Dr. Montek Singh Ahluwalia is perhaps best known as Deputy Chairman of
India’s Planning Commission during 2004 to 2014, which included the
country’s best growth years of 2004 to 2008. However, an even higher
contribution of this Oxford trained economist has been his pivotal role in
a small team of economists under Finance Minister Dr. Manmohan Singh who
were in charge of drafting India’s far-reaching economic liberalization
program between 1991 to 1996. Starting his career as the youngest Division
Chief at World Bank when he was just 28 years old, Dr. Montek Singh went
on to become the architect of India’s 11th and 12th Five Year Plans, and
could also witness the economy’s deep issues during the tumultuous years
of 2009-14 when Global Economic Crisis derailed the Indian economy and
caused the NPA crisis which continues to this day. A recipient of Padma
Vibhushan, he is also the author of BACKSTAGE: The Story Behind India’s
High Growth Years. Seasonal Magazine recently hosted an interview and
interactive session with Dr. Montek Singh Ahluwalia.
Interview: John Antony, Editor
Host: Carl Jaison, Features Editor
Research & Compilation: Teres Sajeev, Research Intern
While our economy is grasping for breath in the middle of the crisis this
pandemic has cast us into, the voices of the ones who saved us earlier,
should be listened to with fervor. In this extensive interview, Dr. Montek
Singh Ahluwalia, the Former Deputy Chairman of the Planning Commission and
one of the most experienced economists in the country, shares his insights
on measures to revive the economy and other pressing problems in these
changing times.
On being asked about the possibility of going back to “India’s high growth
years” mentioned in his recent book, he emphasizes the need to get the GDP
up and going towards a target of at least 6.5% before being ambitious of a
growth rate around 7.5%. He also points out that the huge export demand in
those years will be absent now.
On fiscal deficits, he remarks that the government should be allowed to
expand beyond the specifications in the rulebook because besides the need to
increase the demand in the economy, the fall in tax revenue should also be
accounted for. India has an urgent need for high quality infrastructure. To
finance that without hurting the fiscal deficit he said that the government
should leverage on untapped tax revenue by setting up an independent
committee to look into tax reforms now and accept its proposals in the next
budget. We should take lessons “from the book of 1991 reforms,” he
says.
In respect to the Centre’s provision for the States he endorsed the request
of Punjab’s Chief Minister that States should be provided a Covid Grant and
the Finance Committee report due this October should be pushed to the next
year. This is given that states have little leeway as GST practically took
away all its taxing capacity.
On the looming migrant crisis he shed light towards understanding the
situation that led to the crisis in the first place such as the lack of a
general social safety net in contrast to providing special entitlements to
migrants alone.
Most importantly he emphasized the need to understand the ambiguity of the
situation and difficulty for anyone to make strong recommendations now
because, “This is an absolutely unprecedented situation for the whole world.
We don't have easy rule books that have rules that are tried and
tested.”
Seasonal Magazine in conversation with Dr. Montek Singh Ahluwalia,
former Deputy Chairman of India's Planning Commission:
India went into the lockdown believing that it will limit the virus
threat. But nowadays we hear that the lockdown was more for ramping up the
health infrastructure. Do you think this has been achieved as infection
rates and deaths are spiking in red zones as well as in some orange
zones?
Let me preface my comments with three points, which I think we should all
keep in mind when we look at the current scenario. First is that this is an
absolutely unprecedented situation for the whole world. We don't easily have
a rule bookthat are tried and tested. So we got to keep that in mind.
Second, we're not the only country affected. So there's a lot of experience
elsewhere. So whatever we say about things are working or not working in
India, we want to keep in mind what's happening in other countries. And the
third is actually even today, there are huge uncertainties. So whatever I
say, please keep in mind, that these are some overarching limitations within
which you have to look at these comments.
Now, let me come to your specific question. I mean, I know that there was
an impression given that somehow if we would have been in a lockdown for 21
days, then we would be able to overcome coronavirus. I think there was a
comparison made, Mahabarath took 18 days, and this is going to take 21 days.
I think the role of a lockdown always was to flatten the infection curve and
stretch out the period during which infections build up, which gave you a
little more time to build up the health infrastructure.
So now the question arises, did it flatten the curve? But the short answer
is we suddenly had relatively few infections during the lockdown period. We
don't have the counter comparison, what it would have been without the
lockdown. And I think there is a problem that you know, we're not doing
enough testing. So there are big questions about what is actually the rate
of infection even today. But the real issue is assuming that some flattening
during the lockdown took place, did we actually succeed in building up
health infrastructure? Now, I don't have the information on that. I don't
think the information on how much was built up was made public. This would
require details on what did the central and the state governments do? I
think we do know that some steps were taken, that some equipment was
procured. Some additional beds were arranged that exactly what they were, I
really don't know. So we're not in a position, I think firmly to say that
during this two week period, this is what we actually did, in terms of
strengthening the hospital facilities. And suddenly we're not in a position
to say, well, this was enough. Because to say the latter, that it was
enough, you have to have some model on what the infection rate would be and
I have not seen any estimates. Now, this is all to be put into the general
cover that there is huge uncertainty. I mean, all these epidemiological
models are very approximate, and models borrowed from one country may or may
not apply in India. So, I don't know whether that's a good answer to your
question. But that's the way I see it. It certainly wasn't meant to put an
end to the virus. The only thing it could have been meant for is to stretch
out the nature of buildup of infection, in order to allow the health
infrastructure to be built.
You had recently opined that hand holding the weaker section of the
society is an even more pressing issue than reviving the economy back to
growth. Can these two objectives be also synergetic?
They clearly have to be synergetic. The reason I said what I did was that
it was quite clear that the lockdown was going to have a very negative
effect on growth. I mean, after all, the red zones count for almost half the
GDP, and the lockdown was virtually complete in the red zones. And so for
the first two months, production in the red zone would have collapsed. It
did collapse. The government has not actually given an estimate of what will
be the negative effect on GDP. Although I think the Governor of the RBI has
said that GDP growth will be negative. In my view, we should be expecting
maybe 5% decline in GDP this year compared to the previous year. Now, having
said that, it's not going to be a 5% decline evenly for everybody. I mean
the negative impact is going to be concentrated in certain sectors and in
certain states.
Especially as far as groups of people are concerned, the poor, those who
are employed in the informal sector and even those who are contractual
employees in the so called formal sector, they experience a huge job loss
because if companies are experiencing a big decline in production, they
obviously layoff labor, especially contract labor, who are not technically
their own employees. So the problem really is that you have a massive
negative effect on the income of the poor. You’re seeing in these huge
migrations that are taking place, people going back from urban areas back to
the rural areas. Now, to my mind, I mean, that is a human tragedy.
Definitely we should be doing more to provide a basic income support for
this group.
But at the same time, we do have to make the economy recover, because if
the economy remains totally depressed, then the problem will spread beyond
the poor, and even affect the middle classes or the higher income groups.
Now, of course, you know, higher income groups also lose income, but that
doesn't affect the essentials for living like food and essentials. They have
a lot of margin. I'm talking about the bottom 30-40% of the population,
which doesn't actually have a margin. And they're the ones that are most
hit. And I think that we need to do more for them for sure.
What are your views on RBI, helping the government to monetize higher
deficits than targeted on the grounds that this is an exceptional crisis
and an exceptional year? Will it cause any serious issues like a run on
the rupee as critics point out?
Well, actually, let's take a step back before the issue of monetization of
the deficit as it is just one part of the story. I think the first thing we
need to do is to be clear, what is it that will cause the recovery to take
place? I want to digress a little. I expect that you can see a massive
negative growth in the first quarter. And you know, even though by the end
of June, it may be said that the lockdown is now being relaxed. The truth of
the matter is that it will take the economy a certain amount of time to get
back to normal. So I certainly don't expect to see a recovery to normal in
the second quarter. So really, between now and September, we're going to
have a significantly depressed level of GDP. From that depressed level, yes,
the second half of the year, you may see an improvement.
Now the issue is, first of all, what can the government do to counteract
this? Well, first thing is that you've got to put an end to a lockdown.
Because if the lockdown is in place, then essentially you're not allowing
supply to increase, maybe if you believe that you have to control infections
and so on, but then you must be willing to take that cost. But you should be
clear that, unless we can actually get rid, of the lockdown, there's not
going to be much recovery.
So what are the things you can now do? Well, I think that you know, we've
had a massive reduction in demand, partly because people have lost income.
And partly also because you know, export demand is very low, the global
economy is very low. So if you want to get the economy back to something
like normal, you have to act on the demand side to stimulate the economy
once you started relaxing on the supply side, that's where the fiscal
deficit issue comes in. I mean, clearly, government can always spend more.
If private spending has gone down, that will increase the fiscal deficit.
That's not the only thing that's going to increase the fiscal deficit,
fiscal deficit is also going to increase because the fall in income and
output has led to a huge fall in tax revenues. So you're going to have a
loss of tax revenues. I don't think you're going to get much privatization
revenue this year. You're going to also have some increase in
expenditure.
Although the package of 20 lakh crores doesn't have very much of direct
increase in expenditure beyond what was already in the budget, I've seen
some estimates. And the direct fiscal stimulus is only about 1% of GDP, some
people think that's actually much lower than most other countries are doing.
So the question that comes up is, should the government be doing a bigger
stimulus on demand and living with a higher fiscal deficit? My view is that
it is an exceptional situation. People will understand that the fiscal
deficit, you can't apply the rules to the fiscal deficit that you would
apply normally. So for the current year, you have to allow the fiscal
deficit to expand.
And then the next question is, how do you finance that? My view is that the
debate on direct monetization of the fiscal deficit is a little bit
irrelevant. I mean, in the sense that the RBI can so to speak, support this
borrowing, even if it doesn't directly buy government bonds in the primary.
They can buy in the secondary market, they can sort of transfer some of the
accumulated reserves, which is the same thing as monetization. The short
answer, therefore, is that this year, whether the RBI monetizes or doesn't
monetize is less critical than what's the size of the fiscal deficit that
you can tolerate. And I think indirect monetization is going to take place.
And there's nothing wrong with it.That doesn't mean that this is not a
problem. Because after all, if our capacity to produce GDP is permanently
impacted, then we cannot expect that we will maintain everybody's income and
consumption at last year's level. But if what we're saying is thatit's been
impacted this year and let's say from next year onwards, we are going to get
back to some sort of reasonable norm, then what the rating agencies need to
do is if your fiscal deficit is going through the roof this year - it will
go through the roof - what are you going to do about it next year? Is it
going to continue in that way?
Here you have a problem because we don't have a very good reputation for
maintaining our promises about bringing the fiscal deficit down in future
years. This government and also the previous governments kind of failed to
keep up those promises. But you know what is past is past. You would have to
put across a credible picture that although the fiscal deficit is higher
this year, we really want to bring it down next year. If that picture is
credible, then I think rating agencies will understand that this year is not
the one to watch out. The thing to watch out is are we going to do what we
say we're going to do for next year. On this line I personally think the
government would be much better off coming clean on this issue and
saying‘look for a variety of reasons, the fiscal deficit is going to be much
higher. But we promise you, we're going to bring it down andthis is what
we're going to do to bring it down.’
I don't think they've taken that line today. For example, there's a lot of
talk that we're going to borrow, maybe 2% of GDP more. That's not going to
be enough because the decline in tax revenues alone will take up that space.
So we're going to have more fiscal deficit increase than is currently being
accepted. If the RBI refuses to monetize it, it just means that interest
rates will shoot up. Because I don't think that a huge fiscal deficit can be
easily financed by bringing in money from outside because money coming in
from outside will look at the macro situation. I personally think that the
RBI should not object to indirect monetization deficit. And that's what's
going to happen in due course.
The lingering images from this crisis have all been of the migrant
laborers. Do you think this could have been better managed by allowing
them a fixed time to get to their native places before imposing the
lockdown?
Well, you know, it's as I have always said, there's no rulebook. Whoever
organized the lockdown didn't really have a rulebook that they could go to,
but that doesn't mean we should not in retrospect& try to see what could
have been done better. Certainly, I thinkthat we could have given a warning.
There was no merit whatsoever in imposing the lockdown suddenly. In
Bangladesh, they gave four days warning, in South Africa, four or three. In
an environment where people are away from home, and when a lockdown is going
to prevent people from moving, it makes sense to give a warning. The idea of
warning is that it enables people to decide what they can do and those that
really have to get back home can do so. So I think that could have been done
a lot better. I also feel that that if we had made very clear what the
consequences of a spread of infection would be, it will be less of a panic
than what we have seen. It wasn't clear - what would be the consequences of
getting infected? The idea that if you got infected, you would be
quarantined in some government facility would be enough to send people back
home anyway. You know what our impression of government facilities are. So I
think yes, it should have been much better managed. But it's hard to prove
that, you know, in the absence of precedent, these kind of things
happen.
Now, with the reverse migration having taken place, do you think that
will be a major roadblock in getting the economy to work again?
I think that will be a roadblock, even in the sense that when people move,
there are some fixed costs to movement. And there's also a huge uncertainty
about moving back. I'm pretty sure that migrants will ultimately come back.
But right now, nobody's quite sure. When the relaxation proceeds, if the
infection rate shoots up, what is the government going to do? I mean, are
they going to reimpose a lockdown? As long as there is a fear that, you
might get caught in a second lock down people are not likely to move back
easily. So I think we have a problem in the sense that you may have people
who want to move back, but they will not move back suddenly. And therefore,
the return to normalcy in terms of getting your labor force back will be
more problematic than people think.
Many economists, including Dr. Abhijit Banerjee have affirmed that this
is the perfect time to implement a Universal Basic Income of Rs, 1000 or
Rs. 500 per month for all Indians and that without such a measure, India
is set to go into a deep crisis. Does India have that kind of money and is
it possible?
Well, you know, as a general rule, I am not in favor of making
permanent institutional changes to deal with what is a current crisis.
No doubt that the current crisis is a serious crisis. If you take a look at
all the different instruments we have for providing more income to the poor,
we can do a lot more than what we are doing already. Whether there is a case
for a universal basic income is a longer termreform. Everybody who has
argued for a universal basic income has said that if you get rid of all the
useless subsidies you have and convert it into a universal basic income, the
country will be better off. I'm not sure that the universal basic income in
other words, as an income that everybody would be entitled to, is really the
answer. Remember that almost no country has it. So to my mind, a poor
country that has fiscal problems committing itself to a universal basic
income without abolishing any subsidies. I don't think makes
sense.
I do think that if you make a list of the 10 or 20 different schemes that
you already have, each one of them is leaky. Now, these are targeted
schemes. They do not reach out to middle income or taxpayers - they're only
meant for the poor. Yes, there are leakages. Some people who really aren't
eligible benefit while some people who are poor don't benefit. But in the
middle of a crisis, I am not convinced that we should be making what is
actually a structural change for the future. That is something we should
think about when we go back to a normal situation.
You cannot be sure about when that will be. Remember, if we go down by 5%
GDP in the current year, by next March, some degree of normalcy on this will
have restored on the health. When I say normalcy, I don't mean that there
will be no infection but people have got used to it. So from that level
onwards, you may get a rebound. Instead of a minus 5%, this year the
economy may grow at 5% compared to the current year, but that'll only take
you back to where the GDP was in 2019-20. That means in the year 2021- 22,
the GDP will only go back to where it was in 2019-20. So 5% growth next year
should not be counted as a sort of a‘return tohigh growth’ as it is only a
recovery to a more normal production.
The real test is what happens in 2022-23. And that is really going to be
difficult. I mean, can we get back to the sort of higher growth rates that
we've had in the past and we have had periods when we grew over 8 percent.
We've had a longer period when we flew in about seven and a half percent,
then it slowed down. I would say as of now, the longer term growth potential
for India is lower anyway because the global growth potential is lower. So
the world is entering into a somewhat different set of policy
configurations, a lot of the openness and the globalization that encouraged
more efficient developing countries to expand their markets will not be
available. We probably won't be able to do at 7.5% but could be 6.5%. Now on
present prospects, I'm not even sure if we can do that. So our job right now
should be to work out what is needed to get the economy at least to grow at
6.5% in 2022- 23. And there are many things we have to do to make sure that
happens.
What are your views on the Rs. 20 lakh crore package announced by the
government? Is it really a stimulus or will at least some parts of it work
like a stimulus?
We will first have to decide what the definition of stimulus is. If your
definition of stimulus is that additional expenditure beyond the level that
was already built into the budget is what you call stimulus, then the
stimulus in this package is much less than 20 lakh crore. Almost all of the
20 lakh crore is a prediction of credit that will be given to the banks
based on liquidity that's been injected by the RBI and some credit
guarantees schemes to businesses. Now, expanding credit for businesses is a
good thing. From that point of view, I would complement the Reserve Bank of
India. On the liquidity side, they have done what is necessary. But that by
itself does not ensure recovery. I mean if businesses are broke, not making
money, not facing any demand and losing cash you will end up giving a lot of
credit. This is just going to lead to a debt service budget, which it can't
sustain, and it'll default on these loans. The fact that the credit is
guaranteed by the government is a comfort to the banks but that doesn't
necessarily contribute to reviving the economy. So I think that the credit
is good, but I don't call it a stimulus.
What we need for the stimulus is a much broader set of measures that would
get the economy back on track. And I think a lot of that has to do with
stimulating demand. A lot of that has to do with restoring trust that
private investment can pick up. Improving the ease of doing business and
implementing many of the reforms that have been talked about now for several
years but have not actually been implemented. Now the government has
mentioned some of them, and let's see whether they're able to do it or
not.
You are heading Punjab’s Advisory Council for strategies to come out of
this crisis along with Dr. Manmohan Singh. Are Punjab’s current issues
comparable to other states? Do you think the Center needs to do more for
the states as they have been the ones on the front line fighting this
crisis?
Let me clarify on this. The Chief Minister asked me to head a group of
experts to advise Punjab on what he calls the medium and longer-term
strategies once the COVID crisis is overcome. Dr. Manmohan Singh is advising
him separately & is not part of my group. I'm sure that he is giving a
lot of advice to the Chief Minister. We have not yet submitted our report.
So it’s a bit preliminary for me. But we are going to look at what Punjab
needs to do.
Is Punjab in a similar situation to other states? Well, you know, all
states are different. Punjab, for a long time, used to be the number one
state in the country in terms of per capita income. And you know, for the
last 10 years, it's been slowly losing ground on the state. Frankly, I
think Punjab’slong term objective should be not to get back to the
performance that it had before the COVID crisis becausethat performance was
causing Punjab to slip. Punjab’s objective should be to get back to grow
faster than the rest of India, if we can. We're kind of trying to raise the
sort of issues that are relevant for Punjab to achieve that objective.
Should the Centre do more for the States? Certainly. Most of the
expenditures that governments have to undertake are expenditures that are
done by state governments: health, education and also social benefits of
various kinds and so on. Whereas most of the revenue actually goes to the
Centre. Then of course, there is a Finance Commission mechanism for sharing
the divisible pool of taxes with the states. One, the Central revenue is
going to be much less than was projected. When the state's budgets were
formulated, the central government projected a growth rate of GDP of
something close to 7% in real terms. It’s going to end up being minus five,
I think. So this means that the revenue that was projected, and on which
shares were decided for the states is going to be much less than it was
earlier expected. So the question arises, should the Centre compensate the
states for the shortfall? You know, I think the Centre could do that if it
was willing to increase its own fiscal deficit. But what the Centre has done
is that they've said, well, we'll let you borrow. They've done that. So
whereas earlier, the state's deficit was capped at 3% of GDP. Now it's been
capped at 5% of GDP. So the states are allowed to borrow more. But you know,
the states have very high debt obligations. If you're denying states the
direct revenue grounds that would have come from the Center and simply being
allowed to borrow? That's not an equivalent compensation. So I think that is
a little unfair.
The Chief Minister of Punjab had said in a letter that he wrote to the
Prime Minister that the Central government should give a COVID-19 grant to
the states to compensate for the revenue loss. And actually to tell the
finance commission, which is supposed to submit its report for the next five
year period this October, to go back to its calculations, recommend what
additional ground should be given, raise that money through borrowing, give
the grant and postpone the longer term Finance Commission’s Five
Year-recommendation one year later. I think this is important. The second
thing you have to remember is that the GST, which we all think conceptually
is a good tax, takes away taxation capacity from the states. They no longer
have what used to be a state's tax and it cannot now be increased by the
states it can only be increased by the GST council. I think the shortfalls
in the GST revenue was huge. So really the states don't have the sort of
leeway to make up revenue. And that's why they need more assistance.
Based on your book, 'Backstage: Story Behind India’s High Growth Years',
and as an architect of the response in those days, do you think India can
ever go back to such a high growth period again? What would be the
imperatives for that to happen?
Well, that's a tough question because you know right now, our big challenge
is how to get back to the GDP of 2019-20. Because we're going to be 5% below
that this year. And even if we grow by 5%, next year, we'll still be back at
2019-20. However, there's no doubt that as said in my book,the UPA was in
power for 10 years of which the first seven of those years were outstanding.
The last three of those years was when the growth slowed down, still
positive, but it slowed down. Now if you look at those first seven years,
the growth rate will always ascent. We were all very enthusiastic about it
and positive. And then the growth slowed down. I mean, some slowing down was
unavoidable. The economy grew at 7.6%. It's never done that before. But that
was a period when the global economy except in the last couple of those
years was actually doing very well.
So can we go back to 7.6%? It all depends on how determined we are to fix
our own problems because India has a lot of unutilized potential. There will
be productivity gain if India does the reforms that are necessary. The real
question is: are we willing to do those reforms? Do we know what those
reforms are? And is there a political consensus? Now, I would certainly say
that, you know, in the medium term, in order not to be unrealistic, we
should set a target of trying to get back in the year 2022-23. Trying to get
back to somewhere between 6.5% and 7% in 2022-23. I think if we do that,
that'd be a pretty good start, then we can see how we can go from
there.
Would you agree to the fact that the Finance Ministry faces a conflict of
interest when allocating funds to various ministries since they are also
responsible for maintaining the fiscal deficit? Moreover, without
financial authority to disburse funds does the NITI AAYOG run the risk of
losing its credibility?
My understanding is that NITI Aayog doesn't play any role in financial
allocation. So I don't see how their credibility is involved. In the old
days, the Planning Commission was the institution that discussed with every
ministry, what is needed in terms of expenditure. And then the Planning
Commission would discuss with the Finance Ministry, about how much money is
available. And the two together would advise the Prime Minister who would
make the final decision. I think that process no longer exists because the
NITI Aayogdoes not get involved in financial allocation. So this whole issue
is somehow decided now between the Finance Ministry and the Prime Minister's
Office so I have no idea how that actually functions.
When you say conflict of interest, governments should manage conflicts of
interest whether you do it through one mechanism or another. All governments
are faced with conflicting objectives. The sign of a successful government
is that you give weightage to those objectives and take a correct decision.
I don't think I view the Finance Ministry's job as simply controlling the
fiscal deficit. I mean, after all in certain circumstance the real job of
the Finance Ministry is to determine what is the optimum fiscal deficit.
Optimal fiscal deficit is not a balance. So there's a real question, what do
they regard today as the optimum fiscal deficit? Personally, I feel they
should come out and say so. At present no one has. And I think if somebody
were to bring up that case, this is what you think this would be, then we
can have a debate on it.
Due to the pandemic, there is an absence of much actual data and
quarterly GDP estimates are based on more assumptions than ordinarily
used. The provisional estimate of Q4 growth rate is of 3.1% released by
the Ministry of Statistics. Do you consider it as an overestimation like
many others and is it in the continuation of the data quality issues are
regularly faced by the NSSO or specific to the current pandemic
situation?
I think I'm sure that the pandemic has made life more difficult. I don't
know how they're handling it, but you should accept that. However, I think
on the data side, we do have a problem. I mentioned this in Backstage,
India's statistical system had a very high reputation for being independent
of government and providing the best estimate that is possible of GDP. And I
think that over the last several years that independence has gone down. It
looks increasingly, as many people have criticized, that the data are held
back. If it is not suitable, or if it doesn't present a positive picture, it
is a disaster. This is like trying to treat a patient after breaking the
thermometer. So you really can't measure the temperature. I don't know what
the data will be later. But you know, if you look at the revisions that have
been made quarter by quarter, to the Indian GDP in the last several
quarters, every two quarters later, the previous two quarters GDP is lower.
Whether that will continue or not, we have to see.
Questions from the Participants:
Next two questions are from Dr. Madhukar Angur, Founder Chancellor,
Alliance University, Bengaluru:
With this pandemic well, a lot of sectors have been affected. One of
which has been education. How do you see this pandemic unraveling itself
in terms of the future of education across all levels? We are moving
towards different modes for delivering education like online or
distributed ones, how will be you will perceive this to affect our
education system?
I think I'm not knowledgeable enough in this field. But I talk to people in
this field and I think universities abroad are thinking very hard.
They have really never got away from the bricks and mortar campus style of
education and there's a lot of socio cultural preferences or baggage
associated with it. Kids go for three years. They need to be in a campus.
The campus must be attractive and all of those things. On the other hand you
have technology allowing us to exchange thoughts with your teacher without
any of this. People have been saying that top universities will have to
change. But you know the pandemic will only make that more so.
One of the problems is that, even after we declared that the pandemic is
over, there will be a resistance towards gathering together in large crowds.
These fears, once they're created are very difficult to get over. Once you
have a vaccine and a cure and if all get vaccinated so that they don't feel
too vulnerable this won’t be a problem. That may take a take a couple of
years, to get the vaccine identified. Getting coverage will take even
longer. I think all kinds of new methods of education will be experimented.
Not just an issue of new methods of education, it also affects the reach of
a university. I mean the number of people that can be taught through this
method and how the best lectures can reach out to people. Well, it's a
revolution and I honestly, don't know what the impact would be.
If I were running a university or responsible for a university, I would put
a lot of high level input into thinking how it's going to change, but most
importantly what I'm going to look at is what others are doing. I mean, as I
said in the beginning ours is not the only country facing this problem. I
think our universities should be better informed about what's happening
elsewhere. What is MIT doing? What is Harvard doing or Princeton doing? Part
of the problem is that most of the big universities have a high remuneration
for the top professors which you recover by a high fees from the students.
This may no longer be feasible. Funds are drying up, government funds are
drying up. My guess is that in India the regulatory system should encourage
innovation and competition.
For instance, if you are running a private university, you're allowed to do
online education or distant learning but only within the state were you are
accredited. You are not allowed to do it in another state. Technically, if
you are established in Bengaluru, and you have excellence, and somebody from
Punjab wants to get educated, they should be allowed to do that. There is no
reason why these antiquated antediluvian regulation and license permit raj
should exist. These are very difficult to change. But I think these are
issues that should be taken up and changed.
Recently in education we have focused a lot more on research and
dissemination of knowledge. Universities worldwide have also been focusing
on this for decades. However, the unemployment rate, for instance in the
United States right now is alarming. Even what we have seen in India is
disheartening. When we look at the organizations, their workforce has
three constituents: a critical genius component, a specific skill
component and an easy to fill component. The easy to fill component had
the most amount of workers being laid off. In this scenario, should
universities be focusing on developing the specific skill component?
I genuinely agree with the proposition. First of all the case for short
term questions derives if nothing else, from the fact that the old style of
education models that you get educated between the ages of eighteen and
twenty one and after that you don’t learn anything and just go to a job
and keep learning there is no longer true. People are going to switch
occupations, I mean there is still a case for a basic degree.
But people will have to learn to keep acquiring skills. And you know we
underestimate, what this means. My grandson is ten years old and he knows
more about my IPhone than I do. Clearly I am not adequately educated to use
this technology so we need to have a lot more of that. I mean universities
need to do that. My feeling is that that universities will respond quickly
if demand for employability surfaces. What I am not very sure about is
leaving the universities particularly the public sector universities to
determine what the right skill is. Because there are huge vested interest in
declaring certain skill are important once they exist. So I think we need to
create flexibility where different kinds of skills are taught and we leave
it to the market to determine who is going to take what courses.
Next question is from Dr. Sudhakar Rao, Director – Branding, ICFAI
Group:
In 2011, the census states that there are about 45 crore migrant
labourers in the country. Almost a decade since then we don’t know how
many migrant labourers are there. As an Economist, how do you suggest that
we can make an estimate of the number of migrant labourers existing in an
area so that subsequent administrative action is based on this data?
I know in Punjab for example, similar problems of not knowing how many
migrant workers are there. But we first need to step back and analyze why
the migrant crisis has arisen. For example, between two workers who does an
identical work in a factory in the city, one comes from a rural area 30
miles away and another comes from a rural area from a different state a 100
miles away. The first person is not a migrant and the second one is. What is
the entitlement we are really thinking of? Are you going to have different
entitlements if you are a migrant and if you are not a migrant? Or, should
you be having uniform entitlements and then stretch out the relevant social
safety net across the board? Focusing on migrants alone is like they are not
citizens of India. It is evident in case of larger states. If a person
migrates from East Uttar Pradesh to Noida, which is next door to Delhi, you
are not considered a migrant under the census definition because he is still
in his own state.
What we need to be clear about is why the migrant workers suddenly uprooted
themselves. Obviously there was either a lack of trust in something or a
feeling that their rights will not be protected. If we had established a
situation of trust and they would have stayed where they were then the
question would be how we look after them. That is a relevant question.
Whether someone is sick or not sick. Did they feel that if they fall sick in
an urban area, in a state that they don’t come from they might simply be not
looked after? Whereas if they go back to their state they will be looked
after.
I think we have a major problem of a lack of a social safety net. But that
is there for both migrants and non-migrants. We certainly need to strengthen
that basic social safety net. It is probably true that a migrant whose
family home is hundreds of miles away feels more insecure for any given
social safety net than a person whose family is only fifteen miles away. But
you can’t have a system where you are getting special privileges because you
are a migrant, which another worker in the same company doesn’t get.
Next question is from Ms. Sucharita Saha, a management student at IIM,
Ahmedabad:
The economic recovery will depend on the steps that are taken after the
lockdown is lifted. India has imposed one of the strictest lockdowns in
the world. How would you predict the recovery of countries that has
imposed a strict lockdown vis-a-vis countries that have not?
Calculation by a group in Oxford does suggest that we have had a very
strict lockdown. But we need to ask ourselves, was it imposed that strictly?
So if we were to adjust the provisions of the lockdown to how it was
implemented, I doubt it was very strict.
Second, a lot of research that has been done shows that there is no
relation between the strictness of the lockdown and the beneficial effect.
There are countries in Europe that have been very strict and counties that
have not been. A lot depends on whether the habit of individuals achieve
social distancing. Let me give you an example, if 50% of Mumbaikars live in
slums with 8-9 people in a room. A lockdown means you can’t go out and you
stay in the room with another 8-9 people. This is very different from what a
lockdown does in Germany where you are restricted to a house where you are
effectively practicing social distancing because there are much fewer
people. So I am not sure if anyone thought what this strict lockdown would
mean in practice and for that reason it may not have led to the effect that
you expect.
Now, lockdowns means you cannot go to work. Factories are told you can
start, provided you maintain social distancing. But many of our factories
are so crowded and it is virtually impossible to maintain social distance
unless you can cut the workforce to 30-40%. So what are we going to do in
that dimension also becomes important.
When we talk about a recovery, I still do not have an estimate from the
government. They cannot make an assessment of the fiscal deficit without
estimating the growth rate. So there is huge question mark on those things.
I stated that the GDP should grow by 6.5% because once we get back to normal
we cannot get to a GDP over 7% quickly. So we need to try for a 6.5% growth
at least. What would it take? One, it is very clear and everyone is in
agreement that India needs a lot more high quality and more efficient
infrastructure. Infrastructure is expensive. Who is going to produce this
expensive infrastructure? The government has a program which says that we
are going to have a national investment pipeline and some numbers have been
given. The numbers assume a certain amount will come from the private
sector, a certain amount from the states and certain amount from the Central
government. This projection of investment is not tied up with other
projections which would be made consistent with the overall fiscal deficit.
For example, if we are going to end up with a fiscal deficit of 6% of GDP
and we want to get it back to 3% of GDP in two or three year, we need to
have a turnaround of 3% of GDP just for the fiscal deficit to get back to
square one. If in addition to that of we want to invest in the
infrastructure, adding to the fiscal deficit, then the turnaround needed is
more, say 5% of GDP. Where is that going to come from? In my view, some of
that will come from cutting wasteful expenditure. Then we should create a
public support for cutting wasteful expenditure and what is that. Most of it
has to come from much better tax revenue. In my view, that is untapped
resource.
Many studies have shown that given India’s per capita income we should be
raising an extra 4 to 5% of GDP. So something is wrong with our tax system.
It is not just the rates of tax but it’s the method of administration .GST
is an example; a wonderful idea but got messed up in implementation. I have
said in different contexts that we should take some lessons from the book of
1991 reforms, which I also talk about in my book Backstage: The Story Behind
India’s High Growth Years. In 1991 the government setup an expert committee
headed by Raja Chelliah, including some of the tax experts in the country to
lay out a framework of tax reform. I think we need to do that now. This
cannot be done in secret within the government. One cannot expect the
current Finance ministry which is responsible for GST to come up with
reforms. It is not human to say I am sorry I got that wrong. They will
probably say that this was actually right but a little thing has caused a
problem. We need a fresh look. We need an outside look, an expert look and
let the expert report be made public. Set up a committee of non-political
experts, draft a report and let the government say that in the next budget
we will do everything that the report says.
Let me give a small example. Most businessmen say that the worst thing
about working in India is the unpredictability and the unreasonableness of
the tax assessments. Our tax rules are so vague and can be interpreted
anyway you like. The present position I saw is that if the economy is going
down we won’t be able to raise the tax revenues that we are talking about.
The department of revenue sent an instruction to all tax assessment officers
that your tax target remains the same. This mean each of these officers are
supposed to achieve 13% increase in taxes as the budget mentions, even
though the GDP is going to be much lower and therefore you expect a cut in
taxes. Obviously what they are going to do is make unreasonably high
demands. You can’t blame these officials when they are clearly instructed
from authorities. What makes it worse is that, no tax official is punished
if the taxes they levied are ultimately shot down through the appeals
process. They are only held responsible for what they levy. Many businessmen
say that compared to other countries dealing with our tax authorities is
hugely difficult. You cannot blame the tax authority if you do not have
realistic tax assessments mechanisms.
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