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This Govt. Is Clueless, My Advice Is Borrow And Spend-- P. Chidambaram

The economic growth statistics of the last financial year underplay some economic indicators like FDI and GST collection. The GDP numbers released by the National Statistical Office (NSO) show a 7.3 per cent contraction of the Indian economy over FY2020-21 ‒ the worst in over 40 years. Along, we must subject FDI to a closer analysis. Where are we headed in terms of economic planning and how do we reorient our growth story? And, crucially, what about India's youth dividend turning in bubble? Former Union Finance Minister and Congress member of Parliament, P. Chidambaram discusses these and other lacunae in planning with BW Businessworld’s Manish Kumar Jha.

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Despite the warning, the healthcare infrastructure in India did not receive the attention it deserved. While the Union Budget provides $ 4.75 billion for healthcare and vaccination, these resources now get stretched because of the severity of the second wave of Covid. What were the missing elements in our planning process?

P. Chidambaram: The missing elements are foresight, modeling and a plan. The only thing certain about COVID-19 is that it is totally uncertain and unpredictable.  We therefore require very competent planners. After the abolition of the Planning Commission, the government has lost its focus on plans and planning. The absence of plans in the midst of a raging pandemic is showing up in the shortage of vaccines, ventilators, concentrators, oximeters, hospital beds, medicines etc. Providing money is necessary, but to allocate and spend the money requires plans. That is missing.

Congress Govt expenditure on Health has been drastically low (% of GDP)

The emerging data due to the impact of the second wave of Covid-19 is leading to lower expected growth. Most of the growth projection that the Union budget was built around are mired in uncertainty.  Moody’s projection cuts back the GDP forecast to 9.3 per cent from 13.7 per cent. How realistic is the GDP growth story, viewed from the low base? How do you look at the economy now? 

P. Chidambaram: The GDP for the year 2020-21 has probably ended with -7 or -8 per cent growth over the previous year. It is an unprecedented low base. Assume there is a recovery, how much can it be? 

I don’t buy the forecasts of 9-11 per cent growth in 2021-22.  It will be lower and, if there are extended or multiple lockdowns covering most of the country, it may be even be closer to zero. 

Our target must be to reach the level of the GDP at constant prices achieved in 2019-20 (the year before the lockdown). 

We fell short of that level in 2020-21 and may fall short again in 2021-22

Many argue that the fiscal deficit target is irrelevant during an extraordinary situation such as this and that the government should rather focus on a large enough stimulus package. And, we are still talking about 1 per cent of GDP, what is your take on this?

P. Chidambaram: There was no stimulus package as such. In 2020-21, against the pre-pandemic BE of Total Expenditure of Rs 30,42,230 crore the RE was Rs 34,50,305 crore. Not much to boast of in terms of ‘stimulus’ expenditure. Are we likely to spend enough in 2021-22? 

The BE of Total Expenditure in 2021-22 is Rs 34,83,236 crore, almost no increase. This government is going against the advice of every renowned economist in the world. My advice to the government has been “borrow and spend”.

The government is both clueless and timid.

Are we embracing enough free trade? While the mantra of privatization was sown much early during the term of the Congress government, why oppose the present government’s stance of privatization of non-critical sectors? What is your take on sectors like defence, ordnanace factories (OFs), which have become redundant and are a huge liability in terms of production and performance? Why not privatize the OFs since we end up buying arms, ammunitions and equipment from overseas? 

P. Chidambaram: Congress embraced free trade first. I was the Commerce Minister in 1991-92.   We are not against enlarging the space for the private sector. 

Chronic loss-making units can be privatized straight away. In the case of non-strategic profitable units, there are many options which I need not elaborate. In the case of strategic industries, we must weigh the option of total privatization and the alternative of private and public units in a competitive economy.

 Anyway, the time to debate this issue is not when the economy is in a recession and the appetite for new investment is low. Remember, there is a world wide pandemic and India is among the worst affected countries.  The focus must be on controlling the pandemic and saving lives and livelihoods, not debating privatization. 

What is your take on consolidating the public sector bank? Will privatization of public sectors bank be able to bring far-reaching impact on making our banks relevant in the 21st Century?     

P. Chidambaram: Banks were nationalized at a particular time and in a particular context. There is no harm in reviewing the policy from time to time.  Consolidation of banks can be part of that review. Private banks have failed too. The crux of the issue is regulation, not ownership. We are in favour of improving regulation and oversight of the banking sector.  We can take whatever steps are necessary to make our banking sector more efficient and more relevant to the needs of the 21st century.  Besides, public opinion, in my judgement, is not in favour of total privatization of the banking sector (remember, that will include SBI) at this stage of our economic development. Just ask your readers, how many of them will support privatization of SBI? 

the Govertment talks about consistent FDI-- record high last month -- and ease of doing business reforms. According to you, does it translate into capital gains, industrial investment and thus economic growth now?

P. Chidambaram: We must subject FDI to a closer analysis. Is FDI in equity or debt?   Is FDI an additional investment in the business or for changing ownership from Indian hands to foreign hands? Which are the sectors that are attracting FDI?  Without such a close analysis, the debate on FDI is a sterile debate and the boasts about ‘greater FDI’ are empty boasts. 

The unemployment rate is rising and there is a mismatch in our educational system. Do you fear that the demographic dividend that we have been harping on is merely a bubble?

P. Chidambaram: I am afraid we are not reaping the benefits of the demographic (youth) dividend. We still have a young population, but only a fraction of our youth is college educated. The majority of our students stop with school education and many of them drop out at class 5 or class 8 or class 10. The other concern is the quality of our school education and college education. We have the best and the worst schools and colleges. 

None of our universities are in the top 50 or 100 of the world. The best among our students want — and find a way - to join a reputed university abroad. Many of them do not return to India.

We have not understood the dimension of the problem or taken steps to address the problem comprehensively. All governments must share the blame. 

3,700 PHDs holders, 50,000 graduates, 28,000 PGs have applied for 62 posts of messengers in UP police. The post requires a minimum eligibility of Class V.