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This episode is being recorded on December 24th and India is in ferment.
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Protests are ongoing across the country in response to this Government Citizenship Amendment
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Act and the state is cracking down on innocent and defenceless citizens with incredible violence.
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The reports that have been coming out of UP for example are just horrendous.
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I had an episode last week with Srinath Raghavan that gave deep historical context to the notion
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of citizenship in India, the history of the NRC, the troubled history of Assam, the current
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consolidation of Hindutva and student politics.
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I recommend you check that out.
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At this moment in time all the focus is on the BJP's radical social agenda and all the
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dangers it poses for our nation.
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So why am I doing an episode on economics?
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Because I believe economics matters.
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People often think of economics as an arcane abstract subject, numbers and graphs floating
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in the air above us that don't actually have an impact on people's lives.
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That could not be further from the truth.
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Everything in our lives is shaped by economics and often by economic policies we cannot control,
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decided somewhere far off by social engineers who believe they can design society, influenced
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by special interests who are experts at redistributing money from the poor to the rich.
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This is not a problem of this government alone.
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For decades we have suffered from bad economics and the poor have suffered the most.
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Perhaps that's why we have even normalized it and we take it for granted, but we must
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Bad economics has a humanitarian cost.
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Welcome to The Seen and the Unseen, our weekly podcast on economics, politics and behavioral
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Please welcome your host, Amit Verma.
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Welcome to The Seen and the Unseen.
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One of the reasons that the BJP won in 2014 was a consequence of the bad economics of
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previous governments, especially the UPA right before it.
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Many people who voted for the BJP in 2014 did so assuming that they would not further
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the social agenda and they do economic reforms.
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Well, we can see what's happening on the social front.
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As for economics, at first they carried out no reforms at all and then they progressively
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carried out what I can only describe as economic deforms, which only damaged the economy.
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I've had many episodes on demonetization and the botched implementation of GST, both of
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which basically helped devastate our economy.
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Those episodes will be linked from the show notes.
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In a nutshell, instead of helping to free our markets further, we now have less free
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markets and lower growth.
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Mahatma Gandhi once said that he would judge every policy by what impact it had on the
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poorest of poor Indians, and that is exactly my yardstick.
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It has been estimated that every 1% of GDP growth in India takes 2 million people out
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If that growth goes down, it has a humanitarian cost, it's a human tragedy.
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And that growth has unquestionably gone down in recent years.
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In this episode, as the year draws to a close, I'm only going to focus on 2019.
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Where we started the year, what were our causes for hope and despair, and how have we performed
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My guest for this episode is Vivek Kaul, also known as the Shah Rukh Khan of Economics.
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Every time some news comes that has anything to do with the economy, there is an outpouring
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of requests on Twitter for Vivek's take on the matter.
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Vivek, welcome to the scene on The Unseen.
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Thanks Amit for having me.
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So as we are sort of, you know, one of the constant criticisms you get on Twitter from
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people is that Vivek, why don't you write about good news once in a while, it's always
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What's your response to that?
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I mean, as I tweeted out recently, if you want good news, you should follow the Twitter
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handle of the Press Information Bureau and the various ministries of the government of
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I mean, they'll give you all the good news that you want.
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And I guess what you do as an economist is just look at the numbers and talk about what
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Yeah, I mean, so broadly, yes, I mean, which is how it is and at least in the last few
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years, I mean, since demonetization happened, there has hardly been anything good to talk
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I mean, a couple of things notwithstanding, I mean, like if you look at how the insolvency
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and the bankruptcy code has gone, it can be called sort of a partial success.
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I mean, despite the fact that it was launched with very little preparation and the fact
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that our legal system wasn't really, you know, ready for it, it has managed to deliver
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a few good things, especially given the fact that some of the largest corporates who had
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defaulted on their loans have lost control of their companies.
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And I think that is very, very important because, you know, more than the recovery, I mean,
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But even if recovery does not happen and decent recovery doesn't happen and corporates lose
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control of the company, the message that it sends across is very, very strong.
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So in the years to come, any corporate who previously has been in the habit of defaulting
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on loans and getting away with it will think more than twice, you know, before doing anything
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like that because he's likely to lose control of his company.
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So I think that's one good thing that's clearly happened in the last few years.
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The other good thing, again, I mean, this is not something specific to this year, but
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so you know, up until a few years back, there used to be a funny home loan deduction that
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used to be available to the taxpayer.
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So if you bought your first home, the total interest that you could take as a deduction
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was limited to around one and a half lac rupees, which was later raised to two lac rupees.
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But if you bought your second, third, fourth, fifth, sixth, or whatever your 10th home,
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the entire interest on your home loan could be taken as a deduction from your taxable
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income as long as you declared a notional rent.
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And this was a huge tax saving device for, especially for people at senior levels in
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And I mean, the one thing that I never sort of figured out is, was why should the government
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of India encourage people to buy a second, third, or a fourth home?
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I mean, I can understand encouraging people to buy their first home and giving them a
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limited tax deduction, but so Arun Jaitley did away with that in one of the budgets.
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I thought that was also a great move.
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So these are two good decisions that I can immediately think about.
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And, and you know, and I of course don't have any home, so none of this makes a difference
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But the largest question I want to ask is, you know, as someone who's commented on economics
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for a decade and a half, what happens to the economy is often a consequence of decisions
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There's a big lag sometimes between an economic policy actually being announced and implemented
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and then with the results of that being felt.
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And you know, one example of this, which people tout is that some of Vajpayee's reforms, they
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started actually showing the effects only in UPA one and the UPA one gets credit for
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And similarly, a lot of what has gone wrong with the economy today in a sense started
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So to say the phone loans policy of the UPA two government, especially when Pranab Mukherjee
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And I of course had a great episode with Pooja Mehra, which really elaborates on those sorts
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of events in granular detail and a lot of what is what 2019 started with a lot of what
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we have seen unfolding through 2019 and tell me if you agree is essentially the inevitable
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consequences of a demon and the Bosch implementation of GST.
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Like we thought at least I thought that demon when it was announced, I thought on the same
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day that this is going to devastate the economy, but it took a while for that to actually happen
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or if it did happen immediately, it took a while for those numbers to come.
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But this year they can pretty much be no doubt that the full consequences of the bad economic
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management of the last few years is now unfolding.
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I mean, I mean, I agree with you completely on that.
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See, I think what happens is in this is, you know, more anecdotal than data driven.
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And because I've seen some of my friends struggle with it, you know, when you're running a small
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enterprise and you start facing headwinds, you don't shut it down immediately, right?
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Because I mean, you started it and that's the only thing you do.
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So it takes time for you to sort of realize that this is not working.
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Now, I guess that's something that's happened because of one demonetization and the Bosch
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top implementation of GST.
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The informal sector and the smaller players in the formal sector have over a period of
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last two to three years been facing a lot of pressure on the performance front.
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And that pressure is now starting to show and it's triggered into the overall broader
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I mean, I would agree with that completely.
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And the thing to remember here is also that economists use a term called welfare shocks.
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And what is a welfare shock?
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What happens is that when something like demonetization happens and, you know, somebody who's running
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a business on the margins in the informal sector, and remember he's on the informal
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sector, not because he wants to evade the law, but because of the panoply of bad laws
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and regulations we have, which force many entrepreneurs into the informal sector.
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And if someone on the margins like that goes out of business, it is not the case that when
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the economy gets back, he can just, you know, come back and start the business again.
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Like, for example, I may have a business running two ACs, I can't afford to run two, I start
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When things get better, I put the second AC back on, but that's not how this works.
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These people suffer what is called welfare shocks, where once they are done, they are
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And, you know, they just don't come back, they're down for good, they just fall from
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They might go slip back below the poverty line if that's where they came from.
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And the other problem there, and I also wanted to ask you about this, is that it's very hard
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for people to get a grip on it because there is actually no data from the informal sector.
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So there's very little data that actually comes out in a formal way for the informal
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But there are enough, I mean, if you look at a lot of the industry, small industry associations,
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they have put out a lot of data over the last few years, which tells you that a lot of small
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enterprises have been destroyed in the aftermath of demonetization and a botched up implementation
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I mean, you know, a great example is a place like Tirupur, which used to be a global hub
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for producing t-shirts and, you know, the mess that the city got into after demonetization
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is very well documented.
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And a lot of players operating in Tirupur were basically, you know, small players who
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sort of employed up to 50 people.
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So you know, bits and parts of it are pretty well documented.
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Obviously it's not documented at the overall economic level.
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Having said that, you know, the interesting thing is, you know, when demonetization happened,
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most corporates like the idea because what they thought was that the informal sector
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will now get formalized and they will benefit because of it, because their business will
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But what they did not realize was that if the informal sector of the country gets destroyed,
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the purchasing power or the consumption power of people who used to work in that informal
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sector also comes down, you know, and that has also impacted the corporate revenues and
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earnings in a big way over the last few years.
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Another point I wanted to make here was that, you know, this, I mean, this is something
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I've said before, but it is important to say it again is that over the years, you know,
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the informal sector in India has often been linked to the black economy, right?
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Yes, I mean, people who are making money there do not pay income tax, but you also need to
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take into account the fact that a lot of people or in fact, most of the people who work in
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the informal sector do not make enough money to be paying income tax.
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So while the owner himself may be waiting on tax, you know, people who work there, I
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mean, they don't need to pay tax, but, and they do pay tax, indirect tax like we all
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So I think these are, you know, some points that people need to realize that nothing is
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all black because, you know, ultimately when black money is also spent, you know, the guy
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who earns it at some level does pay tax on it.
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I mean, it may not be a direct tax, but he's definitely paying an indirect tax.
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No, and you brought up a very interesting point there in passing, which I want to elaborate
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on very briefly, which is actually triggered by something I saw on Twitter today, which
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is a post by Kangana Ranaut where she's talking about the alleged violence done by protesters.
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And she's saying only 3% of us pay tax and the rest of the people are freeloaders.
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And the point is, no, you know, only a small percentage pays income tax, but every single
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person in this country plays tax in some sort of the other.
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Every time you buy a little bit of salt or you buy a bar of soap, you are paying tax.
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We are all participants in this democracy and we all have a stake.
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Also is an interesting point, you know, I mean, sub point to that point, which is that,
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you know, this 3 to 4% number paying income tax is also extremely exaggerated because
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the bulk of individual income tax is paid by, when I'd done a calculation some time
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back around 0.26% of India's population pays around 80% of its individual income tax.
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So it's not even 3 or 4%.
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But having said that, everybody pays indirect tax.
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I mean, if such a small proportion of people pay income tax in the country, what it shows
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is one, the general poverty of the country and two, the fact that our income tax department
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has really not been up to the mark and a bad tax policies, which, you know, at some level
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over the years have led to a situation where people simply prefer dealing in black rather
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than dealing with the system.
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Dealing in black being part of the informal sector actually carries significant costs.
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So the very fact that people tend to do so should, you know, show you how onerous regulatory
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structures are, that they feel the need to somehow kind of stay out of it, you know,
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like before we get to 2019, of course, just to sort of set the context.
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I was chatting with a couple of my friends about, you know, this episode that I'm talking
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to Vivek, is there something you'd like me to discuss?
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And one of them, Devanshu Dutta said, hey, please ask him about how much the phrase he
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used, I really liked it, was a forced formalization.
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How much the forced formalization attempted by the government has contributed to this
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and forced formalization was, of course, the one of the stated intents of demonetization
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that bring the informal into the formal sector, to which another of my friends, Mohit Satyanand
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and both of these guys have been on my show before.
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And Mohit Satyanand said that he wouldn't call it forced formalization as much as forced
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exits, because what demon forced many people to do was exit rather than formalize.
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So, which is precisely the point I was making, you know, corporates, the big corporates were
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initially very happy because they thought that, you know, formalization will now happen
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But what has happened is that while the informal sector has been destroyed, that business hasn't
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moved to the formal sector simply because when the informal sector gets destroyed, you
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know, a lot of people lose their jobs, the purchasing power comes down and once the purchasing
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power comes down, at some level, it does impact consumption.
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And that leads to a situation where corporates do not benefit from, you know, forced formalization.
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But as Mohit rightly put it, it's more of forced exits, which is what has happened in
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So basically, there's a procter and gamble, which is making soap, which is making whatever
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it makes and suddenly people are buying less of that because they are in the, they have
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And this data to back that up.
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So if you look at, so, you know, you look at Hindustan Unilever, which is, you know,
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a good benchmark for anything in the consumption economy in India.
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So if you look at the volume growth, which is basically the growth in the number of units
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they sell and not the revenue.
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So that was in 2018, the unit growth was 10 to 12%.
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This year, it's come down to 5%.
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So that tells you that the pace of FMCG growth has halved.
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That is a, that's a huge thing.
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So that should tell you that all this, you know, these theories of forced formalization
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And my other question to you is that you're someone who watches the economy very closely,
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Now we know that a lot of the numbers that the government puts out are extremely unreliable.
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And you know, even with something like the GDP numbers, even if you take the GDP numbers,
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say at face value, and I had a long episode with Rajeshwari Sengupta on this where we discuss
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why they cannot be taken at face value, but going deeper into the problems with GDP as
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a measure itself, one of the things we agreed on, and one of the things which was debated
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when the GDP was first mooted was, should it include government spending in it or not?
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And because, you know, it was a measure implemented just before the second world war, the decision
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that was taken, if I remember correctly, against the advice of Simon Kuznets, who in a sense
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was the father of the GDP, was that, no, let's include government spending in it.
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But the problem with that is that if the GDP is being used as a measure of economic growth,
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that is an incentive for the government in part to spend more because all that spend
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gets counted and it may be ineffective spending.
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It may even be destructive spending, you know, like you would actually, you know, the GDP
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would grow if you simply, you know, build bridges and blew them up and just reiterated
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that forever the GDP would keep growing.
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What has happened and like, do you therefore feel a need to pass these numbers more closely,
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especially the GDP and say, okay, how much of this is just government spending and how
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much of this is society itself?
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You know, so there are two answers to this question.
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One is, you know, given the unreliability of the GDP numbers since January 2015, when
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we moved on to a new method, a simple way to get around that is to look at a broad set
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of economic indicators.
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Now, while those indicators may not give you this one number to come to a conclusion like,
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you know, GDP does, it gives you a better feel of the way the overall economy is headed.
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So I'll substantiate this with an example.
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So sometime in late March, I think early April, not late March, I wrote this piece for the
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Mint wherein I said that India is getting into a consumption slowdown.
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And so when I said this, a lot of people didn't buy it, but then that's a different story
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But you know, the way I caught it was simply because, you know, I looked at car sales,
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I looked at scooter sales, motorcycle sales, moped sales, tractor sales and commercial
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So six kinds of vehicle sales for different sections of the society.
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So car sales, a very urban phenomenon, motorcycle sales, both rural and urban.
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Scooter sales, primarily more urban, more women, moped, obviously, you know, for people
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who cannot buy bikes and scooters.
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Tractor sales, rural rich and commercial vehicle sales, basically, you know, a good indicator
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of whether investment is happening in the economy or not.
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So all the six indicators had fallen, okay.
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And this hadn't happened in five years.
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I mean, I had data for five years.
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It may not have happened even beyond that.
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So what that told me was that the something which is not right now, the GDP data would
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have never caught on to something like this, right?
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So that's, that's one part.
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So you have to obviously, you know, if you want to do serious economic analysis, you
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can't rely on just one indicator.
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You have to look at multiple indicators.
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You have to look at government indicators.
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You have to look at private indicators.
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You have to look at theoretical constructs like the GDP is like the inflation is, and
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you also have to look at high frequency, you know, economic indicators like car sales and
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two wheeler sales and so on.
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So that's one part of it.
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The second part is government spending.
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So one exercise which I always carry out, and that again has helped me quite a lot in
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getting the, you know, the economic scene right is see GDP has four constituents, right?
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Primarily you have a consumption expenditure, which is the major part of the Indian economy
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with close to around 58, 59%.
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Then you have investment, which is down to around 28%, 20, 29%.
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Then you have government expenditure, which varies anywhere from eight to 12%.
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Now it's like close to 13% and you have net exports, which is exports minus imports and
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is negative in the Indian case.
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So a good thing to do while analyzing GDP numbers is to just get rid of government expenditure.
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Subtract that government expenditure from the overall GDP number.
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And what you get is non-government GDP.
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I mean, you can call it private GDP.
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You can call it whatever you want to, but-
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Actual GDP or as Kuznets GDP, because that's how-
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That's how he had imagined it.
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That's how he wanted it.
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So if you look at that number, that gives you a better indication.
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So like if you look at the first six months of 2019-20, the GDP growth is 4.8%, whereas
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the non-government GDP growth is 3.8%.
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That's a difference of 100 basis points.
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And that brings me to the point that I try making all the time, but nobody really seems
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In that case, so whenever an economy is in trouble and not just the Indian economy, economists
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want the government to spend more money.
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I mean, this is something that comes from John Maynard Keynes.
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But what Keynes had said, and I mean, obviously, I mean, I call it the bastardization of Keynes.
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Keynes had essentially called for savings during good time and then spending that money
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Now, obviously, no government saves money.
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I mean, all of them run a fiscal deficit.
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So now, if you look at data for the last three years, the growth in the Indian economy has
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been driven largely by government expenditure.
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So the government expenditure in 17-18 increased by around 15%.
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And these are real GDP growth numbers, not adjusted for inflation.
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So government expenditure went up by 15% in 17-18, around 9.3-9.4% in 18-19.
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And in 19-20, I think, in the first six months, it's grown by 12.7%.
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So the point is, you know, it's not like, so the government is already spending a lot
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of money and that has been driving the GDP growth number.
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I mean, as I said, if you take out government expenditure from the GDP, the growth this
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year is 100 basis points lower.
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Now, the question that no one seems to be asking is, and I also don't have a sort of
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a correct answer for this, is that where is this money going?
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Because if they're spending this money, it has to go somewhere.
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You'd want to see some of it come back in the economy and create some kind of…
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So where is this money going?
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Now, I have a sort of a theory on it and so a lot of this money essentially is going towards
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buying rice and wheat, you know, which the food corporation of India buys and that distributes
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through the public distribution system.
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But if you look at FCI data, you will realize that the organization stores much more rice
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and wheat than is required.
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So in that way, we're basically buying rice and wheat from large farmers, giving them
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And then that rice and wheat is essentially rotting in the go downs of FCI.
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Because the purpose of buying them was not to feed people, but to just spend that money.
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Now imagine that, you know, a few years back I had done this calculation and I'm not sure
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whether if the number is still that, but the broader theory is still right.
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And I'd found that around the excess stocks with food corporation of India, 80,000 crore
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rupees worth of excess rice and wheat were lying in the go downs of FCI.
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I mean, this is when you had accounted for the strategic reserve as well that every nation
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So now imagine that 80,000 crore rupees going somewhere else and, you know, let's say it
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just goes towards building a four lane highway or it's raised in the pockets of customers
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I mean, I'm even okay with the four lane highway.
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You know, in this recent speech that you made in Bangalore, you gave an illustration of
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how high the opportunity cost of the sort of money can be and you use four lane highways
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So that four lane highway example was from Vijay Kelkar and Ajay Shah's book, the new
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book in service of the republic.
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I recorded with them last week, but that episode will be coming out after this one that'll
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release on Jan 6th, incredible book.
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It's a masterpiece and great episode.
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And you should read it.
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So anyway, so the Mr. Kelkar and Mr. Shah point out that it costs rupees 1 lakh crore
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to build a 10,000 kilometer four lane highway.
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Now, so with around 80,000 crore of excess rice and wheat with FCI, you've basically
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lost out on around 8,000 kilometers of a four lane highway.
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Now, the example I used in the speech was slightly different.
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I mean, I had compared four lane highways with the amount, the total amount of money
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that the government has been spending in order to recapitalize public sector banks and to
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keep them going in the last few years.
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So between 17, 18, 18, 19 and 19, 20, the government would have ended up spending close
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to 2,70,000 crores to keep these banks going.
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So which basically means 27,000 kilometers of four lane highways.
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Which has massive, what economists would call massive positive externalities on the economy
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Now, I mean, this does not mean that you let go of all public sector banks and allow them
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to go bust, but at the same time, there is no need for the government to be running banks
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like Dena bank and Indian overseas bank and United bank.
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I mean, some of these banks have now been merged away.
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No, and in fact, when we think of government spending, I'd like people to think along
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One is beyond the obvious point.
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One is just a simple moral cost of government money itself.
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Every rupee that the government has is coerced from someone that carries a moral cause, the
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person it is coerced from, which is some taxpayer who is buying a bar of soap or salt or whatever.
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That taxpayer could have found an alternative use for it, which would have contributed to
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their welfare and surely which they would know more about than you would.
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Let me just take this forward.
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So where is this money to recapitalize government banks coming from?
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It's been coming from the excess excise duty that we pay on petrol and diesel.
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So in that way, every petrol and diesel buyer in India, direct or indirect, I mean, indirectly
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we all buy petrol and diesel, right?
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Even though maybe we may not have vehicles, but let's say we go to buy vegetables somewhere.
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So that cost of transport is built into the price of that vegetable, right?
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So indirectly, all of us are essentially paying a sort of a premium every time, you know,
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we buy anything to bail out the public sector banks in India.
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Now, so there's another angle to it.
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Now the angle is India produces very little of the oil that it consumes.
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So we export close to 85% of the oil now, and at the same time, you know, our exports
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have sort of fallen over the years.
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So one of the things that people regularly talk about, and especially when it comes to,
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you know, low value exports, in order to get them going, you need to let the rupee depreciate.
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The problem with letting the rupee depreciate is the moment you let the rupee depreciate,
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your petrol and diesel prices start to go up.
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So the only way of ensuring that the petrol and diesel prices wouldn't go up is by cutting
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down the excise duty on it.
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But the moment you cut excise duty on it, how do you finance the recapitalization of
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So the moral of the story is that, I mean, the direct effects in economics are very,
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very obvious, but it's the indirect effects, which actually hurt the economy more.
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In fact, I would say that there's no moral in the story.
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There's an immoral in the story to continue with sort of the two part point I was making
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very quickly about government spending is one, of course, that all government spending
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carries a moral cost because of the coercive effect of acquiring that money, which is why
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whatever you, which doesn't mean that government should not exist.
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But before we needed to protect our rights to begin with, but before you recommend any
#
kind of government spending on anything, you have to firstly justify that moral cost.
#
Now assuming that you do that, the next step that then comes is you have to think about
#
the opportunity cost of that spending.
#
Like you just gave a great example of it, Vivek, when you spoke about how the 8000 kilometers
#
of a four lane national highway, but essentially the opportunity cost can be anything.
#
If the money just stayed with the people it was coerced from in the name of taxes, they
#
would spend it in their own lives.
#
It would be their consumption.
#
There is also a crowding out effect of such money and various kinds of indirect effects
#
as, you know, of which, you know, you just give one excellent sort of example.
#
So, you know, like you just said, in March, you wrote this piece about how there's a
#
consumption crisis and nobody believed you.
#
In August, I recorded an episode with our friend, Mohit Satyanand on, I mean, the episode
#
was called two economic crisis, 2008 and 2019.
#
And at that point people were still in denial that we are in a crisis to some extent, but
#
I think there's a slightly greater awareness that higher crisis to hair.
#
Yeah, but now the spin is that it's not a structural thing and, you know, it's a cyclical
#
Is there something to that?
#
I mean, there'll always be something to that, but, you know, it's not just because of that.
#
I mean, so there's a very long answer to this question and I think there are two answers.
#
So the first part where the global excuse has been used over and over again is essentially
#
when it comes to our exports.
#
And you know, when it comes to exports, the exports of India have sort of fallen from
#
around 25% of the GDP in 2011-12 to around 19.7% in 2018-19.
#
Now you know, as I keep saying over and over again, you know, no country in the history
#
of economic development has gone from being a developing country to becoming a developed
#
country without a successful export sector.
#
I mean, maybe India has some new model brewing, but at least it's not happened up until now.
#
And also, I mean, if you look at our two previous growth spurts between 92-97 and 2003 and 2011,
#
that was, I mean, I wouldn't say largely driven by the export sector, but the export
#
sector played a very important role in it.
#
Also the export sector tends to create a lot of jobs for what we call the MSMEs, you know,
#
micro, small and medium enterprises, which have traditionally provided around 35 to 40%
#
So it's very, so, you know, so it creates a lot of economic growth.
#
Also within the export sector, sectors like textile, okay.
#
So textile is a very important sector because it creates jobs for women.
#
And especially given the fact that our human labor force participation rate has fallen
#
dramatically over the years, where, which basically means that lesser and lesser women
#
who are a part of the workforce are actually going out and working.
#
Now, the excuse that has been offered in case of the export sector is that no, it's a global
#
phenomenon and blah, blah, blah.
#
So, I mean, so recently Dr. Shankar Acharya, who, you know, he's a senior economist and
#
a former chief economic advisor.
#
He wrote in a column in the business standard and I quote, so between 2011 and 2018, India's
#
goods exports increased by only 8%, okay.
#
In sharp contrast, Vietnam's exports grew by 154%, Cambodia's by 114%, Myanmar's by
#
32%, Bangladesh's by 61%, the Philippines by 40% and even China on such a large base
#
So obviously what this tells you is that our export sector has been unable to compete internationally.
#
And that's the long end and the short of it.
#
I mean, you know, obviously, you know, the global slowdown has some sort of a impact,
#
but largely our exports have slowed down because we are unable to compete internationally.
#
And you know, I mean, to compete internationally, I mean, and this is very, very obvious and
#
cliched and has been said over and over again, reforms are required on the land, labor, capital
#
Which, which when he popped in 2014 that Modi would finally do, but he hasn't.
#
Except for, you know, reducing corporate income tax rates.
#
Now, even, you know, for competing within the country, the entrepreneurs need to pay
#
a fair price for electricity and freight.
#
Now, the cost of cheap electricity right now in India for farmers is borne by the industry.
#
Along similar lines, railway passengers are subsidized at the cost of freight.
#
The taxes on aviation fuel have ensured that air cargo rates in India are one of the highest
#
So, these are the fundamental anomalies which need to be set right and they cannot be set
#
And on top of this, we have a GST services tax system, which is in a mess.
#
Now, in fact, Kelkar and Shah have a very interesting point in the book where they say
#
that 80% of countries which introduced the GST after 1995 have opted for a single rate
#
So, the fundamental point which our lawmakers do not seem to get, I mean, you know, we are
#
still stuck in sin goods and it's not, you know, it's about the overall simplicity of
#
So, I can understand two rates, but the current, you know, paraphernalia is, in fact, now we
#
have a funny situation wherein the GST on inputs, a lot of inputs is greater than the
#
GST on the final consumption good.
#
So, because of that, a lot of companies are getting refunds and so it tells you this is
#
the problem of launching a system, you know, and wanting to give a Bhasin at midnight and
#
claiming that it's a big victory without really planning for it properly.
#
And unless someone say that, oh, this is in hindsight that we know the problems people
#
have been working on it.
#
Out of the many episodes I have done on GST on the scene and the unseen, the first one
#
was before GST was implemented with our good friend Devangshu Datta and Devangshu identified
#
exactly the problems that have eventually turned out to be problems.
#
Everything was foreseen, not just by Devangshu and me, but by all good economists.
#
But this government, of course, does not value expertise as we have found out again and again.
#
Moving on from this, you know, another sort of very interesting point that you made in
#
your speech and that harks back to a book that both of us have been reading and talking
#
about narrative economics by Schiller is about how the mentality of consumers can lead to
#
vicious cycles in the economy, which just keep it going more and more further down.
#
And you've used a historical analogy of this with the great depression of 1929.
#
Can you, can you elaborate a bit on that?
#
Let's talk about narrative economics, I think Robert Schiller is this one economist who
#
gets these broad predictions, right?
#
I mean, very few economists get, you know, as the old joke goes that economists predicted
#
nine out of the last five recessions.
#
So Schiller got the 2000 stock market bubble, right?
#
And he even got the real estate bubble of 2008, right?
#
So in narrative economics, he basically sort of the core point of the book is that how
#
the narratives that human beings create in their heads and in their lives essentially
#
end up impacting the overall economy.
#
So the example he gives is that of the great depression of 1929 and I'll quote him.
#
He says that in the four years after 1929, GDP person, which is per capita income went
#
down by a catastrophic 20%.
#
It's not called the great depression for nothing.
#
But at the same time, the sales of new cars by the Ford motor company fell by 86%.
#
So per capita income went down by 20%, but car sales went down by 86%.
#
So obviously there was a disproportionate impact on car sales.
#
Now the question is, why did that happen?
#
Now you know, during the great depression, close to 25% of the American labor force lost
#
They became unemployed.
#
The absolute number was around 13 million.
#
Now what happened was, what this told you was that everyone knew someone else, you know,
#
someone in the family, some close friend or a relative who had lost a job.
#
So this created what we can call the psychology of the slowdown, right?
#
So the bigger problem during the great depression was not, I mean, obviously, you know, people
#
who lost their jobs had a problem.
#
But the bigger problem in the minds of people was the fear of losing a job and not being
#
able to find another one.
#
Because everyone knew someone who had lost a job and was just sitting at home doing nothing.
#
And this started to influence their consumption decisions.
#
So like Schiller writes and I quote him, some people postponed buying a car or other major
#
consumer items and which led to a loss of jobs in the auto and consumer products industries,
#
which led to more people postponement, which led to a second round of job losses and so
#
Now, so it essentially, you know, the psychology of the slowdown had set, gotten into the minds
#
of people and that created a bigger problem over the years.
#
So what happens is a lot of people talk about this in a very, you know, sort of a nondescript
#
manner where they say, Oh, it's all in the mind.
#
I mean, boss, when it gets into the mind, it becomes a bigger problem than the actual
#
And also the thing to note here is that it's not that they were worried about nothing.
#
It's not like a tulip bubble or something like that.
#
They had reason to be worried.
#
The economy was doing badly, but these are sort of the ripple effects of that worry where
#
they decide that, okay, things are going bad.
#
My cousin is out of a job.
#
God knows how long this will go on.
#
I had better chill out a little bit and, you know, cut back on the lifestyle and that creates
#
And so what that does is, you know, when the consumer confidence goes down, the business
#
confidence also falls very, very quickly.
#
So it's like, you know, like Mr. Modi recently made a speech, I think at the a hundred years
#
of SOCAM, which is a business lobby and asked the industry to invest.
#
Now the problem is, you know, I mean, you can ask the industry to invest, but the industry
#
is not there to, you know, for social service, right?
#
So the industry will invest when people will consume, because when they put money into
#
something, they're looking for a certain rate of return, which is higher than their cost
#
I mean, the capital may be equity, it may be debt.
#
And in a scenario where the consumers are not interested in consumption in the same
#
way as they were in the past, expecting industry to invest is problematic.
#
I mean, there's a problem with that argument.
#
I mean, as a government, you can only sort of set a series of reforms in place and encourage
#
the industry to invest.
#
Now, whether the industry invests or not is, you know, depends on the industry.
#
I mean, the government cannot do much about it.
#
So anyway, so once the consumer confidence goes down, the business confidence also goes
#
down very, very quickly.
#
And when the business confidence goes down, you know, tax collection becomes a problem,
#
which is exactly how things are playing out in India.
#
I mean, if you look at the, I mean, I have data for the first seven months.
#
I remember the tax collection, the gross tax revenue of the government has gone up by around
#
1.5, 1.6%, whereas in the budget, it is assumed to go up by 18%.
#
So that tells you, I mean, if there is one data point that you need to look at to sort
#
of convince yourself that there is an economic slowdown, this is it.
#
Because this is government data and it is a high frequency economic indicator published
#
It's not a theoretical construct like the GDP is.
#
So in this scenario, and obviously, you know, all of these points are understood by the
#
politicians of the day.
#
Now in 1929, what happened was that the American president, Calvin Coolidge, tried to talk
#
up the economy by, you know, saying things like all is well and, you know, the stock
#
market is doing well and stuff like that.
#
So you know, you had public officials, businessmen, journalists, all trying to talk up the economy.
#
And so there is this, again, there's this something that Schiller writes in his book
#
and he says that this led one observer to quip because everyone was being so positive
#
about the entire thing.
#
Unfortunately, there appears a strong tendency among writers on business subjects to put
#
out nothing but optimistic statements and to avoid all discussion that might be construed
#
I mean, I can vouch for a fact that, you know, one of the leading business dailies in the
#
country or rather the leading business daily in the country operates exactly like this.
#
So their feeling is that if we keep saying all is well, ultimately all will become well.
#
So because they believe they are so influential.
#
Now, if you sort of look at it, you know, if you compare this to what has been happening
#
in India, the situation is slightly similar, obviously we are not in a depression, technically
#
we are not even in a recession.
#
Recession is when the economy contracts for two consecutive quarters.
#
So we are growing at a slower rate than we were in the past.
#
So we are a part of a slowdown or what a former RBI governor, Raghuram Rajan called a growth
#
So the moment he called it a growth recession, you know, a few smart people on Twitter commented
#
how can the words growth and recession be used one after the other?
#
Obviously they do not understand that, you know, economists have terms for various situations.
#
This is a jargon which Rajan was using and growth recession is essentially a situation
#
where economic growth is slow, but the economy is in contracting to be called a technical
#
So growth is in recession in the sense what was growing at 7%, then it became 5, became
#
3, that's in the growth rate is in recession.
#
At the same time, the unemployment is going up, right?
#
So anyway, so we are in a growth, you can call it a growth recession.
#
I think Aravind Subramanyam has called it a growth slowdown or something like that.
#
You know, we can keep arguing on the name, but that's not important.
#
Now, you know, even in India, you know, our ministers, our policymakers, government, journalists,
#
television channels have all tried to talk up the economy.
#
Now, I think my, the statement which obviously became most famous was the one that Nirmala
#
Sitaraman wherein she said, the finance minister, she said that, you know, car sales have fallen
#
because millennials are buying Uber and all that.
#
I think for a finance minister of a country as big as India is to make such a juvenile
#
And this is like, you know, the government has access to, you know, so many people in
#
the Indian economic service.
#
It has access to so many think tanks.
#
If such a statement was to be made, you know, there had to be some research evidence backing
#
Now, also it's like, you know, millennials have been around, the poor guys kept keep
#
getting blamed for everything, but they have been around for a while now, right?
#
And so have Uber and Ola.
#
So it's not like millennials were not there in 2014, 15, 16, 17 and 18 and Uber and Ola
#
So why was it that millennials stopped buying cars because of Uber and Ola only in 2019,
#
So there are basic logical holes in what the minister said.
#
In fact, as a tangent, you know, Vivek, I think we have to confess that even people
#
in our forties, like we are have kind of given millennials too much of a bad rap as we are,
#
as we are finding out over the last few days with these spirited protests across the country
#
being led by millennials fighting for our idea of India.
#
You know, there's actually a lot more reason to have hope from this generation than there
#
I mean, I always, I've always said this, that the next generation is smarter.
#
And I mean, given that I keep talking to students all the while, I think there is nothing wrong
#
I mean, this is, I mean, they may have a different attitude towards life.
#
They are smarter because they invite you to gift talks.
#
No, I mean, so it's not, it's not like that.
#
So I mean, so you can see, you can make out the smartness of a group by the kind of questions
#
And so everywhere I go and I mean, I talk to millennials, I think there's nothing wrong
#
But they may have a different approach to life.
#
They may have a different approach to learning.
#
Like one of the beautiful things that I sort of learned at the IM in Vishakhapatnam recently
#
where I had gone to talk, where the professor just said he's Vivek Kaul.
#
And he said, I won't introduce you because these guys have already Googled you and they've
#
seen your YouTube videos.
#
And I was like, yeah, I mean, this is how this generation operates.
#
And otherwise what would have happened is in any other scenario, he would have introduced
#
me for five, seven minutes and then I would have had to crack a joke and, and we would
#
have lost the first 10 minutes of the class here within the first minute.
#
I was talking what I had gone there for.
#
So they had done their homework.
#
It was just done in a different way where, you know, in our generation would have probably
#
dug up, read a book or whatever.
#
These guys are, you know, they have their ways.
#
So getting back to what we were talking about.
#
So other than Nirmala Sitharaman, the other, you know, the statement that was made was
#
by Ravi Shankar Prasad.
#
And he said that on 2nd October, people spend 120 crores watching three movies, Joker, War
#
and Saira, Narasimha Reddy, Chiranjeevi's big release.
#
And he said, so where is the slowdown?
#
Now, you know, in a country like India, whipping up a big number is never really a, you know,
#
it's not, it's not a problem at all.
#
But you also have to see where that big number fits into the overall scheme of things.
#
So if you look at the projected GDP of India during, for 2019-20, I mean, this is the GDP,
#
which is on which all the calculations have happened in the budget, which was presented
#
in February last, February this year, not last year, we are not yet into 2020.
#
So the GDP forecast is around 211 lakh crore, okay.
#
Private consumption is around 58-59% of the GDP.
#
So at 59%, I think it works out to around 125 lakh crore.
#
So if you divide that 125 lakh crore by 365 days, so the average consumption expenditure
#
on any given day in India is around 34,250 crore, which obviously will be a little higher
#
on a day like October 2nd because it's a holiday, long weekend, and people go out and spend
#
on these opportunities.
#
So now imagine 120 crore as a part of 34,250 crore, which Indians anyway spend on a given
#
So the percentage is around 0.35%.
#
So you know, you have to look at the broader context before you go out and say things.
#
And the funny part was he later said that I have withdrawn my statement.
#
Now, how do you, this is something I've never understood.
#
How do you withdraw something you have already said?
#
You can either say I stand by my statement or you can say I was wrong.
#
How do you withdraw it?
#
As if reality changes suddenly.
#
You never said it to begin with.
#
Yeah, I mean, I can understand once you've said it and you realize it's, okay, I mean,
#
we all say things which we regret.
#
I mean, what that requires is all you have to say, I was wrong.
#
I mean, how do you withdraw that?
#
You can't withdraw that, right?
#
So there are these points which keep getting made wherein someone picks up a part of the
#
whole and then throws that number at you and then asks you this question, where is the
#
So the other example that I love giving is on cars.
#
And there are these two cars, car companies, I should say, which are doing very well this
#
One is the Korean company Kia Motors and then I think the other is MG Hector.
#
So these cars companies have sold a few thousand cars and every time you say there is a slowdown,
#
they say, but what about Kia Motors?
#
So I did a very rough calculation and so I'll sort of read out these numbers.
#
Kia Motors has sold 40,845 units this year.
#
By this year, I mean April to November, MG Hector has sold 11,401 units.
#
This is between April and November in total 11.49 lakh cars have been sold this year.
#
So Kia Motors and MG Hector form only 4.5% of the total cars sold.
#
The total car sales during the same period in 2018 stood at 15.35 lakh.
#
So from 15.35 lakh, we have fallen to 11.49 lakh, which is a drop of 25%, right?
#
So clearly there is a, you know, I mean, you can always take one data point and you can
#
Let's say it's like the example I give these days is let's say India grows at 10%.
#
I mean, let's say, I'm assuming here, now obviously there will be parts of India, like
#
let's say Karnataka, Karnataka may grow at 15%, but Bihar might go at 4%.
#
So that does not mean that there is no problem in, just because India and Karnataka are growing
#
at a higher rate does not mean there's no problem in Bihar, right?
#
And in this case, just because a small part of the whole is doing well, doesn't mean the
#
So this is like the other way around.
#
So, yeah, I mean, so there are a lot of these things which are sort of, you know, where
#
people through numbers at us without, you know, really giving us the context.
#
But, you know, the interesting thing here is that their target audience doesn't want
#
Of course, they want the impressive number they are learning through WhatsApp University.
#
They want the impressive number by which they can feel that they have a good argument to
#
defend whatever side of the argument they're on.
#
You know, this is not a failing restricted to one wing or the other.
#
And big numbers, like you said, sort of sound good.
#
You know, speaking of big numbers, you know, another sort of big number I came across recently
#
was when I was on our favorite app, Tik Tok, am I correct in saying it is our favorite
#
So I was on Tik Tok and I had of course introduced our good friend Mohit Satyanand and his wife
#
So I saw a statistic I thought would interest him, which was that there were literally hundreds
#
of videos on onions, which were parodying the government.
#
I mean, Tik Tok was a center of dissent in India and the total number of views for these
#
videos were some 360 million.
#
So I instantly took a screenshot and I sent it to Mohit and Mohit was amazed.
#
He was like, Oh my God, this means like one view for every one in every four Indians.
#
And this is mind blowing and this is amazing.
#
And then I scroll down and there is another hashtag, some backbenchers hashtag or whatever,
#
which had 6.4 billion views.
#
I don't know how that is even possible given our population.
#
So that's the whole thing.
#
So if you go onto YouTube now, you'll realize that a lot of songs in different Indian languages,
#
not Hindi, okay, have huge number of hits.
#
So there are Punjabi songs.
#
I think there's one Punjabi song, which I don't recall the name right now, which has
#
Which I mean, obviously a lot of people watch them again and again and again.
#
I think what is also happening here is that because YouTube pays you, you know, the business
#
model is such that the more hits you have, I'm sure there are bots or something which
#
There was this controversy also recently with Badshah in YouTube, wherein YouTube, I think
#
refused to pay him because I don't know, I mean, they probably thought that they're bots
#
No, the thing is they have software to detect bots, but there was this interesting viral
#
video which, you know, was doing the rounds a few months ago.
#
We showed this Chinese sort of clicking factory, link clicking factory where they just had,
#
you know, tens, if not hundreds of phones just lined up on the wall and a guy going
#
from one to the other, just clicking like on each of them, like physically.
#
So it's not a bot doing it.
#
So even if you have some bot detection software, this is a guy physically or not, he has cumbersome,
#
but you know, the Chinese will do anything.
#
And hey, guess what, the Indians won't, even though we have cheaper labor, that's, you
#
It's a business model we should be getting into, but where is our informal sector anymore?
#
Let's now take a quick commercial break and we'll come back shortly to actually talk about
#
One of the great joys of doing the scene and the unseen is that it forces me to read a
#
lot more than I used to.
#
I was a voracious reader as a kid, but once I entered adulthood, I lost that habit.
#
And it's an incredibly important habit.
#
The more we read, the better we understand the world and the people around us.
#
We make sense of the world through stories, by connecting dots.
#
And the more dots we have, the clearer our vision.
#
Reading gives us those dots.
#
I've been working hard in my reading habit and now I invite you to join me.
#
My new podcast, the book club by Amit Verma begins in early January, exclusively on Storytell.
#
This is a weekly show that will run for a year.
#
Every week on the book club, I will recommend one book that I enjoy reading and I will speak
#
about what it brought to me and why you should read it.
#
You can use my show to take random recommendations yourself, or you can start a reading club
#
of your own using my show as a starting point.
#
I'll discuss all genres of fiction and nonfiction and hopefully together we can understand the
#
world a little bit better.
#
Coming soon, the book club by Amit Verma, only on Storytell.
#
Welcome back to the Scene in the Unseen.
#
I'm chatting with my good friend Vivek called the Shah Rukh Khan of economics, the doomsayer
#
of Twitter about economics in India in 2019.
#
And one of the things I learned as a cricket journalist, because I started at Wizard Inn
#
and then Cricket Four and so on, is that, look, everybody's watching the match and the
#
basic commodity of the information, the news, what has happened, people know.
#
So when you're writing about the match the next day, for example, you should have a lot
#
of analysis and go deeper and have more color and all that because the bare facts, everybody
#
But the thing is, you know, with the economy, I'm not sure if we even know the bare facts
#
because it is such a complex subject and there is so much rhetoric around.
#
So I'm actually going to ask you for the bare facts.
#
How did our economy actually do in 2019?
#
How does one sum it up?
#
What is your match report?
#
I think this has been the worst year in many years.
#
I think by far the worst year since I would say 2004, 2005 or even before that.
#
So basically, you know, what has happened is that, I mean, as I've said before, the
#
private consumption expenditure is by far the biggest part of the Indian economy and
#
it constitutes around 58-59% and the growth in private consumption expenditure peaked
#
way back in 2011-12, you know, at 17.5% and after that, the private consumption expenditure
#
growth has largely seen a downward trend, but it has always managed to grow in double
#
digits and this has basically ensured that India has continued to grow.
#
And by private consumption, just to clarify, what you mean is people like you and me spending
#
Yeah, spending something.
#
I mean, movie dekh rahe hai, popcorn dekh rahe hai, jo bhi hai.
#
This is all private consumption.
#
Now in 2019-20, for the first time since 2004-05, the private consumption growth has fallen
#
into single digits and it's been around close to 7%, I mean, nominal 7, not adjusted for
#
So the question is, why has this happened?
#
The answer for this lies in the fact that our household savings and our net household
#
financial savings have been falling in the last few years.
#
Now, what do I mean by this?
#
The net household financial savings are essentially, you know, fixed deposits, insurance, mutual
#
funds, small savings, et cetera, minus the liabilities that people have sort of accumulated
#
So the household financial savings peaked between 2008-9 and 2010-11 when they were
#
greater than 10% of the national disposable income in each of the three years.
#
After that, they've been falling and in 2017-18, they reached a low of 6.5% and this has primarily
#
happened because financial liabilities of people have been growing, which basically
#
means people have been borrowing more.
#
Now, what does this tell us?
#
It tells us that the consumption growth, since it's peaked in 11-12, has been financed more
#
and more by people borrowing more.
#
So the borrowings have essentially continued to finance our consumption in the last 7-8
#
years and that story is now unraveling.
#
Now, other than looking at the...
#
By borrowing, do you, newbie question, do you include things like credit card?
#
Anything, you know, personal loans, so on, I mean, NBFC loans and...
#
Now, if you look at overall household savings, they have also been falling over the years.
#
Now, what that tells you is that other than borrowing, a greater proportion of the income
#
is being spent towards consumption.
#
So which again explains why people are saving less and using that money to consume more.
#
Now, the question again is why are savings falling?
#
And the answer for that lies in the fact that our income growth has also slowed down in
#
In fact, the per capita income growth peaked way back in 2010-11 at 16.9%.
#
And I think since 2014-15, the growth rate of income has been in single digits, okay.
#
And if you look at the income tax data, it tells you that between assessment year 12-13
#
and assessment year 18-19, salaried income has grown at just 4.5% per year.
#
So what that tells you is that if you adjust for inflation, the salaried income has actually
#
Rural wages for men sort of grew at 28% in 2013-14.
#
Since then, they have grown in single digits with the growth in 18-19 falling to just 3.8%.
#
And this is again nominal terms, if you take in inflation, it's gone down.
#
The same is true for the rural wages for women.
#
So basically, because the income growth has slowed down, people have used a greater proportion
#
of their income to consume because of which their savings have come down and they have
#
also borrowed to consume more, right.
#
So all this was essentially financing Indian consumption since the consumption growth peaked
#
And do these falling savings then have an impact down the line on investments?
#
No, so which is what I mean I was coming to.
#
So basically now the question is why has the income not been growing, okay.
#
The income has not been growing primarily because if you look at the investment to GDP
#
ratio, that also has been falling over the years.
#
So the investment to GDP ratio peaked in 2007-08 at 35.8%.
#
And in the last few years, it's varied between 28% and 29%.
#
Now just to give you a few data points which essentially show you how bad the situation
#
In 2010-11, the new investment projects announced were worth 25.7 lakh crore.
#
In 18-19, this was down to 12.1 lakh crore or 46% of the earlier number.
#
During the first six months of 19-20, new investment projects worth just 2.04 lakh crore
#
So this tells you how bad the situation is on the investment front.
#
Now this is a scarier number because announcements are okay, I mean people announce all kinds
#
When it comes to investment projects drop, the situation appears to be even more grim.
#
In 10-11, the investment projects worth 4.04 lakh crore had been dropped.
#
This jumped to 20.74 lakh crore in 18-19.
#
During the first six months of 19-20, projects worth 7.9 lakh crore have already been dropped.
#
So basically what has happened is that investments haven't sort of grown at the rate they were
#
expected to because of which there has been an impact on income growth, because of which
#
there has been, you know, people have consumed a greater part of their income and they have
#
also consumed by borrowing more and because of which our consumption growth sort of, you
#
know, which should have slowed down dramatically earlier did not slow down and all this is
#
now sort of coming together.
#
Now the problem is you might ask that why are you saying this now and not in 2018.
#
The problem is that a lot of data in India is not available quickly enough.
#
So if you look at the financial savings data numbers that I'm offering now, they're not
#
So the numbers were available only as of 15-16 and then 16-17 and the trend was not very
#
But once the 17-18 data came in, the trend became very, very obvious.
#
So basically, you know, as our current chief economic advisor keeps saying, investment
#
ultimately finances consumption.
#
One can only finance consumption up to a certain extent because it is investment which creates
#
In fact, that's the central point of the episode I did with Mohit Satyan and then August, which
#
will be linked from the show.
#
So one example I sort of saw in every city I speak, I mean, at least the bigger cities,
#
I give the example of that city.
#
So I was recently in Bangalore and the example I gave in Bangalore was of the IT industry
#
Now when the first set of companies came in and they said, okay, let's establish something
#
So Bangalore was a sleepy pensioner's town three decades back and now it's, you know,
#
So when the first set of companies came in and they established, you know, their code
#
writing center or whatever, they hired people.
#
Now those people who were hired had to then go look for housing, okay, right?
#
And once they sort of, you know, rented their homes or whatever, they had to furnish that
#
Then they had to hire cooks, so on and so forth, maids.
#
And that's how the, you know, economic activity sort of created other economic activity.
#
Because the cooks will get a place to stay, they'll have some kind of furniture, they
#
So, so, so if you, if you look at, so, you know, many years back I was at the Indian
#
school of business in Hyderabad and one researcher offered this very interesting data point and
#
he said every formal job in Bangalore creates six informal jobs around it.
#
And you know, to the extent, I mean, look at the real estate boom in that city.
#
I mean, it would have never happened, right?
#
I mean, and when a real estate boom happens, the kind of employment that is created, especially
#
for, you know, people who do not have specialized skills is mind boggling, right?
#
So a similar thing has happened in Hyderabad, a similar thing has happened in Pune where
#
economic activity has feeded on economic activity, which is already happening.
#
And at the heart of it is, I mean, you can call it investment, you can call it anything.
#
Basically someone needs to start a business and employ people to run that business.
#
So unless that happens, it's very difficult for consumption to continue to be robust and
#
it is very difficult without consumption.
#
If consumption is not robust, the economy cannot continue to grow at the same pace.
#
And the thing to note is that starting a business is not a blind shot in the dark, someone deciding
#
to do something for society by starting a business.
#
There are incentives in play.
#
He has a sense of the market, how much money people are willing to play.
#
What you've just described is a virtuous cycle that you have investment happening.
#
It creates jobs and opportunities for many people who all consume and that consumption
#
then makes industry prosper and they spend more and then therefore people have more to
#
consume and it's a virtuous cycle.
#
What we are in now, as you also described eloquently before, this is a vicious cycle
#
where people are consuming less and less and therefore industry is growing worse and worse
#
and they are spending less and less.
#
So people are consuming less and less because they have less and less money.
#
Now the thing is, how did we get from that virtuous cycle to a vicious cycle and what
#
can be done to like, how does one get back out of this?
#
What are the typical sort of things that you look at doing?
#
I mean, I understand part of the problem is just diagnosing the situation properly, which
#
hasn't really happened to that extent and even within that there are so many fumblings,
#
but how does one move from one kind of cycle to another?
#
I'll answer that, I think before that the other thing I wanted to sort of elaborate
#
on was India's demographic dividend.
#
I think it's very, very important to talk about this.
#
So the first time I sort of encountered this term was sometime in 2006-2007 when, so I
#
used to be a journalist covering personal finance for this newspaper called Daily News
#
and Analysis, which shut down some time back and I used to have to cover these new equity
#
mutual fund schemes being launched.
#
Now obviously there was no difference between ones, all the schemes were the same.
#
They'd probably go and buy stocks and make money for the investors, hope to at least.
#
So all these press conferences used to have a presentation made by a fund manager and
#
all the fund managers used to have what I started calling the IDD slide, which is basically
#
India's demographic dividend.
#
Now demographic dividend is essentially a period of few decades in the life cycle of
#
a country where the workforce increases at a faster rate than the overall population
#
and this happens primarily because the infant mortality rate over the years, which is basically
#
the number of babies who die before the age of one comes down dramatically.
#
Now as these people enter the workforce and find jobs and make money and spend that money,
#
the economy grows at a faster pace because of that millions of people get pulled out
#
of poverty and it's happened in all the countries which have gone from being developing to becoming
#
developed countries have had demographic dividend play a role in it.
#
Now in India's case, we were told back in 2006-7 that a million Indians were entering
#
the workforce every month, which is around 1.2 crore a year and this is when our female
#
labor participation rate is low.
#
If a majority of the women start entering the workforce, this number could go up to
#
at least 2 million a month, not 2 million a month, but around 1.8-1.9 million a month
#
So now, so obviously, you know, there had to be, you know, jobs had to be created for
#
these people, but given the fact that, you know, investment isn't really happening, the
#
kind of jobs that had to be created for these people haven't been created and because of
#
that, you know, now you have all this unemployment data coming out, which is very, very scary.
#
So you know, you had the national sample surveys offices periodically forced away and according
#
to which the rate of unemployment among 15-29 year olds was at 17.4% in 17-18, having jumped
#
Now the Center for Monitoring Indian Economy puts out more recent data and they say that
#
the rate of unemployment in January 2017 among 15-29 year olds, 20-24 year olds and 25-29
#
year olds was 27.3%, 21.6% and 8.7%.
#
In November 2019, the rate was at 40.9%, 39.2% and 10%.
#
So there has been a huge jump.
#
At the same time, the labor force participation rate has fallen.
#
So what that basically means is that a lot of people who could not find jobs have opted
#
out of the labor force and even then the rate of unemployment has gone up.
#
I think Dr. Ratan Roy, who is the boss man at NIPFP, if I remember correctly, made a
#
very interesting point in a recent interview and I think this, all of us should have this
#
data point in our heads and this is coming from Dr. Roy, I mean, who's, you know, as
#
non-partisan as one can get, not from Dr. Debra Roy, so sorry.
#
I mean, we need to differentiate between our Roy's and our Debra Roy's, so.
#
Between the economists who still have some integrity and those who don't, if I may put
#
The number of young Indians without jobs, but also not looking for jobs and additionally
#
not in any institute for training or education has almost tripled in the last 10 years.
#
It was estimated to be at 3, 3.5 crore a decade ago.
#
It's now believed to be 10 crore or more.
#
So if you remove the retired and those too young to work, this 10 crore constitutes a
#
very sizable section of the population of our workforce.
#
Now, you know, one thing that has happened because of this is, you know, if you look
#
at all the, or not all the, but large section of land-owning castes in India wanting reservations
#
in government jobs, this is a clear impact of that, okay, where our demographic dividend
#
I mean, this is in fact a dual problem because the thing is that, for example, the Jat agitations
#
of Haryana, the Maratha agitations here and different agitations, the Patidar agitations
#
I have had occasion to refer to them in multiple episodes on multiple subjects because they
#
also reference, for example, a problem with agriculture because people in agriculture
#
are effectively trapped in agriculture.
#
What really happens is that with every passing generation, the amount of land holding within
#
a family keeps going down because if you have two kids, your land is halved.
#
If you have three, it is one third and so on down the generations.
#
And why you have so many land-owning castes across the country, Jats, Patidars, Marathas,
#
agitating for reservations in these numbers is because agriculture is simply not a way
#
for them to make a living and they need an exit.
#
And because our sort of industrial policies and our policies regarding land and labor
#
still haven't been modernized, unfortunately, the sort of generation of jobs that should
#
have led to this demographic explosion actually being a dividend simply hasn't happened.
#
I mean, when we talk about you have one million people coming into the workforce every month
#
and therefore you need to provide jobs for them.
#
Provide jobs is the loose way of putting it.
#
The point is, it's no one's job to provide jobs.
#
You know, a government is not going to provide jobs.
#
It can only create the conditions in which the natural creativity and entrepreneurship
#
of people can thrive and then those industries will happen, those jobs will happen.
#
The truth is that those conditions have never for the most part existed.
#
Yes, you know, the 91 reforms did help a little bit in terms of liberalizing product markets,
#
but not factor markets, not land, labor and so on.
#
And we are feeling the effect of those fundamental structural reforms not being made because
#
month after month, every month, more than 10 lakh people come into the workforce and
#
So the other impact of this now is just happening and I think this is the next big dangerous
#
thing is state governments wanting to reserve jobs for locals.
#
So it's already, Andhra Pradesh has done it.
#
The Maharashtra's new three-party government in Mumbai is talking about it.
#
Now, I think this is basically a race to the bottom and puts the entire idea of India at
#
You know, if we cannot even move around in the country to get a job, then you know, where
#
So you know, this is also gets us into the touchy subject of migration, right?
#
Because within a country, people are bound to move from parts which have less economic
#
activity to parts which have more economic activity.
#
And migration is by far the quickest way of reducing inequality.
#
So if that is not allowed to happen and you know, it's a very tricky situation.
#
Now look at Andhra Pradesh, it's a new state, right?
#
I mean, and it needs a lot of investment.
#
So how do you get that investment?
#
I mean, companies come and establish factories and offices there.
#
Now would you expect a private company to go to a state which insists on hiring local
#
labor or would a company go to a state which lets, you know, hire the best people available
#
Now, so the point I was trying to make, you know, I think I said this somewhere in, I
#
think in Bangalore only where that, you know, imagine if in the late seventies and early
#
eighties, the people who ran the IT policy of Karnataka, even if there was anything like
#
that, would have said that only Karnataka's have to be hired, right?
#
Or only people who are local to, let's say Karnataka, I mean, they may not be Karnataka's
#
because Bangalore is full of Tamilians as well and even Telugu's.
#
So would the IT companies have come to Bangalore and established as many companies as they
#
I think the example that I remember here is when Indian school of business first came
#
to India or rather when the idea was mooted, it was supposed to be established in Mumbai.
#
What happened was that the Maharashtra government wanted 20% reservation or some such number
#
for the local population, which is an end Chandrababu when I do saw this as an opportunity
#
because Hyderabad had just started coming up at that point of time and ISB in Hyderabad
#
would have been this trophy project, which would sort of attract a lot of global attention,
#
which it did and he just seized onto the opportunity and just, you know, and ISB ended up in Hyderabad.
#
So my point is that, you know, how will, it'll be interesting to see how will companies react
#
Also, how will politicians react to this?
#
Because it's very easy for a politician to just say, ah, we'll reserve, you know, jobs
#
for locals, you know, that again, I mean, it brings us back to, you know, what we were
#
talking before we came to the studio to record this episode as to how governments and politicians
#
liked to put out simplistic things, right?
#
So okay, the jobs are a problem, okay, we'll not let migrants come in, but is that really
#
No, because ultimately what you want is economic activity, right?
#
And when migrants come in, I mean, they do create economic activity, lots of it.
#
In fact, I mean, they spend money, they eat, they rent homes, they go out to watch movies.
#
In fact, Bombay, like all great cities in the world is a city built entirely by migrants.
#
And I've in fact had, I had a great episode with Chinmay Tumbe on his book, India Moving,
#
which by the way, I think is a great book, one of the most underrated books of the year,
#
which talks about just internal migration without India and its effects.
#
And I want to elaborate a bit on this question of simplistic narratives and then come back
#
to you with a question after that, which is that, I mean, what has always been the case,
#
but what we've seen more of over the last few years as populism has grown is that these
#
simplistic narratives finding a certain popular validation.
#
For example, one of the things that distinguished Trump from say Hillary Clinton when he was
#
standing against her in 2016 was his use of powerful, simple narratives to explain the
#
For example, he said that why are there no jobs in middle America, two of the simplistic
#
explanations he came up with, one immigrants are coming and taking away your jobs and therefore
#
let's stop immigration, let's send the Mexicans back.
#
And two outsourcing is bad, your jobs are being shipped overseas.
#
So you know, let's stop shipping jobs overseas.
#
Now both of these explanations are completely wrong, but both of these are very easy to
#
understand and get behind in a rhetorical sense.
#
Similarly, you've pointed out how in our cities people will often say, oh, there's a jobs problem.
#
It's migrants are coming and messing it up, they are also a problem in the culture and
#
Let's give jobs to locals.
#
I mean, one simplistic narrative that I see coming up in the days to come and Modi has
#
alluded to it in his speeches is the population problem, which is not really a problem in
#
my view at all, but because you know, there is a jobs crisis, I expect him to blame it
#
on our growing population and propose population control measures such as only two kids per
#
family, which will of course, which he expects to hit Muslims disproportionately because
#
that is a rhetoric that they have more kids than Hindus do, which is not exactly true.
#
Though it is true that the poor have more kids than the rich do and the Muslims tend
#
to be disproportionately poor.
#
Leaving all of that aside, I mean, no, I'll just like to cut in there.
#
And in fact, you know, this, this population thing and it really, it's such a huge thing
#
in the minds of people, but it's not really true anymore because if you look at the births
#
for women, it has come down to around 2.3, okay.
#
The replacement rate is 2.1 globally, which basically means that for every hundred, you
#
know, women, 210 children need to be born to, for the population to be the same.
#
Now, in Indian case, because the infant mortality rate is higher, R2.3 is almost equal to 2.1.
#
Now so, which basically means that our population will start stabilizing in a few decades and
#
we have done it the right way.
#
We haven't done it the China way wherein we have limited, you know, the number of kids
#
and because of that, you know, China has this, you know, there are, you know, parents basically
#
I'll, I'll, I'll, I'll have two responses to that and one of them is a disagreement.
#
First response to that is even if it wasn't 2.3, if it was 2.8 or 2.9 or whatever, I don't
#
care because you know, one of the basic fallacies that people tend to hold about economics and
#
society is that more people are a bad thing, that is not the case.
#
People are what the economist Julian Simon called the ultimate resource.
#
People bring in more than they take out.
#
I mean, a classic illustration of this is that look, all migration happens from rural
#
areas to cities, from places which don't have so much population density to places of very
#
high population density.
#
The most prosperous parts of any country are its highly dense cities.
#
Why do people migrate to them?
#
Because more people means larger economic networks, more opportunities, better markets
#
for whatever goods or services or talents that they might have.
#
And you can point to say a Bangladesh or an India, which are poor countries and say, look
#
at the population density, but you can also point to a Bahrain or a Monaco, which have
#
a greater population density and are far more prosperous.
#
So in that sense, population isn't a problem at all.
#
And of all people, our current generation of leaders who grew up during emergency should
#
realize that my second point, which is a slight disagreement is I don't think we've got here
#
I think, you know, we keep talking about China, but, you know, we keep talking about, you
#
know, Sanjay Gandhi's forced nasbandis, which happens in the tens of thousands during emergency.
#
But it's actually those practices continue to the present day with throughout the country,
#
rural government doctors and healthcare centers are incentivized to do more and more nasbandis
#
and poor uneducated people fall prey to it.
#
And all the problems that we put on, you know, the door of population that this is happening
#
because we have too many people is actually something that governance should be blamed
#
All the failures of our governance are, you know, ascribed to population.
#
And I strongly suspect Prime Minister Modi will again do that to explain his failure
#
of not enough jobs by attempting to say that there are too many people and we should give
#
a response like that, we should give an explanation like that the response it deserves if it does
#
So going back to, we were talking about simple and simplistic explanation.
#
So obviously Donald Trump has used it successfully and so have, you know, our leaders in India.
#
I mean, look at the explanation for why is there a slowdown in consumer demand.
#
It's because millennials are not buying cars.
#
Now, the explanation is much simpler to sell than say something like incomes have risen
#
at a slow pace and hence people have not been spending money or the fact that they don't
#
have much confidence in the economic future or the fact that they have over borrowed in
#
the recent past or the fact that India's so-called demographic dividend is collapsing or the
#
fact that investment in the Indian economy is collapsed.
#
I mean, these are all proper nuanced, sometimes difficult to understand arguments, right?
#
And you know, in our daily lives, in our busy lives, we are basically looking for pointers.
#
Now, everything in life cannot be a pointer, but that's why WhatsApp, I mean, we have more
#
graduates graduating out of the University of WhatsApp than proper universities.
#
So, my sort of question for you, which was coming on from the simplistic thing is that
#
simplistic narrative sell like the nativism in our cities or like farm loan waivers will
#
solve the problem of agriculture.
#
In that, I think both of us would agree that a lot of good politics makes for bad economics.
#
What is a way out of this?
#
I mean, see, ultimately, you know, as a politician, as a leader, you know, you need to be, how
#
Thinking of the longer term.
#
You need to do the right thing.
#
I mean, unless you, I mean, I know it's a very, you're tied to the election cycle, no?
#
You got to win the next elections.
#
Yes, but then, I mean, so, you know, I mean, it's not like reforms haven't happened in
#
other countries and people haven't won elections.
#
So, the problem in India is that no leader ever has tried to explain the utility of economic
#
We've always tried to push, you know, reform by stealth, you know, wherein we are in a
#
crisis and so we have to do this.
#
So we pushed this through.
#
So that sort of gives a bad name to economic reforms.
#
But I mean, look at the fact that, you know, what happened in 1991 when the economy was
#
opened up, large parts of the economy were opened up for the private sector.
#
I mean, look at the kind of wealth and prosperity it has created.
#
Obviously, more than 350 million people brought out of poverty and obviously not for everyone.
#
It has also led to, I mean, you, I know you don't agree that India has, I mean, inequality
#
is not an issue in India because poverty is an issue.
#
I mean, inequality is, I mean, yes, so, you know, it probably hasn't pulled enough people
#
out of poverty and, but it has, you know, done its fair share of things.
#
Let me put it like this.
#
I think it's pulled 350 million people out of poverty and there is still a great task
#
which has moral significance, which is to pull the remaining people who are still in
#
poverty out of poverty and that hasn't happened because we haven't reformed fast enough or
#
So, so someone has to sort of, you know, I mean, look at our prime minister, he gives
#
so many speeches, does so many election rallies.
#
I mean, he's connected to the public.
#
I mean, it's a broadcast, yes, but is connected to the public probably more than any other
#
leader in the recent past.
#
So, I think the buck stops with him because, you know, a finance minister can only be as
#
good as, as the prime minister is, I mean, as much support as he or she gets from the
#
Having said that, I mean, as I said, you know, we need to do a lot of things which governments
#
know about, all governments know about this.
#
I mean, you have to bring in land and labor reforms, tax reforms.
#
Look at the fact that education is a huge problem these days.
#
I mean, so while there is unemployment, at the same time, when companies advertise for
#
jobs, they do not get people with adequate skill sets.
#
Most of our engineers are unemployable.
#
People who sort of go through the school system cannot read, write, do basic math properly.
#
In fact, that's like you pointed out one of the great ironies which we've addressed in
#
every episode on education that I've done, for example, that there is this mismatch between
#
There might be a jobs crisis, yes, but even for jobs that are available, there aren't
#
enough skilled people and you have like thousands of PhDs applying for jobs available for peon,
#
which means that the market for education is failing.
#
And what I again point out is that all the sectors which were privatized and allowed
#
to, where the private sector was fully allowed to operate like airlines or telephones or
#
whatever, which I remember in the 80s were government monopolies, we have all thrived
#
Tremendous value has been created.
#
Everyone can, you know, many more people can afford that value.
#
But in education, where there is still such a strong government control over the sector,
#
you know, there's just been, you know, the outcomes are so...
#
I mean, in fact, you know, people who complain about call drops these days have no idea as
#
to how, you know, fixed line phones used to be dead for days at end because, you know,
#
the lineman wouldn't have been bride properly.
#
No, and this goes back to the demographic dividend.
#
One sign of the demographic dividend is that 60% of the country is born after 1991.
#
But what this also means is that this 60% has no lived experience of what life was like
#
under those socialist days.
#
I mean, when you had only one TV channel, we should operate only in the evenings.
#
It would take you five years to get a telephone line.
#
And that was actually a time where a used car was worth more than a brand new car.
#
Because you could buy a used car immediately.
#
You could buy a used car immediately.
#
A brand new car would take six years to come.
#
So I remember, you know, our telephone connection in Ranchi, I think Papa first applied for
#
We finally got it in 1992.
#
Now you can just get it in under nine minutes.
#
I mean, obviously there are a lot of problems with the current system, but it is no comparison
#
You have to unleash private enterprise, which simply hasn't happened.
#
And for people who haven't, you know, read my columns on this before, I quickly want
#
to clarify the point Vivek was making about inequality and poverty, that I think in India
#
our key problem is poverty because the pie is not fixed.
#
Inequality is not an issue we should worry about simply because as what happens in developing
#
countries like India and the data shows us is that as poverty goes down, inequality inevitably
#
It doesn't mean the rich are getting richer and the poor are getting poorer or staying
#
Everybody is getting richer except the rich are getting richer faster, which leads to
#
increased inequality, but which also leads to people coming out of poverty.
#
This is also, you know, people moving to cities is also an illustration of this because cities
#
have far more inequality than towns do.
#
And yet people come there because that is a way to get out of poverty.
#
So India's problem is poverty, not inequality.
#
Inequality has become a fashionable term and a lot of people when they complain about inequality,
#
they are, they actually mean poverty and poverty is our moral imperative.
#
That's what we have to solve.
#
And the kind of policies which would tackle poverty and inequality are very different
#
and almost opposite in some cases, which is why I feel that that's distinction, which
#
otherwise seems merely semantic is important.
#
So you know, we were talking about things that need to be done.
#
Now, one of the things is, you know, if you look at the ability of tax authorities to
#
harass us, that continues to remain high.
#
In fact, I was just reading a news report a few days back wherein, you know, the tax
#
authorities have been asked to raise their income tax collections, right?
#
Now, you know, in an economy which is growing at 7% nominally, the income tax collections
#
cannot grow at 20%, right?
#
So when you force them to sort of raise collections, how is that going to happen?
#
That's only going to happen through harassment.
#
And the moment you start harassing entrepreneurs, I mean, you are essentially helping kill the
#
entire idea of entrepreneurship.
#
I mean, the term people use for this is tax terrorism, right?
#
So this has to go and you know, there are no silver bullets as such.
#
I mean, there are the, all these points which have been written about, debated about, labor
#
laws, everything, everything.
#
I mean, it's all well-known.
#
It's not like they don't know about, what I find funny is when, you know, the minister
#
of finance asks for suggestions from people on what she should do in the budget.
#
I mean, I just find that bizarre.
#
I mean, as if she doesn't know what is to be done and if she doesn't know, she doesn't
#
As if a lot of it wasn't in the 2014 manifesto.
#
Yeah, I mean, it's all there.
#
I had the Congress politician Salman Sohz on my show a few months ago and he was saying
#
how when Mr. Modi came to power in 2014, he in the Congress was actually a little bit
#
hopeful because there was a lot in their manifesto, which he agreed with in terms of reforms and
#
they've carried out none of those.
#
In fact, these days there's this, I mean, what I find really bizarre is that there is
#
this small scale industry which has come up, which thinks that redistribution will lead
#
I mean, I find that, I mean, you know, whether you are in favor of redistribution or against
#
it is a different argument, but redistribution has not led to development anywhere in the
#
I mean, there's a trade off between redistribution and growth and sometimes you make that trade
#
off on the side of redistribution because you feel it's a moral imperative.
#
You have to help the poor, but you should have to be aware that there is a trade off.
#
They cannot go together.
#
And also, you know, redistribution can also only happen once some wealth has been created.
#
Like, you know, I remember this line from this movie, which Ketan Mehta made with Shah Rukh
#
Khan and his wife, Deepa, it was called, Oh darling, ye hai India.
#
And there's a line in the title song of the movie, which goes, jo bacha nahi wo baat diya.
#
So what you haven't saved, that also you're distributing.
#
I mean, so obviously you're going to get, so redistribution beyond the point where there
#
is, I mean, what do you redistribute?
#
You need to first earn that money to redistribute it.
#
You know, this goes to the point that people often make about the Scandinavian states that
#
what about the Scandinavian states, their welfare states, but the point to note is that
#
they were incredible free markets until the point that they got so massively prosperous
#
that on their small scales, they could actually afford to become welfare states and tax a
#
lot and redistribute a lot.
#
And they actually started turning back on some of that when it started hurting, but
#
they were already at very prosperous levels.
#
Also what people don't get is that as far as entrepreneurship is concerned, it still
#
I mean, people are encouraged.
#
So being a welfare state doesn't mean that you don't let people do business.
#
And over here, this is something that people don't get.
#
What about Scandinavia?
#
And also, you know, like Kalkar and Shah in their book, they make a very interesting
#
observation also where they point out that one data point worth looking at very closely
#
is the flight of millionaires.
#
And this might seem completely irrelevant to a poor country that let the millionaires
#
go, what difference does it make?
#
But the point is these are your wealth creators who generate jobs, who generate employment,
#
who generate growth, who are all choosing to leave en masse.
#
And what you do not see, what is seen as a flight of these millionaires, but what is
#
then unseen is a many other prospective millionaires who don't come up, who would in a counterfactual
#
because you've created conditions that are antithetical if you want to create.
#
Ultimately, you know, growth is the only antidote to poverty.
#
And this is a simple point that, you know, which our politicians don't seem to understand.
#
And by politicians, I don't just mean the current set, but the whole, but all of them
#
You know, one, one interesting observation that I completely agree with that, which our
#
friend Shruti Rajgopalan, who's also a frequent guest here, made in a column, which came out
#
today, we are recording on December 24th, is that this, what is happening in India currently,
#
both in social terms with the CAA and all of this, and also in economic terms, displays
#
the government social engineering mindset, or you could say the engineering mindset where
#
they have a vision of society and they want to create it with all of these top-down actions,
#
whether it is in a social context or whether it is in the economic context.
#
And there still isn't the realization that social engineering never works.
#
It always has terrible unintended consequences that what the job of a state is to protect
#
the rights of every individual and then let them interact freely within the rule of law
#
so that everyone can, you know, reach their full potential.
#
So, you know, so why don't you share the Mao example also?
#
So the Mao example, which Kilkar and Shah used in their book, which is something that,
#
you know, right after demonetization happened, the first column I wrote for the Times of
#
India after that, the example I gave was how Mao decided that because sparrows were destroying
#
crops, all sparrows should be killed.
#
So he gave an idea, kill all sparrows, right?
#
It's this attempt at saving crops.
#
But what happened was that the fragile ecosystem went completely out of whack.
#
The sparrows were killed and insects, especially locusts, proliferated and the crops were destroyed
#
And it was a massive economic disaster.
#
Now, what this tells you is that a certain kind of social engineering on such a grand
#
Even if you cannot predict exactly what will happen, people may not have known the ecosystem
#
so well to know that if sparrows are killed, locusts will destroy the crops.
#
But simply because there are all these massive unintended consequences that you should keep
#
your interventions as small and local and measurable and reversible as possible.
#
All points which Kelkar and Shah make in the episode, you'll hear next week.
#
And for that reason, you know, such social engineering always backfires.
#
And it's similar to what Modi tried with demonetization.
#
That's a comparison I then made and which Kelkar and Shah also made in this book that
#
such grand attempts at social engineering always fail.
#
And yet we have this engineering mindset all around us where people imagine that because
#
they can design a machine or they can run a company that they can actually design an
#
economy and construct a society and that simply isn't possible.
#
It is always bound to fail and has led to nothing but heartbreak and misery every time
#
it's been tried through the 20th century by both the left wing and the right wing.
#
So I think, you know, one of the things that we still haven't talked about is 2019 was
#
also the year when our monetary policy went for a toss.
#
What is monetary policy for my listeners, just explain.
#
Monetary policy is basically the interest rate policy that the nation's central bank
#
Which the RBI in the Indian case through the Monetary Policy Committee decides on.
#
So they decide to sort of either raise or, you know, decrease what is called as what
#
is called the repo rate.
#
So repo rate is the rate at which the RBI gives loans to banks.
#
So Shaktikanta Das led RBI has cut the repo rate by 135 basis points from 6.5% to 5.15%.
#
The hope was that banks would also cut interest rates as the RBI cut the repo rate.
#
Now what has happened instead is that if you look at the weighted average lending rate
#
of banks, instead of going down, it's gone up.
#
So it's gone up from around 10.35% at the beginning of the year to 10.4% I think as
#
of October if I remember correctly.
#
So now what has happened, I mean this is something that a lot of people are baffled about and
#
you know what you need to understand here is again if you are the kind who just reads
#
Times of India, you will see that every time there is a repo rate cut, the next day the
#
headline that is run is repo rate cut, home loan EMIs, EMIs, whatever vehicle EMIs to
#
But that's not how it actually works.
#
Now how does a bank operate?
#
You know bank borrows money from all of us and then it lends money at a higher rate.
#
Now if you look at the cost of borrowing which is primarily through deposits.
#
If you look at the cost of borrowing of term deposits of banks, it's gone down slightly
#
in the last since the beginning of this year, it's gone down by around 12 basis points
#
and the RBI has cut rate by 135 basis points.
#
So unless the cost of deposits come down, the lending rate on loans will not come down.
#
I mean this is as basic as it gets, the RBI can keep cutting the repo rate.
#
Now why is the cost of deposits not coming down?
#
Now if you remember what we sort of talked about earlier, I had said that the financial
#
savings, the net financial savings of India as a whole has come down in the last few years
#
and I explained as to why it has come down.
#
Now in this scenario, banks in order to encourage people to save need to offer them a good rate
#
So they are not in a position to cut interest rates or not as much as the RBI wants them
#
The other thing that has happened and a lot of people don't seem to know about this is
#
that the overall public sector borrowing and by this I mean the real deficit run by the
#
central government, these fiscal deficits of the state governments, the borrowings of
#
organizations like the Food Corporation of India, this has gone up over the years.
#
I mean it used to be around 8% of the GDP, now it's more than 9%.
#
So in an environment where the financial savings have come down, government borrowing is going
#
So in this environment, expecting interest rates to fall is a little silly.
#
So now what does this tell us?
#
It tells us as to how intricately linked everything is in the economy.
#
I mean it tells us as to given the fact that India has gone the way it has where investment
#
is not happening because of that consumption is being financed through savings and because
#
consumption is being financed through increased savings, savings have fallen and because of
#
that banks cannot cut interest rates on their deposits and because of that they can't cut
#
interest rates on their loans.
#
In economics they used to teach the vicious circle of poverty, India is poor because India
#
So this is sort of the vicious circle of India's lack of economic growth, I mean if we can
#
So this is something that you know has to be tackled.
#
The only way it can be tackled is through increased savings, right.
#
Now how will people increase savings?
#
One is if they consume less, but if they consume less it hurts the economy, right.
#
So the way to increase savings is essentially to increase incomes.
#
Now in order to increase income, investment has to happen.
#
For investment to happen the government has to create the right conditions.
#
Also before that the consumption slowdown has to unravel because businesses won't invest
#
until you know consumers start consuming.
#
So to sort of solve that problem you know one of the things that the government could
#
have done is to cut down on the personal income tax rates, but they chose to cut down on corporate
#
taxes which helped no one because it just helped push up corporate earnings and money
#
did not end up in the hands of people who could spend it.
#
So yeah I mean so this is basically you know how intricately linked everything is and at
#
times it's not the solutions are not.
#
No and I have like two thoughts kind of strike me in response to this.
#
One is of course how incredible perverse it is that while private savings are going down
#
government borrowing is going up, that while private consumption is growing at a slower
#
pace government spending is going up.
#
You know and the one way of getting out of this vicious cycle where we are saving less
#
and spending less because we have lower incomes is of course like you pointed out a cut in
#
the personal income tax rate so that people just have more to sort of you leave more money
#
with the people to spend so that they will spend more and save more and that can help
#
us come out of that cycle.
#
The other sort of thing that struck me was how you pointed out that everything is so
#
intricately linked which is also why people in government imagine that with public policy
#
by using different levers one lever here one lever there they can influence a process not
#
having the humility to realize that the process is so deeply complicated that every intervention
#
has unintended consequences and therefore you're better off sticking to certain first
#
Basically you're better off just letting people carry out honest entrepreneurial activity
#
as long as you do that you know you will get your share of taxes people will make their
#
share of income and but as you know it's easier said than done so.
#
Right so you know so tell me you've looked at the economy very closely for like 15-16
#
years or whatever and year on year you know things have changed you look at the data how
#
have your feelings about what is happening evolved over this time and do you feel that
#
2019 is particularly worse is there reason to be worried like.
#
I mean yes I mean 2019 has been worse from the data point of view there is no denying
#
that but I think what I find more worrying and I've said this many times before is the
#
brazenness of this government in not admitting that there is a problem I mean as I say over
#
and over again is how do you solve a problem without admitting to it right.
#
So I mean so unless you do that I mean yeah so I hope in 2020 they see I mean they lose
#
a few more elections and finally some sense comes in so yeah but it's less likely to lead
#
to economic reforms and more likely to lead to social polarization even more rhetoric
#
of the kind that is not good for the I mean I'm just waiting for them to come up with
#
the population rhetoric and blame the failures of governments on too many people and that's
#
so totally going to happen.
#
Okay we've kind of you know spoken about 2019 and how dismal it has been in 2020 what will
#
save us and you know one of the things I think about in these troubled times is that what
#
will save us is art like I look around me and not just in the protest movements but
#
even in general the quality of cartooning has just gone to another level because there
#
is so much happening that is so surreal that you know comics have so much material to play
#
with not just cartoonists.
#
In fact I was just thinking about it the other day and that so there used to be one of the
#
big protest poets in Pakistan was a gentleman called Habib Jaleeb and he wrote some of his
#
best poetry under the dictatorship of Zia-ul-Haq and couple of his you know famous poems one
#
is called Main Nahi Maanta and the other is called Huk Mara it's essentially about intellectuals
#
who kowtow to the government and he'd written it on this other big Pakistani poet called
#
Hafiz Jalandhri who had essentially become an advisor to Ayub Khan anyway that's different
#
but what I'm trying to say is that Habib Jaleeb would have been proud with the kind of protest
#
poetry that's coming out now especially the one that you know Varun Grover.
#
Hum Kaagas Nahi Dikhayenge which is brilliant and which works for all 72 years of India
#
boss if you kind of look at the magazine.
#
I mean the simplicity of it is just I mean the way he captures the emotion is just superb.
#
And similar sound and I think same number of syllables as to Hum Mandir Wahi Banayenge.
#
Which is the point I think.
#
Which is how he Hum Kaagas Nahi Dikhayenge Hum Mandir Wahi Banayenge.
#
Tu Vivek iss maukhe pe aap bhi ko suna do yaar.
#
So this is something by I mean I wish I could write poetry like the way our great Urdu poets
#
So this is a poem by Rahat, not a poem it's just a couplet by Rahat Indori who is one
#
of the greatest Urdu poets alive.
#
And it's in the context of whatever is happening in India right now and he says ke are the
#
zid pe ke sooraj bana ke chodenge, pasine chut gaye ek diya banaane mein.
#
So you know it's very difficult to build the most simple of things.
#
So forget about you know big things like demonetization and.
#
We were adamant that we will build a new sun and yet we are sweating over a mere candle
#
on the spot off the cuff.
#
Translation by me please forgive if something went wrong.
#
It's just perfectly right.
#
So in fact you have a job coming up as a translator I mean given that both of us you know the
#
economic activities that we indulge in aren't really happening.
#
So we are poor podcasters who are doing this for the love of it and the greater benefit
#
of mankind, humankind not mankind.
#
Kindly watch your language we should instantly cancel you.
#
All episodes with Vivek Kaul will disappear from the scene and the scene archives.
#
So should I ask you the hope and despair question boss?
#
Okay so consider it asked what gives you hope and what gives you despair about 2020 since
#
we were speaking at the granular level of a year.
#
I think the despair is obviously what is happening all around us and the fact that the media
#
In fact you know one tends to get more news from what people share on the social media
#
now than the real media.
#
I mean like the other day there was this huge march in Dharavi I mean which barely made
#
it to the newspapers whereas it was there all over the social media.
#
So that is the huge and the fact that so many educated people, so many people in my immediate
#
you know some of my best friends, immediate family buy this entire idea of NRC and the
#
citizen amendment thing.
#
So I find that very very disturbing because I mean when the people you are closest to
#
believe in these things I mean how do you talk to them or more than that why should
#
you talk to them forget how do you talk to them.
#
That really is disturbing me.
#
The hope obviously at the end of the day as I have always said is the people of India
#
because I mean and that's been shown in the last few days where people have actually come
#
out you know against what you know Modi and Shah have been trying to do and so that gives
#
you hope and you know the funny thing is and I was just thinking about it the other day
#
that you know when Modi made this speech in Delhi and he said that whatever he did about
#
Full of lies by the way all of them have been about it.
#
And the fact that you know Amit Shah had sort of contradicted it over and over again.
#
So I was just wondering you know has Narendra Modi also reached a stage where he has become
#
the Mukhota of the BJP.
#
I think that's visual thinking I think without necessarily thinking of it in those terms
#
they are kind of playing good cop bad cop and also a large part of the population will
#
believe anything they say so Modi can just say whatever the hell he wants.
#
That's the thing you know what they are basically doing is that you know one guy is saying one
#
thing the other guy is saying the other thing and basically all kinds of audience is taken
#
I mean I am going to invoke the philosopher Harry Frankfurt here.
#
Harry Frankfurt wrote the superb essay in 1986 which later was released as a book in
#
2003 called On Bullshit where he said that bullshit is different from lies.
#
Lies is when you care about the truth you acknowledge the truth but you choose to deliberately
#
deceive somebody by lying.
#
Bullshit has no relationship with the truth you don't care if what you are saying is
#
true or untrue you just say it at the spur of the moment because it sounds good and it's
#
And this is true for a lot of things Donald Trump says on Twitter and once of course having
#
come up with some spontaneous bullshit he will always keep doubling down on it.
#
But I think of for example Modi's speech as like of course it was full of untruths but
#
was he lying or was he bullshitting and that's that's a question I'll leave it to listeners
#
Any final comments you did not mention what gives you hope.
#
I said the hopes the people I mean the only the people right I mean and people as in the
#
you know at least some of them who will probably end up doing the right thing not all of them
#
Yeah so on that on that bleak yet hopeful note we shall end this episode of the scene
#
Thanks for coming on the show man Vivek.
#
Thanks Amit for having me.
#
If you enjoyed listening to this episode hop on over to your nearest bookstore online or
#
offline and search for Vivek call by every book he has written do not search for my name
#
and you can follow Vivek on Twitter at call underscore Vivek you can follow me at Amit
#
Verma that's A-M-I-T-V-A-R-M-A you can browse past episodes of the scene and the unseen
#
at scene unseen dot I-N and thinkpragati dot com.
#
The scene and the unseen is supported by the Takshashila Institution.
#
You can read more about them at takshashila dot org dot in.
#
Thank you for listening and have a good year.
