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We live in a time of great human tragedy.
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You might well ask, why discuss economics then?
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I will give you three reasons.
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One, every human tragedy reflects itself in data somewhere.
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Numbers might seem inert and lifeless, but if one knows how to pass numbers and add context
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to them, those numbers can throb with life.
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We can discern stories that might otherwise be unseen by us.
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Two, economics has consequences.
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It affects the lives of common people.
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Bad economic policy, like much of what Indira Gandhi did in the 1970s on Narendra Modi's
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demonetization, causes real human suffering.
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Understanding economics helps us understand the causes of suffering and might help us
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prevent or lessen it in whatever capacity we can.
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And three, economics is the study of human behavior.
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To understand the incentives that drive us, the tradeoffs we face and the choices we make,
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we must understand economics.
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For this reason, perhaps in this time of great suffering, understanding economics is important.
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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 Bhatma.
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Welcome to The Seen and the Unseen.
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Today's episode is about the Indian economy in the time of COVID-19.
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My guest is Vivek Kaul, with whom I had done an episode in December summing up the year
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We thought things were looking bad, but boy, what I would give to be in December again.
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COVID-19 has ravaged economies throughout the world and has caused pain and misery on
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This pain is not just across space all over the world, but also across time, for the repercussions
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of this crisis will be felt by us way into the future, perhaps even by future generations.
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In all this gloom, I also want to mention a couple of things that you can look forward
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One, Vivek's new book, Bad Money, is out now.
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It deals with the NPMS and takes a closer look at India's banking system.
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And two, Vivek and I are starting a new weekly podcast called Econ Central, in which we will
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chat about the events of the week, demystifying economics and looking at other news through
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the lens of economic thinking.
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That launches later this week, and Vivek and I will tell you about it as this conversation
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But first, a quick commercial break.
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In the last few months, I have spent hundreds if not thousands of hours watching TikTok.
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You might consider it an addiction, and indeed, TikTok always gets my dopamine going.
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I don't call this addiction though, I call it sociological research, or even taking one
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I have designed a new course called TikTok and Indian Society, and I invite you to be
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I believe that TikTok reflects a real India better than any other outlet for news and
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Our mainstream sources of news and entertainment are controlled by elites who just don't get
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small town India, or village India, or poor India, or even young aspirational India.
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Because TikTok has blown away these barriers, and given the means of production to everyone,
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it has empowered people who otherwise did not have a voice or a platform.
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And I am blown away by the talent I see every day on this app.
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And my eyes are also opened to so many shades and nuances of India that I had not noticed
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We see the worst of India in our prejudices and attitudes, but also the best in our creativity
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My course is unique, as it will be conducted, surprise surprise, on WhatsApp, and will involve
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both my thoughts on the many themes I discuss, as well as hundreds of amazing videos that
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I am charging rupees 5000 for this course.
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Do head on over to scene unseen dot i n slash tick tock to enroll for tick tock and Indian
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My new course over at scene unseen dot i n slash tick tock.
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Vivek, welcome to the scene and you unseen.
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Thanks for having me over.
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You know, what is this new course you are planning on tick tock of all the things?
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Yeah, as you know, I've spent hundreds and thousands of hours watching tick tock over
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the last few months and I call it research, not time pass.
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And one of the things I've realized while watching tick tock is that, you know, it's
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really democratized to the creation of entertainment in India.
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Most of the other entertainment that we see around us is controlled by elites like, you
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know, Bollywood is controlled by elites who are disconnected from a lot of reality and
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But tick tock really has gone into small towns and villages all over the country and, you
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know, made it easy for people to make videos and made the means of production available
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And what that has done is that has shown us a side of India, which many of us English
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speaking elites never see.
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And I found that fascinating and I started taking notes on it.
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And I realized that both the worst and the best of India can be reflected in the glimpses
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of culture that we see through tick tock.
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And of course, all the worst of it is there, like the misogyny and the normalization of
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casual violence and all of that.
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But you also see a lot of other things, the, you know, more women expressing themselves
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and expressing their sexuality, much more political dissent in very subtle ways.
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There's great satire, great irony.
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So I thought I should sort of make a structured course where I talk about all the themes that
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I have noticed about it.
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So you know, what you're basically saying is tick tock has done to content what social
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media in a way did to news, you know, the editor as in, as we used to say, only what
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the editor decided ultimately appeared in a newspaper or even on a website.
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But you know, with social media and with people, you know, having a mobile phone and a camera
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in their hands, the tyranny of the editor is dead.
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So you know, so basically, you know, tick tock is another version of that tick tock is another
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But it's beautiful that because even when so, you know, the internet killed the tyranny
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of the editor, social media killed that it was still only available to people with an
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internet connection and by and large people who could speak and communicate in English.
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And I think tick tock is completely broken that I mean, I see so many great videos.
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Videos from small villages and so on and incredible sophistication even in the filmmaking.
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So within the bounds of what you can do, the 15 second videos, the cheap mobile phone cameras,
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they're producing incredible stuff, which reveals so much in me.
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I mean, I'm also on tick tock though, not as much as you are.
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And sometimes it's actually a real pleasure because you know, you do end up laughing at
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the content that they create.
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So I think you're planning to use WhatsApp to sort of deliver this course.
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So, you know, Vivek, you and I joke so often on this show about WhatsApp University.
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And this is probably the first time somebody is using WhatsApp for a course like this in
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And the reason for that is I'll actually be sharing hundreds of videos through the course
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as illustration of the themes that I mean, so that people sort of kind of understand that.
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And these are all, you know, as in tick tock vertical format videos.
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And so you can't do a Zoom class with them where you show hundreds of these vertical
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There's really no other, you can't create YouTube modules.
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The only way to really do the, I mean, WhatsApp is perfect for this because it's meant for
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forwarding videos and all of that.
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And my course will really happen through a WhatsApp group, which is where only the admin
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So it's only me and I'll kind of run the course on that.
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And that should be great fun.
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But moving on from that, and thank you for asking me about this and giving me this extra
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I hope listeners check that out at www.sceneunseen.in slash tick tock.
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But what you and I are as excited about, if not more, in fact, we've been talking about
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it for more than a year, bro, is our own co-hosted show Econ Central.
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It's a weekly half an hour podcast and Vivek, just tell our listeners a little bit more
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Okay, Amit, as we've been discussing and as we've been talking for a while, the idea here
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is to sort of lay out economics, which matters to the common man in a lucid, very simple
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And there are two sort of, you know, facets to it.
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One is the fact that what has happened over the years is as the tyranny of the editor
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has died, a lot of false news, you know, goes around and economics also sort of gets included
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And it becomes very difficult for people to sort of figure out as to what is right and
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So in that sense, the idea behind the show is to take, you know, a particular topic which
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is in the news at that point of time and explain it in a very simple, lucid sort of way.
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The other thing that happens is the fact that, you know, the conventional mainstream media,
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be it TV channels, be it digital publications or newspapers, approach economics in a very
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complex, expert driven sort of a way.
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You know, it's like everyone's talking in code and unless you understand that language
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of that code, you know, you don't understand what is, you know, being communicated.
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So the idea is to break that again and talk economics in simple English and explain to
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people as to how, one, you know, why they should be bothered about it, you know, as
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citizens of this nation and two, how it impacts their daily lives.
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You know, we don't really, most of the times we don't realize that a lot of what is happening
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in the Indian economy and even in the global economy for that matter impacts our lives
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in very, very different ways and we don't even realize it.
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So forget sort of preparing for it.
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We don't even know that it is happening to us.
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I mean, that is the basic idea behind the show.
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So that people who have no background or other, let me put it this way, people who have no
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degree in economics can log in and understand what's going on.
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And what also fascinated me about the show is that when, you know, when people talk about
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economics partly because of the reason you mentioned that mainstream publications use
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so much jargon and they almost restrict it to specialists partly because of that.
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But people think of economics as something arcane that doesn't apply to the world outside
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And that's always been something that's irritated me because I look at economics as a study
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of human behavior and I think it applies to everything.
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The tools of economics, looking at incentives, understanding trade-offs apply to every facet
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What we will also do through our new podcast Econ Central is, you know, talk about regular
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news in India, whether it's in politics or in entertainment or wherever, look at regular
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news through the prism of economic thinking.
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You know, before we begin this particular show, just some information for the listener.
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Typically, when you launch a podcast, you first put a preview podcast out there so that,
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you know, broadcast apps can pick up the RSS feed and like a week after that, you actually
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Episode one will come later this week on Thursday.
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Probably we haven't decided which day of the week to release it.
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But the preview episode is already out.
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The RSS feed has been submitted to all podcast apps.
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So do go over to whatever podcast app you use and look for Econ Central, Econ Central.
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And you can also go to EconCentral.in though that is under construction right now.
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I don't know if it will be ready at the time of the seen unseen episode, but it will be
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ready when the first episode of Econ Central is actually out.
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So you can follow that for updates.
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And in any case, we'll be mentioning that on Twitter.
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Now having caught all the publicity of the various things we are doing out of the way,
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you know, before we start talking about, you know, the Indian economy during COVID, which
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is, you know, what the theme of the show is, tell me a little bit about how you've been
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managing during the lockdown, what's life been like for you?
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Actually, this is a question I get asked often these days and very honestly, my life hasn't
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changed at all because this is the life I normally lead wherein, you know, I work out
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of home, I get up in the morning, I make my breakfast, I write my stuff, I take my nap
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in the afternoon and then I read in the evenings.
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And obviously then, you know, at around 8, 8.30 PM I cook.
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So that is pretty much what has been happening.
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The only difference that has come in is that obviously, you know, I would probably go out
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a couple of times a week and socialize.
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So that has, you know, that is not happening.
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And most of the stuff is being home delivered.
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So other than that, my life is pretty much like the way it used to be.
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Now the interesting thing is what a lot of my friends who have worked out of home in
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the last three months have realized is that working out of home is not easy because one,
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there is no one sitting on your head to sort of do the work that you have to.
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And two, it is very difficult to get into a routine, at least for them because for them,
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you know, you know, you go to office and then you sort of have your cup of coffee, you gossip
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a little and then your computer warms up in the meanwhile and then work starts.
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So all these little things have gone out of the window.
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And obviously, for a lot of men who have been brought up by their mothers not so well, you
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know, it's been a real challenge because when your home help is not coming and your
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wife cannot possibly be doing all the things.
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So for them, it's just, you know, a lot of them have washed utensils in their lives for
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Some of them have discovered cooking.
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I mean, like a friend was telling me the other day, I didn't know paneer banana itna asaan
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So yeah, so that's the but yeah, I mean, so the interesting thing is a lot of people have
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realized that working out of home is not easy.
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And maybe a lot of men appreciate their wives a little bit more all the unpaid labor that
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I mean, you know, hats off to all the working women who used to sort of manage their homes
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I mean, so all the men are now gradually sort of I mean, I don't think it's going to make
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a big change, but yes, a few people here and there have realized that it's very difficult.
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Among the many sort of interesting unseen consequences of the lockdown could be how
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relationships between the sexes change in many different ways, good ways, bad ways.
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And obviously, I share a sentiment because I've kind of been working from home for the
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And for me, this is like not the new normal, it's the old normal, everyone else is sharing
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in it and cribbing about it.
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And I'm like, what are you even talking about?
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And I completely agree with you about the difficulty of self-discipline, though you
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are obviously far better at it than I am because you churn out 83 articles every week.
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And you know, I struggle with whatever little I have to do.
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So you know, let's get to the subject of the show before our listeners throw their smartphones
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where they are listening to this into the sink because they're presumably washing dishes
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while listening to us, which is the most common use case.
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That's when I listen to podcasts, by the way, mostly when I'm in the kitchen.
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Very little walking and running that's been happening, so and commuting, traveling, yeah.
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You can't, you know, you are not spending two hours in your car and sort of listening
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to a podcast and so on.
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So we, you know, the two of us did an episode of The Seen and the Unseen in at the end of
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December, which are linked from the show notes where we spoke about the economy in 2019.
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And you know, we have done various episodes on aspects of the economy in the last three
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We covered, you know, events like demonetization and GST and pakoronomics, a term coined by
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Vivek Kaul, everyone, multiple times.
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And in our episode, The Economy in 2019, while summing up what happened that year in terms
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of economic news, we also laid out a pretty bleak picture of the government's management
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Things have been going downhill for a long time.
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And the COVID lockdown, of course, started at the end of March.
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Can you sort of give me a snapshot of, in your view, how the Indian economy stood on
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the eve of the lockdown?
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Like, you know, how bad were things, were some things improving, were they getting worse?
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We've had many crises which are getting worse, like credit crisis, jobs crisis, etc.
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So, you know, as I have been writing in the last three months, I think we were already
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pretty much into an economic slowdown by the time the COVID-19, you know, came around.
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So I remember, you know, one of the pieces that I wrote for Mint was headlined something
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like the psychology of a slowdown.
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And this was late last year.
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So I think by the end of December, and you know, when we did our year end episode, there
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were many economic indicators which clearly showed that the economy was not doing well.
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I mean, you could look at stuff, you know, everything from car sales to two wheeler sales
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to, you know, investment happening in the economy, credit growth, multiple indicators
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which would have told you that the economy is not doing so well.
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And in fact, recently, the GDP numbers for 2019-20 were released.
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And the funny thing is that the economy grew by 4.2% during the course of the year, which
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was very slow, but if you take out the government's contribution out of it, the economy grew at
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Now what has been happening in the last three years is that the government expenditure has
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been growing at a very fast pace.
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And that has essentially been lifting up the overall economy.
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But this is not something, you know, which can one continue forever and two, it cannot
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lift the economy beyond a point because the government does not form a very large part
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Let me put it this way, when politicians started recognizing COVID-19 as a serious issue, which
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was probably first to second week of March, the Indian economy was already in deep trouble
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And since then, we have only gone downhill like has the rest of the world.
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Yeah, and in fact, you know, just to drive home the point that you're making in our last
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episode, we spoke about what is my pet bugbear really about the measurement of the GDP.
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And this was a debate that happened in the late 1930s and Simon Kuznets, who is known
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as a father of the GDP, said that government spending should not be included in GDP.
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Because then what can happen is it becomes easy if you're using GDP as a measure of growth,
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it becomes easy for the government to game that measure.
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You can just dig a thousand ditches, pay people to dig a thousand ditches, fill them up, dig
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them again, fill them up again.
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And without anything productive being done, the GDP just keeps going up.
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And then you can point to those figures and see how well they are doing.
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But there is a limit to how much you can game them.
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Because first of all, where does the money that the government is spending come from?
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It comes from the people, there is an opportunity cost to it.
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In a great episode I did with Ajay Shah and Vijay Kelkar earlier this year, a few months
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ago, they pointed out that they pointed out something called the marginal cost of government
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funds, government spending, which basically means that for every one rupee that the government
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spends, the cost to GDP growth is equal to that of three rupees, approximately in India.
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It's between two and a half to three and a half, but you can approximate it to that.
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So the cost of every one rupee spent by the government is three rupees in the overall
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That's the opportunity cost.
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So that's again something that you have to consider.
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So even if this metric is inaccurate and is being gamed in this way, that really can't
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continue and we were in bad shape anyway.
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I mean, after all these years of talking of 8% growth, four and a half percent, even with
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government spending, you know, being spoken of as part of GDP is pretty miserable.
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Things have gone wrong.
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I'd also recommend listeners listen to an episode, a link from the show notes, which
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I did with Pooja Mehra about the last decade where she lays out that all of this really
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started in 2011 and we've had a decade of disastrous economic management since.
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And so my question to you here is this, and I don't want to belabor the point of data
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and what metrics we look at to judge how the economy is doing.
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But in the context of COVID, it becomes acute because in many earlier episodes we've lamented
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how, you know, data is so unreliable and what are the different kinds of proxies and metrics
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by which we can talk about the economy.
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In the time of COVID, it seems to me that that has been exacerbated, like early on in
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the lockdown, you wrote a piece about how rail freight prices were indicating what's
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So when someone who covers economics and looks at it as closely as you looks at what is happening
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after COVID, besides, of course, the anecdotal evidence all around us, which are mostly stories
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of great suffering, how do you get a handle on how bad things are?
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So, you know, you just talked extensively about the GDP.
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Now, there are a lot of things which are not right with it, but ultimately it is, it's
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a measure which everyone follows and it's essentially a measure of economic activity.
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So how do you look at economic activity without looking at, let's say the GDP number.
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Now the GDP number comes once every three months, but there are a lot of other parameters
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which one can look at and get a sense of what is happening in the economy.
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And these numbers come out pretty quickly.
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So one of the things that I sort of looked at, you know, this was some time around a
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month back in May was revenue earning rail freight.
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Now it's essentially the amount of freight which is moved by the Indian railways, okay.
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And in April, this came down by close to 35%.
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Now what are the main commodities that the Indian railways moves?
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It moves coal, it moves steel, it moves petroleum, it moves food grains and it moves cement.
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So if you look at railway freight as a whole, the amount of freight moved by them in April
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This after it had already fallen by 14% in March.
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So one of the most important commodity that railway moves across the country is basically
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Now coal movement fell by close to again, 35% to around 34.6 million tons in April after
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having fallen by around 14% in March.
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Now what does this basically indicate?
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Because obviously, you know, coal production has fallen and because of that, less the coal
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But what does it tell us?
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It tells us largely that most factories and companies in India have been shut over the
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last more than a few weeks now and they don't need electricity.
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Now when you don't need electricity, you don't need coal because simply because most of the
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electricity produced in India is thermal electricity.
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So this tells you very, very clearly that most factories have been shut.
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Most offices have been shut thanks to the lockdown.
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Then you have petroleum.
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You know, petroleum movement was also down almost 35% to around 2.3 million tons in April.
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Again explains the lack of demand of petrol and diesel.
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Now the interesting thing is that obviously, you know, this is because people were at their
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homes and they were not moving around.
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Now the more interesting thing is that if people do not consume petrol and diesel, the
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government, the central government does not earn excise duty on petrol and diesel.
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And this excise duty on petrol and diesel during the course of the last few years, you
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know, has been greater than 2 lakh crore.
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Then you look at cement movement.
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So cement movement was down 90%, which tells you that construction activity has basically
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It is also a very good explanation of the fact as to why so many people started walking
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from the bigger cities to their homes, you know, in Eastern UP, Bihar, Jharkhand, Chhattisgarh,
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Odisha, you know, so on and so forth.
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So the only thing, you know, the only commodity in which case the movement went up were basically
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And the food grain movement soared by 135% and this was primarily on account of the distribution
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of extra food grains, which the central government was basically distributing.
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So these grains had to be moved from parts of the country, which had a surplus to other
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So you know, if you looked at just this indicator, it could have told you in a very, very simple
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sort of way that all wasn't well with the Indian economy, you know, obviously, you know,
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common sense tells us in a much simpler way that if everybody is at home and is not going
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out and spending money, obviously there will be a problem in the economy.
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But this is just a, you know, way of thinking where non-GDP data can help us see things
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And this is so fascinating to me that it's almost like a piece of detective work that
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you find out one piece of data and it seems like, okay, what difference does it make?
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But it impacts everybody's life in so many different ways.
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Yeah, in fact, to be very honest, you know, I have been looking at this data for years
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now and it sort of never occurred to me that, I mean, I always knew that this is it's a
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very important data point, but I had somehow never sort of articulated it to myself that,
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you know, one could link it to almost every important aspect of the economy.
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You could link it to food, you could link it to taxes, construction, electricity, you
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know, these are things that we all used to, I mean, like electricity.
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Now without electricity, there is no survival these days.
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And you know, what is also interesting to me, like what you've described about what
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rail freight indicated about everything in the economy and how everything is connected
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is, you know, talking about the economy from a sky high view and, you know, looking at
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all these different aspects of it.
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And now I want to zoom in to individuals, to human beings, to psychology, how they think
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about all this and understanding how that ties into the economy.
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Now you've written many fascinating pieces obviously about how psychology ties in with
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the economy and also, you know, a point you often make is that what is in an individual
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self-interest may not be in society's self-interest and vice versa, which means that we can all
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behave in rational ways as far as spending and saving and going out is concerned.
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And that can harm us all in the aggregate.
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And there's nothing much to do about this.
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And this is possibly more vivid in the time of COVID than in normal times.
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So can you elaborate on this a bit?
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So, you know, this point was basically one of the major contributions of John Maynard
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Keynes in the aftermath of the Great Depression.
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He basically studied the Great Depression and realized as to, you know, why the Great
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Depression became the Great Depression.
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So what he basically suggested was that, you know, at an individual level, incomes drive
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But at an aggregate societal level, it is spending which drives income or to put it
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in a simpler way, one man's spending is basically another man's income.
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So let's sort of dwell a little deeper into this point.
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Let's say you are an employee and you work for a company.
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Let's say you work for an IT company.
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The company pays you a salary and when the company pays you a salary, it may even give
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you e-shops and, you know, you use that money to, you know, buy things.
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I mean, you use that money to party over the weekends.
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You can over a period of time, once you've accumulated a reasonably good amount of money,
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you can use that as a down payment for a car, for a home and so on and so forth.
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So income drives spending at an individual level.
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Nevertheless, you know, the question is where does the company make money from?
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Now the company, this company or any other company essentially makes money when someone
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else spends money to buy their goods or buy the product or buy the services.
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So in case of an IT company, it might be a project, it might be a product or anything
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So essentially, you know, one man's spending is another man's income.
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Now what has happened in case of, you know, in the last few months is that large parts
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of the population are staying at home.
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And when you stay at home, you know, you only buy things which you require for your everyday
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So, I mean, you may buy soap, you may buy toothpaste, you may buy washing powder, cleaning
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liquid, vegetables, bread, butter, so on and so forth.
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I have a feeling you're sharing your personal shopping list with me.
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I mean, it would be anyone's shopping list summit.
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So you don't buy vegetables.
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No, no, of course, because I was just kidding about how poor Vivek is having to do everything
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So anyway, so you do this.
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But when you are at home, you don't go out.
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So you know, you're not spending in restaurants, you're not going to malls, you're not watching
#
movies, you're not buying new clothes and so many other things.
#
Like in my case, for almost two weeks or two months, I did not buy many books.
#
I mean, all the books that I bought were basically bought on Kindle.
#
So obviously, when this happens at the societal level, it impacts the incomes of many other
#
It also impacts many businesses.
#
So businesses, when they have to survive through this pandemic, have a lot of them have fired
#
people, a lot of them have cut salaries, a lot of them have withdrawn new offers and
#
a lot of them have postponed dates of joining of people who are supposed to join.
#
So all of this has an impact on the incomes of people, which in turn has an impact on
#
consumption and which again in turn has an impact on income and which in turn again has
#
an impact on consumption.
#
So this is how the cycle works.
#
Now what also has happened and in fact, you know, this was already happening, you know,
#
I was earlier calling it the psychology of a slowdown and now I'm calling it the psychology
#
Now the difference between a slowdown and a recession is very simple.
#
A slowdown is essentially an economic environment where the economy is growing, but it's growing
#
at a low growth rate, whereas a recession is an environment where the economy contracts
#
for two consecutive quarters.
#
So it is basically a period of six months in total.
#
So we are not there, but we will get there by September.
#
By September, we can officially say that India was in a recession for the first half of 2020-21.
#
But UNESCO may well proclaim it as the best recession in the world.
#
So yeah, which they might for all we know.
#
So what will happen over the next few months and it's already in progress is that all of
#
us will eventually come to know someone who's lost his job or has faced an income cut at
#
his job or, you know, is running a small enterprise, which is not doing well, or is running a small
#
enterprise, which has gone bankrupt, so on and so forth.
#
So basically in a recession, people who are directly impacted by the recession obviously
#
cut down on their consumption.
#
I mean, they don't have any other way out, but people who are not impacted by the recession
#
also cut down on their consumption because they have this great fear of being fired or
#
seeing a drop in their income.
#
So everyone starts sort of preparing for that, you know, bad day, which might come.
#
And when that happens again, you know, spending takes a beating and then, you know, it impacts
#
incomes and then it impacts spending again.
#
And then more people are fired.
#
And you know, this is how, you know, a recession sort of spreads.
#
And I think this is precisely what is happening right now.
#
And it will continue to play out at least for the, you know, for the first half of this
#
And the interesting thing that strikes me about this very profound insight is that, yeah,
#
on the one hand, it's obvious that people who have lost their jobs and people whose
#
businesses have shut down will obviously not be spending more.
#
And therefore, because they are not spending, others are making less income and the vicious
#
But what is also happening is even people who do have their jobs, whose businesses haven't
#
been affected, even they will go a little easy on the spending and they'll be like,
#
So the spending going down is not just because there's a lockdown and people can't go out.
#
It's not just because jobs have been lost or companies are shut down.
#
But even after the lockdown ends, people will go out less.
#
And perhaps, correctly so, perhaps, and not perhaps, but rationally so, they should go
#
out less for the next few months.
#
Is that, if you were to look at what you need to do in order to eat in a restaurant, I mean,
#
the rules that have been put in place, I mean, you would never go out.
#
I mean, you'd rather sit at home and eat.
#
And even otherwise, you know, so the thing is, and even with people who go out as much
#
as they're used to, their discretionary spending, the stuff they don't absolutely need to buy
#
will go down a bit because they'll be more aware that there could be, you know, rainy
#
Not in a literal sense, of course, because rainy days are ongoing as we both of us are
#
In fact, the interesting thing is, and when I first sort of came to know of this, I was
#
quite surprised if you look at, you know, a lot of these analysts, they are also talking
#
about the fact that FMCG companies might see a contraction in revenue this year, which
#
is essentially unheard of.
#
So what that means is that discretionary expenditure will definitely be impacted.
#
But even non-discretionary expenditure will be impacted.
#
And one clear indicator of that is that people are already buying smaller packs of different
#
I mean, that, you know, that news has come around a few weeks back.
#
Oh, that's so interesting and almost so sad, you know, that in all these economic numbers,
#
if you look closely and use your imagination, you also get pictures of individual human
#
suffering and even the way minds cloud over, that you become less optimistic and then that
#
pessimism just sort of reaches out and becomes more numbers because you are spending less,
#
others are earning less and everything is rational.
#
Now, tell me, you've described this vicious…
#
This is, you know, it's time for a poor joke, Amit, so…
#
So you have all this, you know, I tweeted about this a few days back, sir.
#
You have all these be positive wallahs going around, right?
#
People keep telling you, it's time to be positive, be positive.
#
So basically my take is that, you know, all the be positive blood group guys should now
#
become see positive because only if you see positive, can you be positive.
#
So this is like in your zone, Amit, so it's better than the ones you crack.
#
This is adding insult to injury.
#
First you injure me with that terrible joke and then you insult me by saying it's in
#
Your PGs are legendary, you know.
#
So this is also a legendary PGA, sir.
#
You've described this vicious circle really well.
#
How can it be broken in theory or in practice?
#
Like in the past, what has broken such vicious cycles typically?
#
So you know, in the Indian case, we have very little experience of going through a recession.
#
The last full fledged recession was in 1979, which was also the year of the second global
#
oil shock between 1960, 61 to this financial year.
#
I mean, assuming the growth contracts this financial year, India has seen a growth contraction
#
And the last time we saw growth contraction was 40 years back.
#
Even in 1991, 92, when the economy did terribly, we did grow.
#
So there is very little experience of how to get out of a recessionary environment,
#
Now if I were to sort of talk, go back to the Great Depression, because that is by far
#
the best example, countries in the West started coming out of the Great Depression only at
#
the time when they started preparing for the Second World War.
#
Now if you look at the example of the United Kingdom, it was only when they started taking
#
Hitler's threat seriously, and then they started sort of making arms in the southern
#
part of the country, that is when they started coming out of the Great Depression.
#
In the US case, some of it happened when Franklin Roosevelt came up with the New Deal.
#
But then the US also sort of started coming out of the recession only around the time
#
the Second World War started.
#
So the point here is that, and this is what Keynes insight was, and Keynes insight was
#
in an environment where the private part of the economy is not spending, when individuals
#
are not spending, when private corporations are not spending, the government has to become
#
the spender of the last resort, or the government has to become the employer of the last resort.
#
And Keynes also, he was great at rhetoric, and he rhetorically even suggested that the
#
government should essentially pay people to dig holes and fill them up, and the money
#
that they earned doing that, they would go out and spend, and the economy would come
#
Now this is something that, this was an insight which politicians loved and they ran with.
#
Because up until the Second World War, the government used to largely run on balanced
#
They only spent as much as they earned.
#
Now here was an economist saying that it is fine to spend more money than you earn, and
#
politicians loved that insight.
#
But what Keynes had also said was that the government should run surpluses during good
#
years, and then they should use those surpluses during bad years.
#
Now obviously the politicians just took one part of the argument, and they ran with it.
#
Now to sort of talk about this in the Indian context, so right now it is important that
#
the government puts money in the hands of people, and they have done that by putting
#
money in the Jan Dhan accounts of women, they have also brought forward the payments of
#
PM Kisan and stuff like that.
#
But these are very small amounts, okay.
#
Now the large fiscal expansion has been demanded by corporate India, and one gentleman, I think
#
it was one of the builders, who even went on to suggest that the government should spend
#
anywhere from 200 billion dollars to 300 billion dollars, I mean, that's like an astonishingly
#
huge amount of money, which is 200 million dollars would be close to not 10% of the Indian
#
GDP, but around 7-8% of the Indian GDP.
#
So the question is, you know, where does the government get that money from?
#
And especially in an environment where tax collections have totally crashed.
#
So that is, you know, and given the fact that, you know, as we discussed, we were already
#
in a bad shape, so to sort of give you, you know, the last year's budget, the government
#
had hoped to earn close to 24.6 lakh crore in gross tax revenues, okay, the central government.
#
The revised number when the budget for this year was presented in February, the number
#
was then revised to rupees 21.6 lakh crore.
#
What the government finally ended up earning was rupees 20.1 lakh crore.
#
So you know, you started at close to 25 lakh crore and you ended up at 20 lakh crore.
#
That in itself tells you how one is, you know, your assumptions have gone all wrong.
#
And two, it is a reflection of the sad state of the economy because, you know, ultimately
#
only if the economy is doing well, will people consume.
#
So if people will consume, then the government will earn GST, if people will earn money,
#
the government will earn income tax in various ways.
#
And when people consume, companies will produce, so the government will earn excise duty.
#
So when the government, rather when we entered into COVID-19, the government finances were
#
So in that sense, they really couldn't, you know, do what, or they really can't do what
#
Keynes's theory basically suggests.
#
And yeah, so I guess that's the long and the short of it.
#
And I mean, I'll do a lot more detail on this as we go along.
#
So, you know, taking on from this, I have both a quick digression for my listeners and
#
three questions for you, Vivek.
#
The quick digression for my listeners is that, you know, when Vivek was talking about the
#
Great Depression and the conventional thinking behind it that, you know, government spending
#
helped them sort of come out of it, there is a very interesting book that I would highly
#
recommend by the great writer Amity Shlaes called The Forgotten Man, which chronicles
#
those years and would also make you question that conventional point of view.
#
So you should pick that up, I'll link it from the show notes.
#
I have sort of three questions for you.
#
Question one is that when we talk about putting money in the hands of the people, isn't the
#
easiest way to do that, just simply taking less from them, that is, in terms of taxes,
#
that first of all, to begin with, you are taking money from everybody, not just people
#
who pay income tax, by the way, every Indian pays taxes, even the beggar at the traffic
#
signal pays taxes, even your domestic help, they pay taxes when they buy salt or when
#
they buy a sachet of soap.
#
So everyone pays taxes.
#
So what we really do is we take taxes from everyone and then we give some of it back
#
and say, hey, we are putting money in your hands.
#
Why not leave some of it with them?
#
Is that something that makes sense?
#
So, you know, one of the things that happened in September last year was that the government
#
cut the corporate income tax rate majorly.
#
And while I understood the reasoning behind why they did that, they essentially wanted
#
Indian corporates to be able to compete with companies which operate outside India.
#
But I think what they should have actually done at that point of time was cut income
#
tax rates and put more money in the hands of people.
#
Now, the conventional argument against this point is that how many people pay income tax,
#
The entire section of Indian population does not pay income tax, but the point is that,
#
you know, it is the people who pay income tax have a lot of purchasing power in this
#
I mean, they're basically the best of the lot.
#
So when you put money in their hands, the chances that they'll go out and spend that
#
money are a lot better.
#
And as you know, I said earlier, you know, ultimately one man's spending is another man's
#
So that would have had some sort of a multiplier effect on the Indian economy and would have
#
And it would have also helped the government, you know, what you essentially lose out in
#
the form of tax that you collect per individual, you saw more than make up for it in other
#
So when people consume more, your chances of earning goods and services tax goes up.
#
When people consume more, companies produce more, so your chances of earning excise duty
#
You know, so it would have sort of made sense at that point of time to cut the income tax,
#
personal income tax rate, but that wasn't really done now.
#
So one of the pieces I had recently written for the Mint and, you know, in that I had
#
essentially suggested that the government should cut the GST rate on automobiles by
#
I mean, that would be a good chunk that would lead to, you know, prices coming down majorly
#
and the chances of people buying more automobiles at a lower price are significantly better.
#
And again, what the government would have lost in terms of the GST it collects per vehicle,
#
it would have more per unit sale of per vehicle that is sold, it would have more than made
#
up for it in terms of volume.
#
Also what would have happened is that, you know, there would have been this huge multiplier
#
You know, automobile companies don't make everything on their own.
#
I mean, there are auto ancillary units.
#
So you know, like car steerings would probably be made by some other company, tires would
#
come from someone else, steel would come from someone, some other company, rubber would
#
come from some other company, so on and so forth.
#
I mean, I'm not a automobile expert, but you know, this is generally what I understand.
#
So once you get the auto sector going, you also get the auto ancillary sector going.
#
So there are huge what economists call backward linkages.
#
Then you know, the auto ancillary sector employs a lot of contract workers.
#
So that would have helped their incomes would have gone up, you know, vis-a-vis the situation
#
And I mean, then they would have consumed, it would have impacted GST.
#
And so, you know, so this I think is a good way of quickly putting more money into the
#
hands of people and getting a large manufacturing sector going.
#
And the multiplier effects again, will be very decent in this case.
#
But I don't know whether this will, you know, I don't see this happening really.
#
Yeah, my other two questions are kind of related.
#
So I will kind of ask them together that when we talk about putting money in the hands of
#
people and that helping, you know, however we choose to do that, whatever the mechanics
#
So my question is twofold, number one is that will it really help if they don't go out and
#
spend it and partly they may not go out and spend it because they can't because there
#
is still a part lockdown and so on.
#
And partly they may not go out and spend it because they are pessimistic and because there
#
is so to say a mental lockdown and a rational and justified one.
#
That's yeah, in fact, you go with this first and then I'll go to the next one.
#
So I think, you know, it's a very valid point.
#
And I really don't have a straightforward answer for it.
#
But what I can say is that, you know, this is a risk essentially worth taking for the
#
In fact, there's a beautiful line in this book that I read recently called Radical Uncertainty
#
by John K. and Merwin King, both famous British economists.
#
I mean, John K. was one of the most widely read columnists of the Financial Times and,
#
you know, a very well-known economist and Merwin King was the governor of Bank of England.
#
And there is a very, you know, this is a brief line in that book, which says that real governments
#
do not optimize, they cope, OK?
#
And I think this is just the time to do that.
#
You know, you have to sort of take some of these decisions, which, you know, what you
#
call a calculated risk, basically.
#
So I think it's a calculated risk.
#
And anyway, they're not making any money out of, you know, GST and vehicle sales.
#
So this is something that can be tried and, you know, I think it should work.
#
So I think there are no, you know, in economics, that's what makes economics so interesting.
#
And that's why so many economists get it wrong when they forecast things, because, you know,
#
ultimately economics is not something where you can actually carry out an experiment in
#
I mean, it's all out there in the real world.
#
And also, you think probabilistically, so just because you say something has a 55% chance
#
of happening and the other thing happens, that doesn't mean you were wrong.
#
You know, the world is probabilistic and that's how it goes.
#
And that's a lovely quote.
#
And, you know, it reminds me of that old cliche about not letting the perfect be the enemy
#
And it strikes me that one reason that governments can't optimize and have to cope is because
#
of state capacity constraints and all that.
#
What can you do within the bounds of that?
#
You know, and you need to think probabilistically about that.
#
So I think the objection per se that people won't go out and spend seems to me to be to
#
have a certain amount of validity to it.
#
My third question here is the thing, you know, the I'll answer this question in slight detail.
#
See, ultimately, you know, the problem is that a lot of people speak about economics
#
and the solutions it has to offer in a very confident sort of way.
#
But that does not mean that economics has all the solutions, you know, and especially
#
in an Indian case, you know, that the problem is that we have been brought up writing exams
#
where there is a right answer and a wrong answer, right?
#
But life is not like that.
#
You know, there are right answers which can become wrong answers and there are wrong answers
#
which can become right answers.
#
So you know, I mean, I'm just I mean, I won't go into detail here, but if anyone wants to
#
understand what I just said in a little more detail, they should try reading Ram Gopal
#
Verma's book called Guns and Thighs.
#
He explains this very, very beautifully in that book.
#
And the example that he uses is that that of a cousin of his who basically did all the
#
thinking and opened up a liquor shop.
#
And his thinking seemed all right, you know, when when they sort of were thinking about
#
the entire thing, it just seemed like a beautiful thing to do.
#
But when he opened it, it just bombed, whereas Ram Gopal Verma opened a video rental shop
#
without really thinking and it just took off.
#
So the point I'm trying to make here is that, you know, economics does not have all the
#
I mean, and it's just that a lot of economists talk about solutions in a very confident sort
#
And people are looking for solutions.
#
So and this is a complaint that I get regularly on Twitter that aap solution nahi batate hain.
#
I mean, the point is, you know, you know, solution hona bhi toh chahiye.
#
And actually, I must say that all the good economists I know, and many of them have come
#
on the show are actually pretty nuanced.
#
But you are right that there are a lot of, I mean, there are a lot of WhatsApp economists,
#
in fact, who exude so much, especially if you follow, you know, these people on a lot
#
of them on Twitter and a lot of them on TV.
#
You should see an economist, economist, you know, someone who studied economics and, and
#
probably has a PhD or something will always be nuanced.
#
But a financial economist, you know, someone who sort of may have studied economics may
#
not have studied economics, but has is making money out of the stock market, or is making
#
money in some way out of the financial system.
#
He has to be confident about what he says.
#
So the two points to note is that the fee one, the field that he's done well in is actually
#
very different from this field that he's pontificating about.
#
And two, that he might have been lucky in that field, like in the stock market, there's
#
something called the survivorship bias, which often leads to that the other sort of quick
#
point I'd like to add on before I get to that much awaited third question is, you know,
#
one thing that it's easy to do with more certainty than the opposite of it is talk about what
#
can go wrong, what is a bad policy or what is a bad economic decision, like it's very
#
difficult to say right now, how do we come out of this, that assumption that there is
#
some solution which brings us out of this that all problems have a solution, as you
#
pointed out is not true.
#
And perhaps are, you know, multiple choice questions or the right or wrong question answer
#
framework that we are trained to think in a school is responsible for us thinking that
#
But it is possible to point out with great certainty, what is the wrong policy to take,
#
for example, you know, Nehru's great fan, Narendra Modi is, you know, replicating many
#
of Nehru's economic ideas, in fact, he's, you know, leaving aside Nehru's good ideas
#
and replicating the bad ones like import substitution in this whole boycott China nonsense.
#
And that I think any economist can confidently say it's rubbish, it's just going down the
#
wrong path, because we have all the lessons of history to teach us that.
#
But we'll discuss that later, you know, after we take the break and all that, while we are
#
still on the thread of putting money in the hands of people, such a delightful thought.
#
My final question based on that is that one objection that is sometimes raised to that
#
is that, look, you can put money in the hands of people.
#
But what the lockdown has also done is that is disrupted, if not destroyed supply chains
#
of companies throughout the country.
#
And therefore, if there aren't the number of goods and services out there are much less.
#
So even if you put more money in the hands of people, even if they can overcome all the,
#
you know, the psychological barriers, it's just that there are less businesses out there
#
and less things being sold out there, especially in the nondiscretionary space.
#
Yeah, I mean, so again, you know, the answer to this question was will be the same as the
#
I mean, ultimately, there are things that you can try and I mean, if they don't work,
#
I mean, what do you do about it?
#
And this again, you know, this again is also a reflection on our limited state capacity.
#
It is also a reflection on how, you know, how we implement things like, you know, the
#
difference between essential and non-essential, okay.
#
So I find this extremely fascinating, you know, someone should sit and I mean, it would
#
make for a wonderful satire on the Indian economy that, okay, now, I mean, I'll give
#
you a very brief example.
#
What is essential is my kirana shop guy, he's essential, okay.
#
But what is non-essential is the tempo in which stuff will be delivered to him from
#
So how is he going to supply, right?
#
He will eventually run out of stuff and which is precisely what happened in the first few
#
weeks where they tried to figure out the difference between what is essential, what is non-essential
#
and then they tried to issue a pass and then they finally said, okay, let all trucks move
#
Now, you know, so which is how, you know, I mean, so which is also, you know, which
#
is a big problem because, you know, you put money in the hands of people and then at the
#
same time come up with rules and regulations which essentially destroy the supply chain
#
No, and in fact, to add to your example, you know, that can go much further down the line
#
endlessly, for example.
#
I mean, we can keep going on with this.
#
I mean, we stopped it at the second level.
#
So yeah, we stopped it at the second level of the truck.
#
But the point is, if you then decide let the truck go, you know, for many days there were
#
jams on the highway because truck drivers abandoned the trucks because they could not
#
get food to eat because the dhabas were considered inessential and not allowed to operate.
#
So if you really look at the whole circle of the economy, everything is essential in
#
So, you know, today morning there was this WhatsApp forward going around and I mean,
#
it basically showed this bus stand in Bhayander.
#
Bhayander is a suburb of, you know, Mumbai.
#
The line for that bus ran to at least two to three kilometers.
#
So you know, there was a three kilometer line to get onto a bus, okay.
#
So the buses are being run right now, but the trains aren't.
#
And this is when only a limited, very small part of the population has to go to office.
#
So it's very difficult to, you know, shut down, let only parts of the economy operate.
#
I mean, because if you do that, then obviously there will be other problems which will keep
#
cropping up all the time.
#
But if you open it up totally, then obviously there is, you know, there's a huge other problem
#
So which is why I said, you know, economics doesn't have all the solutions or doesn't
#
have solutions all the time.
#
Yeah, I mean, if a planet sized asteroid comes and hits our planet, then what solutions our
#
economy is going to find, the world is a complex place.
#
And at times like, you know, 2020 so much has been happening that the dominant sentiment
#
in the minds of many people must be, hey, give me a break.
#
And guess what, dear listener, we are going to do just that.
#
We are going to give you a break.
#
See you in about 60 seconds.
#
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Welcome back to The Scene and the Unseen, I'm chatting with Vivek Kaul about the Indian
#
economy in the times of COVID.
#
And you know, before the break, you did that thing, you typically do problems, problems,
#
problems, and as they ask you on Twitter, where are the solutions, Mr. Kaul?
#
So I mean, obviously, you and I don't really have any solutions per se, though we can probabilistically
#
point out things that may work and may not work.
#
But when we talk about sort of the different solutions that there are for what the government
#
should do to lessen some of the pain, because this is not a problem you're going to solve.
#
Can you take me through sort of the different options that have been proposed by many?
#
And your personal thoughts on them, for example, recently, the government came out with this
#
rescue package where they said, oh, we will spend 20 lakh crore and, you know, there was
#
much feverish applause and you wrote a very interesting piece, which would, of course,
#
like all your pieces be, which are, you've written about COVID billing from the show
#
notes, where the headline was six reasons why the fiscal package is more about putting
#
people's own money into their hands than actually kickstarting crippled economy.
#
So take me through your thinking on this.
#
So, you know, when, when do editors give such long convoluted headlines?
#
It feels like a very Buzzfeed click baity kind of thing, right?
#
When they obviously don't want to get into any trouble, right?
#
So, you know, a very long headline, which doesn't really mean anything.
#
So basically, you know, what I had written in this piece and another piece that I wrote
#
from, for, for the mint was that, you know, how the government's package was, you know,
#
like the old newspaper trick, which, you know, which, which I learned very early when, once
#
I started working in the media was that, you know, think of the headline first, okay.
#
This is something that all good editors, old editors would tell you that think before you
#
start writing, think of the headline first and then write everything justifying the headline.
#
So the government's 20 lakh crore package was a bit like that.
#
So they first thought of this one big number, large number, which was 20 lakh crore, 10%
#
of the GDP as the Indian GDP is around roughly two lakh crore.
#
And then they went around ensuring that they, everything added up to 20 lakh crore.
#
So first and foremost, it was a lot of people in the media called it a fiscal stimulus called
#
it an economic stimulus, which it largely was not a fiscal stimulus is basically when
#
the government spends more money or it puts money in the hands of people through a tax
#
So let me just give you a few very interesting examples on how the 20 lakh crore number was
#
And by the time they finished adding it up, it was 20.97 lakh crore.
#
So the, you know, the ministry of finance, you know, did really well on that front.
#
So you know, one of the first things that was announced was that the statutory provident
#
fund contribution made both by the employee and the employer will be reduced to 10% of
#
Normally it's 12% of the basic plus DA.
#
So essentially this would add a liquidity support of 6,750 crore.
#
Now what does this mean?
#
What it means is that I, you know, let's say I work, you know, I work for a company, I
#
will contribute less to my PF and that money will come as a part of my salary and that,
#
you know, I will spend in the economy.
#
And then, you know, that is how the 6,750 crore number has been arrived at.
#
Now what has the government got to do with any of this?
#
You know, how can this be a part of any package?
#
I mean, it's my money, instead of investing it into an employee's provident fund, I get
#
that money in my hand and then I do whatever I choose to do with it.
#
Also because I'm getting that money in my hand, I pay a tax on it.
#
Whereas which wouldn't have happened when I invested money in the employee's provident
#
The other fancy move was the government cut the tax deducted at source and the tax collected
#
So if let's say, you know, you have fixed deposits and at the moment the interest you
#
earn on a fixed deposit goes over 10,000 rupees, the bank charges a 10, rather, you know, cuts
#
a 10% TDS tax deducted at source.
#
Now what is tax deducted at source?
#
It is essentially the government establishing an accounting trail.
#
Now if it is cut from 10% to 7.5%, what it means is that you get an extra 2.5% in your
#
hands, but ultimately you have to pay tax, right?
#
I mean, so there is no real, I mean, there's no money being put into your hand.
#
Now this move was expected to add, you know, 50,000 crore to the liquidity of the economy.
#
So my favorite example in this huge manipulation of numbers is something called as the credit
#
link subsidy scheme for the middle income group.
#
Now this is essentially, you know, interest subvention scheme offered on a certain size
#
Now what is an interest subvention scheme?
#
An interest subvention scheme is a scheme in which the government pays a part of the
#
interest that you're paying on the home loan.
#
So in this case, I think there are two parts.
#
In one case, the government pays 3% interest and the other case is it pays 4% interest.
#
Anyway, so that's besides the point.
#
So in this case, the liquidity that is supposed to be added to the system is 70,000 crores.
#
Now what is happening here?
#
What is happening here is that I take on a home loan and I put a down payment of whatever
#
and then the government pays a part of my interest.
#
Now if you look at the government's budget carefully, now this was a scheme which was
#
already there in the budget.
#
It has been there for the last three years.
#
So I don't know why they said that, you know, we are extending it for 2020-21 because when
#
they announced the budget and allocation for this scheme was already there and the total
#
allocation for this scheme in 2020-21 is just 500 crore rupees.
#
So the government is actually spending 500 crore rupees and that 500 crores has essentially
#
become 70,000 crores in the economic package, but that 70,000 crores is largely being spent
#
by people wherein they sort of, you know, take a home loan or make a down payment and
#
Now the interesting thing is that this scheme has been around for three years and in a three
#
year period, it has benefited 2,50,000 people.
#
Whereas this year the government expects it to benefit 3,30,000 people.
#
You know, it just goes, I mean, I find it extremely bizarre that when the economy was
#
in an okay shape over a period of three years, only 2,50,000 people took the benefit of the
#
But when the economy is expected to sort of, you know, get into big trouble this year,
#
the government expects that 3,30,000 people will, you know, take on the benefit of the
#
I mean, it's just beyond bizarre.
#
Having said that, the biggest input into the 20.97 lakh crore package comes from the RBI.
#
So the RBI input is a little over 8 lakh crore and it basically forms around 38% of the economic
#
Now, what is the RBI's input?
#
The RBI's input is the money that the RBI has put into the economy over the last few
#
So one thing that the RBI has done is that it's cut the cash reserve ratio from, I think,
#
Now cash reserve ratio is basically all the banks need to maintain a certain proportion
#
of their deposits with the RBI.
#
So it used to be 4% earlier and it's now down to 3%.
#
So because of that, around 137,000 crore rupees have been released into the financial system.
#
Other than that, the RBI has been buying bonds, it has cut the repo rate and so on and so
#
Now, the interesting thing is that the banks are actually not spending this money.
#
And I mean, I haven't checked the data today, but up until a few days back, more than 4
#
lakh crore that the banks had, 4 lakh crore rupees, were being deposited with the RBI
#
because the banks had no use for that money.
#
So what that essentially means is that RBI is actually not adding liquidity to the system,
#
but is taking it out of the system, because banks are not, I mean, people are not borrowing,
#
so banks are not lending.
#
So in that sense, instead of the 8 lakh crore number, the liquidity number, which was added
#
to the 21 lakh crore package, it had to be a negative entry of, you know, 4 to 5 lakh
#
I mean, I'm just taking the government's math a little forward.
#
So the point is, you know, a bulk of this so-called package was nothing but, you know,
#
what we would call a good forward on WhatsApp University.
#
Having said that, there were a few good points to it as well.
#
One of the things that the government did pretty quickly was when they decided to put,
#
you know, 500 rupees each for a period of three months into the accounts of all women
#
Jan Dhan account holders.
#
Then they also decided to increase the allocation to Nariga, the Mahatma Gandhi National Rural
#
Employment Guarantee Scheme from around, I think it was 61,000 crore to more than 1 lakh
#
There was also, you know, extra food was distributed through the public distribution system.
#
So there were a few genuine, you know, parts to the package, but a lot of it was just simply
#
I mean, as I said at the very beginning, it was, you know, think of the headline first.
#
So the Prime Minister thought of a nice, you know, good headline and the Ministry of Finance
#
then worked on justifying that headline.
#
So I have two digressive observations and one digressive question.
#
And I should point out that actually if I wasn't being digressive, I would be transgressive
#
of the custom of the scene and the unseen where being digressive is common.
#
One observation, of course, is that this sort of advice that editors sometimes give that
#
think of the headline first and write the piece is actually a hack to sort of defeat
#
the mental block of how do you structure it or what do you do.
#
And that typically as an editor, I would frown upon people who have decided what a piece
#
is about before they start reading it or writing it, because it means you made up your mind
#
and you're just going to, you know, the confirmation bias comes into play and you're just going
#
to do everything that supports the conclusion you've already made.
#
But of course, we know that.
#
And can I just interrupt you here once?
#
So I, you know, just I'm just taking your point forward.
#
You know, I think as when you start working in journalism, it's probably good advice.
#
But as you go along and I'm talking from my experience, I think I find the concept of
#
a headline very, very limiting now, because, you know, sometimes the headline doesn't,
#
it just can't say what you have said in, let's say, a 2000 word piece or even an 800 900
#
piece can be pretty nuanced.
#
So I find the concept of a headline very, very limiting now, because the headline can
#
just say, you know, it can just give you one point, but there might be, you know, many
#
points that you're making in that piece itself.
#
So well, you know, as an editor, I would say that if there's a good editor, then the headline
#
can communicate some of the nuance or at least the fact that there is nuance, but how many
#
good editors are there?
#
So by and large, I know that most, there are so many headlines that are given by editors
#
for pieces we write, which just completely sort of disappoint my, I mean, I mean, I agree
#
with what you're saying, but you know, I'm saying something which is slightly different.
#
What I'm saying is that, you know, when, when I write, so I see, I write pieces of all sizes,
#
you know, from 500 words to 3000, 4000 words.
#
So if I'm writing something of, you know, which is like, let's say 400, 500 words in
#
length, then the headline works pretty well.
#
I mean, I'm not, there's no problem at all, but the moment I write a long piece, I find
#
the concept of a headline very, very limiting because even a very good editor cannot really,
#
I mean, it's, it's just very limiting, I mean, because you know, the headline typically ends
#
up saying, you know, one or two things, whereas a long essay may not be just about one or
#
That's a digression from a digression.
#
I won't get into that, but I will assure our listeners that in our forthcoming weekly podcast,
#
Econ Central, there will be no headlines.
#
And also, you know, and on that headline point that because that can sometimes be a bad practice
#
for a journalist, it can also be a bad practice for a government, as in this case, my second
#
digression would be that, you know, we keep lamenting the rise of WhatsApp economics and
#
the way these narratives are spread through WhatsApp and all that.
#
And you know, I have been saying forever that this government doesn't care about governance.
#
But there is one sense, if one may be contrarian, in which optics is useful and optics can change
#
reality, which is, as we spoke in the first part of the show, that, you know, the pessimism
#
and the kind of mindset that times are very hard and we must not spend can actually affect
#
the economy is rational at an individual level, but it can affect the economy.
#
And if you constantly have narratives spread out there that everything is sunny and everything
#
is great and go out and spend, then who knows, you know, that might go a little way towards
#
making people a little less pessimistic.
#
When the financial crisis of 2008 broke out, this is precisely what George Bush told the
#
I mean, you know, go to Disneyland and then spend money.
#
And my digressive question now is before we get back to various solutions that have been
#
proposed for what the government can do, various directions rather, I want to take a digression
#
to ask about a topic on which you and I have done an episode together.
#
One of the first times I think you came on the scene and the unseen and which you just
#
mentioned, which is real estate, where you spoke about how one of the packages dealt
#
with the interest on housing loans and so on.
#
And the first thought that entered my mind was what housing loans, bro, because the question
#
that we examined in that past episode, which will be linked from the show notes, was that
#
the economy is so bad and demand for housing has gone down.
#
Typically, when demand for something goes down, you know, prices reflect that and prices
#
go down, but the prices weren't going down then.
#
And they don't seem to be going down now.
#
So can you briefly, you know, for the benefit of listeners who haven't heard that episode
#
and even you might have further insights since the time we recorded that talk about what
#
the hell is happening there?
#
Nobody is buying, but the prices remain high.
#
How does that make sense?
#
I think I wrote about this recently somewhere and I don't remember where, but what essentially
#
has happened to real estate is that one, that there is no demand, but there is no supply
#
And I mean, I'm talking in very, very general terms here, right?
#
So why is there no supply?
#
Because you know, a lot of people who bought real estate as an investment, and I'm talking
#
about the secondary market here, not the primary market, you know, secondary market where,
#
you know, when an individual buys from another individual.
#
So when it comes to that market, there are, you know, many people who have bought homes
#
over the years and there is a price fixed in their heads.
#
It's like the anchoring effect that, you know, behavioral economics talk about and they want
#
And because they want that price and they're not going to get it.
#
So there's no supply and there's no supply and there's no demand.
#
It's a sort of a very unique situation, which economists normally don't talk about.
#
But that's a secondary market, right?
#
I mean, what percentage of the overall market is this?
#
So, you know, in the primary market, what happens is that let's say a builder builds
#
a building and he sells the initial homes at a certain price.
#
Now, if he starts cutting price after he stole those initial, let's say 20, 25% of the homes
#
in that building, it doesn't go down well with the people who have already bought it.
#
And it spoils his narrative as well, you know, but what is happening now, at least in
#
Bombay, I mean, and I've spoken to a couple of guys about this, is that builders are willing
#
to cut prices off the record.
#
So it essentially depends on how much money they need at a certain point of time.
#
I mean, how desperate they are.
#
And if you sort of, and at the, if you look at, and, and, and, and in, you know, central
#
Mumbai, where I live, apartments are extremely expensive, five crore and upwards.
#
But there have been examples of, you know, apartments, which used to cost five crore
#
have gone anywhere between three and a half to four crore, which is a huge, if you look
#
at it, which is, it's a reasonably good price drop of almost 20 to 30%.
#
Obviously, you know, the, the problem in India is, and again, this is something I've written
#
about extensively, is that there is no real estate price, which is available directly
#
to all of us in the open market.
#
So let's say, you know, you stay in Warsaw and you want to buy a house in Warsaw.
#
You want to buy a two BHK in Warsaw in an old, in a, in a, let's say a building, which
#
So what is the price, unless you sort of call up a broker and then you talk to five brokers
#
and, and then you start getting a certain sense of price.
#
And even then you're not sure as to whether you're, you know, whether you're getting the
#
So that is a huge problem because ultimately, if there is no market price, how does the
#
So that remains a huge problem.
#
And also what has happened in, you know, I mean, I have some sympathy for builders also
#
now that what has happened over the years is that the one, the land prices are atrociously
#
high and to the kind of charges that state governments, you know, have put on every real
#
estate permission has basically killed the market.
#
I mean, it's, it's again, you know, in their greed to earn more and more money from every
#
project they have ended up killing the real estate market.
#
So it's not just black money and builders and which are to be blamed.
#
It is also politicians who one is, I mean, and I'm talking about the money that the state
#
government makes, not the bribes that get paid.
#
So the money that the state governments have tried to make from real estate is just astonishingly
#
huge and that has also ended up killing the market.
#
Very, very interestingly, Piyush Goyal, I mean, there was a video of the minister going
#
around wherein he is seen asking the real estate industry to cut prices.
#
Now the point is, I mean, it's okay, I mean, coming from a minister, that's fine.
#
But you know, ultimately there is something that the government also needs to do.
#
So one of the simple things they can do is that in order to revive the market, the stamp
#
duty or that needs to be paid on every sale can be cut dramatically for the next couple
#
I mean, I know it's not a huge, it varies from five to 7%.
#
But then, I mean, you know, when the pricing is, you know, let's say even on a 50 lakh
#
apartment, 2%, 3% cut has a, you know, it, it leaves the recently reasonably good amount
#
in the hands of the prospective buyer.
#
So there are a lot of things that in order to get the real estate market going again,
#
I mean, obviously a lot of things need to happen at the level of the builders because
#
the trust that the buyers had in them has completely broken down because a lot of them
#
sold apartments and disappeared.
#
A lot of them did not deliver on time.
#
And at the other level, the state governments need to be reasonable about the kind of money
#
they hope to earn from real estate.
#
And I think another measure that the government has is that, you know, they have a law by
#
which whatever their valuation of a property is, which is a fixed point, if the buyer pays
#
below that, they have to pay tax on the assumption that they paid the rest, which is supposedly
#
to cut down the use of black money.
#
But the effect of that is that now prices cannot fall below that.
#
It's almost as if the government has set a floor below.
#
It's not that the prices can't.
#
What is happening now in some of the larger markets is that what you're talking about
#
is the Ready Reckoner rate.
#
So Ready Reckoner rate is the rate on which you need to pay stamp duty.
#
Now in many large cities, the market price is actually lower than the rate of the Ready
#
Now what happens is in that case, the, you know, the difference between the market price
#
and the Ready Reckoner rate gets added onto your income and you need to pay tax on that
#
What that does is it just, you know, the transactions in the market come to a complete standstill.
#
So what is important here is that the Ready Reckoner needs to keep pace with the market
#
price, which does not happen.
#
Or maybe there doesn't need to be a Ready Reckoner for all those people who have watched
#
Bollywood films and look at builders as, you know, evil people, villains, kindly note that
#
we are all victims of the rapacious state.
#
And I should also say that it's again a broader philosophical point, but I think it needs
#
You know, when you, when you look at a real estate in India, there are very few big builders,
#
And they specialize in a particular part of the country, like BLF is a Gurgaon Delhi builder.
#
It tried coming to Mumbai, flopped, it tried going to Bangalore, flopped.
#
In Mumbai, there are builders who operate in specific parts of the town.
#
So then you have Rizvi builders in Bandra, you have Oberoi in Gurgaon, you know, you
#
have Godrej in Vikhroli.
#
So the point is that, you know, the regulatory system that you need to manage in order to
#
be a builder is so complicated that you can only specialize in a very small part of the
#
And that also, I mean, what that does is obviously it takes economies of scale out of the equation
#
So, you know, if you had a builder, forget a pan India builder.
#
I mean, even if you had a pan Maharashtra builder per se, I mean, that would have some,
#
you know, he would have a much better negotiating power when it came to construction of homes.
#
So all that goes out of the equation.
#
And you keep talking about builders and buying homes and all of that.
#
And I, as you were saying that I was thinking to myself, bas kar pagle rolayega kya.
#
The irony is, I just keep talking, you know, I've never bought a...
#
That's what I was saying that, you know, I would like to kind of inform all our listeners
#
that both Vivek and I live in rented houses, we cannot afford to actually own our own houses
#
either in the places we live or any other place for that matter.
#
Moving on to the sort of directions which people often propose for what the government
#
And, you know, there's borrowing money, printing money, the RBI doing this and that and blah,
#
Take me a little bit through some of them.
#
I mean, let's start with, it's almost become fashionable now to say, hey, the government
#
should just print money.
#
And you know, just on the face of it, that sounds absurd to me because we know that,
#
you know, if you print money, you increase the money supply and that leads to inflation
#
and that is a tax on the poor.
#
And I just want to break it down in simple terms for people who may not have followed
#
or studied that connection in the past, that if you print money, you have more money chasing
#
the same number of goods and services.
#
And therefore, naturally, their price goes up.
#
You know, it is disproportionately hard on them.
#
Maybe the middle class can manage if, you know, a soap that was 10 rupees becomes 11
#
rupees, which is why you sort of need.
#
You can't just print money and spend money indiscriminately, otherwise that would be
#
a solution to everything.
#
Now, one of the things that people who are now saying print money is that we need money
#
And this is one solution.
#
And hey, inflation won't happen because anyway, people are not going to spend now and all
#
So, I would say that in the long run, at some point or the other, it will still happen even
#
if you, you know, have a flat curve now to go, you use that popular phrase of these times.
#
So, tell me a little bit about what the thinking is behind printing money, what the nuances
#
are and what are your personal thoughts on this?
#
I mean, this is a question that I have been constantly thinking about over the last three
#
And in my quest to understand it, there are, you know, two things that I read, I found
#
One is a book by a gentleman called Randall Ray, and he has written this book called Modern
#
Money Theory, Primer on Macroeconomics for Sovereign Monetary Systems.
#
It's not a very easy book to read, but I mean, in case you are interested in this entire,
#
you know, people who essentially support money printing, you know, this is the book to read.
#
Then there's obviously this long document that Dr. Raghuram Rajan wrote that was also
#
So, I mean, I'm sort of, you know, I'm still thinking about it, but Randall Ray's book
#
was a huge eye-opener, and so this is again, you know, he comes from this new macroeconomic
#
school called the Modern Monetary Theory.
#
And the Modern Monetary Theory essentially, you know, starts with the argument or rather
#
with the question that why do people accept paper money?
#
Now, the conventional answer for that has always been that, you know, you accept paper
#
money because, you know, everyone else accepts it, right?
#
But the Modern Monetary Theory guys don't agree with that answer.
#
And their answer is, you know, it's slightly more nuanced.
#
And I think it's important that we sort of go through this, and I'll sort of quote small
#
portions out of Ray's book.
#
So he says that the typical answer provided in textbooks is that you will accept a national
#
currency because you know that others will accept it.
#
In other words, it is accepted because it is accepted.
#
The typical explanation this relies on an infinite regress.
#
John accepts it because he thinks Mary will accept it, and she accepted it because she
#
thinks Walmart will take it.
#
So I accept a dollar because I think I can pass it along to dupe some dope, is what Ray
#
So what the Modern Monetary Theory guys say is that people accept a national currency
#
because the government allows them to pay tax in that currency.
#
So that is how they sort of legalize paper money.
#
And so that's their argument.
#
Now, what they go on to say is that in developed nations where the government forms a reasonably
#
large proportion of the economy, the population is willing to accept more domestic currency
#
than what is needed for tax payments.
#
The normal case, and I mean, I'm quoting out of the book, the normal case, let us say in
#
the United States or the United Kingdom or Japan, is that anything for sale domestically
#
is for sale in domestic currency.
#
These sovereign governments never find that they cannot buy something by issuing their
#
So the conclusion that they draw from this is that in developed nations, money printing
#
can happen and it does not necessarily lead to inflation.
#
Having said that, even Ray acknowledges that you have to be careful that these principles
#
do not imply that the government ought to spend without constraint.
#
These principles also do not deny that too much spending by the government would be inflationary.
#
So there is a certain school of thought which believes in money printing up to a certain
#
extent, but they also don't believe in the fact that it can go on endlessly or that there
#
won't be any problems with it.
#
Now let's concentrate on the Indian case.
#
Now, in the Indian case, the first problem is that the government forms a very, not a
#
very small part, but not a very big part of the Indian economy.
#
So it sort of prints money and that leads to inflation.
#
Chances are people will start moving away from the Indian rupee.
#
And that is something that happened post 2008 when a significantly large proportion of the
#
Indian population bought a lot of gold.
#
And it was all essentially linked with the government spending too much money and people
#
Now, basically what works in a developed economy need not necessarily work in a developing
#
economy like India is, you know, in India, there is a general tendency to avoid paying
#
Hence, you know, unlike the developed countries, the Indian government cannot print money and
#
spend it in the same way as governments in most developed nations can.
#
An excellent example here is that of the US dollar.
#
In February 26th and I think May 22nd, the US Federal Reserve has printed close to $3
#
So basically when they started printing money, their balance sheet size was around $4.2 trillion
#
and now their balance sheet size is close to $7.2 trillion.
#
So they print dollars and they pump that money into the financial system by buying bonds.
#
And the idea is obviously to drive down interest rates so that people consume more money.
#
Now, the point that you need to understand here is that the US dollar is the international
#
It is the international trading currency.
#
It is also a safe haven, right?
#
So whenever there is a crisis in any part of the world, money moves from different parts
#
of the world and it goes to the US.
#
So there is a great demand for the US dollar.
#
In fact, one of the interesting stories that I would like to recount here is that in August
#
2011, when the SNP downgraded the AAA rating of US dollar, money moved from all parts of
#
the world to the US dollar.
#
And that was the irony of it all.
#
So people like holding to the US dollar and to a lesser degree.
#
This is also true about the British pound, the Japanese yen, the euros and the Canadian
#
and the Australian dollars.
#
The same is not true about the Indian rupee.
#
No one really, you know, beyond a point, people do not want to hold the Indian rupee.
#
So what will happen is that if there is even, you know, some sense of the RBI printing money
#
and handing it directly to the government, the foreign money will all start moving out
#
And, you know, when that happens, there will be great pressure on the rupee.
#
Your bond yields will sort of go up dramatically and generally the macroeconomic environment
#
So it's not really a great idea for India to print money.
#
Also, you know, it's worth remembering here that the RBI used to sort of monetize the
#
central government deficit as late as 1997.
#
So what that meant was that if the fiscal deficit of the government went beyond a certain
#
level, the RBI would just print, you know, money and bring down the fiscal deficit.
#
But since in 1997, the RBI entered into agreement with the government and it doesn't happen
#
And because of that, what has happened is that, you know, interest rates sort of went
#
up over the years and people actually saved a lot of money and that led to investments
#
and that, you know, helped the economy at large.
#
So if the government prints money, you know, you're essentially starting to question the
#
structure that was put in place and that has worked well over the years.
#
So this is, and then there's a beautiful argument that I think Raghuram Rajan made in his, in
#
the brief paper that he wrote, and this is how he put it.
#
So let's say the RBI prints money, okay, and hands it over to the government now.
#
So basically the money goes into the government account and then the government spends the
#
Now, when the government spends the money on something, you know, incomes of people
#
go up and money comes into their hands and then they go and spend that money.
#
And so that money lands up with some, you know, shopkeepers all over the country.
#
And given that, you know, in an environment where people are not willing to spend, that
#
money ultimately comes back to the banks, okay.
#
And banks are not able to lend that money and then they deposit the money with the RBI
#
and the RBI pays them interest on the money that they deposit with it.
#
And that rate of interest is called the reverse repo rate, okay.
#
So essentially what will happen is that if the government prints and pumps money into
#
the economy, the velocity of money is so low at this point of time that money will not
#
change hands and it will ultimately end up with the RBI and the RBI will end up paying
#
interest on the printed money.
#
And if the RBI ends up paying interest on printed money, it obviously earns less money
#
during the course of the year and then it gives a lower dividend to the government,
#
Now, banks also lose out on money because if the government was financing its fiscal
#
deficit through, you know, by issuing bonds, the banks would have earned a higher rate
#
of interest than what they would earn by depositing money into with the RBI at the reverse repo
#
So there are a lot of these interesting points which, you know, a lot of people who believe
#
in the modern monetary theory either do not understand or they don't talk about it.
#
But if you read up guys who actually, you know, who believe in modern monetary theory,
#
they offer all these reasons very, very clearly.
#
Yeah, and it kind of strikes me as fairly amusing that first the RBI prints money and
#
then it pays interest on the same money, you know, the seen and the unseen right there.
#
And you know, I will, of course, endorse your conclusion of saying that printing money is
#
So something works in developed countries doesn't mean it will work in developing countries.
#
But I will also add to that that I'm not even sure it can work in developed countries.
#
The jury is out on that.
#
This is just one theory among many.
#
So see, I'll tell you why modern monetary theory has picked up in the last, at least
#
in the last 12-13 years, you know.
#
So all the central banks, the western central banks have printed a lot of money, but that
#
has not led to conventional consumer price inflation, okay.
#
So which is why the MMT wallahs are bullish right now and sort of they have a market.
#
But what they forget is that the reason that there has been very little consumer price
#
inflation is because China has become the factory of the world, okay.
#
And they have really, you know, increased the productivity and driven down prices globally.
#
The second thing what they don't talk about is the fact that even though there has been
#
no consumer price inflation, there has been huge asset inflation all across the world.
#
I mean, you know, stock markets have been going up for years without company earnings
#
I mean, if you look at the Indian market in the last eight years, price has gone up at
#
a much faster rate than the earnings.
#
So and the gap keeps increasing every year.
#
So obviously there is inflation, but it's just that it is not conventional consumer
#
It is inflation which is reflected in the assets that you, you know, that you buy all
#
So yeah, and they're both great points and to sort of add to the first point, you know,
#
of consumer price inflation not being reflected because China is sort of the factory of the
#
We also don't see the counterfactual if these governments hadn't printed so much money,
#
what prices have been lower, even lower, we simply don't know the counterfactual.
#
And therefore I find all of this inflation is a very individual thing, I mean, it depends
#
on what exactly your consumer basket is at any point of time.
#
I mean, if you have kids, they go to a good school, I mean, you have a pretty good rate
#
of inflation because school fee, you know, goes up every year, the cost of educating
#
a child, all the activities that come with it.
#
I mean, these days it's not just enough to send your kid to school and then forget about
#
I mean, there are 10 other things that he or she needs to be a part of.
#
A fascinating example to come up in a discussion between two people who don't have kids.
#
Let's get judgmental about the entire thing.
#
So let's kind of move on from, you know, one direction that it is often proposed the government
#
can go in, which is printing money to another one, which is borrowing money.
#
Tell me a little bit about the pros and cons of that approach and what is the thinking
#
Okay, you know, when the government borrows money, the good thing is that it is setting
#
a sort of a benchmark interest rate for the entire financial system, right?
#
Because the government borrows at the lowest rate, you know, the lending to the government
#
is the least risky form of lending on most days.
#
So that is one good thing that it is borrowing at a rate, which the market is sort of deciding
#
Now, there are multiple problems with borrowing as well.
#
So the first problem is if you borrow too much and again, you know, this is why a lot
#
of people recommend money printing is when you borrow too much as a government, you crowd
#
out the private borrowers, right?
#
So when you crowd out the private borrowers, the interest rate in the financial system
#
So which is why a lot of economists right now have been saying that, you know, the government
#
should print money and they should monetize and this and that.
#
In fact, interestingly, it is it's not that RBI is not printing money and not monetizing
#
the fiscal deficit, but they're not doing so directly.
#
So what they do is, you know, there are primary dealers, which basically create the market
#
I mean, they primarily so the RBI is using these primary dealers to buy government bonds.
#
So the market has an indication that the RBI is buying bonds, but no one can say very,
#
very clearly that the RBI is.
#
But there are, I think, at least two central bank governors, Lee Subha Rao and Raghuram
#
Rajan, who have both gone on record to say that the RBI is printing money and monetizing
#
a certain part of the deficit, though it is doing so indirectly and which is good because
#
when you're doing it indirectly, at least you are paying the market rate of interest
#
Now, the problem is when you borrow more, one is the crowding out part where the interest
#
You know, right now, I don't think that is much of an issue because the private sector
#
is really not into borrowing right now.
#
The other thing that happens is that the rating agencies tend to follow the debt to GDP ratio
#
while deciding on the rate.
#
Now in an environment where your GDP is contracting and your debt is going up.
#
So when the debt to GDP ratio goes beyond a certain level, then there is a cut in the
#
Right now, India is just barely investment grade, one cut and we become non-investment.
#
And if that happens, a lot of serious foreign money, pension fund money and all that will
#
move out both of the Indian bond market as well as the Indian stock market, which will
#
create problems for everyone.
#
But having said that, the thing here is that I think the lesser evil right now is to borrow
#
money than to print money because the government really doesn't have a choice.
#
You know, the tax collections have totally collapsed.
#
I mean, if you look at the April numbers of the central government, the tax collections
#
are down by around 44 percent, GST collections have collapsed 87 percent to around 5934 crore
#
if I remember the number correctly.
#
So that's the lesser evil right now.
#
Having said that, OK, there are other repercussions to the government not borrowing more money,
#
but the fiscal deficit going up.
#
And this is important to explain because, you know, as we said at the very beginning
#
that the economics has, it seems to operate at a very, very high level, but it has impacts
#
And a lot of us don't understand those impacts.
#
So look at the fact that the fiscal deficits of the state governments as well as central
#
governments will go up this year, right, because they are not earning as much tax as they had
#
Now, the repercussions of that can be seen immediately.
#
Now, look at the fact that the government has decided not to pay the increase in dearness
#
allowance as well as dearness reliefs for the salaried government employees as well
#
as the retired government employees up until July 2021.
#
So that one estimate suggested would lead to a saving of around 38000 crore.
#
This is the central government.
#
A lot of state governments have followed the central government.
#
And if I guess all state governments follow the central government, that saves another
#
Now, this is money that the government employees would have earned, but they did not.
#
Now, government employees are one sort of class of employees who do not feel the pain
#
of slow economic growth much.
#
OK, but this time they are.
#
The second thing is the price of petrol and diesel, you know, even though, you know, between
#
I think in January, the price of crude oil was around 65 dollars.
#
Currently, it's around 40.
#
But the price of petrol and diesel is still what it was in January.
#
So which is the reason for that is that the excise duty that the central government charges
#
and the sales tax that the state government charges, both of them have sort of been ramped
#
So obviously, you and I are paying for that, right.
#
The third thing is when the RBI has printed and pumped a lot of money into the financial
#
system that has led to the fixed deposit interest rates coming down.
#
In fact, I was very, very surprised while writing a piece a couple of days back that
#
a two year fixed deposit for Kotak Mahindra Bank pays you just 4.75 percent per year.
#
And in fact, the rate of interest was even lower than that of the State Bank of India,
#
which was normally the State Bank of India, which sets the benchmark.
#
So interest rates on fixed deposits have come down.
#
Obviously, you and I will have to pay for that.
#
What will also happen is that the interest rates on small savings schemes will, you know,
#
automatically come down in the months to come.
#
So, you know, so this is it's not like only the government gets impacted or only the companies
#
I mean, you and I also get impacted through all these things.
#
And if the government sort of, you know, decides to start printing money, there is extreme
#
danger that money will move out of the stock market.
#
And it's essentially foreign money and SIP money, which has kept the stock market going.
#
So if the foreign money goes out, it's only the SIP money which is left, which, you know,
#
brings me to another digression, which is something that, you know, people have been
#
baffled about for the last few years, in fact, that the economy keeps going down and the
#
stock market keeps going up.
#
So in a nutshell, I have an explanation for that.
#
And this is again something I realized only recently.
#
In fact, in the last three years, the stock market has primarily been driven by the SIP
#
So it's the SIP investors who bring in money, the market goes up, more SIP investors come
#
in and it's a perfect what you call a naturally occurring Ponzi scheme.
#
And I should point out here to all our listeners that one of the very popular episodes that
#
Vivek and I have done together is on Ponzi schemes that will be linked from the show
#
You will find much to relate to when you listen to that and think of the modern world in which
#
we live, especially the way the state operates.
#
I just wanted to make one last point.
#
So all this essentially, you know, comes back to the fact that we have been in a mess before
#
COVID because if we had not been in a mess before COVID, we would have had, you know,
#
still some tax inflows coming in.
#
But because we were already in a mess, this is sort of, you know, that has accentuated
#
So here's sort of one question, which is that we have been discussing the various ways in
#
which governments can raise money, which is they can print it or borrow it or just announce
#
on WhatsApp that they have it.
#
But whatever the government does to get money, once it has it, what should it do with it?
#
You know, when you consider the unseen effects of all kinds of spending that it can do, including
#
of course, the unseen effect of what the money could have achieved had it been left with
#
the people that it's been taken from, whatever percentage of that is tax.
#
But apart from that, what should they actually do with it?
#
What is a sensible thing to do here?
#
Should we not cut spending in many areas where we spend too much and what are the areas in
#
which we need to pump money?
#
I think it is already happening.
#
I mean, if you read the newspapers carefully, I think most of the major projects have been
#
put on hold and they don't have the money to do anything else.
#
So right now, you know, most of the money is going towards tackling COVID-19.
#
So I think one of the things that I suggested in the first piece that I wrote on what the
#
government can do to tackle COVID-19, I mean, I've written many pieces since then, was the
#
fact that money needs to be put into the hands of people, right?
#
So the government has essentially put 1500 rupees over a period of three months into
#
the hands of female Jan Dhan account holders.
#
So I mean, their number is around 20 crore, whereas the total Jan Dhan accounts amount
#
I think this is not the time to sort of differentiate between, you know, man and woman and money
#
should have been put into all Jan Dhan accounts.
#
And this is something I think which needs to continue through the course of this year.
#
Now people will come around and tell you, what is 500 rupees?
#
But then again, at the end of the day, some money is better than no money, right?
#
And the government cannot, I mean, obviously there are limitations, it can only do things
#
within a certain limit.
#
And given that, I think if it has the money, the thing it needs to do right now is to sort
#
of put more and more money in the hands of people.
#
And you know, I mean, people will say, okay, but what if they save it?
#
And I mean, that's fine.
#
I mean, even if they save it, it will be there for them to spend at a certain point of time.
#
I mean, that I think is the only thing that will work right now.
#
And so obviously the problem is targeting.
#
Now, you know, a lot of people have suggested that the government should put, I think I
#
was reading a comment somewhere, one of these business guys said that 5,000 rupees should
#
be put into the accounts of all migrants.
#
But how do you identify a migrant, right?
#
So this is also the time to sort of build slightly more robust systems where better
#
targeting can be carried out.
#
Now the problem again with that is, you know, you go back to IT security and you know, all
#
those issues start to privacy and all those issues start to crop up.
#
So basically, you know, the state capacity in India is very, very limited.
#
And because we at the government wants to do way too many things, which it shouldn't
#
be doing, it does not end up doing those things that it should be doing well.
#
This is a good time to tackle that.
#
And one thing that can easily be done is that the government owns a tremendous amount of
#
And this is not, you know, Rajesh Jain's version of where he suggests everything should
#
But you know, there is a lot of land with the government and public sector enterprises
#
and this land can easily be sold, land prices can be brought down, real estate prices can
#
And, you know, we talked at the end in the beginning about a GST rate cut essentially
#
helping the automobile industry, right?
#
Because the automobile industry has many backward and forward linkages.
#
The real estate sector has 250 forward and backward linkages.
#
So what that essentially means is that if the real estate sector starts to do well,
#
there are 250 other sectors which have the potential to do well.
#
I mean, you know, so obviously, you know, you would need sand, you will need cement,
#
you will need wood, you will need glass to sort of build a home.
#
And then once a home is being bought, people will have to furnish it.
#
In order to buy a home, people will need a bank loan.
#
So I think it's very, very important that, you know, one is to address the post-Covid
#
economic scenario and also to sort of cash in on India's so-called demographic dividend
#
that we get a real estate sector, right?
#
And this is the opportunity to do it.
#
So I have three digressions, the third of which will lead to a question.
#
And hopefully we can avoid further digressions while these three digressions are being aired
#
and then we'll get to the question.
#
First digression, of course, is that I have a great two-hour episode with Rajesh Jain,
#
whose proposal essentially was that, look, we sit on humongous amounts of public land
#
which are being put to no good use.
#
And if the government starts selling that off, one, it will have a lot of money which
#
will be helpful, especially in a crisis like this.
#
And two, it will also, you know, land prices will go down because the supply will go up
#
and that will be great for common people.
#
A digression within this digression is another way to make the supply of land go up and land
#
prices go down is to reduce the sort of ridiculous laws like FSI and rent control that we have,
#
especially in our big cities.
#
Digression two is a rant, which is that forget government spending, a lot of money was basically
#
recently raised from contributions to a fund called PM Cares.
#
None of that is being said.
#
You know, it is opaque.
#
None of that has been spent.
#
We don't know where it's going and what it's for, which leads me to digression three.
#
There is one area where the government should have spent money and, you know, got it right
#
in the last three months, which is the plight of migrant laborers throughout the country.
#
It is okay to say in the last week of March when the lockdown started that, okay, we were
#
blindsided, it did not strike us.
#
But, you know, that went on for weeks and weeks, and that's a humanitarian crisis.
#
It's absolutely unconscionable.
#
And the sort of question I'll get to, and I was discussing this last week in my episode
#
on lockdowns and COVID-19 with the brilliant Anup Malani.
#
And the larger point we discussed there was, which will lead to the question that I come
#
to is that a lot of this migrant labor hasn't just gone back on a temporary basis that when
#
this crisis ends, they will come back and everything will be okay again.
#
There is a deep loss of trust in the system.
#
You know, they found themselves starving, they found themselves out of jobs, and they
#
found the government unwilling to help in any way.
#
On the contrary, putting barriers in their way, which has led to a loss of not just livelihoods,
#
but also lives and also hope.
#
Many of these people may not come back.
#
You know, broadly from out of this sort of incredible tragedy that has happened, what
#
do you think the economic impacts of that could be?
#
You know, I mean, you know, I've been thinking about this for a while and so I think I don't
#
Yeah, you know, so let me put it this way.
#
I was just looking at some data today and the amount of work being demanded in the Mahatma
#
Gandhi National Rural Employment Guarantee Scheme has just gone through the roof.
#
In the first seven days of, today is what, 8th, right?
#
Yeah, we are recording on June 8th and this episode will be out on June 4th.
#
So in the first eight days of the month, the 2.12 crore households have demanded work under
#
Whereas last year, the number for the full month of June was around 2.56 crore.
#
So that tells you the amount of work that is being demanded.
#
Now just because you're demanding work doesn't mean that you'll get it.
#
The other thing is that agriculture in India already has a huge amount of disguised unemployment,
#
which basically means that it has many more people than is economically justifiable.
#
So it contributes around 15 to 16% of the Indian economy and employs more than 40% of
#
Now imagine all these people going back and becoming either a part of the agriculture
#
workforce or demanding work under Nariga.
#
I mean, what do they do there to continue earning a living?
#
Now one reason that they came to the cities from the places where they originally belonged
#
to was looking for work and they came because there was no work where they came from, right?
#
And suddenly when they're going back, I mean, how are they going to get work there?
#
I mean, I can understand that, you know, the government can increase allocation towards
#
Nariga and create some work.
#
But then that's one, it's very low end work and two, it doesn't pay much.
#
So ultimately, I don't know, I mean, I think the people who have gone back may have, you
#
know, no other way but to come back to the cities and hope that they sort of get the
#
jobs that they originally had.
#
I mean, I can't see any other way out.
#
I mean, I have thought about this over and over again and I don't, I mean, unless the
#
chief ministers of Bihar and UP and Jharkhand and even Odisha and Chhattisgarh to some extent
#
end up creating a lot of work within the state, I mean, in that ecosystem, even if it happens,
#
it's not going to come up in two years or three years or five years.
#
And I mean, one is you don't see any commitment from any of the leaders in that direction.
#
And two is even if there is a commitment, it's not, you know, Bangalore wasn't built
#
I mean, it took the city close to 20 years to reach where it did.
#
I mean, and I'm not talking about the Bangalore traffic here, but the fact of the matter is
#
that there are, you know, it is a city, there are a lot of IT companies based out of it
#
and there is a lot of work being created in that city all said and done.
#
So I don't know, I don't think, I mean, I have come around to the conclusion that these
#
people will have to, for whatever be the case, will have to come back.
#
And I just hope that, you know, this time around, they get treated much better.
#
I mean, there have been some very good stories on how people, you know, employers in the
#
southern states are giving AC tickets to some of their employees to come back.
#
Some of them have even been flown in.
#
I just hope that this goodwill or whatever you might call it, this just lasts for a while
#
and I don't know, I mean, otherwise I don't see how they can, you know, make a living
#
You know, one is that, you know, if you look at places like Bihar, the size of the agriculture
#
plot is already very small, an average agriculture plot, not, I mean, and that being the case,
#
how do you make a living out of being a farmer?
#
I mean, the reason that you moved out of that place was because you couldn't make, continue
#
making living as a farmer.
#
So, which means again, you know, I'd like to connect this to the point that which is
#
why it is very important to get the construction and the real estate sector going all over
#
again, because which is where, I mean, which can sort of again, you know, create jobs in
#
smaller cities where people can then, you know, sort of hope to work at least if not
#
in the village, but at least in the city that is nearest to wherever they live.
#
So, two thoughts strike me here.
#
Of course, like you said, it's a great opportunity for those states now that they have all those
#
people back there to do something about it, because I continue to maintain that every
#
human being is, you know, add something to the world, they are not a burden on it.
#
And it's a great opportunity for them to sort of revamp the regulatory system and sort of,
#
but like you said, it won't happen overnight and therefore, what do we do now?
#
And I can't really see a way out.
#
What I'd also like to sort of tell my listeners is that I've done a bunch of episodes on agriculture,
#
which I rather like a lot, and I shall link them from the show notes.
#
You should definitely link the one that you did with Shetkari, you should definitely link
#
That's, I think, the best of the lot.
#
It's a wonderful episode, episode 86, the only episode I've done in Hindi, by the way.
#
So moving on, I mean, we are kind of approaching the end of the episode and in a sense, we
#
are also kind of approaching the end of the lockdown.
#
And recently, you wrote a piece talking about how the end of the lockdown will not bring
#
Can I ask you to sort of elaborate a bit on this?
#
I mean, see, in the sense that, you know, people are still apprehensive of going out
#
and spending money, you know, you have parts of the transport system which are working,
#
I mean, you know, if you open it up too much, obviously, there is, you know, the risk of
#
COVID-19 spreading more than it already is.
#
If you don't open it up, then there is the problem of, you know, economic activity not
#
So how do you, I don't know, I mean, I don't think there is a balance to this.
#
And our health system isn't really, you know, it just can't really cope up with the, you
#
know, if any more increases in the disease happen in the days to come.
#
And in fact, in Mumbai, the medical system is on the verge of collapse.
#
And it's not that there are no, I mean, there are enough beds.
#
It's just that there aren't enough nurses and ward boys, which is very, very, you know,
#
which is why again, it is, you need everyone to sort of be there for a system to work and
#
which is really not happening.
#
So that's incredibly bleak.
#
I think we've taken up enough of the listeners time this week, but no worry, we shall come
#
at you every week in our new show Econ Central.
#
And we will also discuss on episode one of that, which will come this Thursday, a topic
#
which we haven't found time for in this episode, which is this whole, you know, tirade against
#
China boycott China returned to Nehru's import substitution under different names and a rhetoric
#
spread on a different kind of media entirely.
#
What would Nehru have thought of WhatsApp?
#
So, you know, do sort of check that show out our website is econcentral.in.
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You can go to all your podcast apps right now and search for Econ Central.
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I hope the, you know, the RSS feed has spread widely enough and you'll be able to see the
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Can I make another poor joke here?
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So, you know, I don't know what RSS feeds, but RSS is definitely widely spread.
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Yeah, you could, yeah, indeed.
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We won't make a value judgment on that.
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That's an indisputable fact and so Vivek, you know, thank you so much for coming on
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I think it's the first time we are actually recording a scene on scene episode remotely
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like this on the computer and it's so weird.
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Yeah, it is very weird.
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I mean, it just, you know, when you can't look into the other person's eye while talking
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or generally have someone in the room around you, it's just, and you know, even when you're
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looking into the other person's eye digitally, it's, it's just not the same.
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So yeah, we're actually recording via Zencaster, but we've also got zoom open so we can see
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each other and kind of pick up visual cues, but then I'm doing all tab and going to my
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Are you wearing a hairband?
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No, that's my headphone.
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I just thought for a moment that you've done that Abhishek Bachchan thing and...
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Listen, the recording is going on.
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Don't start flirting now.
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Thanks a lot for coming to the show.
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Thanks, Samit, for having me.
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If you enjoyed listening to the show, do follow Vivek on Twitter at call underscore Vivek.
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You can follow me at Amit Verma, A-M-I-T-B-A-R-M-A.
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You can browse past episodes of The Seen and the Unseen at seenunseen.in.
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And hey, do check out my new course, TikTok and Indian Society, at seenunseen.in slash
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Thank you for listening.
