The issue of indiscriminate expenditure by states to woo voters has been brought to the fore once again by a petition filed in the Supreme Court. Ever since the petition has been filed, it has divided experts, economists and policymakers, with many finding them on the opposite sides of the ideological spectrum over this issue of what is colloquially termed as ‘freebees, vis-à-vis the very idea of a welfare state . While speaking on the same matter, in an exclusive interview with Business Today, leading economist Jayati Ghosh said that she finds this whole debate a little distressing and hypocritical.
“I find it completely wrong headed in terms of how it views both economic rights and distribution,” she said.
“If you're giving free water and free electricity to at a minimum level, to meet the basic needs of human life, I do believe it's the responsibility of [a] government to provide for every citizen, who really means you have to make it free. So yes, I believe free water up to a minimum level, free electricity up to a minimum level, is the right of a citizen. Thereafter, it should be graded. A certain minimum, I think, is absolutely essential, and it's a human right for everyone,” Ghosh said. Ghosh, who teaches at the University of Massachusetts, Amherst, was also appointed by UN Secretary General Antonio Guterres to a new high-level advisory board on effective multilateralism earlier this year.
The public interest litigation questioning political parties announcing freebies as electoral promise has pricked many state governments. The ruling DMK party of Tamil Nadu moved to the apex court asking to become a party to the petition. State governments are of the view that these are not freebies and are very much essential for the welfare of people belonging to lower strata of society. However, some state governments have also opined that the apex court has no business to dictate state governments as to how should they spend public money by a government elected by the people.
Launching a scathing attack on the central government, Ghosh said: “What happens when you write off taxes for a sector for 30 years, is that a freebie to that sector? The software industry in India benefited from a 30-year-tax holiday. That's not a freebie. The corporates in India benefited from a significant decline in corporate income tax in 2019. Which was supposed to cause an investment increase, but it didn't cause an investment increase. In fact, it cost us 1.9 per cent of the GDP. That's not a freebie? So how come a freebie is only something that the poor get? And the rich are getting all these tax benefits and all these concessions?”
Talking about shooting up states’ debt, Ghosh went on to add that unsustainable state debt is certainly a worry but the onus of having unsustainable debt levels amongst states is on the centre.
“The fault lies squarely with the center. The states have high debt because a large part of what was owed by the centre in terms of compensation for the GST, they were supposed to be given the equivalent of 14 per cent increase every year, and the centre was going to make up that shortfall. It was a legal commitment of the centre. They didn't do that. What did they do? They allowed the states to borrow, instead of meeting their own legal commitment. So a lot of these states are in debt, because the centre forced them to borrow instead of paying up what it owes,” Ghosh explained.
Flagging a rising current account deficit as a worry for the Indian economy, she said, “CAD is driven by the trade deficit, which is expanded hugely, but also by the remittances which have saved us in the past, it's really remittances have been more than all types of capital flow put together, which is why current account deficit was not bigger in the past.”
“I think there are measures that could be taken on the trade account for sure,” she added.
She cautioned that we also have to worry about outflows increasingly because, in this more uncertain world, we're likely to face much greater volatility, as monetary policy tightening happens in advanced economies, all the emerging markets are going to feel the strain. And India is no exception. She points out that headwinds coming to India is quite likely and it is imperative that we actually start planning ahead.
According to the veteran economist, the rupee has been shored up right now, because of the intervention from the Reserve Bank of India (RBI).
“As we know, the RBI have been doing open market operations to somehow keep the rupee propped up away from the psychological barrier of 80 against the US dollar, there is no doubt that that barrier will be breached in the near future,” she said.
Explaining broadly the present predicament facing Indian economy, Ghosh points out that India cannot have a large trade deficit, along with a large current account deficit and global volatility, with capital outflows.
“And let's face it, it is not really very great prospect for your own economy, and it will lead to depreciation of rupee, and that, in turn, will generate inflation. The question is, does the government have a plan to deal with it?” Ghosh pointed out.
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