New Delhi: The country has already lost a lot of time due to the government’s policy of extending credit support to stimulate a failing economy, which did not produce the desired result in absence of large-scale cash transfers to the vast majority of India’s poor people that was essential for boosting the demand, said a top economist.
The government should transfer minimum cash to 40% the country’s population and provide more money for improving the efficient use of water in agriculture in the next year’s budget even at the cost of PM Kisan Samman Nidhi scheme or fertiliser subsidy for farmers, says Santosh Mehrotra, a New Delhi based human development economist.
"We have already lost a lot of time so the budget must increase the public investment significantly," Santosh Mehrotra told ETV Bharat in an exclusive interview.
Mehrotra says the government needs to borrow more to increase the public spending and put more money directly into the hands of the public.
"The government must seriously consider a cash transfer to the poor," he said.
Mehrotra says the government does not need additional money for cash transfer as it can utilise the budget allocation for PM Kisan Samman Nidhi to reach out to even a larger number of beneficiaries by widening the criteria.
"All the major economists in the world are recommending a cash transfer or minimum income guarantee," said the economist. "I'm just talking about giving Rs 500 a month to 40% of the poor people in both rural and urban areas."
He says cash transfer to senior citizens, widows, differently-abled persons under the PM Garib Kalyan scheme announced in March last year was not enough.
Under the PM Garib Kalyan, the Centre transferred cash subsidy to 20 crores (20 million) women PM Jan Dhan account holders, and also to other vulnerable groups such as senior citizens, widows and other differently-abled persons as a part of its strategy to ensure basic food, fuel and some cash in their hands during the lockdown period. The scheme ended in November last year.
Rural Employment Guarantee
The economist also criticised the government for not making a substantial increase in the allocation for the rural guarantee programme (MGNREGA) to provide a livelihood to hundreds of millions of returnee migrant labourers.
Like several other economists, Mehrotra also urged the government to expand the NREGA to urban areas.
"It will bring back workers to urban areas where they are actually needed."
He, however, cautions that the government should focus on promoting the construction work, affordable housing in tier-II, tier-III and tier-IV towns instead of metros as these large cities are already over-congested.
In order to provide short-term employment to returnee labourers, finance minister Nirmala Sitharaman announced an additional allocation of Rs 40,000 for the MGNREGA in the current fiscal, taking the total allocation to over Rs 1 lakh crore.
However, the actual increase in the MGNREGA expenditure this year over the expenditure would only be to the tune of Rs 30,000 crore as according to the revised estimates, the government spent Rs 71,000 crore in NREGA last year against the budget estimate of Rs 60,000 crores.
Mehrotra says local bodies must be strengthened for expansion of employment guarantee in urban Centres.
Sudden lockdown destroyed economy
Santosh Mehrotra says more than the pandemic, a hastily announced and poorly implemented lockdown, destroyed the economy and livelihoods.
“We need to separate the impact of the pandemic and the impact of lockdown on the economy and livelihoods,” he said.
“This is why the contraction of the Indian economy in the first and second quarter of the current fiscal was worse than any other country in the G20,” said the economist.
Mehrotra says a country like South Africa, with just one-twentieth of the population, gave four-days notice and in India, the lockdown was introduced with just four-hour notice.
"Even the states were taken aback," he told ETV Bharat.
Mehrotra underscores the several problems with the lockdown: it was too sudden with no room for planning; it was implemented earlier than required as there were less than 600 cases in the country, and a national lockdown was not needed as most of the cases were confined to 9 cities having international airports.
Citing a study conducted by the Oxford University, Mehrotra says India's lockdown was the strictest lockdown that brought down the entire economy to a standstill and economy collapsed.
Mehrotra, who has done extensive work in the field of human development, employment and rural livelihood, says despite a projected GDP growth of 9-10% in the next fiscal, the per capita GDP will not come back to the level of 2019-20 before March 2023.
Falling per capita GDP
According to the first advance estimate of the GDP growth for the current fiscal, India's per capita GDP in the current fiscal will fall below Rs 1 lakh in four years.
"As a result of this and contraction of jobs and decline in wages which is already happening, there will be a very sharp increase in poverty," Professor Mehrotra told ETV Bharat.
He also highlights the sharp contrast between the massive job losses in the formal and informal economy at a time when corporate earnings during the lockdown increased significantly.
"Corporations are cutting the jobs, they are cutting the salaries of those left in the jobs at a time when the profits are at the highest," he said. "As a result 'inequality is going to increase."
Mehrotra says the government's approach of supporting the supply side by providing easy credit to MSMEs will not help revive the economy as they will not start producing unless demand picks up.
He also rebuts the government's claim of giving a stimulus of 15% of the GDP under Prime Minister Narendra Modi's ambitious Atma Nirbhar Bharat (a self-reliant India) campaign to reduce the country's dependence on foreign countries in critical sectors by promoting local industry.
Mehrotra says the actual government spending on the stimulus was not more than 2% of the country's GDP and easy credit to boost the supply side will not help revive the economy unless the government puts the money into the hands of the people to boost demand.
Spend more of public health
Santosh Mehrotra also seeks more allocation for public health infrastructure as not only it will help in the mass vaccination drive to fight the pandemic but it will also help in generating employment.
"It is a labour-intensive sector, you need doctors, nurses, paramedics etc.," he explained.
"We just spend 1.15% of GDP on the public health system. We have one of the weakest and dysfunctional health systems in the world. We need to increase it to 2.5% as recommended by the national health policy of 2017 prepared by this government," Professor Mehrotra noted.
"The health policy says: do it by 2025, the 15th finance commission headed by NK Singh recommends doing it by 2024," he told ETV Bharat.
Infrastructure development still crucial
Mehrotra also rejects the argument that now the government should focus more on digital infrastructure rather than building roads, ports and highways as the Covid-19 pandemic has fundamentally changed the way people live and work as remote working, or working from home dominate the work culture in future.
"We are still under-built. We need more and more roads in rural areas particularly in northern states," Santosh Mehrotra said.
"Roads are the best way of reducing rural poverty," he said in response to a question by ETV Bharat.
Not only it gives immediate work, but it also provides the opportunity for faster movement of perishable farm produce, easier connectivity markets and schools, he added.
Reform the farmer's bills
Mehrotra criticised the government for hastily implementing the three agricultural laws without consulting States.
"Our agriculture is extremely diverse, we have 8 agro-climatic zones in the country, we grow 50 diversified crops, one size fits all kind of law will not work," he said while recommending amendments in the three farm laws.
He also urges the government to allocate more money in the budget for promoting new technologies in the farm sector such as drip irrigation to reduce the use of water in the country's agriculture.
"We have the highest usage of water in agriculture in the world. The government needs to divert money from subsidising fertilisers to water conservation, water management, for improving land records, encouraging states to allow tenancy where it is not permitted," he said.
"Unless you address structural problems of agriculture, rural distress will not go away."
Industrial Policy
When asked about what should be the long-term vision for the Union budget, Mehrotra said the government must announce a long-term industrial policy as it has not been done since the early 1990s.
The economist said that the recently announced product linked incentive scheme (PLI) by the Modi government for certain sectors of the economy was not enough for industrial revival.
"It's a sectoral scheme, you need a cross-sectoral approach for industrialisation to pick up," he told ETV Bharat.
Mehrotra says industrialisation will also help in mitigating the rural distress. "You have to pull workers outside agriculture, in services, manufacturing and construction."
He also criticised Prime Minister Narendra Modi's flagship ‘Make in India’ scheme that aims to overhaul the manufacturing sector but failed to increase the share of manufacturing in the country's GDP.
"Share of manufacturing in the GDP and in employment has actually fallen in the last 5-6 years," he noted.
Mehrotra says the effort to boost manufacturing in 10-12 sectors through the production-linked scheme will not be helpful.
"In the last six years, labour-intensive manufacturing sectors in our country lost their jobs for the first time in our history. These are textile, garments, wooden furniture, leather and footwear etc."
"We need a more broad-based manufacturing strategy, particularly for the labour-intensive sectors," Professor Mehrotra told ETV Bharat.
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