Howdy Economy: ‘Govt does not lack resources to boost rural demand but it is not a priority’

As India’s economic woes seemingly go from the bad to worse, NH reached out to Himanshu, Associate Professor, Centre for Economic Studies and Planning, JNU for his opinions and possible solutions

Himanshu, Associate Professor, Centre for Economic Studies and Planning, JNU
Himanshu, Associate Professor, Centre for Economic Studies and Planning, JNU

Tathagata Bhattacharya

Where exactly lies the core problem with the Indian economy?

The actual issue is a significant collapse of demand, specially in the rural areas. This requires immediate intervention of a serious kind. Huge amounts of money need to be pumped into the rural economy to rectify the situation without delay.

Does the government have the resources to do so?

Yes, it certainly has. It is not a question of resources but priorities. Ever since India has embarked on the path of a market-driven economy, there has been a propensity to accord protection to corporates at any signs of an economic crisis. That needs to change. The Rs 1.45 lakh crore tax break to corporates could have been channelled into the rural economy if there was intent from the government.

The present government benefitted from low international crude prices for most of its tenures. Where do you think the windfall went?

I think most of it went into infrastructure and recapitalisation of banks, etc.

If rural demand is falling, does it mean that MGNREGA has failed?

No, the problem with MGNREGA is that people are being paid Rs 179 which is half of the market labour wage rate. The MGNREGA per capita per day must be doubled to Rs 360 without any delay.

Is the problem also spreading to the urban middle class too?

Yes, You have massive retrenchments in automobile sector, IT sector, etc. The personal savings rate has come down from 22 per cent to 16 per cent. It shows people are actually dipping into their savings to make ends meet.

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