The Average Indian family’s income Gone Down; That is The Real economic Indicator: Praveen Chakravarty, Data Analytics Chairman, Congress

We have seen 21.1% GDP growth compared to 2019, and there were some good economic indicators like export growth at about 17% what was on the eve of the pandemic. In the overall context, what do you make of the economic growth and past-pandemic recovery?

Praveen Chakravarty- See, I think first and foremost all of us should realize that each even before we got into the pandemic, the economy was very vulnerable and weak. 

For me, my measures of the economy are not simply just macroeconomic indicators such as GDP or export growth. For me, first and foremost, the economy should work. Any economic growth should translate into better livelihoods or better median Indian family income. The median Indian family income should see a positive economic impact if things are improving.

I do not believe headline GDP growth reflects the median Indian family’s livelihood any longer. You could argue that it is true for a lot of the countries. But I’m only concerned about India. When I say livelihood, it translates into: Incomes, food, shelter and healthcare. This is what a livelihood is for the average Indian families. Now in this, incomes represents the most critical component where we talk about the Indian economy.  Have the incomes for the average Indian family gone up? The answer is  adequately clear—the average Indian family’s income has gone down. Once we know this, then you please tell us, under what conditions or with what face can we claim that we are a strong and a robust growing economy.

Government is talking about the impact of pandemic-- the shutdown of the economy and such external factors for the stalled economic growth. Government is also taking measures like optimizing government assets and opening them for broader public or private participation. Will these measures unlock the country's  growth potential or do you think these measures are the results of not having adequate good macroeconomic policies.

Praveen Chakravarty- If you are specifically asking me about the monetization policy, then I can talk about that. But if you are asking me broadly about the effect of the pandemic, I will speak first on this.

BW- I would first like to categorize this problem in the backdrop of the pandemic. Has government ever defined its economic policies according to the situation? How did the government fare in addressing the economic policies disrupted by Pandemic?

Praveen Chakravarty- Even during the pandemic, from March 2020 to April 2021, I have must written at least half a dozen articles. During the Pandemic, I wrote any articles along with former finance minister P. Chidambaram, and former Prime Minister Dr. Manmohan Singh. If you read those articles, they are extremely policy driven articles. So we completely understood, it’s a one in a lifetime situation. And we said, you want to take or not, this is what we think should be the response, the economic response to the pandemic. We said: please provide money directly to the people in their pockets as much as possible—the direct cash assistance to people. And, step up the government expenditure and government spending. Do not feel restrained by fiscal, deficit constraints in this period. Now what are the facts, what has the government done? Has the government of India given direct cash assistance to let’s say the bottom half of all Indian families?

Has government expenditure been stepped up to compensate for the lockdowns and the shutdowns and the collapse in private investments? The government expenditure has gone up only by little-- not to the extent that we think it should have gone up. So these are the two areas where government has failed in its economic response to the pandemic. 

Compare India with the rest of the world, the one thing about Covid19 induced pandemic is that it has affected every single person on the planet. So, we can draw lessons from what other countries have done. Can you name a single large country in the world that didn’t provide direct cash assistance to their people or that charged people for vaccines?  I rest my case.

On the vaccination drive, Government  wanted to help other nations in such critical moment as India positions itself in the framework of foreign policy. Later, burdened by the domestic demand, it has walked this promise back. Do you think, such confused thinking led execution issues that in turn hurt economic recovery?

Praveen Chakravarty—The government vaccination policy is completely reflective of how they think about economic policies—or in other words how they do not think about economic policies. The Covid-19 vaccine is a public good. If everybody gets vaccinated quickly, it benefits the entire economy. There is a positive externality to it. It is a public good—like education, like clean water. Now, what was the government’s vaccination policy? They made it sound like airline pricing, where different people pay different prices. Do you apply such models for vaccines? A differentiated pricing policy for vaccines? Charging people for vaccines? We are the only nation in the entire world to charge people for a public good. So, what does that tell you about the clarity on economic policy? It is terrifying if you ask me. I don’t know of a single country that has charged its people. If anything, the government should be encouraging more people to get vaccinated—and may be even paying them to get vaccinated, considering how it benefits the entire economy. It should not be charging them. It’s economically flawed and it tells us that there is absolutely no clarity in how to approach economic policy-making. 

Now, on the monetization part. I would be absolutely and categorically clear. The congress party is not against privatization. Now, do you agree with me that the economy is not in the healthiest of shapes? Private businesses investment is weak. The bank credit growth shows that trend. At a time like this, if I want to sell Indian railways for example to a private player, how many people will bid for it? Given that these call for big investments, how many people will be interested? We will not get competitive bids and we will be shortchanging the taxpayers. This shows that there is no conceptual clarity in economic policy. 

You do not put large public assets on the block at a time when private investments are weak. I want to ask the government if this is all by design. If we don’t get enough bids, they can give it to their favourite and only bidder.

But in a situation like this, we need to unlock opportunity so that we get the momentum. Because anyway, these assets are not performing. So how long we can keep these under performing asset on behalf of taxpayers’ money?

Praveen Chakravarty- I said that we are not against privatization. I am asking a practical question. I will need to get enough bids to divest big assets. Do you not agree with me that ports are big and strategic assets? And capital intensive too. Same with airports and highways. Any economist will tell you that you need at least 10 to 12 bidders for them to be competitive. At a time when private businesses are not investing in their own businesses. Do you think we will get competitive bids? The answer is a clear no.

According to the Government, they are working on securing the macro fundamentals. They are saying that they do not want to overspend because they want to maintain a disciplined fiscal position—something that global investors look at closely. The government argues that this discipline is necessary to attract FDI. What do you have to say in response to that?

Praveen Chakravarty- I think that it is shallow to look at indicators like FDI inflows, stock markets, startups and all that. Any student of economics understands what’s happening. What’s happening is that America is just putting out free money—or what I call phantom money. This money has to travel and it finds its way into the capital markets. India happens to be a very big market because of the size of our country. As investments come, shares on the stock markets go up and the valuations go up. We fool ourselves into thinking that this is an economic recovery. The problem with this phantom money is that it does not lead to sustainable growth, does not generate jobs—and the party will not last long. 

The stock market isn’t the real indicator. Data shows that retail prices are up, inflation is up, wholesale prices are up. So, what structural changes can we implement to improve on the status quo?

Praveen Chakravarty- As I said, I have written at least half a dozen articles with detailed policy prescriptions. In fact, in one article, I mentioned the heads under which money can be spent to give our economy the boost that it needs. We understand the importance of constructive critique. If we look around the world, we see that the countries have done only two things. First, they have stimulated demand. When income collapses, consumption collapses. If consumption collapses, private investments tank. This has a ripple effect and you cannot get out of this vicious cycle without stimulating demand. Now, how do you stimulate demand? One way is to provide money to the people. Every country has done this during the pandemic. I’m not suggesting that this is a 20-year solution. We should do this for at least a year or two. The US implemented a paycheck protection program. In the US, they actually have the opposite problem. Larry Summers said that the country has given too much money. But too much money is better than no money. We have no other way than government investment. If we do this for a year, we will see incomes going up and the economic motor revving again. Then, by all means, the government can step back and let the animal spirits of the private sector take over.

India has uneven economic growth. Industrial investment is largely confined to states like Gujarat, Tamil Nadu, Karnataka, Maharashtra, and Andhra Pradesh, while rest of the states lag. The curious case is Bihar which has all the basic infrastructure but hardly gets any investments. What do you think we should do to make this situation better? It impacts the India’s overall GDP growth.

Praveen Chakravarty- I am going to point out research that I have published in 2016 and 2017, based on my study of fiscal federalism—the North-South divide. Let us assume that Apple wants to set up a manufacturing plant, which will generate a large number of high-quality jobs. Why do they all end up locating their factories in Karnataka or Tamil Nadu or Maharashtra. Why are they not going to Bihar or other states? We should also note that the price of labor in Tamil Nadu, Maharashtra and Karnataka is higher than the price of labor in Bihar and UP. The price of land is much higher too. Apple will decide to invest in Tamil Nadu because the company determines that the differences in the price of labor in Karnataka and Bihar are not as significant as the social conditions. They think they have in Tamil Nadu or Maharashtra a reasonable respect for the rule of law, where they don’t have to worry about labour problems, violence and communal clashes. So, what we need here is actually a social policy fix, not an economic fix. There are no shortcuts—no other way to attract people to Bihar. Tax incentives or free land leases don’t work. We have to get them through social policy.

Are you saying that the government has no role to play in investment policies?

Praveen Chakravarty- No—the government has a role to play in social policy—that’s my point. I don’t quite buy the ease of business argument. It’s the ease of living that dictates the ease of business. By ease of living, I mean reasonably good living conditions for the majority of people. Most importantly, I do not have to worry about wild eruptions of violence in my backyard that can potentially destroy what I am planning to build. The ease of business comes later—access to land, labor and all those things.

Let’s take the case of banks in India. The government blames the UPA for the financial mess—the NPAs. Banks are being privatized now. What is your take on this?

Praveen Chakravarty-- Banking crises are like monsoons. They keep coming periodically. That’s the nature of banking. All countries have banking cycles. Big NPAs, crashes, NPAs rise again, then crashes. I think the government is merely hiding behind the pallu of the NPAs. Let’s assume that the banking sector was in a crisis in 2014. We are now in 2021. Is the government telling us that for seven years they could not fix the banking crisis? Take the 2014 budget or even the 2015 budget presented by the then Finance Minister, Arun Jaitely. Why was the banking crisis not figure predominantly in that budget? And 7 years later, you are still talking about the banking crises.

What would you advise the government now?

Praveen Chakravarty--The banking scandals over the last few years have actually been more in the private sector. From what I know last, the founder of a big private sector bank is still in jail. We know what happened to ICICI bank and YES Bank. This is not merely a public bank or a private bank issue. Private sector banks are more efficient, but that doesn’t mean they are less vulnerable to scandals or NPAs. In fact, I did extensive research five years ago that essentially showed that the more you lend, the more you are at risk of NPA—and the more you lend to companies, the more you are at risk. The State Bank of India lends mostly to companies, so they will absolutely be more at risk. The private sector banks don’t lend to companies as much.

Now, we can’t say we will not lend to corporates because it will reduce NPAs. But, it is a much more nuanced and complex subject. NPAs and other crises are part of banking. The serious issue is that if we acknowledge there was a problem in 2007, why has it not been fixed in 2021?

Let’s talk about welfare schemes for the poor. MGNREGA is one of them. The government talks about the digital revolution that enables corruption-free direct transfer of money into the hands of poor. How do you look at such welfare policies?

Praveen Chakravarty- 

On MGNREGA, I can site numbers—64 million families were depending on NREGA during the pandemic and 16 million just in the last month of August—the highest ever. If there was no NREGA during the lockdown, we may have had riot like situation. 

NREGA saved this nation and I think we must all acknowledge that—and not just be petty about it. At the very least, we  must acknowledge the enormous contributions of the team, which includes the economists, you know Jean Dreze and others in the government of Dr. Manmohan Singh.

64 million families were dependent on NREGA just this year when we are talking of a V-shape recovery. Do you know the total number of employees in all the companies listed on the stock exchange combined—all the 5000 companies? And we keep talking about stock market rising.

And I applaud Dr.Singh and the team for it. They had a record budget for NREGA. Our current Prime Minister said it was a monumental failure. Nirmala Sitharaman stands up in parliament today and says proudly that we have the highest allocation for NREGA in 2021.

That brings me to the second question, if the digital revolution is working so well, why did you have to depend on NREGA? When the worst crisis hit, why didn’t your digital revolution help you? Why did you have to 

Now, on unemployment and skill development in the country, what would be your policy response on the crucial issue of rising unemployment?

Praveen Chakravarty- 

Well, economic inequality in my view is a ticking time bomb. I don’t think we have really understood the gravity of that problem. It can explode anytime if we continue on the same path. I gave you the example of 6 million employees vs. 64 million.

Every single newspaper and business magazine talks about stock market highs and FDI. What do you think are the 64 million feeling? I think it is a very serious problem that was exacerbated by the fact that our narrative is completely captured by the few. I refer to Bill Gates who famously said that in healthcare 90% of all funding goes into solving drugs to cure diseases that affect 1% of the world’s population. 

Unfortunately, that’s becoming true of economic policy, which is why I keep coming back to this. To me, inequality is a ticking time bomb. If we don’t fix it, it will lead to big problems and to fix it, we have to focus on human capital—in terms of capital, education, skills and that alone isn’t enough. We can skill people, but we also need investment to provide them jobs. So, I don’t believe this is a one-solution thing. We need human capital, but we also need availability of jobs—good quality jobs that can only be created by the private sector. The government role is in human capital and job creation is the private sector’s role.