When
the Doctors Largely fail to Diagnose
Anindya
Bhattacharya
On
the very first day of this year, economists Raghuram Rajan and Abhijit Banerjee
have prescribed in an Indian daily (Times of India) an eight-point module that
India must work upon in 2019 to face the economic challenges. Worth reading!
The points emerged like a Doctor’s prescription and these great economists
being at the helm of affairs at the top universities, nobody possibly would dare
to confront them even if politely. As a common man, living through the hardship
of economic realities and discerning in a very practical way, I venture to raise
some discussion on what they have articulated.
First,
I would only harp on their six points, as the last two proposals were very
imminent and nothing fresh. Secondly, it may be taken as a rejoinder to their opinion,
if not read yet, would find mention of their salient overtures in my submission.
1. Their first concern is with fiscal deficit as has been with all the mainstream economists over the last 40 years. They have agreed to FRBM-suggested 5% fiscal deficit by 2023. The hard reality is, managing the fiscal deficit has been a topic of discussion over the last 30 years in our country and never in a single year could it be claimed to have been contained. I don’t know why the economists are so keen on discussing this topic when there is a FRBM Act enacted in 2003 with a target of containing fiscal deficit to 3% of GDP by 2008 which was never achieved. The amusing part of it is, though an Act is in vogue, nobody cares to abide by it. So, let it be – the fiscal deficit will always have a higher percentage to GDP but the economists and politicians will go on discussing on how to curb it despite of impossibility. The reason lies elsewhere and everybody know that.
1. Their first concern is with fiscal deficit as has been with all the mainstream economists over the last 40 years. They have agreed to FRBM-suggested 5% fiscal deficit by 2023. The hard reality is, managing the fiscal deficit has been a topic of discussion over the last 30 years in our country and never in a single year could it be claimed to have been contained. I don’t know why the economists are so keen on discussing this topic when there is a FRBM Act enacted in 2003 with a target of containing fiscal deficit to 3% of GDP by 2008 which was never achieved. The amusing part of it is, though an Act is in vogue, nobody cares to abide by it. So, let it be – the fiscal deficit will always have a higher percentage to GDP but the economists and politicians will go on discussing on how to curb it despite of impossibility. The reason lies elsewhere and everybody know that.
Comment: Rajan-Banerjee talks of a vitamin
pill which has no impact on patients.
2. The three distressed sectors as identified by Rajan-Banerjee are agriculture, power and banking. I would only harp on agriculture here. They have rightly pointed out that ‘periodic export bans and large-scale imports to keep food inflation down have radically moved the terms of trade against agriculture.’ Yes, but the periodic export bans have only aggravated the terms of trade against agriculture; the core fact is, the terms of trade was always against agriculture. The problem is, the University of Chicago and MIT would never teach how the terms of trade always goes against agriculture to keep the average wages low for maximization of profit. The recent farmers’ rally in Delhi and Mumbai and the street battles in Paris and Belgium have pointed to this basic ground. The emerging reality is that the present day global economy is heading towards a fierce encounter between industry/ service and agriculture. Due to obvious reasons, Rajan-Banerjee has ignored this aspect. However, instead of loan waivers, inflated MSPs, input price subsidies they have suggested for ‘a government move towards lump sum payments to farmers for holding below a certain limit’. It is to be seen whether this prescription would really work due to prevalence of other constraints.
2. The three distressed sectors as identified by Rajan-Banerjee are agriculture, power and banking. I would only harp on agriculture here. They have rightly pointed out that ‘periodic export bans and large-scale imports to keep food inflation down have radically moved the terms of trade against agriculture.’ Yes, but the periodic export bans have only aggravated the terms of trade against agriculture; the core fact is, the terms of trade was always against agriculture. The problem is, the University of Chicago and MIT would never teach how the terms of trade always goes against agriculture to keep the average wages low for maximization of profit. The recent farmers’ rally in Delhi and Mumbai and the street battles in Paris and Belgium have pointed to this basic ground. The emerging reality is that the present day global economy is heading towards a fierce encounter between industry/ service and agriculture. Due to obvious reasons, Rajan-Banerjee has ignored this aspect. However, instead of loan waivers, inflated MSPs, input price subsidies they have suggested for ‘a government move towards lump sum payments to farmers for holding below a certain limit’. It is to be seen whether this prescription would really work due to prevalence of other constraints.
Comment: Let Rajan-Banerjee get a benefit of
doubt.
3. Changes in labour laws and a ‘better business environment’ were always pursued by the standard economists and the corporates for long and that is also nothing new as recommended by Rajan-Banerjee. What they actually pressed for is a revival of the idea of SEZ and the accompanying flexible labour laws ‘before an all-India roll-out, to provide the evidence needed to build consensus for them’. It’s more of a tactics for a roll-out of ‘hire and fire’ labour laws.
3. Changes in labour laws and a ‘better business environment’ were always pursued by the standard economists and the corporates for long and that is also nothing new as recommended by Rajan-Banerjee. What they actually pressed for is a revival of the idea of SEZ and the accompanying flexible labour laws ‘before an all-India roll-out, to provide the evidence needed to build consensus for them’. It’s more of a tactics for a roll-out of ‘hire and fire’ labour laws.
Comment: Old wine in new bottle.
4. And as all say so they have also said ‘sustainable growth’ with ‘less burdensome regulation’. Earlier, the idea was of ‘no-regulation’ and ‘free trade’ and now that of ‘less burdensome regulation’. Why that would be less burdensome? As they have put, ‘In other areas we need more centralization: for instance, a new and technically beefed up environmental regulator’ et al. So, now the much talked ‘decentralisation’ would also go with ‘more centralisation’. That too was obvious. The global economy pervaded by digital process and Artificial Intelligence has no other option but to be centrally controlled by the big corporates and digital mechanism - calls for a political intervention in order to balance the neo politico-economic spectrum of the future. The grilling of CEOs of Facebook and Google in the US Congress points to this advent. If the entire economy goes into the hands of the big corporates through encrypted mechanism, the political may have the chance to get captive into the designs of the coded rules. Therefore, the political will try to upkeep its relative autonomy by ‘regulation’ of the economy.
4. And as all say so they have also said ‘sustainable growth’ with ‘less burdensome regulation’. Earlier, the idea was of ‘no-regulation’ and ‘free trade’ and now that of ‘less burdensome regulation’. Why that would be less burdensome? As they have put, ‘In other areas we need more centralization: for instance, a new and technically beefed up environmental regulator’ et al. So, now the much talked ‘decentralisation’ would also go with ‘more centralisation’. That too was obvious. The global economy pervaded by digital process and Artificial Intelligence has no other option but to be centrally controlled by the big corporates and digital mechanism - calls for a political intervention in order to balance the neo politico-economic spectrum of the future. The grilling of CEOs of Facebook and Google in the US Congress points to this advent. If the entire economy goes into the hands of the big corporates through encrypted mechanism, the political may have the chance to get captive into the designs of the coded rules. Therefore, the political will try to upkeep its relative autonomy by ‘regulation’ of the economy.
Comment: Hiding the global advent of machine
and thus the perspective is lost.
5. ‘Government has to provide for benefits…’ as also put by Rajan-Banerjee. This is also nothing new but the inputs, according to them, should be overhauled as ‘…government should move towards cash transfers.’ In the coming future, as the AI would dominate the neo politico-economic sphere (gig economy) in a ubiquitous way entailing a massive unemployment and widespread low wages, basic income would be the ultimate choice to contain civil unrest and provide sustenance. Rajan-Banerjee could have mentioned the inevitability of ‘basic income’ but might have not, as that may be pre-maturely judgmental at this moment in Indian context.
5. ‘Government has to provide for benefits…’ as also put by Rajan-Banerjee. This is also nothing new but the inputs, according to them, should be overhauled as ‘…government should move towards cash transfers.’ In the coming future, as the AI would dominate the neo politico-economic sphere (gig economy) in a ubiquitous way entailing a massive unemployment and widespread low wages, basic income would be the ultimate choice to contain civil unrest and provide sustenance. Rajan-Banerjee could have mentioned the inevitability of ‘basic income’ but might have not, as that may be pre-maturely judgmental at this moment in Indian context.
Comment: Open the Pandora’s Box and bring
out the idea of ‘Basic Income’.
6. Skill development is also a primary concern of the policy-makers nowadays. Rajan-Banerjee are outspoken in this regard too. But they have a tangible proposal which seems to be realistic and well thought of. I would say, here only they could come up with an innovative plan. Their suggestion: ‘multi-year paid government internship at salaries comparable to entry level market wages (much less than what the government pays) for those under 26 to work as support staff in government offices/ public enterprises where needed.’
6. Skill development is also a primary concern of the policy-makers nowadays. Rajan-Banerjee are outspoken in this regard too. But they have a tangible proposal which seems to be realistic and well thought of. I would say, here only they could come up with an innovative plan. Their suggestion: ‘multi-year paid government internship at salaries comparable to entry level market wages (much less than what the government pays) for those under 26 to work as support staff in government offices/ public enterprises where needed.’
Comment: Indeed a new programme and
strategy.
Excepting point (6), whatever is suggested by
Rajan-Banerjee is either a little bit of extension of whatever is happening or a
partial way of depicting a problem and its elucidation thereof. Thank God, interestingly,
they have not spoken on GDP growth!
Needs more study to make a serious comment. However such analysis makes it easier for further understanding.
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