There will be volatil­ity in eco­nomic data; that’s not nec­es­sar­ily an er­ror, says CEA

The Hindu Business Line - - TAKE 500 - SHISHIR SINHA/RICHA MISHRA

Kr­ish­na­murthy Subra­ma­nian is eas­ing into the post of Chief Eco­nomic Ad­viser in the

Fi­nance Min­istry. “What I have been quite amazed at is the num­ber of touch points there are for pol­icy-mak­ing in our democ­racy. For any pol­icy change to hap­pen, even at the high­est level, the per­sua­sion has to hap­pen ac­tu­ally with dif­fer­ent nodal points…Also it is very im­por­tant to un­der­stand that it is volatil­ity, and not nec­es­sar­ily bias,” he says. Busi­nessLine caught up with him to get a sense of how the CEA, about 45 days into his new job, sees the na­tion’s data chal­lenge, and where In­dia stands in the emerg­ing econ­omy space. Ex­cerpts:

There is a lot of de­bate on data. As an econ­o­mist how do you see the sit­u­a­tion?

Re­mem­ber there is very lit­tle aca­demic frame­work to be able to un­der­stand the im­pact of an ac­tiv­ity such as de­mon­eti­sa­tion and GST. As a re­sult, aca­dem­i­cally there will be re­search for a long time to come be­cause we will try to un­der­stand the im­pli­ca­tions. Till then there will be volatil­ity. But volatil­ity is not nec­es­sar­ily an er­ror.

For in­stance, take the way value-added is mea­sured in tele­com. Ear­lier, what was be­ing used was the num­ber of sub­scribers; now it is the us­age. If you don’t use the phone much, you don’t add much to the eco­nomic ac­tiv­ity.

What about the po­lit­i­cal over­tones — the role of NITI Aayog and the tim­ing of the back series data?

I would main­tain that volatil­ity is not bias. Also, when you are try­ing to build the plane, some parts you wish for may be ready ac­tu­ally but will (still) take some time. There­fore, it is the process of ac­tu­ally try­ing to build those parts (that counts), rather than to say — I choose to fit this part now at this point of time.

For in­stance, we are us­ing fi­nan­cial state­ments in­stead of IIP. As some­body who has taught cor- po­rate fi­nance in a busi­ness school, I un- der­stand that fi­nan­cial state­ments are much bet­ter than IIP num- bers — not to say that all fi­nan- cial state­ments are com­pletely kosher or great, but at least there are val­i­da­tions hap­pen­ing. An au­di­tor cer­ti­fies it, there is an au­dit com­mit­tee of the board to sign on it, there are sev­eral checks and bal­ances.

The way I look at it, there are prox­ies which are def­i­nitely used to cap­ture ac­tiv­ity. If de­mon­eti­sa­tion and GST had not hap­pened, the same series would not have had as much volatil­ity.

OThere is crit­i­cism about growth with­out jobs. Your thoughts…

This phe­nom­e­non is hap­pen­ing in a lot of coun­tries. We be­lieve if there is eco­nomic growth, there should be job cre­ation. But in many coun­tries that premise has not been true be­cause if we look at the pro­duc­tion func­tion for firms, you have labour and cap­i­tal. Growth can also hap­pen from labour, cap­i­tal and pro­duc­tiv­ity — to­tal fac­tor pro­duc­tiv­ity. Growth can come from any of these three di­men­sions.

You can have sub­sti­tu­tion of labour by cap­i­tal, which is what has been hap­pen­ing a lot. There are also jobs that are ac­tu­ally re­duc­ing be­cause of cap­i­tal sub­sti­tut­ing labour. A re-con­fig­u­ra­tion of jobs is hap­pen­ing. But over­all the num­ber of jobs is not ex­pand­ing much. So one has to open the hood and start look­ing at re-con­fig­u­ra­tion of jobs — where jobs are ac­tu­ally in­creas­ing and where they are de­creas­ing.

Is the in­come sup­port scheme a pre­cur­sor to the Univer­sal Ba­sic In­come Scheme?

The first word in Univer­sal Ba­sic In­come Scheme is univer­sal, while this scheme is tar­geted at farm­ers. So it is a case of ap­ples and or­anges.

As far as the eco­nomic ra­tio­nale of this scheme is con­cerned, I look at it like this. While ap­proach­ing the Bud­get, there was a lot of de­bate on al­ter­na­tives to debt waivers. As an econ­o­mist, I ac­tu­ally think it’s a bad idea. A re­cent paper look­ing at the UPA’s debt waiver scheme has ac­tu­ally split the ben­e­fi­cia­ries be­tween in-dis­tress and notin-dis­tress. It was found that a large pro­por­tion of bor­row­ers who got waivers were not in dis­tress. If ac­tu­ally you look at yields then crop pro­duc­tion un­til 2008 was ac­tu­ally ris­ing. As a re­sult, the ben­e­fit of waiver was cor­nered by those who did not de­serve it.

When a non-dis­tress bor­rower gets a waiver, it cre­ates sig­nif­i­cant moral haz­ard and leads to de­te­ri­o­ra­tion in the loan ac­counts. De­spite as­sur­ances that the govern­ment gives, PSBs will be wary. It is ac­tu­ally dam­ag­ing to the farmer.

About min­i­mum sup­port price (MSP)...I will give you a glimpse of the phe­nom­e­non that pre­vailed till 2014, when rice and wheat MSP was in­creased sig­nif­i­cantly that led to very high pro­duc­tion and sur­plus. Eco­nom­i­cally, MSP makes sense be­cause at the fun­da­men­tal level, in agri­cul­ture, risk re­turn trade-off is very bad — low re­turn and high risk. MSP re­duces the risk sig­nif­i­cantly.

If a farmer has a crop sup­ported by MSP, he will in­vest heav­ily in that crop and as a re­sult will un­der-in­vest in crops not sup­ported by MSP. So, in some sense, MSPs af­fect the crop­ping pat­tern.

If you give cash trans­fer the de­ci­sion about what to grow and what not to grow is made by the farm­ers. You are not in­flu­enc­ing the crop pat­tern.

Peo­ple have talked about whether this amount is ad­e­quate or not. When read­ing num­bers, we have to be care­ful. A NITI Aayog re­port on dou­bling farm in­come says in 2015-16, in real terms, the av­er­age in­come was ₹45,000 crore. Av­er­age has been cal­cu­lated on a base com­pris­ing big, small and mar­ginal.

As the pro­posed scheme is to­wards small and mar­ginal farm­ers, the right com­par­i­son is to look at av­er­age an­nual in­come of small and mar­ginal farm­ers and if you make some rea­son­able es­ti­ma­tion, about ₹35,000 would be the av­er­age an­nual in­come of small and mar­ginal farm­ers.


“The first word in ‘Univer­sal Ba­sic In­come Scheme’ is univer­sal, while this (in­come sup­port) scheme is tar­geted at farm­ers. It is a case of ap­ples and or­anges.”

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