In an exclusive interview with journalist Karan Thapar, Nobel Laureate Abhijit Banerjee, who recently secured a Nobel Prize in Economics along with his wife Esther Duflo and the Harvard economist Michael Kremer, mentioned the reasons for the current economic crisis in India and suggested remedies to spring it back to health.
In the 47-minute interview, Banerjee pointed out the ailments of the Indian economy and how could they be revived using a socialist approach.
According to Banerjee, rural demand has stooped to a new low because the government has deliberately lowered minimum support prices for crops and depressed agricultural spending to contain urban inflation.
Banerjee said that the over-centralisation of power in the Prime Minister’s Office has played a crucial role in the current economic crisis in the country, while also blaming demonetisation and the hastily-introduced Goods and Services Tax.
However, Banerjee further added that the problems created by the new tax regime were inevitable and that no other government could have handled GST better.
Remedies Suggested By Banerjee:
- Inequality in cash inflows and outflows – According to Banerjee, the corporate sector in India sits on around eight lakh crore in cash. They are apprehensive to invest in the floundering economy of India, hence, with limited cash in hand, people especially in rural areas, are demanding less. With lesser demand in place, the market is collapsing as supply remains greater than the demand.
- Corporate tax cuts v/s spurring demand – Instead of providing tax slabs for corporates to lure them into investing, the government should have tried stimulating the demand. This, he says, is best done by putting money in rural pockets through schemes like PM Kisan.
- Labour reforms – Banerjee suggested amending the labour reforms that will make land acquisition easier. The reforms are a much-needed call when the crisis hits any country and the Centre must not “waste the crisis”.
- Weak implementation of MNREGA: He noted that the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) is not performing as efficiently as it should, partially because the process of kickstarting it was too slow. As a result, rural distress has not been ameliorated, he said, while also citing studies to show how MGNREGA has not been effective in times of drought though that was when it was most needed. These plans need to be revamped so that the allocation of services, commodities, and cash won’t make such overwhelming imbalances.
Also Read: ‘Weird, Bewildering’, Nobel Awardee Abhijit Banerjee Questions Logic Behind Demonetisation