HEEDING THE LAUREATE’S TAKE

Conferred with the 2019 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, Dr. Abhijit Banerjee has an elaborate perspective on economic practices and given how the Indian economy is trying to survive difficult times, his perspective comes with some insight into the state of affairs with suggestions of possible solutions. What makes his take worthy of attention is not only the fact that his expert understanding has been acclaimed globally with a highest honour, but also that those who wield the reins of the Indian economy need to acknowledge the follies committed and take constructive suggestions positively to restore matters. Dr. Banerjee is of the opinion that the government should reverse cuts on corporate taxes, something in implemented recently, and should expand the PM KISAN scheme to include non-farmers as well. Despite the complexities of economic planning and policy formulation, it comes as very practical suggestion to broaden the scope of schemes to include maximum beneficiaries and thus maximise the outcome from these initiatives. Dr. Banerjee is visiting India for the release of his book “Good Economics for Hard Times” co-authored with Dr. Esther Duflo, his wife and fellow Nobel laureate. “I would not have cut the corporate taxes,” Dr. Banerjee said. “Reversing now may be too costly, but it’s something to consider, because that’s a huge burden on the fisc and that money I think would have been better spent by giving more money through PM KISAN and raising the NREGA wage. Those are the kinds of things that will get money in the hands of those who really will spend it.” His view points to the fact the allowing a boost to the purchasing power of people is the first step to creating demand—the lack of which has been the woe of the Indian economy in the recent times. Given that the corporate sector is already sitting on plenty of cash and not investing it is the clear indication of the fact that there is no demand in the economy in spite of the fact that companies do have money to invest. Also, suggesting that India should have more items in the higher slabs of the GST because it is not feasible to improve the government’s tax to GDP ratio by just implementing tax hikes on income. This higher tax collection should then be used in a broader version of the government’s PM KISAN scheme. Hence, the liquidity crunch that has been persisting for some time now can be addressed with changes in methods of tax collection.

It must be addressed that the Minimum Support Price (MSP) system had an impact in increasing the demand for labour and that relying purely on PM KISAN to support the farmers will reduce this demand for labour. Dr. Banerjee explained in response to whether the scheme was an example of “good economics” that “In the case of PM KISAN, if it is combined with not using the support price as the mechanism for supporting the farmers, I think that the landless labourers have no reason to be excluded from this benefit. In particular, if you think about it as a substitute for the support prices.” The support price partially increases demand for labour as it is, for instance, more profitable to grow more wheat, and so more labour in the cultivation and harvest of wheat is hired, but in removing extra incentives to produce (such as by means of giving money through PM KISAN), the demand for labour falls. So, relying entirely on a means such as PM KISAN has the disadvantage that it does not address the fact that the support prices had spill-over effects on labour demand. The economist’s take on the distressed auto sector as a result of the massive layoffs is that it could have been mitigated if there were a system in India whereby companies contributed to a fund that could then be used to pay workers who have been laid off. What Abhijit Banerjee points at the need for the introduction of some very fundamental structural interventions so as to make a system crisis-proof. The economy, after all, is the engine of growth and making sure that it functions in good health is imperative to the scope of overall growth and development. However, not immune to the blemishes of politicisation, allegations may be targeted that the economist’s views are ideologically motivated but what is of much greater significance is that his analyses and perspective of the ailing Indian economy are not mere assessments of facts but are in the real sense directed towards possible solution of the persisting problems.