Prannoy Roy spoke to Raghuram Rajan, Kaushik Basu, Paul Milgrom, Michael Kremer and Abhijit Banerjee
NDTV: Hello and welcome once again to the second in our series of four Town Halls on post-pandemic India, where we are trying to understand what's coming next for us. So as India bounces back, to help us understand what lies ahead we have Raghuram Rajan and Kaushik Basu as well as the Nobel Prize winners, Paul Milgrom, Michael Kremer and Abhijit Banerjee. And we shall end this series of four Town Halls with Amartya Sen. Today we'll be focusing on the farmer's protests in India and what needs to be done. We'll also take a close look at this Budget and in particular on the word privatisation and we ask, are global ratings agencies what they are really cracked up to be?
But first before all that, what is and has been the role of technology in helping us to combat the Corona virus and its increasingly worrying variants. From vaccines to everyday functions, which you and I get involved in, like Zoom video meetings, that have helped many people in this era of social distancing.
So how has technology helped us combat the Pandemic and how will technology change our lives in the days to come?
Paul Milgrom, it is amazing how in this new world of technology we have developed a vaccine in 12 months which in earlier times used to take 5 to 10 years to develop. Especially the new and wonderful mRNA revolution. It's a whole new world of vaccines. You have studied various kinds of technology closely. Are there other technologies which could help the world, and India, fight and contain this pandemic?
Prof Paul Milgrom: I think they will make a big difference. I think what people are thinking of when they're suspecting it might not, is they're thinking, well download speeds are already pretty fast. If I have 4G, if you're a consumer user, that'd be a little faster, but so what? But what the big promise of 5G is in all the new uses. We have the Internet of things, everything being connected. We're going to move into an era before too long, where there are self-driving cars and they're going to be able to drive closer to each other because they can communicate and respond faster. We are going to have, you know, there's a whole range of, we already have shipments and logistics being drastically improved because everything is being tracked. We'll have time of day pricing for electricity. We'll have all sorts of things where instant communications, among things, make them operate better and more efficiently. And that's the promise of 5G. It's not so much just faster download speeds for your movies or something.
NDTV: True, the Internet of things is a really crucial part of all our futures, because IOT is going to make everything more efficient, perhaps even greener, because you're saving time and logistics, travel and transport etc. Is that right? Even video conference meetings are helping reduce the carbon footprint. Isn't that right?
Prof Paul Milgrom: Yes, that when you were talking about Zoom, that is of course, another one of the advantages of Zoom. Distant meetings, reducing the need for transportation and flight. You know, we missed that, my flying to India and visiting you there. But we also saved quite a lot of carbon emissions by not having so much of that. So yes, yes. technology should help.
NDTV: Now switching to technology that's closer to home and to our work that all of us have experienced so much in the last year, in fact all of us are almost becoming addicted to Zoom video meetings, is this the future or are we just going to return to physical face-to-face meetings again?
Prof Paul Milgrom: Well, you know, yes Zoom is an imperfect substitute for many of the things we do. When I meet with students, I can't shake their hands. When I meet with friends, I can't hug them. Zoom just doesn't do that. And Zoom also doesn't do the occasional informal interactions where you bump into a colleague or you walk out of a seminar and start talking about what you've just been hearing. It's only organized meetings that we do over Zoom. So there's a lot lost, but on the other hand, there's a lot of things we can do more easily now. For example, I can talk to you in India without having to fly for a whole day there and a whole day back. And so those things are changing the patterns of work, I think, and I think that's going to be a permanent change. We don't expect video meetings to replace everything, but we expect it's going to be easier to work with people in more distant parts of the world. We expect that areas like Silicon Valley here, where housing prices are so high, and it's hard for people to move, there'll be people who work at a greater distance and they'll have the disadvantages we were just talking about. But it'll be possible for them to work. And that's a continuation of a trend that has been going on that's affected India for a long time. People working in the software industry have always worked remotely to some degree, and that became more and more possible as communications got better. So it's a continuation of that trend.
NDTV: As you point out, this era of technology is a seismic shift from the past. Let's move on from tech for a moment and take a closer look at this year's Budget in India. A Budget that focuses on infrastructure and construction, and one that uses a so-far-unmentionable word by any government so far, but is now out and up front in the Budget, the word is Privatisation, no longer dis-investment.
So the one thing this Budget, a post-pandemic crisis Budget, provides greater clarity.
Raghuran Rajan, focusing on this Budget, and looking at what next. The medium term forecast and the short term forecast beyond the Budget. Would you say this Budget is more transparent than normal? I mean in your analysis can you explain what you feel are the hits and misses in this Budget. It's clear that what they have actually put forward. First on the hits, what are the positives in his Budget?
Prof Raghuram Rajan: Well, first I think transparency, which you mentioned, is important. And coupled with that, I think, as important is restraint. Earlier Budgets, you saw the day the Budget was announced, numbers didn't make any sense. The kind of optimism that was built into the Budget was just off the scale. So you knew the revised budgets and the re-revised budgets, would finally recognize the truth but closer to the end of the year, rather than the beginning of the year. And so these were really, in some sense, make-believe budgets. I think this Budget has been more careful in both recognizing some of the off balance sheet items, such as the Food Corporation of India sort of spending, but also being a little more modest in its projections, so much so that if we don't see a recurrence of the virus, etc, and for every country, it's always modulo the virus.
NDTV: Raghuram I mean, I just think, from all experience, economics is a really uncertain subject in any case. You get 3 economists in a room and you'll get 5 different forecasts. And if they are three Bengali economists, you'll get 20 forecasts, sorry don't quote me on that. To add to the uncertainty of economics we now have economics and the uncertainty of COVID. Because it's amazing how many divergent views there are on the coronavirus, which people really, no one really still fully understands. So the combination of two uncertainties, we're in deep trouble, uncertainty of economics and the uncertainty of this new virus.
Prof Raghuram Rajan: Yes, right. So, I think with the modulo, our growth performance probably is going to be better than what the Budget presumes. And the buoyancy in taxes is also going to be higher than what the Budget presumes. So, in that sense, there is some space the Budget has which is greater than the normal year. So those are certainly good things in terms of transparency. I think in terms of laying out some ambition, including raising more resources through privatization, etc, I think those are useful. What is absent there is detail, and detail is really important, because how you privatize matters as much as the intent to privatize. So, we can come to that in a second. I think the spending on infrastructure that has been announced is also important, because infrastructure tends to lift growth across the economy. I would love to see more resources, there's been some delegated to the states so that the states can also spend. There is a little more room given to them. That's on the positive side, some ambition, some transparency.
NDTV: Abhijit Banerjee I know that by and large, you do not like to discuss Budgets, I know that. But just give us an overview, if you could, about this Budget and what makes it different from the rest? What's your view about this, this latest Budget that we've just had?
Prof Abhijit Banerjee: You know, in many ways, the Budget has the one big obvious advantage, and a rare advantage, of being quite coherent. The Budget takes a very clear view of what it wants to do. I think it may or may not get there, but I think clarity is a good first step and I think there's clarity here. It's very much a supply-side Budget. There is really, despite, for example, the enormous turmoil in agriculture, really you know subsidies are mostly kept constant. There's no attempt to provide extra money to anything except for example, the APMCs are going to be upgraded. This construction and construction is at the heart of this Budget. It's the construction of the textile hubs, the construction of highways and other roads.
NDTV: Just getting back to the thrust of this Budget, at least it has clear direction, now of course everything depends on the ability to implement the Budget ideas on the ground, in fact it all boils down to just 3 things now, implementation, implementation and implementation.
Prof Abhijit Banerjee: It's all of that, I think it's a coherent plan. I am less convinced it will work. But, at least to give credit to the government, it has gone against the grain of throwing money, little bit of money at many things. Tax this little, tax cut that little other thing, etc. Mostly it hasn't done that. The fact that the pensioners don't have to file, etc, you get very little money from most of the people who are just getting pension and have no asset income. You're getting very little money from them. So, you might as well not bother with that and so overall I think it is a very consistent supply-side Budget.
NDTV: With the Budget focusing on infrastructure in general and specifically on construction, isn't that a positive move in terms of both what the country needs, as well as what the poor and the most vulnerable need at this time or is it a little long term, but will it have immediate effects?
Prof Abhijit Banerjee: That's at the heart of the Budget. It's not a crazy theory, because I have been saying this for many years, that construction is actually the heart of the transmission of earnings from the urban sector to the rural sector. So, if you are someone who didn't get a great education because the school system failed you for one reason or another and you show up in the city, what job do you get? A lot of the jobs are in construction. That's one place where you can make Rs. 400 a day in Mumbai. And if you make Rs. 400 a day, you can send Rs. 8,000 back a month or something if you are very frugal. So, it's really a big deal for people and that was, I think, one of the key drivers of the urban to rural transmission. The reason why poverty, in the years between 2010 and 2016, poverty continues to fall, even the economic slowing continues to fall in Bihar and UP actually, peak fall in poverty, because there is still construction going on. And when construction slows, that's the absolutely critical sort of bind for the rural economists. I think it's not crazy to think of construction as being the driver of growth or a way to get demand regenerated. You know you get more jobs for construction. People come to the cities, they spend money in the cities, their families spend money in the villages, etc. So, I think they've put construction front and center.
NDTV: Any thoughts on some other significant aspects that you find in this Budget besides construction?
Prof Abhijit Banerjee: It's just that's where all the real action of this Budget is. And it's when they say, we're going for long-term, they really mean very much construction. And then they haven't, in real terms, you know NREGA, health, education, health, if you leave out COVID-19 specific spending, all of these are flat. They're not pretending to do anything about them, anything special. In some ways I feel that we often do the opposite, and I've always, a little bit hated the opposite, which is that we put Rs. 3000 crores for something that really nobody has put any thought into it. But is going to make them say, you know we did this for education, that for health and they haven't gone in-depth into it. The only place where they're thinking education a little bit is skilling, that's one place which gets emphasised a little bit, though I don't actually understand fully how much they're planning to do about it and I don't know that there is much to do about it that we know of. I mean, there is a lot to do about it, but we don't actually have a good diagnosis of why skilling has failed so far, or at least we don't have a diagnosis that people agree on. So, my sense is that again not much will happen there.
NDTV: Coming to you Kaushik Basu and looking beyond the Budget for a moment, at the short term future for India, maybe next year, and then even two years, or even three years from now. What are the key issues, post the Budget, that either worry you or make you feel better?
Prof Kaushik Basu: Yes. Prannoy on the whole, I felt the Budget was a strong budget, on the whole. So that part did give me good vibes, there are details into which I can go which I did not like, but on the whole, I think it's the right signals that came. But, nevertheless, I am very worried. And for that, yes, I will speculate about what lies ahead. But you have to go a little bit back as well. You know, right now, the year that has just ended, for which the Economic Survey has given out data, and we know a lot, 2020. You know, India's growth did plunge. And it plunged in a way that few other countries did. So it is not just a question of the COVID. Yes, the whole world did worse. But India, and this is IMF's, if you take the Cross Country Chart, India last year was the 164th fastest growing country in the world. Not in the top three, but the 164th among 193 countries. And you'll get some differences if you look at different clusters. But everywhere, India's in the bottom 20% of the world, which for India is shocking. Because a couple of years ago, India was right there on top. So, we are talking about, though the Budget did give good vibes, we are worried.
NDTV: Yes, the fact that the Budget focused on infrastructure, spoke about privatization and using the word for the first time instead of the usual word 'disinvestment'. In a nutshell the Budget talks about supply-side to try and boost the economy. But perhaps the Budget does not do enough or much on the demand side. Any thought on what India needs right now, in the context of focusing specifically on supply side versus focusing more on demand side stimulus?
Prof Kaushik Basu: Yes, I do have some thoughts on that. And I do feel actually some of those moves were actually correct moves in the Budget. I don't think that's going to correct for the economic ills, because as I said, it has many roots, but those are small, correct moves. So overall I actually like the moves that took place in the Budget. And infrastructure, you rightly pointed out. There was one small mistake, which is the rural development schemes allocation has been cut by 5%. This is not the time when that should have been done. But it's a huge big Budget. There were many positives.
NDTV: Right. So India now seems to be on a return to a regime of higher import tariffs, import duties, that's the new trend. Arvind Subramanian, former Chief Economic Adviser, then at Harvard and now coming to Ashoka University, spoke to us about some excellent work that he and his co-author had done on this. And raising import tariffs could hurt our exports also.
He shows that in India there has been a sudden massive hike in raising import duties. While in the normal course of the economy, India has either not raised import duties, at all, in some years or has on average raised import duties, about 150 items a year, that's on average. Then suddenly, and this is the worrying part, in 2017-18 import tariffs were raised on as many as 2460 items. And the key factor that Arvind Subramanian points out is that trade is important for India. Not many others have recognised this important factor, particularly the importance of exports in the Indian economy.
Arvind Subramanian has shown that over the years the growth rate of India's exports has been the 3rd fastest in the world, after only Vietnam and China. Not many knew that.
Now it's crucial that this momentum must not be lost. Trade is and has been an important factor in India's development. Tampering with this aspect of our economy is a concern, isn't it, Abhijit?
Prof Abhijit Banerjee: Yes, that's a worry. The number one worry is I think that, which is that you know, we want to restart investment and investment that is stuck across the economy and the two things that this Budget does, one is, it doesn't do much for demand. I'll come back to that. And the other is that it actually puts tariffs on some of our industries where we are actually doing well in manufacturing till about 2014-15, manufacturing exports. This was our great period of manufacturing export expansion actually, which has slowed down partly because of, I think, a more inward-looking view and we've reinforced that. Where you know, for example, you know motor parts are part of our, importing them and then building them into other things and re-exporting them as part of what we do. Those are all places where I think that we are going to be hurt. So, I'm not convinced that's going to help us find more markets for our products. I think that one lesson we learned in 1991 was that exports actually do respond to people allowing you to import. That's a big lesson we learnt.
NDTV: The other negative trend in our economy, which unfortunately has not been reversed in this Budget, is that Indian imports and export growth has been declining, with this new volatility in import tariffs, that could be a worry.
Prof Abhijit Banerjee: I have never been a big votary of zero tariffs, but I think that as you constantly fidget with the prices, you get discouragement of the exporters. A flat stable tariff regime, even if it's somewhat not zero-tariffs, you can plan for and you plan to rebuild this and that, etc. The government has gone into this fidgeting with tariffs which we used to do a lot in the 80s, that's come from 60% to 47%, etc. That's a bad habit in my opinion. So, I think we are kind of re-embracing that. We should commit to a very clear landing path for tariffs, for like ten years or something and just stick to it. That's much better. People can plan for it, and it doesn't have to be zero if you want to, if it's either politically costly or you are to protect some people who are the workers in the sector or whatever. I think this unpredictability of it, this one gets it, this one doesn't etc, that's not a good environment for investment. That's point number one, export-related investment.
NDTV: Raghuram Rajan you have been following our trade policy very closely as well. Is there a perceptible shift in India's approach?
Prof Raghuram Rajan: The sins of commission are, you know, some of the traditional ones. We've raised tariffs again, across the board. I said, one of our solutions to our growth problem is the outside world. If we don't have a lot of fiscal space, ourselves to spend, to stimulate, we need to let exports drive us out of this, pull us out of this problem. We have a chance of increasing exports, especially as countries wary of China, and want to move their supply chains elsewhere. But the way to attract them, yes, these production linked schemes, it's interesting, and let's see how they play out. But the way to attract them is not to impose a consistent menu of higher tariffs. Let's keep tariffs relatively low and encourage the supply chains to come here, because they see not so much handouts from the government, but they see a productive environment where they can produce well. That to my mind is one of the, one of the worries, in terms of misses, that we have. Why are we going back to the old tariff structure? So it's certainly a Budget with some good stuff and some not so good stuff.
NDTV: Now you have mentioned the positives, what did you mean when you said the not so good stuff in this Budget?
Prof Raghuram Rajan: I think, on the concern side, which we don't know enough is on combating the virus. It is extremely important we use whatever good luck we've had in the virus coming down, to do vaccination on a war scale. If we can vaccinate the population, we avoid the second wave, which is what is plaguing every other country. Now I hear all the stories about how India is unique in many ways, and how we're doing wonderful things. But I worry when I see a lot of people unmasked, walking in Bangalore and Chennai. And I worry that we have a recurrence, if these really virulent forms of the virus come back in. And so we need to vaccinate really fast, and that is a public good. So I would make it free, vaccinate anybody I can find, using the wonderful facilities we have that are producing vaccines. And I would do that as fast as possible.
NDTV: Yes that is absolutely crucial, and moving on from the issues related to Covid to primarily economic issues, have there been any sins of omission?
Prof Raghuram Rajan: I think the concerns extend now to spending, we just talked about spending on the poorer households. That to my mind is shrinking rather than expanding. The government put out a lot last year, but it may need to continue putting out this year, I don't see that listed. Education, I worry about. That spending is remaining flat. But actually we'll have to spend more on education, certainly on a lot of remedial stuff, to bring our kids back online, and back to where they were. And I worry, we risk a lost generation, if we don't actually tackle that problem seriously. Those were sins of omission.
NDTV: Before we move on to the next topic, may I return to you Paul Milgrom for a moment please, for more on your thoughts about how Zoom is changing our lives, Zoom or Webex or Microsoft Team, basically video conferencing?
That's continuing with the general theme of how technology has helped us fight the Pandemic.
I have to say that in India, our face-to-face meetings, we are always late, that's in our DNA, maybe even half an hour late and I'm guilty as well. And we always say we're late because the traffic was terrible, even if it was only a 1000 yards away. But now, for Zoom meetings, we are all spot-on time for meetings. So Zoom is making us a more punctual India, that's a major change, let me tell you. But that aside, is it reducing costs, these video conference meetings? And how is it affecting the economy in the short run, and in the long run? I understand the personal and the human aspect is missing from Zoom meetings. So are we going to go back fully, fully, like to, old norms of all meetings being face-to-face or instead are we going to have a new normal of 50-50, 50% video meetings and 50% physical face-to-face meetings? And is that going to help to improve our productivity? Is there an upside, downside, what do you feel?
Prof Paul Milgrom: The meetings themselves, I think have gotten better because of Zoom. If you just limit attention narrowly to the meetings, I think you find exactly what you're talking about that people show up on time, there's fewer of these excuses. I know that I've attended some meetings with some people at Google and they like to have 30-minute meetings. And the meetings start on time, and they end on time, and the interactions are effective and that works well. And that's not going to change, those things work well and they will be continued. But we lose not just the personal stuff and the personal stuff is really important, but we also lose the spontaneous stuff where we walk out of a meeting together and you and I are standing next to each other. And we're able to say, that was an interesting aspect. Maybe we should pursue that. Or that guy's a total idiot, you know, whatever it might be. All of these spontaneous things are working much less well now I think on Zoom than they were when we met in person.
NDTV: That's so interesting, yes random or spontaneous interactions after a meeting or after a seminar can really bring about new ideas as you meet each other and just chat randomly. And I hate to make you admit this, but you do say this partly from personal experience, because a Professor who met you, in a sort of random manner, says you gave him a great idea, you gave him a "key insight" to use his words. And that the fact that you had a face to face meeting with him then went on to great academic partnership. And from there you went on to win the Nobel Prize. So you are saying that Zoom may not lead to that kind of sequence of events and results?
Prof Paul Milgrom: Yes. Zoom doesn't do that. And, I love it. I love stories like that by the way, I love to talk to people and encourage them in their work and share ideas. So, yes, so that's really nice. Well, thank you for sharing that story.
NDTV: Moving now to the big issue of what many agriculture analysts say the government is moving in the direction of privatising the purchase and sale of farmers' products, farmers' crops. Farmers of north India, the most productive in our country and often referred to as the food bank of India as well, as we all know are deeply distressed and angry at the moment.
So there's anger and distrust of the government. What exactly went wrong and what is to be done now?
Kaushik Basu you have done more work on these farm bills than most other economists, so we would really like to hear your views on why this huge dichotomy has begun between the Government and the Farmers, leading to farmers protests, which the whole world is watching.
Prof Kaushik Basu: Let me tell you here, when I first read very sketchily the laws, I thought actually these are right moves, broadly in the right direction. And I, when I was Chief Economic Adviser to the government, I was arguing that there are lots of changes that we need in the farming sector. The MSP, the Minimum Support Price, gets small segments hugely dependent. You want it on other commodities, on many commodities, you want it to spread through India. So there are many things to be done and you want the markets to be fair, people should have more space to buy and sell their product. So at first sight, when you look at it broadly, it looked like the move in the right direction.
NDTV: So have you changed your mind? What brought about this change in your views?
Prof Kaushik Basu: But actually on this, I have to give tribute to the farmers, it is when they began to protest, that I was reading it in greater detail. And then I became completely convinced that actually these laws will work to the detriment of the farming groups. So it's not right and let me explain a little bit of why that is so.
The Minimum Support Price is decided every year, that this is the price at which we will buy. There is enough evidence around that the Minimum Support Price window is not going to be used. I feel there are problems with that, it should be widened to more commodities, it should be much more all over India. But if you remove it and leave millions of farmers facing 10 corporations, which are doing all the buying, you're violating one of the most important principles of the market to function. And America, which is a bastion of the free market, is very sensitive to this, which is antitrust. You can't have millions of people confronting 10 huge corporations, you will be exploited very badly. And I feel that because confidence is also low, the trust is low, the farmers are feeling that that bulwark for them, that support for them is going to be removed. And they are going to be confronting these couple of big corporations, and their position is going to be worsened. And I do feel that is what will happen. Unless we do the law, we do need reforms. But we do have to do it very differently.
NDTV: Abhijit Banerjee, can we ask you about agriculture? You know everybody says we spend too much on agriculture, we spoil the farmers. But compared to other countries, we do not subsidize our farmers anywhere near their level of farm subsidies that other countries give.
Professor Kaushik Basu has posted this interesting table, which I found really significant in the current context, where everyone says our farmers are getting too many subsidies and really we need to do something about this, that we give them far too much and they are getting spoilt. The reality is that all over the world, farmers are given huge government subsidies. In China the subsidies to farmers is over 185 billion dollars. Europe subsidizes its farmers with over 100 billion dollars, America by nearly 50 billion dollars. Even a developing country, that is much smaller than India, has a farmer subsidy of 20 billion dollars, that's Indonesia. Now while India, just look at that table, has a total farm subsidy of only 11 billion. Now that is amazingly low, so we're not spoiling them, we're not over subsidising them. On the contrary.
So what are your views on the way this agricultural current crisis has actually unfolded Abhijit?
Prof Abhijit Banerjee: So, let me put my cards on the table. I think that the farmers themselves realize that there is a problem. I don't believe that they are completely oblivious to the fact that the water table is falling catastrophically, and that they have to sink the tubewells deeper and deeper. They are practical people, they understand that. So, let's start by saying even the farmers in Punjab and Haryana, who are up in arms, fully understand that something will have to give eventually. Then there's the question of how do you get people to agree to a change? Well, you get them to agree to a change by saying that 'That look, yes you will lose on this, but we will find you some way to be at least substantially compensated. We will help you move to these specific crops, or we are going to declare a five year whatever, the inputs will be free or some other way of doing it. We will give you a cash amount.' My preference will be to use the PM Kisan Model but, instead of Rs. 6000, Rs. 60,000, but for a bounded amount of time. And then we will think of these other things.
NDTV: Yes, there are several alternative approaches and solutions. So do you feel the formulation of plans on what to do for Indian agriculture should have been more inclusive, should have included the farmers? We should have talked to the farmers to get their views? After all, they naturally understand agriculture and all the issues much better than most of us. What went wrong this time in the inclusive?
Prof Abhijit Banerjee: Maybe I am naive. I have not done this, but my sense is that, if in September this was proposed to them, before all the people, in all the rallies, and the people who died and the nails on the street, and the walls being built, all of that happened, I think there would have been an appetite for saying look, let's at least step back and discuss what's our price. Now the problem is that the government has now proposed it, 18 months we are going to take a kind of a moratorium on all of this.
But I think the trust deficit is what the farmers are saying, is that we don't really have enough trust in the government. And I think that the trust deficit is not helped by this kind of hot and cold climate we have. Sometimes we want to discuss, sometimes we want to put nails on the ground. I really do think that we need to be respectful of each other. I think that's key to all democracies. We have to say that look, the government's motives are not all bad, and the farmers' motives are not all bad. We can't accuse each other of being Khalistanis or whatever. That really undermines conversation. That, to me, is the critical mistake that has happened. I think we need to let people be, we should, even when we feel that 'okay that's not right and I don't think you should say that.' I think holding the bar very strictly at having respect for each other, speaking in a language that's acceptable to everybody. I think the farmers might have accepted that before. Now their backs are up so it will be harder for them to back off. Because of course they've paid a cost, and if they just back off people will say 'Why did we do all this', 'Why did my friend die'. I do feel that we are in a bit of an impasse now.
NDTV: Just to sum up, one of the main points that I gather from what many agricultural economists have said, and what you are saying, as well as Amartya Sen, Kaushik, and Abhijit, is that agriculture in India is full of uncertainty and therefore insecurity. In fact, our farmers are probably growing their crops under greater uncertainty, dependent on the vagaries of the weather than most other countries, much more uncertainty. Anyway these other countries subsidize their farmers heavily. Now we have a variable monsoon, we don't have enough irrigation. So in that context of volatility and uncertainty, the Minimum Support Price, the MSP, in fact adds a bit of much needed security.
Moving on from farmers to industry. As we said earlier this Budget speaks about Privatisation, not disinvestment, not divestment, but straight honest-to-God privatisation.
Now that the Budget talks about privatisation, what does it really mean in the Indian context?
Raghuram Rajan in many senses privatisation is a hugely important aspect of this Budget because the Budget says 1.75 lakh crores in revenues will come from privatisation and we really need that because of the state our economy is in. So it's got to be done this year. But are you now concerned about implementation? There have been huge privatisation or disinvestment targets in each of the last few Budgets and we have never come even close to meeting those targets. Not even last year, when share prices actually shot up and we could have got a good price for selling public sector units and a good time to privatise, but nothing.
Prof Raghuram Rajan: Well, as I understand it, LIC is not included in that 1.75 lakh crores. Now, LIC is not going to be sold off and converted into a private corporation. They will probably sell a few shares etc. So that to my mind is not privatization. It's sort of raising money through selling some shares, it doesn't change the fundamental character. Let's put that on the side. I think the talk about privatization is actually selling some assets into the private sector. And the ones that have raised a lot of hope in the markets is, two public sector banks and one of the general insurance companies. Now, the reality is if you ask, who's there to buy? Clearly for the banks, I think it would be a grave mistake to sell it to an industrialist. We've had some rumours of that from the RBI, some reports coming out that that is a possibility. And I hope that that doesn't become a reality, because we really don't have the supervisory structures to contain the kind of possible malfeasance when somebody can lend to their own entities. So I would say, let's take that off the table.
NDTV: Now that's really important to hear from you, because privatising two banks has been a major headline in this Budget. So how, as you say, how it's implemented is crucial, right?
Prof Raghuram Rajan: If you take that off the table, that leaves some private banks that can buy the public sector banks. The question is, how comfortable do you feel creating a mega private bank at this point, because the ones that would be able would be HDFC and perhaps ICICI, maybe Axis Bank. But this would create a huge entity. And are you comfortable with that, on a too big to fail basis, something which is second in size to the State Bank of India? The other possibility is a foreign bank, which Swaminathan Aiyar has suggested. That, to my mind, would be hugely, politically difficult to do, selling one of our private sector banks, at this point, directly. One of the large private sector banks.
NDTV: With your practical experience and your perspective, what are the key steps would you suggest in the implementation of Bank privatisation, what are the options?
Prof Raghuram Rajan: Large ones, to a foreign bank, would be very difficult. Which then leaves the route that many of us have been suggesting, you need to improve the governance of these public sector banks, bring in more professionals, give the Board more authority to hire and fire the CEO, and then take away government control. In a sense, make these public corporations, working in the public interest but owned by the public, rather than by the government. That is possible, but that takes time. So, I am not sure when you announce a one year window to do this, whether in fact it means we start the process of making these ready for privatization. Or do we end it? Unfortunately, the history of our record of privatization is really dismal, right. We said two lakh crores, in fact, last year, we did something like 20-30,000 crores. So, if we go by the record, we're not going to achieve this. Now, hopefully what this implies is a fresh urgency. And Naushad Forbes suggested, for example, taking the firms out of the ministry that controls them, because the ministry that controls them doesn't want to sell those. Take it out into a privatization ministry. Have somebody like Arun Shourie, in the previous NDA government, who actually will bulldoze his way. Unfortunately, at this point, we have yet to await details.
NDTV: Abhijit Banerjee, one of the concerns that you have often raised, and I wanted to ask you if it applies to our economic policy today as well, and that is that money that banks are slated to disburse, in reality is not actually disbursed, at least not in a fair and equal manner?
Prof Abhijit Banerjee: My sense of a lot of that credit, this one subject we have worked on many years ago, is that banks tend to sit on that money, because they feel like collecting that money will be too much of a pain, so they sit on it and especially they don't give it to the poorest people. People in the unorganized sector don't get it, etc. So, the intention is not enough. If it really wants to do it then the government needs to crack a whip over the lenders and make them find the right borrowers and give it to them. And you know, when it does it, it actually works. There is evidence showing that, for example, the priority sector lending is, we did a study a long time ago, there's a recent study published in a top journal, from India, showing that the priority sector regulations had big effects on production of those sectors. So, when you do it, it works. But it really needs to be fully pushed through.
NDTV: So moving on. One final aspect I would like to ask you, Abhijit Banerjee, global rating agencies place India at BBB-, that's really as low as you can go, just above junk level. Should India be worried about global rating agencies?
Actually the Economic Survey is very worried, and more, it is actually very critical of rating agencies. It states that global ratings agencies are, and have been, always unfair to India.
The Economic Survey even has a chart which shows that no country, no economy, that is the 5th largest in the world historically, has ever been rated at a dismally low BBB- like India is today.
But, of course, rating agencies do matter, like it or not they do matter. And they have a major impact. If they do downgrade any country it affects the foreign inflows, it affects the interest rates, it affects several factors that harm an economy. I mean global investors just automatically react to a change in a country's rating. Now these global investors have a kind of algorithm that reacts to a rating change and they alter their investment behaviour when they really don't know anything in detail about the country, but the rating agency has changed its ratings. So, my question is, rating agencies, unfair or not unfair, should we bother with them or just not even bother with them?
Prof Abhijit Banerjee: I think they're wrong, but I mean in some sense that's the problem with rating agencies, why I have always had, lets say, a healthy disrespect for them, I think they have a lot of power. They could be wrong and they could still screw us. I do think, especially given that we have never defaulted, and never is never, we are not Argentina. Or had a 50% inflation. We really are a very low inflation country. Korea used to have like 10% inflation every year. Even that's politically unpalatable in India. So, the idea that we are this country which, that you know, is just tottering, on the verge of default or hyperinflation is nonsense.
NDTV: And, right or wrong, superficial or not, the reality unfortunately is that rating agencies have huge power in the global economy.
Prof Abhijit Banerjee: And I've said this many times, this is the Nth time I've railed against rating agencies. So, I'm not innovating here. But, they have a lot of power, and they can drive markets. I see why the government worries about them. I also think we should call their bluff. In fact, Standard and Poor interestingly has said that India has now a demand deficit, so we shouldn't worry too much about over borrowing. Even a rating agency recognizes that at some point it is counterproductive. If your growth goes down because you're not spending enough to respect the rating agencies and therefore your debt actually goes up as a ratio of your GDP, that's in nobody's interest. And so I hope that sense will prevail.
NDTV: Well that's a perfect note to end this programme on. This was the second of our Town Halls in our three-part series of Town Halls. The next, the third Town Hall, we shall discuss, among other issues, India's Democracy. In fact not only the trend in India, but also in many parts of the world and what it means to all of us for the future. We shall also be looking at Bitcoins. We shall ask whether the stock market in India is going to go up or down? We shall also focus on child health in India and many other issues. So don't miss it. Thank you for being with us today. Look forward to seeing you again next time. Bye for now.