While it may be too late for the budget exercise, the Central government would do well to consider a socio-economic scheme like ‘Nyay’ to repair the damage and get the economy going again. The scheme first announced by Congress before the last election would have given up to Rs 6000 a month to the poorest 20 percent of Indian families. While the exact details of the scheme can be tweaked, such an investment would have most certainly put money in people’s pockets, boost purchasing power, stimulate the rural economy and put India back on the growth path. It may even justify the current government’s obsession with enumerating citizenship details of Indians through the NPR process.
Instead of creating tension in the country in the name of CAA, NPR, NRC with clear divisive agenda which is hurting the economy, an NPR process to plug the current loopholes in the Aadhar driven Direct Benefits Transfer (DBT) mechanism will be welcome by most. Thus the government could, if it wanted to, address several issues with one major initiative.
No one in India wants to be in the shoes of Finance Minister Nirmala Sitharaman right now, especially after the lacklustre budget. The proverbial Houdini’s act to literally rescue the economy that was expected from the budget has failed to materialise. With nominal GDP growth rate reported for July-Sept quarter around 4.5 percent at its lowest in over six years, retail and wholesale inflation on the rise and unemployment at 45 years high, it couldn’t get any worse. The double dose of demonetisation and hurriedly implemented GST seems to have aggravated structural problems to the extent that the country is staring at stagflation of a level seen never before. The best of economists are wringing their hands on what the government can do to address a situation that is unprecedented in living memory.
After burying their heads in the sand for months on end, the government has reluctantly started to acknowledge the seriousness of the situation. The leaked NSO’s Consumer Expenditure Survey of 2017-18 showed that the ‘real’ per capita household expenditure had fallen for the first time in more than 40 years from Rs. 1,501 in 2011-12 to Rs 1,446 in 2017-18.
Although the Government refused to accept the data, the reality of the economy was soon to be reflected in depressed Index of Industrial Production (IIP) figures with a slowdown in multiple crucial fields such as cement, steel, power etc. RBI’s consumer confidence survey started reflecting the trend in the index in the current state of the economy and the future at its lowest in almost five years. The government and its advisers have been doing their best to talk up the economy by refusing to acknowledge the data or reluctantly admitting that it is cyclical rather than structural.
In such a scenario, the economists advising the government are scratching their heads to come up with solutions that range from continued tax cuts for the industry to various soaps to kickstart the growth engine.
The GDP itself is a flawed measure of the development of society, particularly when its calculation can be manipulated at the whim of government’s statisticians as has been the case recently. However, for a developing country like India, its growth rate reflects the generation of revenue required for the government to take up major social welfare schemes. The current shortfall in GST collection has resulted in states not being paid the amount owed to them as compensation mandated by law. Unfortunately, this hurriedly implemented major tax reform is now saddled with corrupt GST claims running into several tens of thousands of crores. This is bound to impact the state government’s welfare schemes.
Among the most favoured solution to the current crisis is a massive spending plan. To that end, the government has identified infrastructure projects worth over Rs 100 lakh crore over the next five years that are in the pipeline to make India a US$ 5 trillion economy by 2025. Such an investment plan, if carried out on time and without major leakage would certainly do wonders for the country, its economy and the people. However, on its own, given the current crisis of employment, lack of spending capacity and social turmoil it may not be adequate. The financing of the plan could also pose risks such as runaway inflation and pressure on the value of the Indian currency.
In their seminal book, ‘Poor Economics – Rethinking Poverty and the Ways to End it’, Nobel Laureates Dr Abhijit Banerjee and Dr Esther Duflo talk extensively about the reasons of poverty and ways to address it through multiple policy tweaks, where direct income support could be one. While they don’t prescribe any magic bullet solution, coincidentally they have some valuable inputs into the formulation of the ‘Nyunatam Aay Yojana’ or Nyay as it was called.
Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman should be sitting down with the best brains available to them – be it Dr Abhijit Banerjee or Dr Manmohan Singh or Dr Amartya Sen among others to chart the best course for India. If they were to do that, it goes without saying that a minimum income guarantee scheme for India’s poor will be a major initiative that would feature among the various initiatives to be taken by the government to fix the economy. Obviously, it need not be and would not be called Nyay. However, as long as it provides a safety valve in Dr Abhijit Banerjee’s words, for the increasing number of poor that face a very uncertain job scenario in a finance-driven economic climate, the economy will benefit.
Today, India is in a position to be able to implement such an ambitious scheme with the adhaar, bank linkage and direct benefit transfer mechanisms in place. With social churning due to nation-wide protests, this may be the best balm the government can apply to bring the country back from the brink of economic and socio-political chaos.
(The author is a civil engineering professor and principal of KMBB College of Engineering and Technology currently visiting Hong Kong University of Science and Technology as a Research Scholar. The views expressed are his own. He can be reached by email at dhanadam@gmail.com)
