With 200 million jobs lost, it doesn’t matter if fiscal deficit exceeds even 50 percent: Prof Arun Kumar  

With 200 million jobs lost, Economist Prof Arun Kumar tells Nalini Ranjan Mohanty that nothing should deter the Government from spending and that China handled the lockdown much better than us

With 200 million jobs lost, it doesn’t matter if fiscal deficit exceeds even 50 percent: Prof Arun Kumar  

Nalini Ranjan 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. In this second part of the interview, he tells Nalini Ranjan Mohanty that even if fiscal deficit exceeds 50 percent, it should not deter the Government from spending.

You are perceived to be a critic of the ruling establishment and often accused of advocating policies which are utopian. How do you react to that?

  I don’t criticise without reason or logic. Moreover, I give the devil its due, where it deserves. Take the case of the current pandemic. China may be a reviled nation, but I think China handled the outbreak of the COVID challenge admirably. I may be seen as a critic of the Narendra Modi Administration, but I supported its decision for a hard lockdown.

However, as an economist, I try to look at the complete picture – both the plan and its implementation. In China, there was a synergy between both; that is why it succeeded in containing the virus in a short time. We followed the Chinese plan of a hard lockdown but disregarded the accompanying steps that needed to be taken for it to be a success. That is why, despite severe and prolonged lockdown conditions, we lost both in terms of lives and livelihoods.

Would you elaborate what those accompanying steps should have been?

China is a populous country like ours. Before it completely clamped down on Wuhan, it took the following steps: first, it created temporary abodes in far-flung areas and dispersed people living in cramped places to these areas. We did not do that. In fact, that thought did not cross the minds of our policy-makers.

In fact, when industrial workers came out on the streets as they could not afford to pay rent after their factories were closed down, they had no place to check in. The government began to think of accommodating them in public schools and colleges only after the crisis blew up. It was clearly an after-thought.

Second, before announcing the lockdown, the Chinese converted all educational institutions – public or private -- and community halls to serve as food centres. All Chinese families had access to nutritious food and safe drinking water within 100 to 200 meters of their dwelling units. So, they did not have to move anywhere else in search of food. But in India, the government announced the lockdown without any planning. When underprivileged sections went out in search of food, they had, for the first few days, to depend on charitable institutions as the government took weeks to get its act together. It was a clearly chaotic situation.

Third, the Chinese government had publicly announced, before the lockdown, that those who wished to go home would be allowed to do so. Special trains and buses were arranged to carry those who wished to return to the native places. Before they boarded the buses or trains, they were subjected to the COVID-19 test. It was a planned, smooth shift. No Chinese who went home carried the virus with him.

See the contrast in India: Indian planners did not even conceive the plight of the migrant workers, let alone letting them go home before the lockdown. The Prime Minister announced the lockdown without any advanced planning. He appealed to the factory owners to pay the workers full salary even as the factories were closed. Surprisingly, our government did not offer any financial incentive to the owners. In the USA, UK and some other European countries, while announcing the lockdowns, official declarations were made by the respective governments that they would bear the cost of a minimum of 50 per cent wages of the workers in manufacturing as well as service sectors. Despite this, those who were rendered unemployed received unemployment dole.

Unfortunately, we did not follow either the Chinese example or the western example, both of which tried to alleviate the pains of the underprivileged class. We left them to walk thousands of miles in the heat. Many died on the way. Some of whom who managed to reach home were the big carriers of the virus. That is how the rural areas came under the grip of the COVID. We completely messed up everything.

The Chief Economic Adviser and the RBI Governor are saying that green shoots of the Indian economy are now quite visible and we are firmly back on a recovery path. But you seem to disagree?

I arrive at an estimated figure of GDP loss by looking at the government data itself. I had a close look at the NSSO data. As I have been always saying, how could you assess the real state of the economy without taking into consideration the informal sector where 94 percent of our work force are employed.
Even as regards several segments of the formal sector, the NSSO data tells us that they have taken into consideration only the targets, as the field data had not been compiled yet. When the actual data are available, one can expect to see that it is far short of the targets. If you combine with the adverse consequences over the informal sector – the situation is a kinto the aftermath of the disastrous Demonetisation decision – you can see the Indian economy has been hit hard, unlike any other major economies of the world.

  We have almost 200 million people who have lost jobs. Except for the government officials, every other Indian has been financially debilitated. That explains why demand has plummeted.

That has its consequences for both the formal and informal sector. No industry is expanding or scaling up. Banks find no one credible to lend to. That is why banks are flush with funds. They have already deposited more than Rs 8 lakh crore with the RBI. This is a depressing scenario. It can be tackled head on only if the government has the will power to invest in a big way, to generate employment and generate demand. 

  But strangely, our government is obsessed with the question of fiscal deficit – about there action of the international rating agencies. It does not realize that we are in an extraordinary situation and we have to take extraordinary decisions. If we invest and our fiscal deficit exceeds even 50 per cent, that should not deter us if it helps our economy rebound in a robust manner in the short run. We can tackle the issue of the high deficit in the subsequent years.

Do you see the current measures taken by the government as inadequate?

If the government does not take steps to plan a direct investment of least Rs 20-lakhCrore in the next year (it is obvious that the corporate sector is not in a position to do so) I cannot see any possibility of a smart recovery of our economy.

The future of the pandemic is uncertain. The only certainty we have is the action we take as a nation to meet the challenge.

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