ്. മാത്രവുമല്ല, ഇത് റെഗുലേറ്റർക്കുമേൽ അസാധാരണമായ സമ്മർദം ഉണ്ടാക്കുകയും ചെയ്യുന്നു. ഉർജിത് പട്ടേൽ രാജിവയ്ക്കാൻ ഇത്തരം സമ്മർദം ഒരു കാരണമായിരുന്നു.

വിത്തെടുത്ത്‌ കുത്തുന്നു
സ്വയംഭരണസ്ഥാപനങ്ങളിൽ ഏറെ പ്രത്യേകതയുള്ള ഒന്നാണ് റിസർവ് ബാങ്ക്. രാജ്യത്തിന്റെ സാമ്പത്തികഘടനയുടെ അസ്‌തിവാരം എന്ന് പറയുന്നത് കേന്ദ്ര ബാങ്കും അത് സൂക്ഷിക്കുന്ന റിസർവുകളുമാണ്. സമ്പദ്ഘടനയുടെ നിലവാരവും കറൻസിയുടെ മൂല്യവുംമറ്റും ഇതിനെ ആധാരപ്പെടുത്തിയാണിരിക്കുന്നത് . കേന്ദ്ര സർക്കാരിന്റെ ആജ്ഞ അനുസരിക്കുന്ന ഒരു സംവിധാനമല്ല കേന്ദ്ര ബാങ്ക്. രാജഭരണം നിലവിലുള്ളതുൾപ്പെടെ ഒരു രാജ്യത്തും അത് അങ്ങനെയല്ല. ഇന്നത്തെ രീതിയിലല്ലെങ്കിലും ഇന്ത്യയിൽ നാട്ടുരാജാക്കന്മാർ ഭരിച്ചിരുന്ന കാലത്തും ഇത്തരത്തിൽ സമ്പത്ത് സൂക്ഷിക്കുന്നതിന് കാണിച്ചിരുന്ന വ്യഗ്രതയുടെ ഒരു ഉത്തമദൃഷ്ടാന്തമാണ് ശ്രീപത്മനാഭസ്വാമി ക്ഷേത്രത്തിൽ സൂക്ഷിച്ചിരുന്ന നിധിശേഖരം. ആ വിത്തെടുത്ത് കുത്താൻ രാജഭരണംപോലും ശ്രമിച്ചിരുന്നില്ല. അതുകൊണ്ട് റിസർവ് ബാങ്കിന്റെ അധികാരത്തിന്മേൽ കടന്നുകയറുന്നത് വിപൽക്കരമായ നീക്കമാണ്‌. സർക്കാരിന്റെ സാമ്പത്തികപ്രതിസന്ധി പരിഹരിക്കലല്ല റിസർവ് ബാങ്കിന്റെ കടമ. അത് രാജ്യത്തെ പണവ്യവസ്ഥയുടെ സൂക്ഷിപ്പുകാരനാണ്. വിപണിയിലേക്കുള്ള പണത്തിന്റെ ഒഴുക്ക് ക്രമീകരിച്ച് സാമ്പത്തികവ്യവസ്ഥയുടെ സുസ്ഥിരത സൂക്ഷിക്കേണ്ട സ്ഥാപനമാണ് . അല്ലാതെ സ്വയം കുഴിച്ച കുഴിയിൽ വീണ് കൈകാലിട്ടടിക്കുന്ന മോഡിയെയും അമിത്‌ ‌ഷായെയും സാമ്പത്തികമെന്നാൽ ആട്ടിൻകാഷ്‌ഠമാണോ, കൂർക്കക്കിഴങ്ങാണോ എന്നുപോലും തിരിച്ചറിയാൻ കഴിയാത്ത നിർമല സീതാരാമൻ ഉൾപ്പെടെയുള്ളവരെയും രക്ഷിച്ചെടുക്കലല്ല ആർബിഐയുടെ ജോലി. ഇവിടെ ഒരു കറവപ്പശുവിനെ എന്ന പോലെ റിസർവ് ബാങ്കിനെ ഉപയോഗിക്കുകയാണ് കേന്ദ്രഭരണത്തിലുള്ളവർ. കറന്ന് കറന്ന് അകിടിൽനിന്ന് ചോരവരെ പിഴിഞ്ഞെടുക്കുന്നത് സാമ്പത്തിക മേഖലയിൽ വൻ പ്രത്യാഘാതം സൃഷ്ടിക്കും. ഈ ഓർമകൾ ഉണ്ടായിരിക്കേണ്ടവർ രാജ്യത്തെ എല്ലാ സ്വത്തിന്റെയും ആത്യന്തിക ഉടമകളായ ജനങ്ങളാണ്.

Welfare State measures do not hurt wealth creation

Prabhat Patnaik
In the ‘post-truth’ world we live in, the pervasive use of arguments based on chicanery should not surprise us. One such argument goes as follows: a high level of wealth inequality no doubt undermines the essence of democracy and must be avoided; but before we can think of bringing about a redistribution of wealth in society, we must first ensure that there is enough wealth to be redistributed, for which we have to provide incentives to the capitalists to ‘create’ wealth. Capitalists therefore have to be ‘incentivized’ to ‘create wealth’ in the interest of society, since it is the people at large who would be beneficiaries of what the capitalists ‘create’ and possess.
But whenever any talk of actual redistribution arises, exactly the same argument is repeated, namely that it would come in the way of wealth creation and hence severely constrain what is to be redistributed. Thus in the name of a future redistribution that never materializes, we remain engaged in ‘incentivizing’ the capitalists to ‘create’ more and more wealth, and to concentrate larger and larger wealth in their hands. This charade has gone on for so long that wealth and income inequality has now reached historically unprecedented levels both in the world at large and in our own country, making a mockery of our democratic aspirations.
When Jeremy Corbyn, the leader of the British Labour Party, presented a redistributive agenda for the forthcoming British elections, the Financial Times of London editorially opposed it on the grounds that “the assault on business is an attack on wealth creation”. How redistribution can ever occur without an “assault on business” remains a mystery; and if there is no redistribution and the growing wealth inequality is allowed to become more accentuated, then how democracy can survive meaningfully also remains a mystery.

The argument that any redistributive measure disrupts wealth creation and hence must be eschewed in the interests of society, is dishonest for two distinct reasons. One, it entails a perpetual postponement of redistribution; two, it is logically flawed. The proposition that government expenditure incurred by transfers to the working poor, or other welfare schemes meant for them, and financed by a tax on capitalists, reduces post-tax profits, and hence the rate of profit, and thereby lowers investment (wealth creation), is plain wrong.
This assertion may appear counter-intuitive. After all, if the government takes resources from the capitalists in the form, say, of taxes on profits and spends these resources on the working poor, then it seems obvious that the capitalists will be left with lesser resources after tax. But this is not the case.
To see this, let us consider an economy where, we assume for simplicity, there are no foreign transactions. (The opponents of redistribution do not invoke foreign transactions anyway.) Now in any economy divided into mutually-exclusive and all-exhaustive sectors, the sum of the deficits of all sectors must be zero. In the present case, the deficits of the government and the private sectors must together add up to zero. If the government finances larger expenditure through a fiscal deficit, then it must generate correspondingly an exactly equivalent amount of surplus in private hands. If the government matches its larger expenditure by larger taxation, namely its deficit remains unchanged, then the private sector’s surplus too must remain unchanged.
If we assume, realistically, that the working people, that is, the workers and the self-employed taken together, more or less consume what they earn, that is, always have zero deficit as a group, then larger government expenditure financed by a fiscal deficit necessarily raises capitalists’ (and other property owners’) surplus equivalently: the excess of their income over expenditure must rise by an exactly equal amount. And if larger government expenditure is financed through equivalent taxation, then it would leave the excess of income over expenditure of the capitalists (and other property owners), which is the same as the excess of their savings over investment, unchanged.
Since private investment in any period is determined by decisions taken earlier, larger government expenditure financed by equivalent taxation must leave capitalists’ (and other property-owners’) savings unchanged; since capitalists’ savings are a certain proportion of post-tax profits, it must therefore leave post-tax profits unchanged.
This happens no matter on whom the taxes are levied, even if the taxes are levied on the capitalists themselves. Hence, with no foreign transactions (or if the current account deficit remains unchanged) and if workers spend what they earn, post-tax profits remain unchanged if additional government spending is financed by equivalent additional tax revenue.
But, how this happens depends on how the additional taxes are raised. If working people are taxed to finance additional government expenditure, then, since they were spending the taxed sum anyway, there is no net addition to aggregate demand, and hence no increase in employment, output, or profits (whose post-tax level remains unchanged). But if capitalists are taxed, then matters are different.
Capitalism, except during major wars, is a demand-constrained system, in the sense that the economy always contains enough slack to permit a rise in output and employment in response to an increase in aggregate demand. Hence, larger government expenditure financed by taxes on profits, which brings about an increase in aggregate demand, raises employment, output, and, pre-tax profits. Indeed, pre-tax profits will rise exactly as much as would leave post-tax profits and hence the rate of profit, unchanged.
If the investment decision in the current period depends upon the current rate of profit, then this investment decision should remain unchanged. On the other hand, if the investment decision depends on the level of capacity utilization, then, since larger government spending financed by a tax on profits raises this level, the investment decision (and hence actual investment in future) should increase.
Likewise, if larger government spending is financed by wealth taxation, rather than profit taxation, the rate of profit will remain unchanged, which would leave the investment decision unchanged; but if the investment decision depends upon the level of capacity utilization, then it should actually increase. What is more, since wealth taxation is levied upon all forms of wealth, on money-holdings as much as on capital stock, it should act as a further stimulant for investment by inducing wealth-holders to move from holding money, which earns little or nothing, to holding capital stock, which earns a rate of profit.
It follows therefore that the claim that taxing capitalists amounts to an attack on wealth creation has no economic rationale. In fact, capitalists’ opposition to such taxing arises for a different reason, namely, that any expansion of the sphere of State activity, and that too for increasing the welfare of the working poor, constitutes a potential threat to the system. Capitalists oppose it not because it is economically damaging for their profits, but because they perceive this threat. Their opposition may express itself as an investment strike.
If a government is not to cave in to capitalists’ opposition expressed through such an investment strike, then it would have to use public sector investment as a counterweight. An honest effort to build a Welfare State within capitalism may thus set in motion a process that goes beyond capitalism itself; but the chicanery lies in pretending that Welfare State measures damage wealth creation per se.
The author is Professor Emeritus, Centre for Economic Studies, Jawaharlal Nehru University, New Delhi

The RBI and government must do whatever it takes to end the demand slump

Harsh Gupta
Growth has sharply slowed — for Q1 FY19 it was 8 per cent while for Q2 FY20 4.5 per cent. A casualty of this is the debate on India’s official growth statistics as nobody credible seems to question them anymore. Moreover, we must remember that the average growth rate for the NDA between 2014-19 was at 7.5 per cent while under UPA-2 it was at 6.9 per cent.

The reason for the current slowdown is the massive credit bubble of the last decade bursting along with, and to some extent caused by, the high real interest rates over the last few years. Mortgage and fixed deposit rates almost a decade ago were marginally higher than now even though nominal growth has fallen by around 10 percentage points. With residential real estate in a crisis, the shadow banking sector is also in a crisis.

The fiscal deficit has reduced from 4.7 per cent of GDP in 2013 to 3.5 per cent in the last five years — yes, it will go up this year and if we combine with states and off-book items, the number is higher, but that has always been the case. One must adjust for not just the Food Corporation debt but also normalise for the latest Pay Commission’s calendar. The government must come clean on the fiscal gap and announce a more realistic consolidation

roadmap with enough space for counter-cyclical deficits and automatic stabilisers. Fifty bps of GDP is not enough during downturns. As Sri Thiruvadanthai of the Jerome Levy Forecasting Centre has pointed out, the Centre’s debt to GDP ratio was around 20 percentage points higher at the beginning of the last boom cycle in 2003-04. The government should, through PPPs and EPC combined with Toll Operate Transfer (TOT)/Infrastructure Investment Trusts, fund a $1 trillion of infrastructure over five years.

Inflation has largely remained below the 4 per cent target. Core and especially wholesale inflation have been falling. Further, a range of 2-6 per cent has to be treated symmetrically rather than treating 4 per cent as a de facto ceiling. The average CPI number of 4.5 per cent during 2014-19, which is in contrast to the inflation rate of 10.2 per cent during 2009-14. What the RBI should do is to come out with a real rates framework with a publicly-declared neutral rate. While inflation targeting should remain the primary objective, a modified nominal growth target can be used as a secondary input along with financial stability considerations.

It is important to recognise that the current economic slowdown is monetary-financial in nature and to that extent cyclical/demand-related. We’ve had a sustained period of high real interest rates combined with sluggish money supply growth. The final nail in the coffin came when the Monetary Policy Committee thought in July and August 2018 that inflation is likely to overshoot the target. Consequently, they increased the repo rates which resulted in a further increase in our real repo rates to 4 per cent levels. Soon we had the NBFC crisis trigged by the IL&FS episode and we are still picking up the pieces. Unfortunately, many believe that a mere 135 basis cut will be able to fix the situation. However, they ignore than inflation has averaged a 100-basis point lower throughout the year.

This means that real interest rates haven’t moved much while the real prime lending rates have gone up. If transmission isn’t happening, then we should expect aggressive front-loading of rate cuts with massive open market operations. India’s 10-year G-Sec yield is now higher than the latest quarter’s nominal growth rate.

The RBI governor mentioned he’s willing to do “whatever it takes”. He has to follow this up. The government for its part has to nudge small savings and deposit rates lower to help transmission. Our rupee debt being incorporated into global indices would help and so would the Indian government issuing dollar/euro bonds. We also need to give tax incentives for retail investors to buy government or other debt through mutual funds and exchange traded funds. We need all hands on board — now.

Gupta is a public markets investor and Bhasin is a Delhi-based policy researcher.

Combating Hunger, Malnutrition and National dishonour

Harsh Mander
The abiding disgrace of new India is that despite unprecedented quantities of wealth and the vulgar ostentation which has become customary in the gaudy glitter of city life, India is unable to overcome hunger and malnourishment. This is even more unconscionable when government warehouses are overflowing with stocks of rotting rice and wheat. The 2019 Global Hunger Index (GHI) report brings sombre tidings this year: India’s poorer neighbours — Bangladesh, Nepal, and even Pakistan — have overtaken India in the battle against hunger.

Hunger is the failure to access the calories that are necessary to sustain an active and healthy life. It results in intense human suffering and indignity, as parents are forced to helplessly watch their children ache as they sleep hungry, as their brains and bodies are unable to grow to full potential, and, as they fall ill too often and are snatched away too early.

This is a colossal national dishonour for two reasons. One, this suffering is entirely preventable. Given appropriate public policies — sensitively designed, adequately resourced and effectively implemented — the country has both the wealth and the food stocks many times over to end hunger entirely. The relative success of our neighbours in combating hunger — Nepal emerging from 15 years of civil war and Pakistan still torn by internal conflict — is a sobering reminder of what India has not accomplished. Two, this failure does not spur public outrage and the introspection that it should.

The GHI report ranks India at a lowly 102 out of 117 countries listed. The GHI scores are based on four indicators — undernourishment (the share of population with insufficient calorie intake); child wasting (children with low weight for height, indicating acute undernutrition); child stunting (children with low height for age, reflecting chronic undernutrition); and child mortality (death rate of children under five).

Among all the countries included in the report, India has the highest rate of child wasting (which rose from the 2008-2012 level of 16.5 per cent to 20.8 per cent). Its child stunting rate (at 37.9 per cent) also remains shockingly high.

The report is instructive as it explains why Bangladesh and Nepal have surged ahead of a much wealthier India. The Bangladesh success story is attributed to pro-poor economic growth raising household incomes as well as significant improvements in “nutrition-sensitive” sectors like education, sanitation and health. Nepal, likewise, shows increased household wealth, maternal education, sanitation, health and nutrition programmes.

What must India do better to at least keep pace with its South Asian neighbours in tackling hunger? This is the question that Dipa Sinha, Parth Shrimali and I seek to answer in our essay in the latest 2018-19 India Exclusion Report of the Centre for Equity Studies.

We observe the cruel irony of the largest population of food-insecure people being food producers — farm workers, tenants, marginal and small farmers, fish workers and forest gatherers. To end hunger, food producers must be supported to receive adequate remuneration. We recommend sound measures to protect farmer incomes, including income transfers to farmers, minimum support-price guarantees and crop insurance, and a massive expansion of farm credit. For farm workers, a refocus on land reforms is called for, and, a greatly expanded and effectively managed rural employment guarantee programme with attention to land and watershed development, small irrigation and afforestation. There must also be an urgent and comprehensive shift to sustainable agricultural technologies less dependent on irrigation, chemical fertilisers and pesticides, to reverse our agri-ecological crisis.

The other large food-vulnerable population comprises informal workers. Hunger can’t be combated without addressing the burgeoning job crisis. It also entails labour reforms which protect job security, fair work conditions and social security of all workers. We also argue that the time has come for an urban employment guarantee programme, to help build basic public services and infrastructure for the urban poor — especially slum and pavement residents, and the homeless. This should also include employment in the care economy, with services for child-care, children and adults with disability and older persons.

The Public Distribution System must be universalised (excluding income tax payees), and should distribute not just cereals but also pulses and edible oils. Further, we need to reimagine it as a decentralised system where a variety of crops are procured and distributed locally. Both pre-school feeding and school meals need adequate budgets, and the meals should be supplemented with nutrient-rich foods such as dairy products, eggs and fruits. Social protection also entails universal pension for persons not covered by formal schemes, universal maternity entitlements to enable all women in informal work to rest and breast-feed their children, a vastly expanded creche scheme, and residential schools for homeless children and child workers.

Malnourishment results not just from inadequate food intakes, but also because food is not absorbed due to frequent infections caused by bad drinking water, poor sanitation and lack of healthcare. India’s nutrition failures are also because of persisting gaps in securing potable water to all citizens, and continued open defecation despite optimistic official reporting. There is an urgent requirement for a legally enforceable right to healthcare, with universal and free out-patient and hospital-based care, free diagnostics and free medicines.

All of this is not unknown. Yet, India continues to fail children born in impoverished households, to homeless people and single mothers, and to oppressed castes and social groups. Our economic policy continues to be trapped in an elite capture, dominated by measures that support big businesses to the exclusion of farmers and workers. Social rights are broken and betrayed.

At its core, the reason for India’s continuing failures to end hunger and malnutrition of its millions is the indifference of people who have never known the agony of involuntary hunger. This is ultimately the result of our enormous cultural comfort with inequality, our gravest and most culpable civilisational flaw.

The writer is a human rights worker and writer