#
Even a soothing deep baritone crisis
#
No one is eating biscuits
#
No one seems to know the way out
#
The politicians have failed us
#
The bureaucrats have failed us
#
The engineers have failed us
#
The economists have failed us
#
The car mechanics, the shoe salesmen, the ticket collectors have failed us
#
The chaprasis, the laundry fellows
#
And even the chaivalas have failed us
#
And don't even get me started
#
On the podcasters and op-ed columnists
#
Who have not only failed us, they have even failed themselves
#
But in all this gloom and doom
#
There is still one category of people
#
The dreamers, the dreamers can save us
#
So I thought I'd do an episode
#
Where I get some of the sharpest thinkers
#
To get together and propose what I term
#
I have three guests on the show today
#
A record, and each of us will propose three dream reforms
#
That we'd really love to see
#
So that's a total of 12 dream reforms
#
Each of them proposed by one of us
#
But discussed by all of us
#
For Vivek Kaul, Shruti Rajgopalan
#
And Rajeshwari Sengupta
#
I take their names in this order
#
Because I am grouping them by the frequency
#
Of their appearances on the Scene and the Unseen
#
On a whopping 16 episodes of this show
#
And I'm beginning to think that
#
He and I should just get a
#
Not get a room, but a separate show
#
Of our own so others get a chance on this one
#
Shruti meanwhile has appeared on 11 episodes
#
Of the Scene and the Unseen
#
And invite on this episode
#
So she could catch up with Vivek
#
Till she realized he was also on it
#
Rajeshwari has appeared just once on the show
#
But Sachin Tendulkar had played just
#
One test match at the time of his second
#
Test match and we all know what happened next
#
My ludicrously exciting episode
#
With these remarkable peoples
#
Let's take a quick commercial break
#
Instead of being left at the Tower of Silence
#
After they die are now cremated
#
And why because a cow fell sick
#
Did you know that the smog in Delhi is caused
#
By something that farmers in Punjab do
#
And that there's no way to stop them
#
Did you know that there wasn't
#
One gas tragedy in Bhopal
#
But three, one of them was seen
#
Did you know that many well-intentioned
#
Government policies hurt the people
#
They're supposed to help
#
Why was demonetization a bad idea
#
How should GST have been implemented
#
Why are all our politicians so corrupt
#
When not all of them are bad people
#
And in my weekly podcast
#
The Seen and the Unseen
#
I take a shot at answering all these questions
#
I aim to go beyond the seen
#
And show you the unseen effects of public policy
#
I speak to experts on economics, political philosophy
#
Productive neuroscience and constitutional law
#
So that the insights can blow
#
Not only my mind, but also yours
#
The Seen and the Unseen releases
#
So do check out the archives and follow the show
#
To the Seen and the Unseen
#
Podcast app you happen to prefer
#
What's your first reform, Shruti?
#
And it's going to become more acute
#
Because of the slowdown that the economy is experiencing
#
So I think the very first thing
#
That we need to do is address the fact
#
That we have too many people
#
Entering the job market
#
And not enough jobs to go around
#
And this seems to be true
#
Pretty much at every level
#
The country is incredibly young
#
Right, 50% of the country is below 25
#
Out of school or college or
#
Whatever their skill level is
#
They're all looking for jobs
#
The numbers were about 12 to 13 million
#
People looking for jobs
#
Plus another 6 million odd
#
Attempting to leave agriculture
#
About 20 million jobs a year
#
Now because we failed to create
#
20 million jobs in the last 5 or 6 years
#
There's a further backlog
#
They didn't get a job the first year
#
They might be underemployed
#
Or sort of looking for employment
#
But those people are also sort of
#
So the numbers, we don't have clear numbers
#
On how many people are looking for a job each year
#
But it's about 20 million plus
#
Is a conservative estimate
#
Entering the workforce every year
#
And we are creating nowhere
#
Close to those number of jobs
#
Right, and a big part of this
#
The regulatory system doesn't allow
#
So the easier it is to fire someone
#
The easier it is to hire someone
#
Right, so that's the biggest problem
#
Sort of wage regulatory structure
#
Is other things like you have
#
So they really clamp down on industries
#
If you don't follow the labour laws
#
There's a host of labour inspectors
#
Who are just sort of capturing
#
The rents coming out of this
#
So they are incredibly corrupt
#
They make it very difficult for small firms to function
#
In response the government decided
#
To pass, quite recently
#
Maybe a couple of weeks ago
#
All that the code does to my knowledge
#
Is compiles four previous acts
#
The Payment of Wages Act
#
The Payment of Bonus Act
#
And Equal Renumeration Act
#
So they've just sort of
#
They've given it a new name
#
They haven't made any real reform
#
They've actually made it harder
#
They've brought in about 500 million people
#
In India under the ambit of the code bill
#
And it comes with a penalty
#
Including domestic work
#
For not paying minimum wage
#
Which is well above market wage
#
Like the minimum wage seems to have no relevance in reality
#
To what's actually going on in the market
#
And there is a huge penalty
#
Both fines and criminal penalty
#
And there is no enforcement mechanism
#
I don't know if that's good or bad
#
Because that way more people can be hired
#
But also because of pernicious enforcement
#
And arbitrary enforcement
#
Of manufacturing units hoping to hire
#
More people below minimum wage or something
#
To actually go and do it
#
So this is the mess we're in
#
So what this probably requires
#
Is sort of scrapping the
#
And the next is getting rid of the
#
Labor inspection system
#
Should be solved contractually
#
Like any other contract
#
This labor inspection system
#
Which is sort of like the government
#
Holding a danda above every employers head
#
That is really what's causing
#
The jobs crisis problem
#
I mean we can talk about this a little bit more
#
It's very hard to do this reform
#
Winners and losers in every
#
Reform the unions will lose
#
And a very vast number of people in the informal
#
Economy and those who are unemployed
#
Will gain but the unions
#
Are well organized and the people
#
In the economy who are unemployed
#
And those in the informal economy are not
#
Organized and that makes it
#
Very difficult to break this
#
And also is there a central laws state laws
#
That kind of thing? So there are state amendments
#
So there are host of central laws
#
You know like the industrial disputes act and so on
#
And each state can amend
#
Those so some of the amendments
#
Are better in some ways like some states do better
#
They have basically there are around
#
44 central government laws
#
And there are around 200 state
#
Government laws so basically
#
In a few years back Amit Mitra
#
Minister of West Bengal
#
At any point of time you might be
#
Breaking some labor law without even
#
Realizing it because there are so many of them out there
#
So I think that's an excellent point
#
But one question that I had is
#
And this is just because I'm not
#
Very well aware of this particular field
#
Which is that even I hear that even in
#
The formal sector today there's a lot of
#
Contractualization of labor that's
#
Going on and that actually took me
#
By surprise because I was thinking that contractualization
#
Happens more in the informal sector but I
#
Keep hearing for the last five years
#
This has taken up massively in the
#
Formal sector and I'm guessing this is
#
Obviously not optimal because they're essentially working
#
Around the laws and this also breeds
#
Insecurity because these workers are not getting
#
Pension payments and other kind of benefits
#
Any thoughts on this and if I may also
#
Add and this is a broader point
#
Think that the jobs crisis is because
#
Of labor laws because our labor laws
#
Have been rigid and have been
#
Complicated and have been many and scattered
#
For a very long period of time and
#
The jobs crisis essentially
#
Speaking has been brewing over the last
#
Few years and it has actually
#
Broken out of the thing and everybody
#
Is talking about it over the last few years
#
And that perhaps also has a lot
#
To do and as you rightly mentioned with the
#
Economic slowdown which is basically
#
There's a manufacturing sector
#
Crisis that has been also brewing for a long time
#
There is a credit market
#
Crisis that's happening for quite some time
#
And as a result there is a demand
#
Slowdown that's happening which is
#
Perhaps leading to a situation where
#
Because companies are not investing
#
They don't feel the need to hire more workers
#
And because they are not
#
Hiring more workers they're not producing enough output
#
And that is having a vicious cycle
#
Effect and a related point being
#
That not enough workers
#
Have the skills required
#
So there is a skilling gap and there is a
#
So I'm guessing what I'm trying to say is there are many
#
Have probably aggravated the current
#
Jobs crisis and of course it has perhaps
#
Rigid labor law. So I think I would
#
Just add one more thing I mean I agree with you
#
We've always had bad labor laws but
#
What has made the effect worse
#
And caused the glut is the demography
#
Something it happened by chance
#
You can control the regulatory system
#
It's much harder to control
#
How the demographic dividend moves
#
That have tried to control it like China
#
Are in a total mess because of it
#
So one part of the glut is
#
We've always had terrible laws but we never had
#
So many people who were young and entering the workforce
#
So this is a bad combination
#
It's definitely you know we've had a jobs
#
Crisis for the last 7 years
#
The economic slowdown is only maybe
#
Post demonetization or maybe
#
Even last 18 months you know not immediately
#
Post demonetization but I wouldn't agree but
#
We can debate that later. Yeah so
#
The last you know 12 to 18 months
#
You could start hearing warning bells and people
#
Started saying you know things are not good
#
And you know you start getting the
#
Different warning bells from different sectors
#
Saying okay the GDP numbers
#
Don't quite add up to what's
#
Right today the news last week
#
Is it doesn't quite add up with what's going on
#
With auto sales right or biscuit
#
Sales so different sectors
#
The SOS signal at different points
#
But we've had a demand slowdown for
#
A while right and the demand
#
Slowdown definitely has an effect you know when people
#
Don't and it's not just the slowdown
#
It's the expectation right when people
#
Form an expectation the demands going to
#
Slowdown further they're even more
#
Nervous to hire employees and that's a very
#
Large part of this contractualization
#
That you're talking about right
#
So one part of switching
#
From long term labor contracts
#
To this kind of so you know there
#
Are three versions of it one is the very elite
#
Version that is the Amit and Vivek
#
Want to work for themselves they
#
Would rather work on certain
#
Terms with different firms rather
#
Than have a single employer and
#
Sort of clock in so that's a very
#
First world sort of and that those
#
Numbers are very small the second
#
Are trying to reduce the
#
Highly skilled labor to
#
Avoid paying pensions and
#
Provident funds and all the
#
Other employee benefits right so that
#
You can see when there is economic
#
Distress that's probably the first part
#
That gets cut because you don't want to lose the skill
#
Labor which is already scarce in India and
#
At the same time there is some cost
#
Cutting that goes on and then the third
#
Part is this kind of contractualization
#
If things are going to get worse
#
Right we just laid off six people we don't know
#
If we need to lay off ten more people so
#
Let's just sort of you know rework
#
You know we think of firing workers
#
As a sort of stroke of a pen
#
Thing right but when you're inside
#
Working within a firm these are real
#
To fire and burn bridges and then
#
It's hard to hire them back when things are going
#
Of arrangements are a product
#
Of we really want to hold on to skilled
#
Labor and yet we want to deal with the
#
Uncertainty so I think broadly
#
You're right it's not just a
#
Labor law issue but that
#
Really you know that's the scaffolding
#
That stifles everything
#
Else you know nothing can expand
#
So I mean talking about contract
#
Workers so you look at a company
#
I mean from what I remember half of their
#
Workers are contract workers
#
And half of their workers are employees so on
#
The same you know floor
#
Assembly floor you might
#
Have a situation where there are two people doing
#
Exactly the same thing but one guy
#
Because he's employed might end up
#
Making probably twice or
#
You know two and a half times the guy who's on
#
If you remember there was a lot of violence in the
#
Gurgaon belt a few years back
#
And an HR manager was burnt
#
Not Maruti this was one of these auto
#
So that's one point the
#
You know I find this term demographic
#
Dividend very very funny
#
Dividend you know we're assuming
#
That there is a dividend
#
Already it will not be a dividend
#
As well which is what it is turning out to be
#
The third point is I mean
#
Demographic dividend at a very simple
#
Level is that our parents basically produced
#
Way too many kids right
#
When he made his independence day speech
#
Talked about population and the need
#
To control it and you know this is
#
A huge misconception that people have
#
That India's population
#
Continues to grow which is not really true
#
This is one of my reforms
#
If it's not one of your reforms stop right now
#
No what I am trying to say is that
#
You know the replacement rate
#
Whereas India's fertility rate
#
You know which is the average number of children
#
Take the infant mortality rate in India's
#
Case which is anyway very high into account
#
So we are more or less at the replacement rate
#
And many states in India I mean if you look at
#
States like Kerala, West Bengal
#
At the replacement rate so their
#
Population over a period of time will
#
Start to contract now it's states like
#
Bihar, UP, Madhya Pradesh,
#
Rajasthan you know the original
#
Bimaru states where the
#
Rates continue to be high
#
Now as the medical facilities improve
#
And as more women get educated
#
I mean this is bound to come down
#
Let's move on to your first reform
#
Okay so I just wanted to sort of
#
Reform I wanted to sort of
#
Disclaimer wherein so you know
#
What happens is when you and I
#
You know given that we are so active
#
On the social media one of the things
#
That sort of gets thrown at us
#
All the time is that you know this problem
#
Problem is okay, tell me what is the solution
#
The first thing is you know how do you come up
#
With a solution without
#
Identifying the problem I mean that's
#
As basic as it gets but having said
#
Entire Indian tendency to sort of
#
I think comes from the fact that
#
Our exams when we grow up
#
A lot of the in fact most of the questions
#
Have a right answer or a wrong answer okay
#
And that's primarily because
#
Science and maths and so on
#
And we look down upon subjects like
#
History and geography where
#
So you know so because of
#
This solution thing is very very strong
#
Which is what we are doing here today
#
Now one of the things that I
#
Realized while writing my
#
Last book India's Big Government
#
Was that over the years the
#
Government of India has constituted
#
Lots of committees on lots of issues
#
And all those committees
#
Have come up with recommendations
#
And solutions over and other
#
So many economists and experts
#
Working for the government they
#
Also write regularly in publications
#
I mean which the government
#
Is that you know if you to give
#
You a very very simple example now look at
#
The banking crisis currently
#
If you were to sort of go back to
#
1991 there was a Narsimhan committee
#
The first Narsimhan committee as they call it
#
I mean all the solutions are there in that report
#
And if you look at you know
#
Various social and economic problems
#
The committees that were constituted to tackle them
#
All those solutions already okay so it's
#
Not like the government does not
#
Know what is to be done
#
All they need to do is if you have a problem
#
And implement it but obviously
#
You know these solutions have not been
#
Implemented I mean even when committees
#
Solutions recommendations are taken on
#
They are diluted to a large extent
#
And then they are pushed through
#
So the long and the short of it is that the government
#
Knows what is to be done and
#
This is not just the current government
#
Or the central government I mean
#
Includes the state governments the governments
#
At the municipal level but
#
They don't do it I think if all governments
#
Are dissolved in water you'll
#
Have a very interesting solution
#
Has he ever made a good joke
#
So my point is you know
#
You were talking about the fact that
#
To give references so before I sort of
#
Early you know even though I am an atheist I like
#
Particularly by this gentleman called
#
Hari Om Sharan because I sort of grew up
#
I mean if you grew up anywhere in north or
#
East India you know his
#
Sort of you know I mean
#
You used to listen to it every morning because
#
That is all the temples would play
#
So this is before Gulshan Kumar
#
And T series took over the game and
#
The bhajans basically became film tunes
#
And the film tunes also became Jagratha tunes
#
Yeah I mean yeah both of them so
#
So this line from this bhajan
#
Is ki man maila aur tan ko
#
Inference here is that you know
#
You keep you know tackling
#
The symptom without looking at
#
The problem so in the current situation
#
Or it could also mean man maila
#
To tan ko dhoye could also mean that you are really a
#
Perf but you are virtue signaling on twitter
#
I don't know what that means so
#
So virtue signaling is like
#
So you got the perf part
#
So look at the current situation you know
#
You talk to a corporate you talk to
#
An economist and everyone's like
#
Interest rates should be cut interest rates should be cut
#
I mean what will happen
#
You know if the home loan is not at
#
You know let's say 8% it's at 7 and a half
#
Help in any way so this is
#
Like you know you are just looking at the symptom
#
That people are probably not borrowing
#
So just cut interest rates but you are
#
Not looking at why is it that people are not
#
Anyway so that was the long
#
Ki kuch hona nahi hai but still
#
Need to do our jobs properly so the first
#
Thing I sort of wanted to
#
Talk about is and this is something
#
A little it's not really an
#
You know I wouldn't call it an economic reform
#
Now what has happened over the years over the
#
Last 70 years is that even
#
You know the government has essentially
#
Paid a lot of attention on higher
#
The long and the short of it is that
#
Our primary education system is basically
#
Pretty much screwed up and it's
#
Been screwed up even more after the
#
Right to education was put in place which we have
#
Discussed in an episode we have yeah so
#
One of the key clauses in
#
Right to education even if you read the bear act
#
Is that the teacher has to complete
#
Because of this what happens is that
#
You know students who come
#
Young age and come from a very reading deficient
#
Background tend to lose out
#
Because the teacher is essentially interested in completing
#
The syllabus and because of
#
That he ends up he or she ends up concentrating
#
Only on the best students in the class who are
#
Picking up stuff that's the first
#
Part of the problem the second part of the problem is
#
That there are no exams till class
#
Eight so irrespective of whether you are learning
#
Or not you keep getting promoted
#
And you reach class eight now
#
What has happened is in 2018 and 2019
#
Who started in you know lower kg
#
Or preparatory or whatever you call it
#
Reached a stage where they have to write exams
#
And they have never written exams in their
#
Life so this is the new crisis
#
Which is brewing and the parents
#
Don't know even those who sort of
#
You know belong to the well off categories
#
As to what to do with this I mean
#
If a student has never written exams
#
Is that this is a problem that
#
Needs to be tackled seriously and it's not
#
About throwing more money
#
At you know as a lot of people
#
Keep saying that includes me
#
That the government doesn't spend enough money on education
#
But you have to look at this situation
#
A little more creatively
#
So one solution because you know which is
#
What we all love is something that
#
You know Abhijit Banerjee
#
Who is you know famous economist
#
He shared with me many years back
#
And he talked about how they had carried
#
Out a small experiment in Bihar
#
In schools in Bihar where they had hired
#
Given contract teachers who were trained for two
#
Weeks and then these guys
#
Went and taught in all these schools
#
And they had a very clear
#
As in they didn't have to
#
Complete the syllabus what they had to do is
#
They had to ensure that if a student couldn't read
#
He had to be taught to read
#
If he couldn't write he had to be
#
Taught to write and if he couldn't do
#
He had to be taught that
#
And when they sort of went back and
#
You know you do a study
#
And you have a control group and you do all that
#
And when they sort of measured it
#
They found that the method
#
At least in the experiment really
#
Helped so you have to look at the entire
#
Problem from a very very
#
I would just add a couple more
#
Things to Vivek he is absolutely right
#
It has a schedule at the back
#
One of the things that the act says is
#
Must have this list of things
#
And if you look at those things
#
These people so Alex Tabarrok
#
And I have written some work on
#
What Landt Richard calls
#
Right so this is basically you go to
#
Denmark or something you know you go to
#
The United States you look around
#
And you are like what does a good school look like
#
Large airy classrooms right
#
Such and such teacher to pupil ratio
#
Right a good school has
#
Bathroom facilities a good school
#
Has a separate kitchen area
#
A good school has a playground which is at least
#
So they make a note of all this
#
Right so when the government asked them
#
And this is where I disagree a little bit with Vivek
#
In the government they the things
#
They know are not the right things to know
#
We know what a good school looks like
#
This is what a good school looks like and
#
If you fundamentally think
#
Education should be mandated top down
#
Then it is easier to mandate
#
Because outcomes mean you will have
#
So it is not a coincidence
#
That these kids are not tested until
#
We like to think they just kind of
#
Forgot and said no child left behind
#
No child left behind is also
#
An American and foreign import
#
There are exams there it's not like there are no exams
#
So the fact that there are
#
It's completely devoid of any
#
Outcomes you know you see that schedule
#
There is not one single outcome
#
Now all these economists
#
Including some of these
#
You know very fine eminent
#
MIT economists and so on
#
She doesn't like Banerjee and Dooflo
#
Which is what she is saying. No that's not true
#
They have written a lovely book called
#
Poor Economics I strongly recommend it
#
That has come out of the halls
#
Of MIT is randomized control
#
So these people now come and measure
#
So as Vivek pointed out
#
One of the things is the teacher
#
Needs to complete the syllabus
#
The thing is that the teacher is a union
#
Employee right they get paid a lot of money
#
Whether they show up or not
#
So what all these people found was all these schools
#
Are there they have the correct size window
#
They have a bathroom they have a kitchen
#
They have a playground but the teachers don't show up
#
One after the other which are trying
#
To figure out how to reduce teacher absenteeism
#
And we've kind of forgotten the point
#
The point of the schooling
#
Was not that the teacher shows up
#
It was that the students learn
#
Teacher showing up is instrumental
#
To the student learning right
#
But that was not our end goal
#
So these people have really
#
Confused what the end goal is
#
They think end goal is delivery of inputs
#
The end goal is actually that students
#
Need to know how to write their name by the time
#
They are in second standard and they need to know
#
How to do arithmetic by fifth standard
#
They need to be able to take an exam
#
So I think there is much
#
More wrong with the RTE
#
And Vivek was actually being very very
#
To the education bureaucrats
#
So I would completely agree with Shruti
#
First of all I really like the point about
#
Isomorphic mimicry because I think that applies
#
Not just in education but in many other areas
#
Of so called public sector reforms
#
That we just see somewhere
#
Something very nice and shiny and we think if we transplant
#
That to India it will work like a miracle
#
Exactly that and we don't really
#
That's a hollow structure and we don't do anything inside
#
And I think this input and outcome
#
Thing that Shruti mentioned
#
I will just put a little bit more structure to it
#
So the way I look at it is basically input
#
So there are some inputs that you are putting in
#
To reform any particular sector of the economy
#
Then you need to measure what is the output
#
Let's say in this particular example
#
How many students are graduating in a particular class
#
Or how many boys versus girls
#
So these are the tangible outputs
#
And it is very important for any reform
#
To have this tangible output measure
#
Not just looking at the input
#
And the final thing which is very important
#
That not only are you graduating certain number of boys and girls
#
But what is it they are really learning
#
The learning is the outcome
#
And the output is the students going from one class to the other
#
Or leaving the school or more students coming in
#
And the input would be the infrastructure
#
So if we are going to maintain all our reforms
#
In this kind of a structure
#
We will just keep doing that isomorphic mimicry
#
And we will keep building the inputs
#
But then there will be absolutely no evaluation
#
Of the output and the outcome
#
Which is I think what ends up happening
#
And I have one more point
#
To what Vivek's disclaimer was
#
I think it is absolutely fine
#
To have committees and committee reports
#
Where a lot of governments function
#
And I think the problem that happens
#
With the committee recommendations
#
Is a vast black box called political economy
#
Will recommend whatever we want to recommend
#
Like in the banking example
#
I mean when 70% of the banking sector is owned by the government
#
And the banks are regulated
#
Which actually is not true anymore
#
63% of loans in India were given by
#
Public sector banks and they had only
#
The majority of the banking sector
#
Is still owned by the government
#
Yes but that is changing
#
And in the next 5 years
#
You will have public sector banks
#
But till now all the problems that have happened
#
In the banking sector, look at the NPA
#
90% of the NPAs are in the public sector banks
#
Not in the private banks
#
And if these banks are owned by the government
#
And they are regulated by an agent of the government
#
It's like the agent is regulating the principal
#
It's never going to work
#
No matter what committees are recommending
#
Committee recommendation is somewhere
#
And the political economy of the state is somewhere else
#
So it's like we talk about
#
What are the structural factors
#
Not a new jargon but it's sort of
#
It's new for you, you are learning
#
There is something called a structural slowdown
#
That is a buzzword these days
#
For the last 2 days I have been reading
#
We are recording this by the way on August 23rd
#
It is not a cyclical slowdown, it's a structural slowdown
#
I will write a column on this for Dhanik Jagran after I am out of here
#
So whether it's a cyclical slowdown
#
Or a structural slowdown
#
What's the Hindi of structural slowdown
#
Ok these are digressions
#
No so what I was saying was
#
The biggest structural problem
#
Are basically the politicians
#
And what do you do about them
#
Which is where all these committee reports
#
Dustbins of history and
#
People like me dig it out to sort of
#
You know I agree with you
#
But I also disagree with you
#
We have this whole input, output
#
Outcome business, only in
#
So if government is in the business of
#
Making bread, like it used to own
#
Modern bakery, not that long ago
#
In my living memory it used to own modern bakery
#
We have all grown up eating modern
#
It's disgusting, it's like one step above
#
So there is the input that goes into
#
Making bread, then there is the output
#
How many slices of bread or how many kilos
#
Or how many loaves of bread
#
And then there is the outcome which is
#
How do we evaluate just bread
#
We go to the market, we pick the bread we like
#
You vote with your money
#
The more number of people think this is
#
Good quality bread at a particular
#
So now when you are in the business
#
Then we have to slice and dice
#
And then that system can be gamed
#
The outcome how many kids are graduating
#
So then the problem goes even more fundamental
#
Is it the government's business to be in education
#
Which is one of my reforms
#
Actually that's not the appropriate question
#
I think the appropriate question is
#
Is it the government's business to be in education
#
To the exclusion of everyone else
#
The government wants to eliminate competition
#
Because this is one of my reforms
#
And therefore I will ask you to wait
#
A little bit and we will change the order
#
And I will get this reform over with
#
So my reform basically is
#
That we allow schools for profit
#
I want to set a little bit of context here
#
What really happened in the 50s
#
And 60s was that we had a mindset
#
That private enterprise was bad
#
Jawaharlal Nehru famously said to
#
J R D Tata do not speak to me of profit
#
Profit is a dirty word stop quote
#
And as a result of that there was
#
A sense that there are some sectors of the economy
#
Which are too important
#
To leave to the private sector the government has to
#
Do them and one of them of course was
#
Education and there were a lot of
#
Sectors which were part of this and
#
What really happened with liberalization
#
Is that some of the sectors
#
In which the government was controlling and there
#
Wasn't much private participation
#
Were basically opened up for example
#
Back in the 80s you know you could
#
Only fly Air India or Indian Airlines
#
They were prohibitively expensive
#
If you wanted a telephone you had a 5 year waiting
#
List all of that telecom got opened up
#
Airlines got opened up and instantly
#
You know we can see the difference
#
All around us and today a phone is
#
Accessible to anyone and
#
Far more people can afford to fly than was
#
The case earlier the problem with education
#
Is that we haven't allowed
#
With not necessarily debarring them
#
Regulations like your playground has to be this
#
Size and bla bla bla and it just becomes
#
Almost impossible to run a school
#
And a lot of private schools that
#
Exist do jugars with trusts and all of that
#
And the result of that is that
#
The amount of choice that is available
#
Massively and what you see
#
Across the country is people have this impression
#
That private schools are just very expensive
#
And they are only for the elites
#
That's not at all true what you see across
#
The country is you have budget
#
Private schools opening up in slums
#
James Turley has written a book on this
#
I forget the name and there have been studies
#
By the Center for Civil Society
#
And we know from Delhi, Hyderabad, Chennai
#
That you have situations
#
Where schools open up impromptu
#
Like domestic help and auto rickshaw
#
Drivers and so on prefer
#
To pay a 100 bucks or 200
#
Bucks a month to send their kid to that school
#
Rather than to a free government school
#
Now they are basically voting with their feet
#
Which is as it should be and which is
#
How people choose bread for example
#
By voting with their wallets
#
And I am often mischaracterized
#
For saying that the government should get out of
#
Education what will happen there, which is not my
#
Case at all, my case is simply that
#
The government should do the same thing in education
#
Which it did in airlines and telecom
#
You allow private players to participate
#
Somebody wants to open a budget private school
#
In a slum, in a room only with no playground
#
Let the market vote with their feet
#
See what happens and get rid of this mentality
#
That profit is a dirty word
#
Because the only way anyone can profit
#
Is by fulfilling somebody
#
Else's need, that is the only way
#
To profit, profit is therefore
#
The greatest form of philanthropy
#
And I think this is like a fundamental
#
Mind shift that needs to happen
#
Especially in education
#
Where to add a point and to connect
#
It to the jobs crisis, there is a
#
Massive mismatch today between
#
The kind of workers coming out
#
Into the field and the kind of skills
#
That are needed, people do PhDs and
#
MPhills and they simply have no employable
#
Skills and where does such
#
A demand supply mismatch happen
#
Where there is no market at play
#
Allow the freaking market
#
I would add one more thing
#
I think there is no greater damning
#
Evidence that a system has completely
#
From really poor families
#
Would spend close to half
#
To send their children to a
#
For profit tiny school where
#
You are sort of you know stacked like sardines
#
Rather than go to the government school
#
Which is for free and which is nearby
#
Right, I don't think and
#
One very large part of not allowing
#
The optics will be terrible
#
Because right now they can show the nice
#
Building with the airy windows and
#
No teachers and no students
#
And then compare it to these terribly
#
Crowded you know, they actually look
#
I went to maths tuition in 10th standard
#
Or 11th standard in one of these rooms
#
Where it was like a capacity for 30 people
#
And 90 people were stacked
#
But the quality of the maths being taught to us was fantastic
#
Produce these documents in court and say
#
Look at these people commercializing
#
These children don't have room to breathe
#
There is no window in the room
#
They don't get bathroom breaks
#
Genuinely allowed for profit schools
#
Those schools would be able to invest
#
See right now the schools are
#
Under tremendous uncertainty
#
You know in Sangam Vihar in Delhi
#
They shut down like 500-600 schools
#
Like this every year you know there is this little
#
Raid they take their billboards
#
Down and then one year later they back up
#
So I have a question here
#
Other than the government causing obstacles
#
Like this right like going to the court
#
And taking them down etc. Legally speaking
#
Or from a regulatory perspective or
#
Institution wise, is there any
#
Bottleneck or obstacle for the private
#
Sector to set up primary
#
So the licensing requirement
#
So first of all this is state and municipal
#
The licensing requirements
#
High so even the best you know
#
Posh convent schools are breaking half
#
A dozen rules at any given point in time
#
School I think the number that I last read
#
Just need a ridiculous number of licenses that's one
#
Kind of bottleneck the other
#
Kind of bottleneck is you know
#
A school is supposed to be a structure that
#
Lasts for a really long time
#
Right which means when you go
#
To these old countries you know these
#
European countries and you see the school was set up
#
They set it up as if it was supposed to exist
#
Forever now if you're constantly
#
Under regulatory threat that
#
Someone's going to come and shut down your shutter
#
You're not going to invest in windows
#
Right you invest in the bare bones
#
Which is benches markers
#
The teacher and the students
#
Showing up and that's it you don't invest in anything
#
Private schools also look terrible
#
Even the budget private schools look terrible
#
Even though there's so much money
#
In education and people would like to invest
#
Because it's so difficult to invest
#
In education and get a return on it
#
So essentially this reform what I'm trying to
#
Understand is what are the tangible things
#
Required to make this reform work and this
#
Would be amending a lot of
#
Laws and require regulatory licensing
#
Requirements etc. I've actually had a great episode
#
On this with Amit Chandra who actually
#
Works in this specific field it's an
#
Over one hour episode that's really good I recommend
#
The listeners check that out
#
And also I would just add
#
That the larger point here
#
Is of agency and choice
#
Parents are in the best position to make
#
A decision about where their kids should go to school
#
You are robbing them of choice no one is
#
Saying shut down the government schools keep them going but you're
#
Robbing them of choice by not
#
Allowing private providers imagine
#
If the same thing happened to bread there would be
#
So much outrage it happens in
#
Education which is so much more important than
#
Bread and there is no outrage and
#
Vivek couple of points so one
#
Is that you know because of all this you know
#
We have an employment crisis
#
We also have an employability crisis
#
So even when companies put out
#
Jobs they don't get the right candidates
#
The second point I would like to make in
#
You know this is education for profit
#
I mean look at the fact that a lot
#
Of private equity money is
#
Now going into tutorials
#
For profit was allowed and I mean tutorial is
#
Nothing just you know you're beating the system by
#
You're starting a school but
#
In the system the question is why is that gap there
#
Someone's filling in that gap and
#
He's getting private equity money now that
#
Private equity money could easily go
#
Entrepreneur who's setting up real schools
#
So I mean why should all the private
#
Equity money go to Swiggy and you know
#
I think you're spending so much time
#
Per reform that we you know
#
Move on to Rajeshwari and leave jobs and
#
Education behind us. Thank you so much
#
Yeah I will not talk about jobs and education
#
But I'll talk about something that is related to
#
Government spending so taking
#
The cues from what Amit said about
#
You know government should let the private
#
Sector come in and all of that
#
So my reform is basically about
#
Physical discipline which I
#
Think is an extremely important
#
Thing for the government to follow
#
So whenever a government
#
Spends money there are let's say three ways
#
For the government to finance that expenditure
#
You can either tax the current generation
#
Which is in a way the most fair way to do
#
Because the current generation is also benefiting
#
From the goodies that the government is giving
#
Or you tax the future generation
#
Which is unfair because the future generation is not
#
Benefiting from the government spending
#
The second way would be to borrow
#
And at some point you will have to repay what you have
#
Borrowed and the third is to basically
#
Print money and inflate your way out of it
#
Which is a big burden on the poor
#
So either which way whenever the government ends up
#
Spending the burden falls on the
#
Taxpayer either today or tomorrow one way
#
Or the other and what the
#
Government typically ends up doing is
#
And this is not just the Indian government
#
This is governments in general have a temptation
#
To spend 100 rupees today and
#
This makes us feel very good because we are getting
#
The birth of rupees 100 but we are only bearing
#
The burden of 90 but what ends up happening
#
Is that 10 rupees gets pushed out to the next generation
#
So we make our children pay more
#
For what we are enjoying today
#
And this is basically the classic way that
#
What is called fiscal deficit right
#
Keeps on increasing and increasing and that
#
Keeps on adding to the debt burden of the government
#
And that's a very serious
#
Governments give in to this temptation of spending
#
In the future generation then this can go on forever
#
And generation after generation keeps
#
Paying for this and we have recently
#
Seen in Europe for example what happens
#
When there is a sovereign debt crisis
#
When governments default on their debt and
#
So on so forth. Now coming to India
#
Given that we have Aadhaar and we have
#
Jandhan accounts and what not. There is not
#
Only a temptation for the government to spend
#
But there is also a very easy
#
Way for the government to spend because
#
All you have to do is essentially just keep giving your
#
Transfers and direct benefits
#
Or what have you made to these bank accounts
#
And what we have also seen is
#
That the government has practically no
#
Interest to listen to whatever our
#
Fiscal responsibility budget management
#
Act, a long thing, FRBM
#
Act stipulated because that's become a
#
Farce and there is no real consequence for the government
#
To violate it and every year when the budget
#
Is presented we spend a lot of time
#
Writing and discussing what is the actual
#
Fiscal deficit, what has been pushed out of
#
The budget so on so forth. So fiscal
#
Discipline I think is a big crisis
#
In India and has been so for a while
#
Draconian thing but I think that's what is needed
#
Is something what Germany did
#
The 2008 financial crisis
#
When the temptation of the government
#
To give a fiscal stimulus was very
#
High and when Germany was in the
#
Acute shock of the financial crisis
#
The German debt to GDP had reached
#
Supposed to be at 60% according to the
#
What the German constitution, what
#
The German government did which I think is remarkable
#
They were decent enough to
#
Say that at the time when the temptation
#
Of the government to run a high fiscal deficit
#
Is so big we are going to tie
#
The hands of the government and so
#
They enshrined in the German constitutional
#
Law something called a debt
#
Structural deficit of the government will be
#
Now imagine you are starting at a point where the
#
Debt to GDP ratio is 83%
#
And technically you are saying that
#
In the next 4-5 years you bring down
#
The structural deficit to 0.35% of GDP
#
Which means that debt gradually
#
Goes down to 60% from 83%
#
Is in the throes of the financial crisis
#
Of Germany will bring down the deficit
#
So this was a really really
#
Tight fiscal discipline rule where
#
Germany imposed balanced
#
And the consequence of that
#
Was that over the next 7 years
#
Germany has run a budget
#
Surplus in each of the years
#
And last year the German
#
Budget surplus was as high as
#
And now the debt to GDP is actually
#
At 60% is projected to be 50%
#
Thing that they have done
#
And it's not that the German government is not spending
#
What they have done is you are essentially
#
Financing your expenses just from your revenue
#
And you are shrinking your public debt
#
John Maynard Keynes would recommend
#
Which is exactly what any fiscal
#
Sound principle would recommend that
#
You spend during bad times and you save during good times
#
And basically if you save
#
During good times what it does is
#
When the next bad time comes you have the
#
Credibility and the space to borrow
#
Otherwise if you keep borrowing and spending
#
You are just in that perpetual
#
Fiscal deficit mode where there is no credibility
#
And nobody will want to lend you money
#
If there is a war if there is a deep recession
#
The only exception the German dead break
#
Constitutional amendment has is
#
Natural disasters and deep recession
#
Other than that you have to stick to this rule
#
And I think that is something it's high time
#
And since constitutional amendment is not very
#
Difficult these days we should
#
Enshrine that in the constitution
#
And make a meaningful change to say
#
We are going to tie down the hands of our government
#
And that will force the government to
#
Prioritize its expenses instead of
#
Announcing 65 different schemes
#
Which nobody is monitoring
#
You prioritize that okay if these are the 5 schemes
#
Which are important I am going to do this
#
And then gradually shrink
#
The size of the government and as you said
#
Let the private sector let the market
#
Give them a chance and let them work
#
Otherwise we will end up in a situation
#
Where the government is so intrusive in our lives
#
That it just keeps becoming a
#
Fatter and fatter cat and who is
#
So, I mean clearly she doesn't believe in
#
The modern monetary theory
#
Thing these days I mean when the moment you talk about
#
On the social media people will
#
Citing this new area of economics
#
Because everyone on social media is a trained economist
#
Especially when it comes to modern monetary theory
#
I usually don't believe in things which are
#
And the second point you know in Germany's case
#
They were lucky to have had the hyper
#
Because all that economic thinking goes
#
Back to that and then they tend to do the
#
Right things I mean every other nation is
#
The third point I wanted to make is and I mean
#
This is something you know we have had long conversations
#
The fiscal deficit of the central
#
Government you know when we say is
#
3.4 or 3.3 percent of the GDP
#
I mean that's one big sham
#
I mean if you look at the total public
#
Sector borrowing requirement as you know
#
The total borrowing of the government
#
Is termed as it comes to clearly
#
You know it comes to around 8.5 percent
#
9 percent of the GDP in an
#
Financial savings have come down
#
So, I mean one is that you know fiscal deficit
#
Is not represented correctly
#
And the other point the more important point
#
Is that this is why interest rates
#
Are not going to come down I mean you can keep
#
Cutting the repo rate till kingdom come
#
But the banks ultimately
#
Have to compete with the government
#
So unless the government sort of cuts its expenditure
#
The interest rates are not going to come down
#
And one point to add to what Vivek said is
#
Government expenditure is ballooned at a time
#
When apparently our economy has been booming
#
You know it doesn't make any sense
#
That if the GDP growth is showing
#
That we are growing at 7.5
#
8.2 percent in a quarter
#
That is the time when your government expenditure
#
Fiscal deficit is not able
#
To stick to the FRBM target and you're going to
#
It doesn't make any economic sense whatsoever
#
Yeah if you explain to me fine we are in a deep
#
Recession you need to give some real
#
Good stimulus to infrastructure projects
#
To yank the economy out of it and you're
#
Going to cut expenses on the schemes
#
That's a different thing but we are doing schemes
#
We are doing apparently some infrastructure
#
We are doing everything because the government is
#
Doing all the spending because all the other
#
Demand sources in the economy have gone to sleep
#
So we have no investment, no exports, no
#
Consumption, nobody is buying toothpaste or biscuits
#
Or cars but the government is the
#
Big giant elephant in the room who is spending
#
Because the government has access to some real
#
Secret source of money hidden away somewhere
#
Of course that's not true because we are all paying for that
#
You've got some really nice statutes
#
So which is why the next point
#
Here is that when businesses
#
Now ask for a fiscal stimulus
#
The point is if you look at data
#
Over the last two years the fiscal stimulus
#
Is already there in the system and it's a huge
#
One because if you look at government
#
Just the government expenditure
#
It grew by 19% in 17-18
#
Growth in the last 10 years
#
I mean if you leave out the part
#
Around the financial crisis
#
So what more fiscal stimulus
#
It's the nature of the fiscal stimulus Vivek
#
So for example if I give you the analogy
#
Yeah exactly so in 1999
#
Economic slow down we had a very big
#
Economic stagnation we had a slow down
#
And that was also the time when the government had given a
#
Fiscal stimulus but that stimulus
#
Was in the form of let's say an NHI
#
Investment or golden quadrilateral like proper
#
Infrastructure investment now a fiscal
#
Stimulus takes the form of building toilets
#
And houses and gases and I don't know
#
What right so there is also a nature
#
Of fiscal stimulus that is needed
#
But I think the overarching thing is whatever
#
The government does there needs to be a rule
#
That ties down the hand of the government
#
And a rule that has real consequences like
#
If you are enshrining the constitution it's a real
#
Consequence that will change that you really have to amend it again
#
And all off balance shit
#
Fine if you are a BHAL if an
#
FCI if a NHI too bad you also
#
Get clubbed into that because you have just been party to
#
This whole thing as well
#
Sorry to butt in again now NHI
#
From the national small savings
#
Fund I mean this is we are getting into
#
Very very dangerous territory now because this is
#
You know our you know the money
#
That we invest in our public provident
#
Post office income schemes so
#
I'll tell you what I agree on so
#
I completely agree with you
#
That you know our fiscal
#
Discipline I mean we don't have any fiscal
#
Discipline and there are parts of the fiscal
#
Discipline which is depending on the kind of
#
Spending can be better or worse we've lost the plot
#
There also there's a great book
#
On what you were talking about the whole
#
You know taxing versus debt so this
#
Whole nonsense of Ricardian equivalence
#
And Richard Wagner have a book called democracy
#
About the inherent problems of
#
Democratic politics which push
#
It towards debt as opposed to taxation
#
When you're taxing people they also tend to be
#
When you raise money through
#
Debt those voters are either not yet voting
#
Or not yet born so it is
#
Much easier to reduce taxes
#
And increase debt because those people
#
Are not yet voting right so we shift the problem
#
To the next generation and because
#
Any government is sort of
#
In that sense right so it's going to be
#
Sort of rolling it on to the next generation
#
And the next generation the music only stops
#
When you have these demographic
#
Problems or crises or something like that
#
So it's a lovely book that I recommend
#
Coming to Germany versus India
#
You know Germany could have done this
#
Even without the constitutional
#
Constraint because it's Germany
#
One they have excellent legislative
#
Discipline right they're very
#
Good separation of powers
#
They have a very tight feedback
#
Mechanism between the voters and
#
Taxpayers who are fairly
#
Rich individuals like the tax base is really
#
Big and the government right
#
So all these three things included
#
Do get upset in Germany like regular
#
Folks get upset if you're going
#
Too much into debt because they know
#
What the consequences of that are
#
Now that's not the case in India
#
So the temptation in India is let's constitutionalize it
#
Or whatever the number of constitutional amendments are
#
To do is to push things to
#
The constitutional stage but it's ridiculously
#
Easy to amend our constitution
#
Harder than passing law passing
#
Really no constraint we
#
Change the constitution I keep
#
Buying new copies of the constitution the last
#
15 years because it keeps changing
#
As the joke goes it's a periodical not a book
#
Yeah so this is a problem
#
This in to the constitution
#
Parts of the constitution which are just you know
#
There's one of these provisions of
#
Reservations which Ambedkar
#
Had initially intended would eclipse after
#
The first 10 years you know after 10 years
#
We won't need reservation that was the world
#
Ambedkar had imagined for India
#
Every 10 years it's extended
#
It's a constitutional amendment
#
Now they just show up you know what the
#
Quorum requirement you know how many people need say yes
#
They just amend and move on
#
I have a feeling that any kind of fiscal
#
Responsibility in the constitution
#
Will just become one of those things
#
While they can still feel good about
#
The fact that they constitutionalized it
#
So in some sense it's I think even more dangerous
#
I think what is really important
#
Since we're really looking for reform and
#
Long run what is really important is
#
One we need to really expand our tax base
#
Is just not big enough so our
#
Government both spends too much and too little
#
Depending on which area of the
#
Economy that you're talking about
#
Tax base the more people will be
#
Upset if you increase taxes
#
So that also acts as some kind of
#
Fiscal check or fiscal constraints because
#
The moment you become a tax payer
#
Suddenly you start worrying about government spending
#
And you know fiscal responsibility and so on
#
Thing the second goes back to our
#
Education problem which is you know I mean forget
#
Fiscal responsibility we can't count
#
The idea that we are going
#
To have an electorate in
#
20 years from today or even 3 years
#
From today who actually
#
Understand these things you know
#
I mean they don't need to understand it at the sophistication
#
You have as an economics
#
Professor who does this for a living
#
But to just understand the basics of
#
Oh this is the arithmetic right
#
And the government can't defy the rules
#
Of basic arithmetic the same way we can't
#
Right so where does this gap coming from
#
That is just completely
#
Missing and these other people voting for them
#
I mean what is your fail
#
Safe when the constitutional constraint
#
Safe is just missing we've broken the
#
Constitutional fail safe so we are screwed
#
So let me just respond to Shruti
#
Very quickly so the first point
#
About the fact that yeah of course it's very easy
#
Politically to spend and
#
Of course unpopular to tax which is the case everywhere
#
But it's also since we are talking
#
Of dream reforms here right it is imperative
#
People also vote on the basis of
#
What kind of public goods they have access
#
To whether they have a road next to their house
#
Through which they can go to the school whether they
#
Have a school that they can learn to after the school
#
Do they actually have a job do they have
#
The train connection so people also
#
Vote on the basis of the public goods that
#
They have access to and not just on the basis
#
Of whether they are taxing more or less right and so
#
A situation where there are people who are
#
Accessing the public goods and that's critical to
#
Them and not really the ones who are paying taxes right
#
Believes in this that okay we have to basically
#
Win election on the basis of the public
#
Goods that we are providing and not
#
On the basis of this fiscal
#
Jugglery that we are doing then it's
#
Not impossible and it's not required
#
That the all the people
#
Of the country don't need to understand that
#
What the complicated fiscal math is and this
#
Is something that is strongly believe in
#
We are not running the government in twitter
#
We do not and should not
#
Continuously care about what
#
All the people of the country want you know
#
I mean all the people of the country will want something
#
That may not be good for the country because they
#
May not be aware of what is really good for the country
#
And that's perfectly fine but if we
#
Tell them that we are giving you the services
#
And the goods that you need and we are
#
Not taxing you that is a very
#
It's a nice dream world to have
#
And as I said you don't
#
Literacy and education of course it is very
#
Important but because we don't have it
#
Does not mean that we will reach
#
A situation that as and when the population
#
Is literate like Germany only
#
Then we can aspire to have
#
A debt GDP ratio which is 60%
#
I don't think these two are
#
Should be connected and the
#
Last point I want to make is yes
#
I agree that Indian constitution is
#
The most amended one in the world and
#
It is very easy to amend it but my
#
Point is that what I the German
#
Dead break I was using as an example that something
#
Which is that tight something which is
#
That enshrined in the law of the land
#
Because clearly there is some kind
#
Of a willingness because we did pass the FRBM
#
Act and we do keep mentioning FRBM
#
Every year so there is some awareness
#
Vague consciousness that okay we need
#
To be on the fiscal path but
#
There is nothing which is of consequence
#
Because in any country it
#
Is difficult to tie the hands of the government
#
Because who will tie the hands of the government the government itself
#
So it is very difficult
#
It is very tricky to tie the hands of the
#
Government because the government itself will have to do it
#
Now the reason I said constitutional
#
Amendment is because even if it
#
Is easy but it's still relatively
#
Harder than just violating an FRBM
#
Act without any consequence but
#
My point is to dream and
#
Think of some kind of a structure
#
Which will really tie the hands of the government
#
So tight that to violate it there
#
Will be some consequence of course you can argue
#
That a government can do anything and there is no consequence
#
Of course with that caveat
#
Because otherwise as you said we will
#
End up in a situation where the government will
#
Keep conning us for generation after generation
#
And we will never be able to move
#
Out of this state that the economy
#
I would say you know the German example is pertinent
#
Because you have to understand where the causation
#
Of the constraint comes from
#
It comes from the people
#
It doesn't come from the constitution
#
The constitution is the manifestation
#
Of what the people of Germany
#
Really care about which is
#
You know tight fiscal discipline
#
In majoritarian politics where the
#
Amend the constitution and do
#
If the people genuinely
#
Don't care about this and
#
Since we are talking about the dream reform right
#
If we genuinely don't have
#
People who care about fiscal discipline
#
You are not going to get it
#
So I don't agree that people don't care about
#
I think people don't think about fiscal discipline
#
Every time there is a budget there are enough people
#
People are writing and thinking and discussing
#
No but that's what I am saying
#
I think if we keep thinking that all the people
#
Of the country will have to care about
#
A reform for that reform to happen
#
I think Rajeshwari's point is that
#
Elite shaped the discourse
#
I know the point but that's why we have so much
#
We passed FRBM because we wanted to pretend
#
To the rest of the world we are open for business
#
We also passed FRBM because we did
#
Realize that having a fiscally profligate
#
Government is not good for the economy
#
I understand but I am saying it's the means to
#
Other ends which is you know we want
#
More private investment in FDI
#
Part of the dream in dream reform
#
Which she is mentioning and I share the
#
Dream is that we have a constitution
#
Which actually means something
#
It doesn't mean anything
#
But at the same time the whole purpose
#
Of a constitution in the kind of republic
#
That we dream of is a constitution
#
That is a restraint on government
#
And which ties the hands of government as she correctly said
#
It hasn't tied the hands of government at all
#
Sure but what has happened in Kashmir last week
#
We passed a constitutional amendment
#
By voice vote with the president
#
We are recording this on August 25th
#
If you are going to talk about reforms which are feasible
#
If you are going to talk about
#
Reforms which are feasible in the current
#
Setup of the government then there is nothing
#
So because we are dreaming
#
I am relaxing constraints
#
Let's have Vivek take the middle part
#
So see one of the biggest problems
#
In reforms in India I mean has been
#
The fact that it's always been reformed
#
By stealth no politician
#
Sit and explain to the electorate
#
You know this is why we are doing this
#
This is why let's say we introduce a tax
#
So this is the reason we are
#
Introducing this tax or anything for that matter
#
I mean let's say the government decides to shut down Air India
#
Explain it to the people
#
The only time I have seen
#
A little bit of it happening was when Narendra Modi
#
He did one episode on Man Ki Baat
#
What happened was Rahul Gandhi
#
We went back to where we were
#
So unless politicians take a lead
#
Here and start explaining things
#
To people and which is very easy
#
These days you know I mean look at the kind of
#
News which keeps going around
#
You know on the social media
#
I mean there are multiple ways of
#
Reaching people these days which are not there
#
So it has to start from the top
#
I mean otherwise it's not going to happen
#
One of my reforms caters to this point
#
We will come to it a little later but I would
#
Add there that we can't
#
Rely on politicians but we can rely on
#
Incentives which gives me the slightly
#
Only a massive crisis which absolutely
#
Which will help us in any way
#
Yes but see again you know
#
The point there is that
#
If the economy keeps getting
#
Reformed only when there is a crisis
#
Exactly I agree with you
#
No no no we have to stop this doom and gloom
#
We need to take a break and come back
#
Quick commercial break we will see you on the other side
#
With six more reforms we have only done
#
Three now can you imagine how much
#
This week IVM Podcasts co-founder
#
Kavita Rajwade and Kartik Nagarajan
#
Take you through the journey of the
#
Filter Coffee Podcast. They share their
#
Favorite memories from renowned guests
#
And talk about what to look forward to in the
#
Shows future. On Marbles Lost and Found
#
Zain and Avanti host an
#
AMA special where they answer
#
Listener questions. On Mr and Mrs
#
Binge Watch Janice and Aniruddh
#
Continue their ME special series
#
Tune in to know their picks from the
#
Comedy category. On Water Player
#
Mikhail, Akash and Siddharth are discussing
#
The Ashes, the Afghanistan-Bangladesh
#
Match and a lot more. On
#
Bartha Lab it's a crossover episode
#
Hosts Akash and Naveen are joined
#
By Anupam Gupta, host of Paisa Vaisa
#
Tune in to discover a different
#
Side of Anupam on this podcast
#
On Agla station adulthood
#
Ayushi and Ritasha discuss how to
#
Navigate through relationships as adults
#
On Polyabazi host Pranay
#
Talks to Samrat, a writer and
#
Journalist about the causes and
#
Dynamics of the tensions in North East
#
India. On Kinetic Living, coach
#
Urmi shares a workout called X-Cross
#
And also highlights the importance of resting
#
Between workout routines on Thriving
#
Thursdays. On Geek Fruit, hosts
#
Tejas and Dinkar turn the tables from last
#
Week and this week discuss singers
#
Who decided to be actors and how
#
They have fared. On the Pragati podcast
#
Manoj Kevalramani joins our
#
Host Pawan to explain the ongoing
#
Hong Kong protests and its history
#
So far. And with that, let's get you
#
Welcome back to the Seen and the Unseen
#
This is that challenging part of the show
#
Where I come back from a break and I have to
#
Remember all my guest names
#
I have with me Shruti Rajgopalan
#
Vivek Kaul, Rajeshwari Sengupta
#
In the order that we will go through
#
Our next reform, reform number 4
#
Shruti's reform number 2
#
Coming up now. Yeah, so
#
Actually coincides well with the point
#
That Rajeshwari made about fiscal discipline
#
Though that's not the only goal of
#
India to be more fiscally
#
So India, I mean India's federal
#
Structure is very centripetal
#
So I don't know, we are
#
All different generations here but my
#
Generation read civics books that said
#
India is a federal country
#
With a unitary bias. Is
#
That what yours also read?
#
The sentence because I went around asking
#
Everyone what the hell this means
#
And now I figured out what it means. It means India is not
#
You know, one of the core reasons is
#
There is an administrative federalism
#
But there is no fiscal federalism
#
And what I mean by that is our taxes
#
And spending are highly centralized
#
Right? Now less and less so
#
In the last 25 years or so
#
So we have this fine establishment called
#
Finance commission where all our
#
Taxes, you know, think of it as sort of, you know, you collect
#
All the taxes in one basket
#
And then the finance, it would go to the finance commission
#
The idea of it and they would
#
Make a split between how much
#
The center gets and how much the state gets
#
And they had a whole number of ways
#
To figure this out. One was, you know, union government
#
Was really under central planning
#
That's one part. The other part was
#
You know, depending on how poor
#
Development it needs or how much infrastructure
#
Needs to be able to get more money or less money
#
So it's a giant rent seeking exercise
#
There have been papers written on how
#
You know, this kind of fiscal
#
Control was used to punish opposition
#
Governments. So if you're the same
#
Party in the state forming government as
#
The center, you could, you know, tend to get
#
More money. Then I think Stuti
#
Khemani at the World Bank has written on this
#
And, you know, if you're an opposition
#
Party forming a government in the state
#
They deny you the budget and that's how they hold
#
One of the big, there are three
#
Reasons I want to see more fiscal federalism
#
Public goods and what we mean
#
By more public goods most of the time
#
Is we want the garbage outside our house
#
To be picked up. We want better
#
Roads. We, you know, we all manage to get here
#
On time but I got here on time
#
Because I sort of accounted for
#
Which turned out to be true because
#
It's pouring in Bombay and, you know, every
#
Road is dug up and it's a total mess
#
We would like to have better public
#
Infrastructure, right, we'd like airports
#
To be better, trains to be better
#
Schooling to be better which is, you know, one
#
Function is the reforms we talked about, the other is
#
Expenditure. So we would
#
Like to see a lot of spending at the local
#
And our municipal governments have no money
#
And the reason for that
#
Except for BMC. Except for BMC. Which is why
#
Because they're building the metro
#
Which is a very rich municipal corporation
#
Center devolves money to the states
#
And then the state has the option
#
So, you know, like there's a central
#
Finance commission. Every state has its own finance
#
Commission post the 73rd and 74th
#
Amendment and depending
#
On whether you talk about the rural or the urban areas
#
The state is supposed to devolve
#
Finances to local government
#
That is not a condition
#
It's a choice. So what ends up happening
#
Is the states are spending
#
A lot of money and the union
#
Governments are spending a lot of money
#
But they're spending it on all useless things as
#
Rajeshwari pointed out. They're not spending it on
#
The things we care about. So you can
#
Have government spending which causes
#
Both stimulus, also builds
#
Infrastructure and also delivers public
#
Goods to the people who need it the most
#
But the money never goes there. The money goes
#
To satisfy special interests
#
With these freebies that are highly
#
Targeted to capture one vote bank or another
#
Or, you know, for optics like this
#
Whole toilet building thing which just, you know
#
Ahmed and I have talked about it. It just drives us crazy
#
Huge, you know, this is one reform
#
Which can sort of kill a lot of
#
One part of it is municipal governments will be
#
More empowered. So I get
#
This idea from all the condo associations
#
That I see. You know, they collect these common charges
#
Of fees that you see in Bombay and Delhi
#
And they actually spend that money
#
Right? And when you go to these condo association
#
Meetings, people are really up in
#
Arms about an increased
#
Charge or, you know, you took
#
Money to build a, you know,
#
Water filtration plant and that never got built
#
And there's all this. So there's a lot of
#
Local politics which can be
#
Tied to fiscal feedback
#
And that's an opportunity we're missing right now
#
Right? So the municipal cooperator, no one
#
Knows his name. That's one problem
#
So this will solve that problem
#
The second problem it will solve is
#
It will divide the functions
#
Of different levels of government much better
#
The union government is supposed to
#
Maintain law and order at the highest
#
Level, right? Interstate highways
#
Interstate river, water
#
Of course, safety and security
#
Of the country, right? That's all
#
That kind of expenditure
#
Or, you know, large externalities like
#
Pollution across states
#
That's really the job of the union government
#
Everything within the state which is your
#
You know, local highway
#
All your public parks, you know
#
Which are going beyond municipal boundaries
#
That's the job of the state government
#
And then, you know, lower level further
#
Municipal government. And we just
#
Don't have that clean demarcation
#
But the moment you make a demarcation with
#
Money, the demarcation in goods
#
Will be little bit more
#
It won't be automatic, it won't happen overnight
#
But it will happen over a period of time
#
Right? If you see state spending
#
In a place like Maharashtra
#
Disproportionate amount goes to
#
Rural and farmers freebies
#
Right? Even though Maharashtra
#
Has been urbanizing at a very rapid pace
#
Right? And that doesn't
#
Get reflected and the spending
#
And Mumbai citizens are
#
Underrepresented in votes and
#
Overrepresented in revenue giving
#
In fact, you and I had an episode on this
#
We had an episode on this
#
Where we spoke about the mismatch between power and accountability
#
Exactly. So that's the second part, right?
#
So first is we actually get public goods
#
The second solution is it actually demarcates
#
What each level of government is supposed to do
#
And can do. And the third
#
Part is tying the hands of government
#
Which is what Rajeshwari was talking about
#
I think this is a bottom up way
#
Of tying the hands of government
#
And therefore different levels of fiscal accountability
#
I would like to live in a world
#
Where the maximum spending is done by
#
The municipal government. Because that has the
#
Tightest feedback level
#
At that level. And also
#
That's where we use the public resources the most
#
You want a public library
#
You want a public park. You want
#
Poor children in your area to have
#
Certain things despite their income level
#
Which is access to schools and access to water
#
And access to vaccination. So that's what I
#
Would like to see. So that's the second part
#
Now the fiscal responsibility because of
#
The tight feedback you automatically
#
You know, you first of all create a check
#
Between government. So there's a horizontal
#
Separation of powers but there's also
#
A vertical separation of powers, right?
#
So this way municipal government, state
#
Government and union government have to fight over
#
The size of the pie and how they split it
#
Good check for each other
#
And the second is this is a bottom
#
Up way of really tying the
#
Hands of the union government
#
Which is what is doing a bulk of the sharing
#
And that's why it is so mis-targeted
#
Right? So you're absolutely
#
Right. You know both Rajesh Puri and Vivek have said
#
We've been in some kind of stimulus mode
#
For the last two years. It's just it's not
#
Working like a stimulus
#
Because it's all nonsense
#
That we're spending on. So you can
#
Also stimulate the economy
#
You have different levers to pull
#
You have more sophisticated levers to pull
#
Though I don't believe in that kind of like
#
But even if you were of that school, you have
#
More sophisticated levers to pull when you can
#
And what also strikes me is
#
That this would then change incentives
#
Because the point is if
#
You know local neighborhoods are so empowered
#
And are doing so much spending, people can
#
Vote with their feet and go to where the governance
#
Is the best, which improves
#
Everybody's incentives. Yeah and voting with your feet is
#
Naturally much easier when the
#
Geographical distances are small, right?
#
You can go from Khar to Juhu and Juhu to Andheri
#
Much more easily. Then you can go from Maharashtra
#
To Gujarat, right? Or from India
#
To Pakistan, which is what people keep telling me I should
#
Be doing, right? So this is
#
Which is made lower cost because voting with your
#
Feet comes with a constraint. You have to uproot
#
Your whole life. So that's
#
One part that makes the feedback mechanism
#
Tighter. The second part that makes the feedback mechanism
#
Tighter is your voters are your tax payers
#
So there is much, you know
#
Even though, first of all, all of us are not
#
Voting for Modiji, right?
#
It's a representative system
#
The second is all of us are not
#
So there is this really big problem
#
Of everyone who voted for Modiji and everyone who
#
Is paying taxes to Modiji
#
And I say Modiji because he's the one really
#
You know, in control, right? That's not a
#
Please don't ask Shruti to go to Pakistan, people
#
When people ask me to go to Pakistan
#
When people ask me to go to Pakistan
#
I say been there, done that
#
I haven't been there, love to go
#
I have no problem. I just have a problem
#
With people ordering me on what my travel
#
Plans should be. That is what I'm most offended
#
By. So essentially you're talking of
#
A more decentralization
#
No, I'm actually not talking about
#
Decentralization. I'm talking about genuine fiscal
#
Federalism. What we have right now
#
Is decentralization. And I'll tell you
#
What I think the difference is
#
Decentralization is that the head
#
Will get, right? I am the
#
Center, you are my sub-center
#
And I'm going to...Federalism requires
#
That they are own separate power centers
#
Have in India is a very large degree of
#
Decentralization without federalism
#
Which is, you know, I don't want to just pull Kashmir
#
Into everything but a very large part
#
Of the uproar that came from Tamil Nadu
#
And the other states. Actually
#
Very little uproar, according to me, but you know
#
One part of the uproar was that, you know
#
We are all states until we are union
#
Territories when we are
#
Right? Which is really true because we are all
#
Really agents of the union
#
Government. Which is not true
#
We are not the central government of India
#
We are a union of states, right? So we never
#
If you look at the constitution
#
The central government is called the union
#
Government, right? It's the union of states
#
But it never set it up as such
#
Because you can't just administratively
#
Make a union and not give them any revenue
#
Raising capacity. That's what
#
Makes a federal government a federal government
#
Have three lists, but we
#
Have enough loopholes in the constitution that the center
#
Can usurp any of the three lists
#
Completely, right? And there's enough vagueness
#
There. So that's one. That is not
#
The case in genuinely federal countries
#
Like Switzerland or United States
#
And so on. The second part of it is of
#
The third part of it is
#
All the ancillary services
#
The Union Supreme Court, which is the only
#
Supreme Court we have, that determines
#
What every high court will do
#
There is a system by which
#
Your planning commission at the center
#
Every state planning commission
#
This has very interesting implications for financing
#
For financing. So for example
#
Instead of a finance commission distributing
#
Across different states etc. Something
#
That I have thought about for quite some time is
#
A very small thing like a municipal bond
#
Bombay or other municipalities
#
Instead of waiting for some funding to come
#
Why can't we just issue municipal bonds
#
Or tax it. People of Bombay
#
Are paying enough tax and are happy
#
To spend it on resources instead of
#
Going through potholes. So since we are dreaming
#
I'll just, Vivek, just give me two minutes
#
I'll just take off on a little bit of another tangent
#
But related. Since we are dreaming is
#
How about, now we all know that
#
The cities of India are really struggling
#
There is a water crisis, there is an infrastructure
#
Crisis in Bombay, in Madras, in
#
Calcutta, wherever, right? So how
#
About converting the top ten
#
Cities of India into states?
#
And just hear me out a little bit on this
#
The model that I have in mind is like
#
A New York or a London, which have their own
#
Directly elected mayors
#
And the mayors are like the CEO's
#
Of the New York government and the
#
London city council and they're basically responsible
#
For running the institution, the
#
Economic development, the infrastructure, everything
#
In the cities. What is happening in our cities
#
Is, as Shruti pointed out, is
#
For example in Bombay, right?
#
Bombay is generating a lot of tax revenue
#
So to speak, but how much of that is something
#
That's really coming to the Bombay for Bombay's own development
#
Now I come from Calcutta, which was once
#
Called the Paris of India, East India
#
No longer the case. Calcutta is
#
Held hostage by a lot of politics of the
#
Hinterland. The chief minister of Calcutta
#
Or chief minister of Bengal has to bother a lot
#
About what's happening in the rural state
#
Because West Bengal is essentially a rural state
#
What's happening in the hinterland politics
#
Of the districts and villages and much
#
Less attention gets actually paid to what the city
#
Needs and as a result the city is
#
Really struggling today in terms of jobs,
#
Infrastructure, institutions, everything
#
So instead of that, since we have a familiar
#
Missionary of the state, why not
#
Convert the top ten cities into states
#
So that they get the autonomy, they get the autonomy
#
Of financing, they get the autonomy of
#
Economic development of those regions
#
And then you can have real
#
Good development pockets instead
#
Of saying that there are only two big cities in India
#
Which is Bombay and Delhi. So this is just a thought
#
That came up as I was listening to this
#
Conversion of the administrative
#
Structure from a city to a state or a state
#
To a city with a mayor, that's easy enough. We have mayors
#
Already. See mayor problem is in
#
Indian political structure. The mayor will always
#
Be kept subservient to the chief minister
#
So the mayor will never be able to
#
Do things autonomously because the chief minister
#
In the political hierarchy will be the more
#
Powerful one. Instead let's just convert them
#
Into states and make them each an
#
Autonomous unit. No, I disagree. I don't think
#
The problem is because of
#
The mayor is lower than the chief minister
#
I think the mayor is lower than the chief minister because he doesn't
#
Control his own budget. So my point is
#
Why even have this? He's a mayor-mayor
#
He's a mayor-mayor. Yeah
#
You know, we like to compare New York and London
#
But they are different in the sense that
#
In New York, the mayor doesn't
#
Control his own budget. It's set by Albany
#
Set by the council of London. So I'm saying is
#
Instead of going into the complication of mayor
#
How about dreaming that we
#
Convert the top 10 cities into states
#
And have their own autonomous political
#
Financial unit. Yeah, I'm saying you're still
#
Beholden to the center. It's another kind of
#
Decentralization. I think she's saying in addition
#
To what you're saying. Yeah, no even
#
Then I'm saying that is just
#
Outfit a little bit and
#
Changing the boundaries a little bit
#
I don't even care what they're called
#
Right? As long as they're not agents of the
#
Union. In a dream world where we have
#
The fiscal federalism, in that world
#
How about we convert the cities into
#
States? I think it will happen automatically. I don't think
#
We'll have to convert them. I think the mayor of
#
Bombay will be the most important person
#
In Maharashtra that day. I'm not so sure
#
Because the finances may work out
#
But I'm not sure how the politics will work out. I think Vivek
#
Had a point. Vivek had a point. No, no. I mean
#
Basically what we need is 10 Arvind
#
Kejrivals. Please don't
#
Say that. We need one less than we have
#
Frankly. No. What I was basically
#
Saying is that I mean if you
#
Look at the structure of all government
#
In India, I mean it's like a funnel
#
So we're very broad at the top
#
And then as we go down we become
#
And why is that the case? And why
#
Is it difficult to change? Now take a look
#
At, I mean, so this is something I've thought about
#
Example that I like to give is take a look
#
Minister of Civil Aviation.
#
Now if you take Air India
#
Gya uske paas. Kuch bhi nahi. Baaki to
#
DGCA kar hi raha hai. Aviation
#
Jaayega, civility rahegi.
#
In the same way, I mean
#
If you take the PSUs away from
#
Them, I mean they're gone. I mean
#
Ministry of coal. You take coal India
#
Like say you don't privatize
#
Let's say you sell all the shares
#
And I mean then what does the
#
Shruti's dog is named coal
#
They'll nationalize Shruti's dog. Maybe
#
Guns blazing today. Like
#
No holds barred. Bad jokes.
#
This is not a joke. This is
#
Legit. My dog's name is coal.
#
But what Amit said about that
#
That was a bad joke. I'm sorry
#
I should really stop. I'm behaving like Cyrus
#
Ameriqa wala coal. Ameriqa wala coal.
#
Koi la koi kyu naam rkega apne kutte ka
#
So yes. Me deko photo dekhate hain.
#
COLE hai or COLE? COLE hai.
#
Yaar ye podcast hai. Tum kutte ki photo
#
Badme dekha ho. You brought it up dude.
#
Achche theke. Don't call me dude.
#
I mean obviously you used to write for
#
Cyrus so that has to come out at some point.
#
In 1998. Continue continue.
#
Can we cut all of this nonsense?
#
No we are not. This is the fun part.
#
Those of you who don't know. Amit also coined the
#
You know the word bakra. MTV bakra.
#
I didn't coin the word bakra.
#
But yes I was responsible for naming the show.
#
He has a lot of experience in that area.
#
I was responsible for naming the show. I have been on a Cyrus
#
says episode where we have discussed that.
#
Kindly let us go back to dream reforms.
#
Instead of nightmare past.
#
What I was trying to say is that
#
government won't go precisely
#
because you have people
#
at the top who have incentives
#
to ensure that it continues.
#
everything you know else is
#
a dream. Sure but I mean everything we are discussing
#
in this episode if we bring the political economy
#
into it. No I understand
#
that but I think we should also
#
have a disclaimer. I mean while
#
dreaming with disclaimers is
#
Otherwise you get into a dream
#
sequence you know which is not.
#
Dreaming with disclaimers sounds
#
thing so. Horrendous. Now it is
#
time for your second dream reform
#
where the disclaimer is over kindly
#
give us dreams. Something I
#
I mean the second thing I wanted to talk about was
#
basically tax reforms and
#
you know because we have talked
#
about increasing the tax base and
#
the fact that you know India doesn't
#
pay enough tax because enough
#
Indians don't make enough money which is true at
#
many levels but what is also true
#
is that our tax filing system
#
is so bloody complicated
#
that it drives away people
#
from being honest. What I should
#
briefly point out at justice point is that
#
you are talking really about income tax because everybody
#
basically pays tax. No I am talking about income tax
#
and I am talking about the goods and services
#
right that not everybody pays those
#
but everybody pays tax. Every
#
Indian is a tax payer because anything you buy
#
you buy so and you buy so. Which is
#
true but what I am trying to say is. For our listeners I wanted
#
to clarify that you are speaking about this particular
#
category when you say tax. Income.
#
So what I am saying is that. Lest this becomes a gotcha moment on twitter.
#
some smart aleck will come everybody pays
#
tax. Yeah so. They will come
#
what I am saying is that you know if you look at
#
something as simple as our tax
#
return forms. Now every year there
#
are changes in it. Why? I mean why
#
can't a tax return form be
#
which this chartered accountant doesn't have to
#
figure out every year that what
#
Or take into account the fact
#
that we have some six seven
#
you know eight types of capital gains.
#
So there is one capital gain for
#
mutual funds one for debt mutual funds
#
one for real estate one for gold
#
I mean you know you have to have
#
one you know capital gain is capital gain
#
and you tax it like that. I mean in some
#
cases you have indexation in some cases
#
you have no indexation. So
#
the point is that you have
#
system. Now look at something like GST
#
you know every time the GST
#
council meets there is some
#
change. So there are changes which are
#
happening at the central level there are changes
#
which are happening at the state level
#
which is why you know if you look
#
at the annual return for 2017
#
only 20% of people have
#
I think you need to have a stable
#
in case of GST what has happened is they
#
have obviously launched it without thinking
#
it through. So they have to keep
#
changing it. Now you know you can't
#
keep changing it every week or every
#
you know every time the GST council meets.
#
So a better thing to do right now
#
would be to sit down and figure
#
out what is wrong and then
#
at a single go. Instead
#
of meeting every time and tweaking this
#
and tweaking that and making
#
you know things difficult for everyone. So like
#
if you sort of you know
#
pick up the what is called
#
codes for the economic activity
#
you carry out. If you are in the
#
goods part and then there is something for
#
the services part as well.
#
and why are you complicating
#
these things? I mean you know you can have
#
let's say two rates and just
#
and get done get along you know
#
get on with it. But then you know you will have the argument
#
on the fact that how can
#
that everyone is using and Mercedes be taxed
#
at the same rate. But boss Mercedes
#
agar ek karod ka aayega to
#
15% tax 15 lakh aayega.
#
You know this is something that
#
you know people don't get. But then they don't want
#
they are not happy with 50 lakhs they want 43
#
lakhs. Because they want to
#
tax it at 42% or 43% or
#
so you know this is something that will
#
sort of also help. I mean
#
along with being a structural reform
#
it will also have an immediate
#
So I want to add to what Vivek said
#
that I completely agree that simplifying
#
tax administration is something that we have been
#
discussing for a very long time and it's one of
#
those things that we all know needs to be done
#
but never really gets done. And we actually
#
end up complicating more and more with this
#
new GST fiasco. The other
#
thing that I think is also very important to
#
understand is if you want to avoid
#
tax evasion and if you want to expand
#
the tax base it's very important
#
to keep the tax rates low.
#
I think we just don't get that math
#
at all. Because our tax revenue
#
is the multiplied product
#
of tax base and tax rate.
#
Now if you want to increase the
#
base you have to lower the rate. Otherwise
#
if you keep the tax system at a very
#
high rate the probability of tax
#
evasion goes up that much more
#
and then in order to justify
#
the high rate you also give lot of exemptions
#
and then the exemptions
#
increase the leakages from the system even more
#
and then in the end you are sitting with a
#
really complicated system that you cannot monitor
#
because you don't have enough employees in your
#
tax administration. So it's a total
#
mess at the end of the day. So two
#
easy and finite things to do
#
is one is ease tax administration by
#
doing the logistical reforms
#
of filing ease and all of that
#
Be direct tax, indirect tax. Our corporate income
#
tax is one of the highest in the world.
#
It doesn't have to be so in a country when
#
we want to encourage investment
#
and make in India and all of that.
#
So lower the tax rate and
#
make the tax administration easy you
#
will expand the tax base and with
#
that expanded tax base again
#
coming back to the point of entire fiscal
#
discipline. If you then have a tax base
#
which is expanded then you remain within the
#
means of the tax revenue when you spend.
#
But all of these things are
#
stuff that again we have talked about
#
but for whatever reason in political economy etc
#
there is a lot of inertia to do this.
#
Look at what Nirmala Sitharaman did
#
basically increased the surcharges and now
#
increasing the tax revenue and so on
#
but for these people at these levels
#
so people who earn 2 to 5 crore or 5
#
it's very easy to leave the country
#
and go live somewhere else.
#
You can easily go to Dubai properties
#
as expensive as it is in Mumbai.
#
For businesses to basically invest elsewhere
#
a foreign direct investment outside of India
#
is actually increasing every year.
#
In fact this is the point Vivek you made in our budget episode
#
which earned you the nickname the Shah Rukh Khan of economics.
#
You were the Govinda of podcasting.
#
I think none of this is a surprise
#
so couple of things on this GST
#
first up I do want to point out it's
#
extremely regressive and anti-poor.
#
You know I mean Pali Ji has been in the news
#
because they have just laid off
#
2000 employees and biscuit sales are down.
#
Pali Ji's GST rate I believe is
#
18% on biscuits. Is that accurate?
#
I mean Vivek doesn't know
#
but it's high. It's double digits
#
and right and the GST on diamonds
#
and check the timing of reducing the
#
GST on gold and diamond it was done for some
#
handicrafts, cottage industry
#
reason but it was just after
#
demonetization and just before the Gujarat
#
election or just around that time.
#
I'll interrupt you. GST on biscuits is 18%.
#
which is the poor man's food
#
they have a 5 rupee biscuit packet. They have a
#
12 rupee biscuit packet. That is
#
So this whole bullshit about
#
oh the Mercedes guy you know
#
is going to only end up
#
you know begging outside a temple
#
Pali Ji. No but there is a logic to it.
#
So we don't want people to have Maida
#
and sugar. Maida is slow poison
#
Amit is saying. I think
#
I mean I know we should all have
#
but we want people to have a lot of
#
gold. We want people to have the freedom to have
#
poison. We should have Bhunja Chana
#
absolutely. Please use your savings to buy gold.
#
Gold is a good financial investment.
#
I'm not so much of an economics nerd that I
#
don't get the joke. But just as
#
a side note this kind of paternalism
#
nudging people to better food choices
#
through taxation is a really bad idea.
#
They wouldn't do it. They are not doing that.
#
Whole idea of a good GST
#
rate for all goods and services.
#
And we have gone so far away from that.
#
I understand but I think this is not
#
a knowledge problem. I think it's an incentive problem.
#
If you have a proliferation
#
of rates you can control
#
That's again the political economy.
#
The difference between what economists
#
and what politicians can do.
#
P. Chidambaram was the Finance Minister
#
back then. We came up with
#
supposed to replace the Income Tax Act.
#
code they had an 80 page explainer.
#
Imagine the Income Tax Act of India
#
being explained in just 80 pages.
#
And I remember reading it over 2-3 hours
#
and then writing a piece around it.
#
So I read it in 3 hours also.
#
Obviously it was cuttled because
#
if that had come through all the CAs
#
would have gone out of job.
#
They wouldn't have gone out of job but then the rent
#
seeking would have stopped.
#
P. Chidambaram was moved to home
#
our man Pranab Mukherjee
#
took over. I mean it just got
#
now we have a new Direct Taxes Code
#
news about it came up. Which Vivek
#
cannot read in 3 hours.
#
I had an episode with Pooja Mehra
#
Chidambaram to Pranab Mukherjee shift did.
#
That was a fantastic episode. That was a great episode
#
and Pooja unfortunately is in Delhi otherwise
#
we would have invited her to the studio for this.
#
And it's a lovely book. Please read Pooja Mehra's book.
#
Please read Pooja Mehra's Lost Decade.
#
And I should also point out that both Vivek
#
and Shruti have done episodes
#
with me on GST. Very fine episodes.
#
Very fine episodes. Magnificent.
#
And the last one of them was with Shruti and
#
if I remember correctly it was called the Bad
#
sums it up and kind of sums up
#
what you are saying about your
#
Simplify Karo. That's your between me.
#
I mean I pay GST every month.
#
I am in a bad condition.
#
I give invoice, pay GST
#
GST is coming out of my pocket.
#
So we are basically financing the government, right?
#
I mean because there is a
#
it's bad working capital
#
management. It's like the great
#
negative subsidy. There is a great
#
Sharad Joshi biography that has come out I believe.
#
I am going to go look for it in the bookstore. How many times have we faced
#
situations where the guy says that madam
#
if you pay in cash then
#
there won't be any GST. Oh by the way
#
so it's like nobody is even caring about
#
doing the billing and the receipts and everything
#
just pay by cash. No no no.
#
I have discovered entire
#
supply chains that are working in cash.
#
you can do everything by the book. But you know
#
GST has that whole supply chain
#
backward linkage issue, right? Absolutely.
#
So she has a set of books for
#
GST bharne wale clients.
#
She has a set of books for non-GST bharne wale clients.
#
This is a very old thing. It has always been
#
in India. You know corporates of
#
tailors. Corporates have always had
#
books for income tax wala
#
and their own book. So there is a reason why post-demonetization
#
cash utilization has come back to exactly
#
the pre-levels because nobody cares
#
about these things anymore. Because they have figured out
#
ways to do jugar again. No but it tells you
#
something when my tailor is doing it. It doesn't
#
I mean I am not surprised that the corporates
#
are sophisticated enough. But the GST
#
is such a huge burden. Of course.
#
She is hurting them more. She is
#
running a tailor shop no larger than
#
this room in her own home.
#
We still have tailors in India.
#
Yaar tu matlab bahut hi elite ka elite hai.
#
Like just now you will realize Shruti
#
when we were discussing GST rates
#
he did not know GST rate for
#
biscuit. Which I knew. But he knew
#
GST rate for diamond and gold.
#
Vivek Kaul you have been exposed.
#
You are supposed to know sir.
#
rate for Mercedes also.
#
Ya exactly. So diamond gold pe kyu ruk rahe hai
#
yaar matlab uske upar jao.
#
Matlab depends on how many diamonds you buy.
#
Yaar tu. I don't believe. Diamonds is
#
diamond is basically. Yaar hi podcast aur journalist ki shaani alage hai.
#
Shaani alage hai. Abhi agle
#
reform pe move karte hai. Rajeshwari ji
#
ka turn hai. Rajeshwari ji
#
bachayi hai hume is banter se. I am
#
not even going to attempt to break into
#
Hindi because then I will be truly exposed.
#
that I am going to talk about is going to take us
#
quite far away from fiscal
#
It's actually about immigration.
#
And it's something that I am
#
very sincerely believe in.
#
there is a very fantastic book
#
that has come out recently by Tony Joseph
#
I had an episode with him as well. Fantastic.
#
I have not heard that and I will definitely.
#
So it's a compelling read
#
where Tony Joseph uses recent
#
path breaking DNA research
#
trace the history of Indians
#
truth that comes out of the book to
#
summarize in a sentence is
#
who we are and where we have
#
come from and the truth is
#
that we are all immigrants
#
and we have all come from somewhere else.
#
And of course he talks about the waves
#
of migration so on so forth.
#
the reason I started with that
#
is basically to say that there is nothing called a pure
#
Indian. There is nothing called an indigenous
#
Indian. We are all from somewhere else.
#
and in a world where there is
#
so much of intolerance now
#
and border closing obsessions and
#
be a country again in the dream world
#
doors whatever you have to whoever
#
wants to come and live in India.
#
Now if that doesn't agree with your
#
moral fiber for whatever reason
#
then the next layer I would say is open up
#
the borders to those who are desperate and helpless
#
which would be the refugees.
#
If that too doesn't agree with your moral fiber
#
for again whatever reason the third layer
#
that I would settle down in my dream world
#
skilled for example whoever
#
has an undergraduate degree from
#
a decent university in the world.
#
Give them immediately a work visa and let
#
them work in India and after 10 years naturalize
#
them and give them Indian citizenship.
#
Or encourage students from all over
#
the world to come and study in Indian colleges and
#
universities and don't stop at giving them a
#
college degree offer them jobs offer them
#
citizenship. I think India should
#
aspire to be a country where people want
#
the Indian citizenship and that should
#
be the level that we should dream about instead
#
of saying that we are going to be this very
#
insular country where we care about indigenous
#
Indians and I think we are going exactly
#
the regressive way because immigrants are
#
great because immigrants they bring
#
knowledge they bring capabilities they integrate
#
us with their countries they help
#
knowledge sharing they are
#
research shows they are low on crime
#
because they are scared of getting deported
#
so they basically work hard to stand
#
on their own feet they don't have a political
#
clout so they don't ask for your welfare benefits
#
there are countries which have been built
#
by immigrants as we all know I mean my favorite example
#
the child illegitimate child
#
father who was a refugee
#
so to speak in the US and
#
a Catholic mother of Swiss German
#
descent and that would be impossible
#
today because Syrian refugee will obviously be turned
#
away the other example of course is Barack Obama
#
of a Kenyan father and a mother
#
of and let me remember this correctly
#
German Scottish Irish and
#
they got married at a time when
#
Barack Obama's father was a
#
scholarship a foreign student on scholarship
#
so and there are of course many many such examples
#
right so I think India in my
#
dream world we should aspire to be that country
#
which where we are open to immigrants
#
naturalizing them into citizenship we will
#
not get the good brains of US and Europe perhaps
#
but we will get the good brains of South Asian
#
countries of Middle Eastern countries of African
#
countries and I think that is great
#
and that's what we should dream about
#
They are putting refugee songs
#
very this is not pre-planned at all
#
we did not know each other sing Vivek
#
is just this encyclopedic
#
I have to say this is a great reform I agree with you entirely
#
I had an episode on immigration also I have had so many
#
episodes with Shikha Dharmia
#
So how do you explain then what will happen to India's demographic dividend
#
humare logon ko naukri mil nahi diya
#
I will that's obviously not the kind
#
of thinking that I would subscribe to when I'm dreaming
#
of immigration because that's why
#
I had three layers right I said okay
#
once you open up the gates to everybody doesn't agree
#
with the moral fiber open up gates to refugees
#
doesn't agree to moral fiber if you
#
are only allowing skilled people I think the
#
numbers will be too miniscule to make a difference
#
to our large demographic dividend if anything
#
and if you are really worried about it then the
#
Indian state should think about all the
#
private sector the markets that you
#
are not going to worsen the demographic
#
dividend problem by letting people coming in who are probably
#
more skilled the whole idea is why should
#
we be restricted to our local skill
#
pool we should be able to access the skill
#
pool everywhere in the world and
#
starting with my initial premise there is nothing
#
called Indians to begin with we should
#
first have a change of mindset
#
instead of having that kind of an insular
#
mentality I would add to
#
what you're saying not just for the
#
immigration purposes but also add tourism
#
to it because I think it's pertinent
#
right I mean there is a certain
#
kind of immigration which just goes to another
#
country and just moves there but I think
#
people are more likely to mingle
#
and you know think about
#
living in another place or working in another place or sharing
#
you know sort of this kind
#
of cultural exchange intellectual
#
exchange if they can visit more easily
#
they've simplified the process of
#
getting an Indian visa but it's still a hassle
#
required to come to India absolutely
#
I mean so the tourist visa
#
but in the work visa I was just reading
#
up some of the rules I mean the
#
the stipulation of the work visa is that
#
the person applying for a visa needs to have
#
dollars a year and only then
#
can you be given a work visa that's almost about
#
20 lakhs a year why do you have to have
#
the stipulations to give a job if somebody wants to be
#
a secretary or whatever it is right any
#
job that the person wants give him or her
#
that job why do you have this weird kind
#
of a restriction and that too for five years
#
so talking about tourism
#
when we were leaving Bombay
#
I sort of gave my passport to the
#
Bureau of Immigration and the guy said
#
visa kahan hai so I had to tell
#
him ki bhai Bali mein visa nahi lagta hai
#
toh then he said nahi pat visa
#
on arrival hota hai kya mula nahi visa nahi lagta hai
#
so he was very surprised that there is this place in the
#
where we are which doesn't require a visa
#
and the best part is you land
#
walk out I mean they take a picture and you walk
#
there are more requirements
#
I mean there were more requirements for
#
me to fill up when I came back to India
#
okay now and the other thing I
#
really can't understand is that you know
#
when someone is leaving the country
#
you don't have to have a
#
Bureau of Immigration there and you know
#
create a I can understand that you know
#
when someone is coming back
#
when someone is coming into
#
the country there has to be you know
#
I mean a check but when you are leaving the
#
headache right you know my problem is not that
#
they check it it's okay I mean the stamp takes
#
a minute the question is how cumbersome
#
the process and what is the reason for
#
doing it and exactly the same for
#
having foreign students coming in
#
or foreign nationals coming in and being here
#
and getting a job and getting nationalized into India
#
why can't we dream of that world
#
that it's possible there are people in South Asian
#
countries who would really give anything to come
#
here and work and get a degree and
#
that's perfectly fine for us because we actually benefit
#
from it so I'll give you a small number
#
which will show you how lopsided the thing is
#
the total number of foreign students
#
who are studying in other countries
#
in 2017 was five million
#
in India there are only about
#
48 49 thousand foreign students
#
which is less than one percent of the number
#
as opposed to that Indian students
#
studying abroad are about three lakh
#
because that's about close to six percent
#
and that tells you something about our education system also
#
and it adds to the current account deficit
#
we are very very fine with our
#
students going to other countries and
#
you know making a name for themselves and the moment there is
#
an Indian in the US who's standing for some local
#
election we'll just beat our chest and say oh look
#
there's an Indian connection who's standing for some
#
US election etc but when it comes
#
to them coming here we have all
#
these long pages of restrictions
#
you cannot do this you cannot do that but why
#
why can't we just open up and say fine
#
come here get a degree get a job and
#
become Indian get an Indian citizenship
#
so I absolutely don't understand
#
why we haven't done it and I think that's something
#
that we should definitely I think I'll have to rephrase
#
what I said in the sense that
#
when you're leaving the country in this day and age with
#
Vijay Mally and Nirav Modi yes I mean I guess
#
Rana Roy apparently also is on
#
that list because he was stopped at the airport
#
the other day there you go
#
no but these guys were not
#
on the list which is why they left no no they were on the
#
list we knew when they were leaving so we could
#
look the other way let's move on now to reform
#
number 8 and it's my turn again
#
and this is a pet reform and it's actually a reform
#
strongly about and the reform very
#
simply is abolish family
#
planning I think population control
#
of modern India and this is at
#
it's at what I would say
#
a consequential level and a deontological
#
level let me explain both
#
one there is this kind of zero sum
#
started of course famously by
#
Malthusian now called Malthusian
#
is that there are only so many natural resources
#
we are going to run out of them if there are
#
too many people and therefore we
#
have to do population control
#
and what this completely ignores
#
and this has been proven completely false
#
over the centuries but the myth still
#
persists and what this completely ignores
#
are in the words of the economist Julian
#
Simon the ultimate resource
#
and what typically happens
#
is that the more the population
#
the greater the prosperity that you are
#
likely to see you see this at the level of countries
#
where you have countries like Bahrain and
#
Monaco which have far greater population
#
density than say Bangladesh or India
#
you see this within any country
#
where the most prosperous
#
those parts with the greatest population density
#
are the richest parts of any country and the
#
history of humankind is a history of
#
urbanization people move
#
from less populated areas
#
to more populated areas because
#
you get the chance to be part
#
of larger economic networks with
#
all the benefits of specialization
#
and also because people
#
Simon again the ultimate resource
#
with our ingenuity we get
#
over any possible shortfall
#
that happens and this also
#
kind of plays to the point
#
that Rajeshwari made about immigration
#
where people might well ask that why
#
should you let people in on a work visa
#
when as we discussed earlier in this episode
#
there is such a massive jobs crisis
#
and my sense is no the thing is that the
#
more people there are the better
#
we will do and all the problems that
#
we currently have which seems to be
#
because of too many people are problems
#
in many of the reforms that we've suggested
#
play exactly to that bad governance
#
bad incentives so on and so forth
#
if people were a problem
#
people would not be moving
#
from rural areas to cities
#
and we would not be constantly
#
urbanizing in fact if you're
#
listening this and you live in a city
#
you've actually you know in a sense
#
voted with your feet or by being
#
where you are my second
#
more important point and this makes me really
#
angry the moral point the deontological
#
our bodies do not belong
#
to the state we are all individuals
#
the job of the state should be to protect
#
our bodies not to tell us how many
#
children we may or may not have
#
I of course have chosen we have chosen not
#
to have any but that's a different matter that
#
choice is something that should be made
#
shock and I'm not just you know I'm not
#
just outraged by the kind of coercive
#
and the nasbandi is carried out
#
by that monster Sanjay Gandhi during the
#
emergency and his equally monstrous
#
mother the kind of policies they put in place
#
family planning still exists
#
in India today the Ministry of Health
#
to carry out nasbandis and to carry out
#
serializations and the state
#
to you know for people often to themselves
#
the women who are at the receiving end of this
#
very rarely will you find that the
#
man is actually going to a clinic
#
and saying let's do nasbandi
#
the woman with whom it's a problem
#
so these are the two problems I have
#
consequential and moral
#
I think Vivek raised his hand first
#
I have a frivolous point to make
#
I think this comes from a more
#
fundamental misunderstanding of the
#
economists would always tell you that resources
#
are scarce but resources are scarce
#
aren't fixed because of human ingenuity
#
now look at a city like
#
Bombay you have a fixed
#
piece of land in the sense that
#
there's only so much land it's a peninsula
#
and there's water surrounding it
#
ingenuity on things like
#
or elevators, elevators according to me
#
are the best mass transit system
#
go up so many floors in a matter of
#
that didn't come because that resource
#
existed human beings had to
#
and it existed only in a world
#
where the size of the market was
#
large enough to allow that kind
#
of division of labor and specialization
#
so what we need in the world is
#
more people, more prosperous people
#
has fixed amount of land
#
I hear this all the time in Bombay
#
we have a fixed amount of land there's only so much road
#
our transit system is also the phone
#
and actually contrary to perception India has a lot of land
#
yeah land is not a problem actually
#
yeah land is not a problem
#
no but in Bombay you'll say right like there's nowhere to expand
#
digression, digression let's not talk about land
#
but it's not about the land alone I mean there are only
#
7 musical notes and yet we manage
#
to produce more and more tunes
#
so the idea is there is
#
human beings are the resource
#
why because their skill and productivity
#
is the resource so the resources
#
are finite as long as human beings
#
and their ingenuity is finite
#
which thankfully it is not
#
right so this comes from a
#
planning control mindset
#
that resources are fixed
#
right because there is no
#
incentive for those people to
#
innovate on how you use those resources
#
so this is a really big problem so if you look at
#
and all the new you know endogenous growth
#
theory and so on so forth earlier there was this
#
idea that growth is a function of some lever
#
you pull right some exogenous shock will happen
#
you'll get this spurt of growth
#
and that'll so you know there'll be some spillover
#
effect and that's it but what you
#
talked about cities, cities are endogenous
#
there is growth because
#
that is happening when a lot of
#
people mingle with each other in
#
or a small intellectual space
#
so and as you pointed out most of us
#
choose to live in dense places because
#
that's where the opportunities are
#
so this is you know part of the
#
problem the other part of the problem is we are very
#
poor on service delivery
#
so the metaphor for the Indian
#
citizen when it comes to life
#
is standing in line right that is
#
really the life of the common man so
#
when you're standing in line you blame
#
everyone who's standing in front of you
#
that's really the problem so this mindset
#
comes for the state from one place
#
it manifests in the citizen from a
#
completely different place because we have
#
just failed to provide the basic
#
services that you need right
#
the elevator was not provided by the state and
#
the buses the state doesn't provide
#
so that's the problem so and to quickly add to
#
that before we sort of go
#
on is what also strikes me about population
#
is that anyone who complains
#
about the population being a problem
#
is basically saying other people are the problem
#
yeah you know they are also part of the
#
population and if you ask anyone
#
individual are you a net cost
#
to society or a net benefit are you giving
#
more than you're taking out I think everybody
#
would say no no I should be the one
#
but somehow other people are the problem
#
people are the problem because of this
#
service delivery by the state
#
for which bad governance
#
is the problem exactly bad governance is the problem
#
and of course I mean the way I see
#
it is it's an escapism by the government
#
right so the government is saying we have failed
#
to do our job of providing public goods and
#
services and therefore I'm going to just push the
#
button on you it's your responsibility to solve the problem
#
by not having kids now one thing that I want to
#
point out here is one country that tried
#
this for a very long period of
#
time was of course China and
#
the negative consequences of
#
that that side effect that happened was actually
#
and I've seen that happen
#
in the US with my friends is the Chinese
#
they obviously they moved in
#
large numbers to the US and once
#
in the US they actually started having
#
kids there so I actually have
#
friends who have so their parents
#
had one kid in China and they have actually
#
moved to US to have another
#
kid and then they have taken their entire family
#
back in the US and there is this brain drain
#
that's happening from China because the Chinese government has
#
imposed this control so every time
#
we bring a draconian measure like this
#
we should be very aware of the consequence
#
that it's going to happen because people are
#
not going to be subservient and say oh we are going to
#
listen to it people will find ways around
#
it and the ways around it are not
#
going to be good for the economy in the society in the
#
long run. I want to add one more thing to this
#
Rukmini has just had a piece
#
on how population control
#
is tightly linked to female
#
So this is just you know since you're talking
#
about these unintended and perverse consequences
#
I don't agree with population
#
but one of the terrible consequences
#
of that is gender selection pre-enately.
#
I mean think of that in terms of
#
dense population I mean one
#
example that I can think of is Hong Kong
#
it's the highest population
#
density in the world and if you go to
#
Hong Kong do you feel that there are no public goods
#
services because there are many people absolutely
#
not. Go to Tokyo there are people standing in
#
lines to get into the metro in Tokyo but
#
then are we going to say there's no public goods and services? Absolutely
#
not. So it's a sham that
#
we create that because we are a densely populated
#
country therefore we are poor and therefore we
#
don't have public goods and services. That's a great point it's a state
#
blaming the society for its own failures.
#
So the first point I wanted to make was about
#
land so you know in Mumbai
#
the problem is obviously the low
#
FSI and low FSI is where all
#
the state government politicians.
#
You took my third reform but anyway
#
And we have done an episode on this also.
#
The second point I wanted
#
to make was that I mean since you talked about
#
I don't know if many people would know that the government
#
of India also manufactures condoms
#
Pawan Srinath and I were once
#
sort of researching into this back in the days
#
of Prakriti. I don't know if I'm more aghast
#
that they do it or you have this information.
#
I have this information
#
because I care about good governance but
#
point is you know people know that the
#
government manufactures nirod but they don't
#
know that the government also manufactures mood.
#
is so every time you're using
#
mood condoms you're basically
#
using a product manufactured
#
by a company which belongs to the
#
government of India. This is
#
like the same guy owning a sweet shop and a gym
#
side by side basically.
#
When I listen to these things I
#
get the feeling that we are literally
#
dreaming here because when we are in a country
#
like this where the government is doing
#
problem. Maybe the population is out
#
of control because of the government condoms.
#
Everything else they produce is so
#
PSA announcement from Vivek.
#
He is telling you the brand so
#
Don't fly Air India and don't use mood.
#
I fly Air India all the time.
#
Best seats 25 kg luggage alone.
#
I get scolded by the aerostats
#
when I ask for something.
#
at least I'm putting my tax money to some
#
good use because that is what is being used
#
to rescue the airline. In fact they have asked
#
for 2000 crores. That's a sunk cost
#
fallacy. You are throwing good money after bad.
#
We have done episodes on this for other shows
#
not yet released. But then see if I have
#
the choice, if the price between an Indigo
#
and an Air India is the same, why would
#
I travel in Indigo? Vivek is the guy who is enabling the
#
fat cat government. No he is not
#
because they are not running on his ticket
#
price. They are running on our taxes.
#
He is benefiting from our
#
unimpeded largesse. He is being subsidized
#
I wanted to make a point about the
#
unintended consequence of
#
Or for the fact that the one
#
are not finding brides because
#
or look at what has happened
#
in Haryana which has had a very low
#
today at least two decades back
#
are importing Malayali brides because
#
than men. And it's worse they sharing them and
#
literally treating them like sex slaves.
#
So in a household if there are three
#
brothers they will share a bride. Haryana was
#
by the way mentioned in great detail in my fantastic
#
episode with Namita Bhandare.
#
So there was this movie I saw
#
many years back. I don't recall the name.
#
Very very disturbing. Start Piyush Mishra.
#
It was about this village where
#
they had run out of women.
#
brother it was a story of some
#
seven brothers I think or six or
#
and one of the brothers went you know
#
finally figures out that you know
#
there is this woman who is
#
she is ready to get married and he goes
#
she is not a woman she is a man.
#
What was the name of the
#
Matru Bhumi. Very very disturbing.
#
That's how I remember it. Let's now move on to
#
and back to Ms. Shruti Rajgopalan.
#
I don't know if this is
#
I inadvertently ended up picking up reforms
#
that sort of benefit or affect the
#
largest number possible.
#
So that's where I was going with
#
the dreaming and the big thing.
#
And I think the big one we need to solve
#
And law and order has multiple parts to it.
#
You know we need a fixed prison system, we need
#
to fix courts and things like that.
#
But I think at the very least even before
#
we improve quality and do
#
police reform, judicial
#
reform, I think one way
#
to stimulate the economy with all this
#
government spending is just triple the police
#
the number of courts, triple the number of judges
#
our entire law enforcement
#
structure. Now I'm going to get
#
trolled heavily for this because
#
anytime I suggest adding to government
#
everyone calls me and asks
#
non-existent libertarian card
#
in the Ganges which is dirty.
#
No but I think libertarians like you
#
and I kind of agree on one thing that what we
#
need is a small and strong
#
government that does its limited job well
#
and not a large and weak
#
government as we have now and
#
law and order falls within that. Exactly. So
#
one is, no but there are
#
you know speaking of the unintended
#
consequences so what's ended up happening
#
passing laws as a substitute
#
for enforcement. Right?
#
are on the rise. Right? We don't know what
#
to do about it. There is some moral
#
and public outrage. So we pass
#
a law that will you know change
#
a normal rape law or we will change
#
you know regular penalty to death
#
penalty and so on so forth. But there's only one
#
part. Right? Now making it death penalty
#
doesn't mean it's being enforced more.
#
So the women are being raped as much
#
or as little as they were before you pass
#
this law because no one
#
forget rape you don't get called
#
into question or even get a slap
#
on the wrist for anything. Groping
#
experienced someone you know flashing her
#
and groping her and so on. And this is not
#
just about women. It's about everyone
#
right? So when you have
#
enforcement one of the consequences of that is
#
there is selective enforcement.
#
must decide what is the most important
#
when you can choose you obviously
#
involved in what are we choosing
#
Right? So if you notice it is
#
always the disenfranchised who get
#
there used to be a section 377
#
it was never enforced but it
#
was used as you know the Matunga
#
I wrote a column called the Matunga
#
racket on this. Right? And this is basically
#
they are just harassing young same
#
threatening to out them or take them to
#
their parents or take their photographs and you know
#
so on so forth. The same
#
thing happens when it comes to political
#
issues right? You selectively
#
enforce what you are going
#
to do. So the selective enforcement
#
to use the police as a tool
#
opponent. So that's one very
#
poor unintended consequence
#
or maybe an intended consequence of having
#
weak law enforcement. That's what you see in
#
India. And now with this
#
whole nationalist movement
#
people keep complaining that you know why are
#
these people who are lynching, going
#
free and not getting. Well it's
#
basically because our entire
#
law enforcement system is completely broken
#
we have no chain of custody
#
when it comes to evidence. That requires
#
people, it requires, it
#
literally requires more hands on deck
#
and manpower right? It requires labs
#
it requires infrastructure.
#
So one part of it is of course as a
#
society we are choosing to look the other way
#
but even if you have good people
#
in a system that's broken
#
and is like just barely functioning
#
you are going to get consequences like Bailu Khan.
#
the big one we need to solve
#
think the first step towards solving that
#
on deck. I know some of the laws they
#
will enforce are terrible
#
but we still just need more law
#
enforcement, we need more constables
#
more traffic police. You know
#
just the, we really need to
#
increase that number right now. So one question
#
that I have there Shruti and you will obviously know much
#
more on this than I do which is that
#
isn't it the case and that this research that
#
shows that just by increasing the number of
#
courts and judges is really not going to solve
#
the problem of the judiciary
#
because it's not that we have a
#
problem of ever broken judiciary because we don't
#
have enough judges and courts. The problem lies
#
somewhere else. No, that is, but that's
#
a big part of the problem. Right?
#
Pendency rates are incredibly
#
high and judicial workloads are very
#
high for two reasons. One, we
#
don't have enough judges and courts
#
and two, the vacancies are
#
You know? But can I add to a question? I mean
#
just to add to a question
#
there seem to be two problems here. One is state
#
capacity, not enough cops and the other
#
is wrong incentives for the state capacity
#
that does exist which is why so many
#
policemen are into rent seeking for example
#
they'll stand at signals and wait to catch
#
somebody. Now you can increase the
#
state capacity but the bad incentives
#
are still in place. Yes, so
#
I don't claim that just increasing the
#
law enforcement will solve the entire
#
criminal justice system
#
but I do think it helps
#
the streets or in the metro or at the train station
#
things like right now the system we've
#
devolved into in India is no one's
#
even reporting a mugging.
#
The only time you report a theft is
#
because you need an FIR to get a new driver's
#
you know, give it to the credit card company
#
to get out of fraud or something like
#
that. So one of the consequences
#
of just not having hands
#
on deck is extreme under reporting
#
because you have no one to report to
#
and no one's willing to write the report
#
or there's just no one present
#
right? Which means all your
#
small offences and when I say
#
small I mean minor in terms of both punishment
#
and how society views them
#
they just go under reported. So
#
it looks like society doesn't have these
#
problems but the deadweight loss is
#
somewhere else. You know people
#
much money as they would like to carry.
#
People don't carry gold when they travel across
#
cities to go to a wedding or something like that
#
because everyone's nervous right? You don't go
#
out late at night. You don't go to watch a movie.
#
You don't take a job that's going to require late hours.
#
You don't go to a university
#
that's too far. Right? So
#
this is how it compounds.
#
more police solve all problems?
#
more judges will go a much
#
longer way in solving problems than more police.
#
With police there is also
#
a fear that unless we fix the
#
pernicious regulation this could
#
an exercise where police has more control.
#
at this point given how lawless our
#
society is I think this trade
#
think would be reasonable. I guess what you're saying is
#
more state capacity is necessary but not
#
sufficient. Yeah it's absolutely necessary
#
and it could have some other unintended issues
#
think we need to go towards this
#
because we are just living
#
you know some parts it's just
#
Like you know the it's just Gundaraj
#
going on in lots of towns and villages
#
in India. So you know one of the things
#
I realized. So there is
#
I have a chapter on this in
#
my India's big government book.
#
is that what kind of cases
#
are pending. And very very
#
interestingly a lot of cases
#
which are pending have to
#
do with vehicle chalans.
#
Now that is not something
#
that needs to go on and on and on.
#
essentially a dedicated court and
#
you put in a few young guys I mean it's
#
not like a complicated reading of the law
#
that is required there. Put in some
#
recruit a few more young judges.
#
Put them there and then
#
you know you can tackle this problem at a
#
very fast pace. You can do it by
#
thing that is you know this is something that
#
Shailesh Gandhi had written a very interesting column
#
on in the times of India a few years
#
back. And what he said was
#
that it's not like the courts are not doing any
#
work. They are disposing close to two
#
crore cases a year which is like
#
a huge number. But what
#
is happening is that the number of cases that
#
sort of new cases that come on
#
are more than that. So essentially
#
you know if you sort of let's say you know
#
offhand so I may not be very sure of
#
the numbers. So like India has
#
I think the number of judges
#
court judges the number of positions is
#
around 1040 or something like that.
#
And the last time I checked we
#
had some 600 or something
#
like that who were appointed to those posts.
#
So the point is even if we
#
don't create extra posts and
#
the posts that are already there
#
large part of the problem.
#
police thing you know when you want to
#
the fact that more police may
#
not solve the problem. So there
#
was this movie called China Gate many many years
#
you know the villain was played
#
by this guy called Mukesh Tiwari. It was his
#
first movie. And there was a line
#
in the movie which said that ki humse ladne ki
#
takat to lea hoge. Par hamara
#
kamina pan kahan se laoge.
#
goes against everything we say about incentives
#
because level of kamina pan doesn't matter
#
if incentives are right.
#
I am going to respond to the new
#
court. It's really bad by the way.
#
So basically what happened was that
#
it's a brilliant court are you?
#
they have started to send
#
SMS. So you have to basically log on to an app
#
and pay off. Now what is happening
#
is that so you know initially
#
when this happened everyone was like okay
#
now these havaldaars won't be able to charge
#
anything and all. But what has happened
#
is that the bribes have in fact instead
#
of going down have gone up.
#
the havaldaar has less opportunity. No what is
#
happening is and so when
#
most people don't know that they have got a fine.
#
So let's say during a random
#
check the havaldaar has his phone
#
he has some sort of an app
#
which he points towards your number plate
#
and he immediately gets
#
the fine outstanding. So let's say
#
you have driven through the ceiling
#
a few times and instead
#
of driving at less than 80 km
#
and you have a fine outstanding of
#
So the first thing you will do is that you know we need
#
to confiscate your vehicle and shut it down
#
and then he will start at 500 bucks
#
and you know you finally negotiate 200
#
And earlier these havaldaars you could have paid them
#
50 bucks and. You don't even drive
#
a car how do you know decide to drive a car. Because I talk to all
#
these cab you know cab guys
#
that I. The journalist who talks to the cabbie.
#
So the best thing is you should now
#
drive through the JJ flyover
#
so the JJ flyover speed limit
#
there and specially during the day when the traffic
#
is not very heavy you actually
#
feel that everything is in slow motion.
#
Yeah so once I was in fact on early
#
Seelink with our mutual friend Kumar
#
late at night dropping him
#
back home and there was a car going
#
at the speed limit. Right. And we
#
thought that who is this crazy guy what is he doing
#
driving at the speed limit. So what I did
#
was as I passed him I slowed down
#
to go at his pace so we could look inside
#
and the driver was drinking a cup of coffee
#
he has a cup of coffee in his
#
So these days if you are on the
#
Seelink and you see any car
#
going above 80 you would know that
#
it is a non Maharashtra or a non
#
Mumbai car. A number at least.
#
So because they don't know.
#
speed limit I should check the app I think.
#
So one driver told me about his friend
#
that you know his friend had a fine of some
#
because people don't know.
#
Have you guys ever been in a car with Amit?
#
He thinks traffic signals are a suggestion.
#
let us just say that. He takes his libertarianism
#
Let me just say that Hayek spoke of emergent
#
order and in a country with no rule of
#
law sometimes you just follow the emergent order.
#
I have never been terrified for my life.
#
I will give you some research
#
in support of your point.
#
So I think in some town in Holland
#
one of the Scandinavian countries
#
I mean I am not sure whether it was Holland
#
they will do away with traffic lights
#
and they did away with traffic lights
#
and the accident rates in fact came down
#
because now you know everyone
#
was driving even more carefully to ensure
#
that they don't. That's interesting
#
but I have to say I mean I am not that extreme
#
I do believe in traffic lights and for all my listeners
#
there is a great book. For all your
#
the fact that you are libertarians
#
For all my listeners there is a
#
great book called Traffic by Tom Vanderbilt
#
check that out. Lots of interesting insights
#
of accidents tend to happen when
#
you are close to home which is very interesting
#
I didn't know that. So you go on a long journey
#
but the accident probably won't happen throughout the journey
#
but just when you are about to get home
#
possibly because you let your guard down.
#
Because the journey is the reward.
#
When you don't know where you are going.
#
We do know where we are going. We are now moving on
#
We don't count everyone.
#
The atmosphere is like that.
#
Everything doesn't matter.
#
Like you famously said forget
#
fiscal federalism. We can't count.
#
That's like the quote of the episode.
#
I am sure Vivek will come up with something better.
#
I will come up with something better
#
but it will only be borrowed.
#
The final, the third thing
#
is basically India's big government
#
which I have, I wrote a 800 page
#
tome. It's a very fine book.
#
Please buy it. One of my friends
#
called it very recently
#
that you know we were talking
#
that you know I am writing this new book and all that
#
and he said Kripeya this time
#
Hathi ka bacha nahi likhiyega.
#
It's less of a book and more of a murder weapon.
#
I mean if you eventually write
#
crime fiction as friends like me
#
persuade you to do so, your own
#
book can feature as a murder weapon in the book.
#
Actually yes. Actually and the print
#
I have to point out. It's small.
#
But let us not intimidate readers.
#
It's just a large book but it's very well
#
written. It's a page turner.
#
I strongly recommend. It has some great
#
Which is why I am the only one who has read it.
#
What I am trying to say is that
#
book is that India has a
#
big government but not in terms of
#
the number of people it employs but
#
hopes to achieve. I mean
#
state capacity as we say.
#
we need to sort of, because
#
we are talking about dream reforms here.
#
So my dream is that the Indian government
#
most of the things that it does and concentrate
#
Defense, external affairs,
#
and so forth. And health.
#
Hindustan photo films for that
#
Or manufacture sex toys.
#
Or manufacture condoms.
#
In fact we even manufacture
#
six seaters. So there are seven seaters.
#
We have a company, we as
#
taxpayers own a company called Hindustan
#
Scooters Limited which once upon a time
#
used to produce the Vijay Super.
#
Given that they don't produce the Vijay Super
#
anymore but what they produce is a seven
#
ever travelled through these
#
The government is contradicting itself. On one hand
#
you are encouraging family planning, on the other hand
#
you are manufacturing seven seaters.
#
So the government should sort of
#
these things. I mean like
#
before I came here I was
#
reading in the newspaper
#
today there was this news about
#
how Air India has asked
#
the government again for money.
#
a government be running an airline?
#
No one in the world has
#
at least not in the developed world. Maybe in the developing
#
world they still do. So
#
the government should not be running an airline. The government
#
should not be making condoms.
#
The government should not be
#
making seven seaters. The government should
#
banking is concerned I think
#
if they want to be in banking
#
they should probably run five, six big banks.
#
And then just sell off the
#
or just shut it down. I mean if a bank
#
like Indian Overseas Bank shuts down
#
nothing is going to happen to the
#
state of the Indian economy.
#
Or if you look at a bank
#
like Bank of Maharashtra, I mean it could possibly
#
concentrate on the state of Maharashtra
#
presence. There is no point of
#
Bank of Maharashtra opening a branch
#
in Assam. It just doesn't make
#
Or look at the Jammu and Kashmir Bank.
#
By far the best example
#
Jammu and Kashmir Bank is not
#
in the state of Jammu and Kashmir.
#
a lot of deposits and then
#
it lends that money. So you need
#
that kind of model. Like Dina Bank once upon
#
a time used to be pretty
#
So it could have specialized
#
and continued to be in that space
#
instead of being merged away with
#
Bank of Baroda so as to hide its
#
bad loans rate, very very high
#
So all this merger-shudder is
#
to hide the bad loans of the bad banks.
#
going to help in any way. Like when
#
State Bank of India, by far the best
#
example, before the merger with
#
its five associate banks and
#
around 7.2% or something.
#
the rate increased to 10% because
#
came up with their bad loans.
#
So State Bank essentially cleaned up its
#
book and then had to start cleaning
#
And the taxpayers still in the red. Since you were
#
mentioning bad loans a bad joke
#
which is that if there is a bank called Dena Bank
#
should there not be a collection agency
#
called Vapas Lena collection agency
#
So I think again this is
#
a dream thing. So the government
#
but I said this will not be possible because
#
to a government ministry
#
which is what gives them the
#
importance that they have. So something
#
like if you take away Air India
#
you don't require the Ministry of Civil
#
Liberation. No in fact that's what I was about to say
#
that I think your instincts are all in the right
#
direction but they do not go far enough like
#
you named more ministries than I would
#
have as being justified and
#
you said 6-7 banks should be there.
#
No in the sense what I am trying
#
over the years what I have realized is that
#
there is economics which
#
is right. Which is the right
#
thing to do. Yes but now you are dreaming.
#
Then there is economics which is
#
saleable. Yeah but we are dreaming now.
#
We are not talking political economy.
#
The good thing to do is to get out of everything
#
but then if that's not possible let's say
#
you want to meet your social
#
targets and you want people to open
#
Jan Dhan accounts and by the way
#
talking about Jan Dhan accounts there are some
#
36 crore Jan Dhan accounts now.
#
And India has 25 crore households.
#
So we have opened enough
#
So on an average it's more than
#
1 per family which is good enough.
#
So I have a point which is sort of again echoing
#
what Amit said is you know since
#
we are in the dream world if you allow the government
#
to be in one field the government will not
#
balance itself and say we will just open
#
5 banks and not open 25. The government
#
will basically want to go all out and grab all
#
the power in that field and say okay we are
#
basically the Mahibab in this field. So I think
#
in that sense it's a little bit of a
#
black and white that if you really want to shrink the
#
size of the government you the government should
#
be restricted to the 5 or 4
#
basic functions of defense
#
and law and order etc etc. And not
#
be in at all in banking
#
in hotels opening tiffin
#
canteens in Tamil Nadu or whatever it is they are
#
doing nothing at all just define 4
#
basic functions that the government should do
#
and that also addresses all the other
#
our previous points about fiscal responsibility
#
and doing education opening
#
up to the private sector and all of this. So
#
I think the overarching thing is I think we should agree
#
that if you want to shrink the size of the
#
government let's be serious and really shrink
#
it to just 4 functions and nothing else.
#
And the good part is you know there is another part to it
#
PSUs are sitting on a whole lot of
#
land and a lot of this land
#
is bang in the middle of because
#
when these PSUs were established they were established
#
outside the cities but now
#
you know the entire cities have grown around it.
#
Fort is just government land
#
most of it right. So the
#
example that I like to share here is that
#
you know I grew up in this city called Rachi
#
PSUs but the biggest of them all is the Heavy
#
Engineering Corporation which
#
is located in this place called Durwa
#
on the outskirts or at least used to
#
be on the outskirts not anymore. Now
#
the amount of land that company
#
has is mind boggling because there is a factory
#
you know which they manufacture things
#
at one end and then there is just
#
you know land everywhere whereas the city of
#
Rachi has no land because the
#
tribal act is in place. So
#
atrocious real estate prices
#
but one part of the city
#
has land which is virtually free
#
lying there nothing is being done and that's
#
been the case for years now.
#
I will give one example of that land
#
point is the difficulties
#
of liquidating this land so to speak
#
or then using it for private purposes even if you
#
let's say sell Air India. So
#
in Air India specifically I know this that
#
when the contracts were written to
#
have Air India big buildings like we have in South
#
Bombay, we have in Calcutta, we have in every city
#
in fact the contract actually
#
specified that okay this land whatever
#
is being given to Air India for constructing
#
this Air India specific building and
#
it belongs to the government of India and it can
#
be sold to whoever subject to
#
blah blah blah terms and conditions for
#
exclusively for other airline
#
the problem with that in today's world is
#
today's airlines don't need buildings
#
you know you don't need this large 20 storied
#
offices to set up an airline's office. So now
#
that Air India building which is in South Bombay
#
it's completely useless because you
#
can't really sell it liquidate it for any value
#
because it can only be used for another
#
airline purpose unless you change that entire
#
contract and law which is again very
#
difficult. So the other problem with this is that a
#
lot of land was given by the state
#
governments to the central government. So I think
#
this land even if you can't sell it
#
it should go back to the state government. Let the state government
#
decide what they want to do. So like which is
#
precisely I think something which is playing out
#
with the Hindustan photo films
#
which I think they finally managed
#
to close down or it is in the process
#
I'm not sure. So that land was given
#
to the central government by the state
#
government. Now Hindustan photo films
#
Now Utti is a very good
#
tourist destination lot of people go there. So there are
#
so many things that can actually be
#
done with that land. I mean so let the state government
#
decide what they want to do with it instead of the central
#
government sitting on it. I would actually go
#
back to the point on the banks
#
thing right the bank nationalization
#
and we really should not be in the
#
business of banking. And I agree
#
it's not about the number of banks it's about
#
credit control right. So one of the
#
reasons that government likes to own
#
so many banks and how come government banks
#
have so many bad loans on the books
#
is because there's a whole political economy
#
aspect to it right. Politicians
#
campaign finance is given to them by these
#
builders and all these industrialists and so
#
on so forth. This is the case of politicians
#
not putting up their own money. And
#
they say that you know they will get loans on favorable
#
terms and so on so forth. So
#
there is it's not a coincidence
#
loans were approved for Vijay Mallya
#
or for Lalit Modi and these guys
#
right. This is not an accident
#
there is a reason. Neerav Modi you mean
#
not Lalit. Sorry Neerav Modi
#
exactly. Well that's another problem
#
but yeah Neerav Modi. So
#
there is an issue repeatedly
#
really not like none of these are just
#
stakes that the bank made. You always
#
when you talk to the you know lower
#
management of the banks they're like how upar se
#
order aaya tha, how upar se file aaya tha right. So that's
#
The other part of the problem is you
#
want to control voters.
#
by nationalizing banks. And
#
we are an economy running on
#
loan waivers for the last like
#
what 40 plus years right.
#
Most Indira Gandhi 50 years.
#
I mean we're never going to see this day
#
because there's a reason they like to hold on to the
#
control. Loan waivers first started in
#
1989. Devi Lal was the first one
#
of a loan. Usse pehle loan mela hota tha
#
wherein they used to give you the money.
#
Give you free loans. Ok. They used to give you the money.
#
started the loan mela which you would default
#
and then you know which got absorbed and then
#
you have the loan waivers. So now this is a
#
in the sense that this is how you're buying off
#
voters who are in agricultural distress
#
and you know you want to target specific
#
sectors of the economy. So I think I'm here
#
with Rajeshwari that you I don't think
#
they should own a single bank. You know it's
#
not the proliferation of banks.
#
It's the bad incentives
#
and it just so happens that you know
#
there is a distribution
#
and some of the banks are slightly better run. Some of the
#
more easy to manipulate. But
#
they really should not be in the business
#
of banking. And you know there's NBFCs also.
#
You guys have talked about it I think. This business of
#
We've had episodes on NBFCs
#
NPAs, farm loan waivers
#
all of this. Exactly. All of this.
#
Basically just listen to all
#
the podcasts in Amit Verma's
#
Seen and Unseen and then we'll have a list of dream reforms
#
just by itself. By the way we
#
No we've already done that.
#
This is the summary. You don't
#
have to spend so much time. I had to
#
discuss the first 100 episodes. This is like saying don't read
#
Vivek's book. India's big government
#
says everything here. It's like saying that it's
#
very rude. No no everyone should read it. It's very easy
#
to read and not as big as
#
it looks. I plugged it. Yeah.
#
So we have to move on now
#
to Rajeshwari because she has to leave
#
soon so we will ask her to get her last
#
thing over with. But before that I'll
#
quickly share an anecdote if I may about
#
Devi Lal since he was mentioned. You guys remember this
#
video news magazine that
#
used to come in the early 90s called News Track.
#
There was once an interview of Devi
#
Lal when he was a Deputy Prime Minister
#
Chautala was Chief Minister of Haryana.
#
So Devi Lal was asked and the
#
camera angle was he's basically lying in
#
a dhoti and a banyan on
#
this charpai kind of thing and
#
the camera angle is from his, he's wearing
#
keds so it's his keds, so massive
#
keds, small Devi Lal face
#
in the background and the question is so
#
Devi Lal Ji, apne apne bete ko
#
toh kya Bhajan Lal ke chore ko banayu?
#
everything you need to know about
#
politics today and let's
#
Rajeshwari you have 25 minutes left
#
Devi Lal and Bhajan Lal and whatever that's like
#
such an optimistic tone for dream reform
#
Devi Lal, Bhajan Lal, Bansi Lal. But this is the greatest
#
answer I have ever heard in my life
#
toh kya Bhajan Lal ke chore ko banayu?
#
Who can argue with that? Kindly continue.
#
so my next and last reform is
#
actually very very narrow
#
first point about fiscal discipline
#
and this is about, this is
#
related to banking so I'm moving
#
to the financial sector.
#
So now in India what happens is
#
banks and other financial
#
institutions like insurance funds and pension funds
#
have to hold large amounts of
#
government securities through what we call
#
statutory liquidity ratio that's
#
essentially this boils down to
#
financial repression because
#
this is the captive market that the government
#
has access to and the government
#
bonds are basically something that
#
have to be bought by the banks and the insurance
#
companies and through that the government
#
keeps on maintaining a fiscal
#
deficit and whatever it is it makes it much
#
of the lie that the policy makers
#
also tell us including the Reserve
#
Bank of India is that this is not financial
#
repression, this is prudential
#
regulation, this is required for the
#
safety of the banks and the
#
banks need to hold on to safe assets
#
just how the prudential regulation works.
#
Now what my reform is about
#
myth because this is not a safety
#
Indian government bonds are not
#
the safe assets because if we look at
#
Indian government credit rating internationally
#
it is borderline investment grade
#
and one step away from speculative grade
#
so if we really want our banks
#
to be safe and our financial institutions
#
to be safe it is policy
#
adventurism to tell them
#
to hold government securities, Indian
#
government securities and
#
instead if you really want them to hold
#
should be holding minimum
#
AAA rated assets of foreign
#
governments like international assets
#
which have much higher rating
#
much higher credit rating and are actually safe and
#
liquid because Indian government securities are
#
not even liquid and there are also
#
the additional risk that every time the interest rate goes up
#
the banks are actually incurring losses
#
so it cuts them multiple ways
#
so instead of that you reduce
#
and of course if you are tying
#
the hands of the government in the fiscal discipline
#
which was my first point you don't need to do this
#
financial repression of SLR
#
you cut down the SLR significantly
#
and for the safety purpose
#
the banks should actually be holding
#
foreign government assets which are AAA rated
#
thought about this is also
#
in the last 10 years what has been happening in
#
Europe has been an eye opener
#
because of the sovereign debt crisis
#
the banking sector in the European countries
#
has been really struggling because
#
the banks of Italy and Greece were actually
#
holding their own domestic government bonds
#
and when the governments
#
defaulted when the governments went on the brink of a default
#
these banks basically took a massive hit
#
and this in economics is what
#
and home buyers can really be very costly because
#
you are not diversifying your portfolio
#
you are putting all your eggs in one basket
#
and in India as I said it goes one step further
#
because it's financial repression
#
because to that extent banks are also not able to lend
#
to the rest of the economy
#
so you kill many birds with this one stone
#
if you say that okay banks will hold
#
liquid assets of foreign governments
#
which are AAA rated and
#
you reduce that SLR so that banks have
#
that much more money to lend out to the rest of
#
the economy and you also take away
#
that captive bond market from the government
#
which the government very nicely and comfortably
#
so that would be my third and last
#
reform. So I'd like to add
#
a couple of points to what
#
Rajeshwari said I mean I agree with her completely
#
the first thing here is that
#
you know it's not like the RBI hasn't
#
the SLR has been reduced
#
from what I remember from almost
#
38% to now it's at 18.75
#
government securities has
#
not come down in a similar way
#
I mean the last that I checked a couple of
#
that the banks have were
#
invested in government bonds
#
even though you know the number
#
should have been around
#
so banks also like to do some lazy
#
banking wherein you know you just put in some money
#
there and Aram se interest
#
one point. The second point
#
as far as the government is concerned
#
way for it to raise money and
#
even that it is compulsory for banks
#
to buy these bonds the yield
#
that the government ends up paying on
#
these bonds is extremely
#
low because you know if you start to
#
factor in you know typically
#
how you know thumb rule to
#
price a bond is you know you take
#
inflation and you take some risk premium
#
and you come at a basic rate
#
so if you do that I mean then
#
the bond yields would not be as
#
you know the bond yields would go up
#
interest rates would go up
#
there is a flip side to it
#
as well but what will happen over a period
#
of time is that because there
#
is you know the access to this easy
#
money goes away the chances
#
of the government being more fiscally
#
prudent and fiscally disciplined
#
as well. And also Vivek there is
#
a conflict of interest inherent
#
which is happening in open eyes
#
and nobody points out is that
#
the Reserve Bank of India is responsible
#
for controlling inflation which is setting the interest rate
#
and also borrowing money from the government
#
because the Reserve Bank of India is the
#
public debt manager on behalf of the government
#
so obviously they try to take
#
and they are also the regulator for the banks
#
that's the third point so they are also regulating the banks
#
but once you take this away
#
then the conflict of interest goes away
#
then you no longer need to manage the bonds of the government
#
on behalf of the banks that you are regulating
#
and you can go back to doing your inflation controlling
#
thing which you are supposed to do.
#
So talking about the public
#
I think the government did try to come up with
#
a separate public debt office. But it got completely
#
squashed by the Reserve Bank of India
#
because of course Reserve Bank of India doesn't want to let go
#
of its territory. You work for an institution
#
which owns Reserve Bank of India
#
and therefore these views
#
These views are entirely my own.
#
Please make that disclaimer
#
which is what I wanted to tell you.
#
is more general than just the RBI
#
right? We have lot of cases
#
like recently they did this for the National
#
Housing Bank in the last budget they just resolved
#
it. It used to be the lender
#
to housing finance companies and
#
and that's a dual function. It's a huge
#
conflict of interest and the same
#
thing with the RBI. So India does
#
this quite frequently. It comes
#
from this attitude of like socialist control
#
that I'm going to be your parent and I'm going to
#
give you the carrot when you want and give you
#
the stick when you want as if I'm a perfect
#
exhibitionist being. Actually more than socialist
#
institutions of the Raj
#
point that I'm trying to make is you know we
#
fall into this trap of thinking
#
that Indian government securities are safe assets.
#
You know I mean theoretically
#
your own government assets are safe but
#
in practice Indian government assets are not
#
safe and that's something that we really need to
#
understand that if you want our banks
#
and financial institutions to be safe
#
you should not be holding GSEX.
#
You should be holding US government
#
bonds or UK government bonds or
#
diversify. You don't put all your eggs
#
in one basket and of course the point is
#
currency risk. Then you hedge your
#
currency risk because now we
#
really have to open our mindset to the thing that
#
financial markets have to be really
#
liberalized not liberalized in the sense that
#
Indians mean it but basically have your
#
currency hedging options and banks will hedge the
#
currency risk. Give them the option
#
of diversifying their portfolio into multiple
#
assets instead of taking them into this
#
colonial kind of a past where you only
#
hold government securities. I had a question
#
for both of you on the SLR right
#
which is you know didn't go down
#
I mean even though the SLR went down
#
there was a lot of lazy banking
#
do you think it's because of uncertainty
#
that there's so much uncertainty
#
in the markets and the economy is clearly
#
going towards a downturn. No
#
This has happened over a period of time
#
It's almost like a culture
#
The banking culture today is that you
#
hold a lot of government securities because you want
#
to be safe. It's the safety thing
#
It's the safety thing that has been sold to us
#
for years and years. So what happens is let's say if yields
#
you know they have to sort of
#
mark down bond prices and face losses
#
so then you know RBI will come in
#
and then they'll tell them okay this quarter
#
we'll give you that leeway and all that rubbish
#
happens. There's a lot of nexus between the government
#
the RBI and the banks. A little too much
#
It works very comfortably for the banks
#
and also because they have not opened up
#
their own vision to this possibility that you can
#
diversify a portfolio holding foreign assets
#
because the word foreign asset is a very
#
dirty word again right. No but see
#
I mean I appreciate what she's saying
#
but ultimately you know all governments are Ponzi schemes
#
so as long as you keep running a fiscal deficit
#
Another quote of the episode
#
But you know it's so funny if you keep running
#
a fiscal deficit and keep going into debt
#
we really shouldn't have a population
#
control policy because we need children
#
to people. Which is what I said the government is
#
contradicting itself. Which is actually what is happening right now madame
#
No because the music will
#
stop when the children stop
#
See that's why this point is related to my first reform
#
that if you're going to tie the hands of the government
#
another way of doing it is take away their captive
#
market through which they are very easily
#
financing the deficit which is hurting the economy
#
because imagine banks are holding let's say
#
40% goes into priority sector lending
#
how much is really available to get into the
#
small, medium enterprises and industries
#
nothing. So how do you do
#
this job crisis solving when
#
there is no money coming for investment
#
also keeps getting redefined
#
I have never understood this priority
#
sector business. It's again a nationalization
#
they did was the RBI for 4-5
#
years I think in 73 or 74
#
they used to just give broad directions
#
then they set up a number
#
go and then over a period of time
#
they included like housing loans are now
#
you know up to a certain
#
size I think is 45 lakhs which is a huge number
#
in priority sector lending
#
Now housing loans if it's priority sector
#
Because you know the dichotomy is we dream
#
of becoming a 5 trillion dollar economy
#
but in every which way we behave that
#
we are a really poor country so which needs
#
to be hand held and shown the way
#
I don't understand the goal of being a
#
5 trillion dollar economy
#
I think that's a separate podcast altogether
#
It's not even a good fancy number
#
Well in real terms no one knows what that means
#
But I don't even understand what's the fuss
#
about it the rate at which we are fudging
#
numbers we can show next month that we have become
#
a 5 trillion economy because it's a question of
#
perception or you could print a lot of money
#
or you just say that we have become a 5 trillion economy
#
Reality versus narrative
#
I had a great episode on GDP with Rajeshwari
#
Absolutely everyone should listen to it
#
You wrote about that GDP deflator
#
thing right if I remember correctly
#
This is the first time I thought someone's
#
actually explained what's happening
#
Since 2015 I wrote an article where I said
#
the actual GDP growth is not 7.1%
#
and that had become viral at that point of time
#
Arvind Subramaniam has gone to the next level
#
You know things are so bad
#
that the stuff economists are saying is going viral
#
That's how badly they are fudging numbers
#
Normally no one would read someone
#
And also GDP is not something that
#
It is the most unsexy trite
#
Very reliable sources have told me
#
Arvind Subramaniam does not know the G of GDP
#
but we will not ask anyone to go on the record
#
The best thing is we are talking about things
#
The first forward I got after Chidambaram
#
was arrested was what is the first question
#
that CBI asked Chidambaram
#
So the question was what do we do about
#
the economy I mean that tells you
#
Well listening to your conversation
#
the question also struck me
#
be described as a government bond
#
Let's move on to the final
#
So we can all actually end together before she leaves
#
and we can take a group photograph
#
because this is already our longest ever episode
#
So it's a historic moment
#
You have beaten Manu Pillay?
#
We have recorded an episode
#
We have recorded an episode
#
longer than the episode
#
I recorded with Manu Pillay
#
I have not beaten Manu Pillay
#
He is a very wonderful historian
#
I disapprove of this kind of language
#
So my reform is basically
#
I don't know if you would kind of agree with it
#
and this again comes back to cities and urbanisation
#
Do away with rent control
#
Now to just quickly explain both of these
#
Rent control on which I had an episode with
#
Shruti's co-writer and good friend Alex Tabarrok
#
a lot of Mumbai which is basically
#
that at one point government decided
#
that rents are getting too high let us fix the rents
#
So rents were fixed which is why you go through
#
Marine Drive and parts of South Bombay
#
You will find people are paying 300 rupees a month
#
200 rupees a month for these
#
Now what does this do? What this does is that
#
it reduces incentives for the owners
#
to look after their house
#
In one sense it's not their house anymore
#
Their property has essentially been
#
taken away from them the same way
#
governments for example to go back to my old rent
#
take away our bodies with something like family planning
#
What this has meant is that
#
number one that there are large stretches
#
just comes to mind very easily
#
where you have old dilapidated buildings
#
where no one has the incentive to look after them
#
Number two this reduces
#
the housing supply and what it
#
means is that because the housing supply
#
is so restricted and not what it should
#
and real estate prices are far
#
more than they otherwise would be
#
simple supply and demand
#
The second one is increasing
#
floor space index but what it basically
#
means is that there is a
#
limit to how tall you can build your
#
building. Now Bombay has an FSI of about
#
and there are countries in the world which have like I think New
#
parts of Hong Kong have 25, 30
#
and again I did an episode on this
#
with Alex Tabarrok and Alex
#
coined a beautiful phrase
#
which was in fact the title
#
of that episode which is reclaim the sky
#
He said that what we have done in Mumbai
#
is we have tried to reclaim the sea and there is
#
a limit to that but we can reclaim
#
the sky and there is no limit to that. His argument
#
is that FSI should be far
#
far more. Let people build upwards
#
and the typical objections
#
which are made against increasing
#
FSI is that our infrastructure
#
is already crumbling, public
#
service is already crumbling, they won't keep pace
#
but the same objection has
#
has been raised in other cities across
#
the world at different stages of development
#
and what inevitably happens
#
is that supply catches up with demand
#
do well enough. What this
#
will really do is if you increase
#
FSI is because people will be
#
building upwards and building more
#
land prices will come down, rentals will
#
come down, more people will be
#
able to move into the city at a lesser
#
cost, again all the benefits
#
of population density, larger economic
#
to an extent less slums
#
we don't do it. And elevators can substitute
#
for cars. And elevators can, which
#
is such a radical thought when you think
#
about it. Well Tim Harford has written about
#
in his book on 50 grade
#
innovations, do you remember
#
the title of the book? 50 grade something
#
of the 21st century. Yeah just
#
book. I think there's a chapter on the elevator
#
or it's mentioned somewhere there.
#
Elevators are a mass transit system
#
when you reclaim the skies and they reduce
#
congestion on the roads and
#
they are environmentally friendly because
#
you can carpool if elevators
#
are actually a substitute for a car
#
and they are substitutes for metro and so
#
many more things and so
#
it's also a very green idea.
#
again some more frivolous point
#
but now you know if there was
#
no FSI and there was no rent control
#
Bombay as it used to be, we wouldn't have got
#
two very beautiful songs
#
from Gulzar. Sad tragic.
#
Ek akela aish shahar mein
#
First time I heard it I heard it as
#
sabudana and I'm like okay even I like that
#
sabudana khichdi is awesome.
#
You can do better than that.
#
No I really thought so. You like sabudana khichdi?
#
I am a huge fan of sabudana khichdi.
#
It's not bird feed or whatever you call poha.
#
vegetables. But I think that's a great connection
#
that Vivek has made. Let's please appreciate it.
#
Sorry one sec. I'm sorry I got distracted.
#
The only thing that's frivolous I thought
#
Basically said that if it wasn't
#
for FSI and rent control
#
we wouldn't have got two great Gulzar songs.
#
And even that entire romanticism about coming to Bombay
#
looking for a place to stay
#
that would completely go. But what I should point out
#
I think we would have gotten two other great Gulzar songs.
#
I don't know. Gulzar would have written
#
only Bombay had been different.
#
Opportunity, cost and all that. But I have to point out
#
magazine I used to edit, Pragati, we had
#
a section called Houseful Economics and I used
#
exactly those songs to make exactly
#
this point on FSI and rent control.
#
So great minds sync alike.
#
That was quick. Great happiness has come.
#
Shruti is already checking her Twitter. Are you checking
#
her Twitter Shruti? I'm not checking my Twitter.
#
I'm just telling people that I am no
#
It is so good to have you here in
#
thanks a lot for... Just one more point.
#
In fact there is another lesson in economics
#
from the song Do Diwane
#
Ish Chahar Mein. So there is a shot of
#
Marine Drive. Beautiful shot.
#
remember your Marine Drive.
#
Just before the Chowpatty starts
#
or around where the Chowpatty is, there is this bridge.
#
So there is a shot of that bridge and there is a
#
shot of all these cars there.
#
the only thing you see are
#
all these premier Padmanis.
#
And then there is this Mercedes.
#
see there. So that again tells you
#
or how government controlled our economy
#
was where we had only two car
#
models for almost 50 years.
#
independence. I think what Vivek is
#
trying to say is if we start dreaming now
#
at some point of time, 40-50 years later
#
we might land up where we want to be.
#
Yeah. And ever since he has
#
seen that... I mean you know the GST
#
Mercedes, right? Do you know the GST premier
#
Padmani? No you do not.
#
Premier Padmani is over.
#
Who calls Premier Padmani?
#
We had one when I was a kid in the 80s.
#
In Calcutta Roads that was the only thing that could actually work.
#
It was also a function of the fact
#
that ambassador was made in Bengal.
#
It is no surprise that in an episode
#
titled Dream Reforms we are dreaming
#
of the past. This shows what our country
#
has come to. Guys thank you so much for coming
#
on the Scene in the Unseen. Thank you, Amit.
#
Thank you for still listening. Are you still there?
#
What are you doing? Do something else.
#
Do you wish you were smarter?
#
But the next best thing? We could make you
#
sound smarter. And to help you with
#
this endeavor we are Simplified.
#
attempts to break down the complex world
#
around you with a little knowledge,
#
a lot of poor jokes and a ton of random
#
trivia. Episodes out every
#
Monday on the IVM Podcast app
#
or wherever you get your podcasts. See ya!
