Govt underestimating the suffering of the poor: Kaushik Basu

In a very critical assessment of the state of the Indian economy, noted economist and former chief economic advisor Kaushik Basu has slammed the current government's economic management, alleging that not enough is being done for the welfare of the poor.

In an exclusive interview with Business Today TV global editor Udayan Mukherjee, that will air tonight at 10:30 p.m. on India Today television, Basu was of the view that while the economic policy framework has worked well for the top end of India, which is doing well, they have misfired for the bottom segment which is worse off than before. The renowned economist added that with India's population growing at 1.2 per cent annually, real GDP per capita has shrunk at -0.1 per cent over the past two years.

"From 2016 onwards, India's growth every year is lower than the previous year. For the past five years, each following year is doing worse," Basu said, adding that "this has not happened since 1947, creating a pretty grim situation for workers, farmers and even for the middle class".

The former World Bank chief economist also dwelt on the key challenges and growth challenges for India. "India was a global story during 2007-2012 when 39 per cent of the GDP was investments. That time, the question was whether it will be India or China in the lead? But now investment contribution has fallen to 32 per cent and the India story is nowhere near the top", he said. 

One of the biggest problems of the Indian economy, Basu feels, is the state of the country's job market. While the government, he says, has rightly been highlighting the growth of the organised sector, that growth has not been inclusive. According to the ace economist, the organised sector has not been able to absorb the job losses of the unorganised sector leading to youth unemployment surging to 24 per cent in India. The overall unemployment rate, meanwhile, has risen to 7.91 per cent versus 5.6 per cent in Bangladesh.

Another big concern for Basu is what he calls government investment in non-productive areas. Criticising the central vista project, Basu feels it would have been proper had the economy been in a better condition. "Spending $2 billion on the project over two years without producing worthwhile goods will only fuel inflation", he said, adding that "while the project is creating 10,000 jobs, doing this with unproductive investment will lead to rise in prices".

Basu, who is currently a Professor of Economics at Cornell University, says the government should not worry about fiscal discipline right now with burgeoning indirect tax collections. While higher spending will lead to a price rise, inflation control, he feels, should be left to the capable hands of the Reserve Bank of India. The best way to stimulate the economy, he added, is by directly supporting the poor with money. This could also include direct monetary support to small businesses to help them create more jobs.

He is also of the view that the current government is underestimating the suffering of people in the lower economic strata. "The government role should be taxing the top tier and distributing it among the lower classes. The monetisation plan should be executed in the same spirit, by a very professional body - affecting a transfer from the rich to the poor. It should not lead to a Pakistan-like situation where, I've heard, 22 families own everything".

Basu talks of trust as one of the bedrocks for a booming economy, the other being physical infrastructure. "Scandinavian countries do well because they have trust in society. East Asian countries also have trust, so they do well", he says, adding that "in India society is growing polarised and trust is declining". This, he claims, does not bode well for the economy.

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