Govt employees and pensioners are not in distress : Prof Arun Kumar

Finance Minister’s plan to enable government employees to take advances and spend is misplaced, says the economist. Why is she targeting secure employees and ignoring people who lost their livelihood?

Govt employees and pensioners are not in distress : Prof Arun Kumar
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NR Mohanty

The new book authored by Economist Arun Kumar and being published by Penguin deals with the impact of the pandemic on the Indian economy, especially the consequences of the severe lockdown India has had to go through for several weeks. Nalini Ranjan Mohanty caught up with him for a clearer picture

What is your reaction to the mini stimulus package unveiled by the Finance Minister (Rs 73,000 crore) this week to boost demand?

The current stimulus package is both wrongly targeted and extremely inadequate given the scale of the challenge we face.

I say wrongly targeted because it has been offered only to government officials.

Government officials have not suffered any loss of income (they get their full salary; only the payment of their DA is postponed). They are not financially distraught, unlike a large section of the middle and lower classes. So, giving Rs 10,000 as a festival advance (which will be adjusted against their salary later) is not a real incentive for government servants to spend that money immediately.

Had the same amount been given to the poor, many of whom have been rendered jobless -- by increasing allocation to the rural employment scheme (MGNREGS) or by creating an urban employment scheme – the entire amount would have been spent by them, for sure. Moreover, the Finance Minister’s hope that the government employees would now be ready to spend four times the LTC money granted to them is also a chimera.

Even if one assumes that the FM’s hopes are realized – each government officer spends lavishly on a LTC trip and splurges during the festivals – the Rs 73,000 crore demand boost is chicken-feed for the scale of the problem. Going by the RBI’s estimate that our GDP will contract by 10% (my estimate is that India’s GDP will fall by 30% this year), the country needed at least Rs 20 lakh Crore demand boost to keep the economy on an even keel. We need large-scale stimulus for the millions of the poor, not small accretions for the minuscule financially secure sections of the society.

The Prime Minister has called for an Atmanirbhar Bharat (SelfReliant India) as a key strategy to pull our economy back from the precipice. What do you think of this strategy as a way out of the current crisis?

It is like your house is on fire and the government is saying that it is thinking of setting up a fire station in the vicinity of your house to take care of your plight next time. Long-term and medium-term strategies are important, but they cannot be substitutes for short-term\ immediate measures. We need to think and act here and now. We can’t sit back under any pretext. If we do, that would be a sure recipe for disaster.

The government says it is cash starved. The severely slowed-down economy has reduced the capacity of the state to generate tax revenue. How will the government then fund investment at a mammoth scale that you suggest?

The Indian economy is in much more dire straits than this data suggests. The fact is that this data is only concerned with the formal sector; it does not take into consideration the situation in the informal sector where more than 90 per cent of the workforce is employed.

If you take both the formal and the informal sector into account, our economy has possibly shrunk by over 50 per cent in the last quarter. And it will take no less than two to three years of sustained effort to get it back on the wheels. The government needs to take extraordinary measures in the short run to generate enough revenue in order to tide over the crisis.

Some of these measures would include taxing the super-rich more and paying the secured government officials less. The super-rich should be ready to pay more, much more than what they would have done had a war broken out.

The highly-placed government servants too, who are well-protected during the pandemic, must be ready to part with a part of their reasonably high salary. Even those retired government armed forces officials who are drawing a fat pension should be ready to sacrifice some of their comfort to meet the enormous challenge we face today.

The government can also think of floating a Covid Bond -- with a slightly higher percentage interest compared to the fixed deposit rate of the banks -- which both the rich and the middle class would be incentivized to subscribe to. As a last resort, the RBI should step in to monetize part of the deficit. The bottom line is: the government must raise big money here and now and invest in infrastructure projects to bring our economy back on the rails.

Could India have avoided a complete lockdown for the sake of the economy?

Possibly not. Unlike the Ebola virus, the Coronavirus is virulent in form and spreads easily. The experts said that herd immunity would develop against the virus only after 60 per cent of the Indians are affected. If 2 per cent of the afflicted died, that would have raised the toll to 16 million. We would have had to arrange for at least 40 million hospitalization beds. That would have been well-nigh impossible in a country like ours. That is why a complete lockdown was unavoidable.

But the consequences of the lockdown should have been thought through and pre-emptive measures should have been undertaken by the Government of India to serve the purpose of the lockdown. China did it successfully in Wuhan and was able to contain the spread. We messed it all up by allowing the migrant worker crisis to blow up, which added to the geographical spread of the disease that defeated the very purpose of the lockdown.

How do you assess India’s response to the livelihoods question that has become a big issue during and after the lockdown?

I am afraid, India’s efforts regarding both lives and livelihoods issues are disappointing. Imagine the steps a government would have to take during a war situation.

The lockdown and its aftermath are worse than war. During a war, production happens at a full capacity and the demand booms and the employment level rises. But in a pandemic, production has almost come to a halt, except for the essential items, and as hundreds of thousands are rendered unemployed or their salaries are cut aggressively, the demand has fallen sharply.

When both supply and demand are severely hit, the government ought to have taken measures to generate employment, boost demand and give incentive for higher production. But the government’s measures fell far short of what was the need of the hour. Take for example, the Government of India allocated an extra Rs 40,000 crore for NREGA programme; the rural employment scheme needed at least Rs 4,00, 000 crore additional money to gainfully employ millions who had become jobless during the lockdown. Similarly, there was a crying need to create an employment guarantee scheme for the urban poor. The government did not take any step in that regard.

The government claimed that it gave a stimulus package of almost Rs 20 lakh crore, which is about 10 per cent of our GDP. The fact that we are the fifth largest economy of the world, doesn’t this package compare favourably with most other countries of the world?

You must note that in this Rs 20-lakh-crore package, the actual cost to the exchequer is just about Rs 2 lakh crore (that works out to just 1 per cent of our GDP); that is the real stimulus for the economy, the rest is meant to provide liquidity to the entrepreneur to increase production. But which business group will increase production when the demand is sagging?

The task of the government is to generate demand. That can only be possible if the government itself spends money on infrastructure and allied projects and generate large-scale employment. When an estimated 200 million jobs have been lost and demand is at rock bottom, only the government’s investment can act as the catalyst for the economy. But the government appears to have no stomach for this challenge.

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