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Thursday, December 02, 2021

Rathin Roy: ‘Need to settle NREGA the moment work is executed… pay by end of working day’

In this E-Xplained held a few weeks before he quit as Director, National Institute of Public Finance and Policy, Rathin Roy, ex-member of PM’s Economic Advisory Council, discusses challenges and options in a likely recessionary year.

Written by P Vaidyanathan Iyer , Anil Sasi | New Delhi |
June 22, 2020 4:20:33 am
Rathin Roy, Rathin Roy explained, Rathin Roy interview, Rathin Roy covid Rathin Roy. (File Photo)

In this E-Xplained held a few weeks before he quit as Director, National Institute of Public Finance and Policy, Rathin Roy, ex-member of PM’s Economic Advisory Council, discusses challenges and options in a likely recessionary year. He spoke to P Vaidyanathan Iyer and Anil Sasi.

On whether much of the extra borrowing this year will be used to make good the shortfall in revenue collection

It is a dynamic process. If hypothetically, the government had provided income support and capital support, and if hypothetically, that meant that businesses were able to recover and make some money, then the government would get more tax revenues and those revenues would have been used to shore up the Budget, and then some of the incremental borrowings could go into other things. But the government has not chosen to that. Therefore, I agree with you, especially since it is unlikely that the government will meet even a small percentage of its investment commitments in this calendar year. It would be absurd to think of that in the middle of a lockdown. And therefore, what the government would need to do is prepare to borrow to meet its tax revenue shortfall. And that is a good thing because it will maintain the government Budget at where it was, at a much higher proportion of the GDP, and a much higher proportion of the deficit.

It is unfortunate that we are in a situation where we are looking at one data point. For example this year we say that the government borrowed 12 crores, last year it borrowed 7 crores, without having an idea about what is going to happen to these 12 crores, and how we are going to change the situation going forward.

Most sensible and effective finance ministries budget in a three-year cycle. India is a glaring exception. If we had a medium-term fiscal framework, we should have been advocating for ten years — we would have to say, OK, we’re going to have to borrow this much between now and 2023, because we are going to be hit on the tax front in 2020 and possibly 2021. As tax revenues recover in 2021-22-23, we are going to borrow less. So, over the lifetime of the medium term, here is my plan to recover the economy and maintain the solvency and sustainability of public finances.

We do not have the instrumentation, we write budgets on file, and the consequences are apparent now. We are talking about saying whether we should borrow 20 lakh crore. It is a very weak analytical statement. And it is unfortunate that we are in this situation… What governments have chosen to do — be it UPA or NDA — is write something that has no bearing on the annual Budget. Media doesn’t look at it, business doesn’t look at it. So, we pay the wages for our own technical incompetence, and yes, therefore, we will only borrow to make up tax revenues this year, without any reckoning of how we are going to solve the problem.

On challenges in cash transfers, such as identifying beneficiaries, and the option of expanding these through NREGA, Jan Dhan

Either I have to believe the government when it has been saying very dramatically, including the Principal Economic Adviser, that they have the technology to carry out cash transfers, and that the success of this government is its ability to make cash transfers, direct benefit transfers… However, when during such a crisis, when people are actually going home, and then we sit down and decide, “Oh, let’s have an all-India ration card”, that means that the programme to reach out to the population of India, using Aadhaar, Jan Dhan, and mobile, that has been touted as one of the major successes of this government, is not fit for the purpose.

I need to know whether the government accepts this or not, because boastfulness is accompanied by excuses. So if your success is true then make good on it. Use your instruments in this crisis to transfer money. If you cannot, accept that your architecture is not fit for the purpose, and therefore you need to do other things to transfer money.

The obvious way to transfer money would be not to sit in the Capital and decide how the money will be transferred, but to ask the states and local governments to identify those who need the transfers, and thus mobilise communities. But for that, you need to make a policy announcement that priority would be income transfers come what may, with the same alacrity as the yet gloriously unspent PM Cares was mobilised. If even a fraction of the attention that was devoted to that was shown towards transferring money, then a better job would have been done. So, coming up with these bureaucratic excuses– that you can’t identify people when the TV channels have shown you where they are to your face — I find difficult to accept. If migrants can be beaten up, they certainly can be identified.

There are ways to do this. When it comes to NREGA, it is a good thing that the government has done, but to make it better we will require a suspension of the rules. There are two important things here – if you cannot guarantee work in the original NREGA, you will pay them in their banking accounts directly. I think we need to have a settlement on NREGA at the moment when the work is executed. Those sitting in NITI Aayog and others who come up with wonderful solutions using artificial intelligence are not capable of this basic task – that is to pay people at the end of the working day… pay them what you owe them in a demand-based programme. There I think, the government is falling far short. To an extent, this government failure is ubiquitous for the past 15-20 years, which I think the people in political authority know, and therefore what they are trying to do is avoid relying too much on the execution capability of the government, and relying too much on our capability… So we are making too much noise on income support when the government has clearly said that it would not do so.

On whether the additional NREGA allocation in the lockdown package is an acknowledgement that some migrant workers might not come back soon, and whether industry should worry

Many of the people who came from UP, Bihar, Jharkhand, MP to Maharashtra, Kerala, Goa, to extremely low end, badly paid, and insecure jobs… If they take a call that the reason why they did so– the dream that they saw for themselves and their families– is going to be frequently disrupted by society, not the government, which tells them “you come last”, then they will stay back.

The point is not increasing NREGA allocation. NREGA has to be faithfully executed, which is not the case with the bureaucracy. It is a demand-driven program. And we have been rationing NREGA and no one wants to comment on that. So yes, we must take NREGA and every other opportunity available to them. The idea of emphasising NREGA is a humane one, and I am happy that the government has done this. It flies in the face of societal instincts to get things back to normal — that normal was a very ugly normal for the migrant.

Audience Questions

On whether the government should have infused equity in businesses over prioritising credit

It is difficult to do this without being accused of communism. Basically, this is using taxpayer money to infuse equity and making the government a shareholder in the private sector. This could be done in principle. One way is by starting to infuse equity and then have a program that converts this to debt, and then the government exits. The problem with the debt-equity route is the need for a bond market that works, and we do not have a good private bond market. We need to do financial engineering that I thought the government would have been doing in the past 2.5 months.

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On how India will fare during the coming decade, projected to be one of debt and depression

Even before the current crisis, I had been saying we have a difficult decade ahead if we continue to rely on the consumption of the top 150 million to power our growth process… This crisis has made the matter more urgent. And today, we will have to take steps to change the output composition of demand in ways in which we can have more inclusive and sustainable growth. This will require reforms, but not of the sort the government has announced. These would be in public administration, our credit policy, industrial policy, etc. If we do these reforms, I believe that India is a large enough economy to be fine.

Transcribed by Om Marathe

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