A day after he presented the Economic Survey, chief economic adviser Krishnamurthy Subramanian spoke at length about the finer points of his assessment of the economy, India’s response to the Covid pandemic, the farm protests and more with Sunetra Choudhury. Edited excerpts:
Did your office work closely in deciding the government response to the pandemic?
As part of government process, it is expected that inputs are taken from all of us. The role that my office plays is that we look at research. Early on in the pandemic, we read a lot about the Spanish Flu. The other key part was a Hansen and Sargeant paper which said that when you are faced with an environment of enormous uncertainty, the right policy response is to minimise losses. The Mahabharata says “Saving a life that’s in jeopardy is the origin of dharma”. So we combined elements from economics, epidemiology and scriptures.
What do you make of the Opposition’s criticism of your projection of 11% GDP growth?
When the estimates of the first quarter were released, we mentioned that there will be a V-shaped recovery. None of us is an astrologer. We track 58 indicators to make our estimation. The 11% projection is certainly achievable. When people say that a decline has happened for the first time in 40 years, we must keep in mind that we have encountered a pandemic. Even if there was no lockdown, we would not have travelled or visited restaurants, and the uncertainty would have impacted discretionary spending, consumption and investment.
Much of the government’s response came in the form of easier loans and credit. Many have argued that direct cash transfers would be better. What is your response to that?
I think the Indian response was based on foundational economic principles, which is that when there is uncertainty, households do not spend on discretionary items. For instance, there is evidence in the economic survey that the balance of the Pradhan Mantri Jan Dhan Yojana increased by 500 rupees. It is in the 400 million households at the bottom of the pyramid that the savings increased, which means that there was no consumption. During the lockdown, people would not have indulged in discretionary spending, it would have wasted fiscal space. Once the unlock was initiated, discretionary spending was focused on.
What do you make of Dr Manmohan Singh’s statements that the pandemic has increased inequality?
I think we have to look at the strength of the economic argument rather than the person making it. The chapter on inequality and growth in the Economic Survey has a resounding answer to such arguments. I think their commentaries are based on conversations in advanced economies, where there is a conflict between inequality and growth. In India, this kind of tension doesn’t manifest. The stage of India’s development is different. Our potential growth rate is much higher and the opportunity to lift people out of poverty is also different. So, we should be focusing on growth. We have stated in the Economic Survey that about 85% of the reduction in poverty has come from economic growth. Those resources can be used for redistribution.
Are you saying that the trickle-down effect will lift the poor out of poverty?
No, when you expand the pie, the resources that you get can be used for redistribution. The trickle-down effect does not involve redistribution. Dr Manmohan Singh should note that there has been significant improvement in the bare necessities delivered in 2018 vis-a-vis 2012.
Would you look at redistribution of wealth taxes?
Given our state of development, we have to be careful. We don’t just want to read the Thomas Pikettys of the world who make good arguments for advanced economies because we can’t cut, paste and implement them here. We should continue to focus on growth so that the pie expands.
You praised the new farm laws but the IMF has said that they need safety nets. What kind of safety nets would you propose?
I think the PM-Kisan [Yojana] has provided a safety net. It is important the small farmer is provided options. At present, the small farmer is beholden to APMC [system] and the middleman.
Why aren’t the farmers accepting the laws?
That is the political economy. If you go by the income of farmers in Punjab and Haryana, they are far richer than farmers in other states. There are other dimensions here that are beyond economics which I am not going to comment on. We must also note the number of surveys and the committees that have recommended these reforms.