As the country gears up for Union Budget 2020, amidst the ongoing slowdown, former chief statistician Pronab Sen, shares his views on the recent cut on personal income tax. In his opinion, this step taken by the government might not be of much help in recovering the economy; rather chances are high that it might worsen the slowdown. Excerpts from an interview with Rajat Mishra
They are seeing the current economic scenario we are entering a stage of stagflation, which constitutes that plummeting GDP, high inflation rates and higher unemployment rate. And now India’s GDP has plummeted to five per cent—lowest in six years; unemployment rate is at 45. So, it would be appropriate to say that we are entering a stage of stagflation.
Not really, because what you are seeing actually is that the inflationary numbers are being driven essentially by agricultural products. And if I take out the telecom effect, it is actually going down. So what we are really looking at is that if you exclude agriculture from this picture—deflation. Stagflation happens when output is stagnant, but inflation keeps going up.
That's not the case; what we're seeing is, within a lot of sectors, prices are actually coming down and in some cases even turning negative and in some have already gone negative and more negatives. So, it would not be correct to say that we are entering in the stage of stagflation.
Experts and economists are already signalling a recession. Does this argument hold currency?
Well, unless something is done to reverse the process, the possibility exists? We should not underplay that. To believe that if we just keep our hands off, somehow the economy's going to turn around. May be over-optimistic.
Sometime back, Arvind Subramanian, former chief economic advisor said that India's GDP has been overestimated by 2.5 per cent, between 2011 and 2017. Your assessment of the statement.
Well, I frankly disagree with Arvind. The main reason why this whole debate crops up is that the GDP estimates, by and large, tend to pick up only the corporate behavior other than agriculture, where we do have independent data. Now, if the corporate and the non-corporate sectors behaving roughly similar, GDP estimates are fairly accurate, but post-2017 18 onwards, I think that connect has broke.
Therefore, we have had first the situation where the non-corporate sector went down because of these two shocks; while the corporate sector went up. And so the two are moving in different directions and since we are extrapolating is incorporate data, we may have overestimated the GDP.
The point is that at this moment the corporate sector is coming down. That's what the GDP numbers are telling. What is happening to the non-corporate sector we still don't know it could have turned up we have no strong numbers on it. I disagree with him. I'm on record on that.
So, what are the various steps the Finance Minister can include to boost consumer confidence and consumer state in the economy?
You see, that is relatively difficult to do. I mean I know there are some fairly obvious kinds of things that can be done. I mean for instance PM Kisan Yojana, whose rollout has been very poor, the other is an MGNREGA, as the states require more fund.
What the government needs to do is to boost confidence to those who are at the base of our consumption in India; they are people from the rural sector as a whole and the informal sector. Making sure that all the payments, all the subsidies are going out in order to boost consumption.
There is one big speculation just ahead of the budget that the government is going to slash the personal income tax for the middle-class people, you know, hope that it is going to revive the consumer confidence and spirit in the economy. Do you think that it is a right step?
No. I mean this will just worsen the problem
You see, all the poorly performing indicators across the sector, Prime Minister's dream of creating a $5 trillion dollar economy by 2024. Do you think it is feasible?
I do not think so. Because you have lost one year, this year is gone. Next year is not going to be better. Okay. So making that up in three years is virtually impossible.