We live in an uncertain and volatile world. There is such a strong interplay of different factors that sometimes it can become too overwhelming for us to make sense of these complexities. To help unravel these complexities, the Declassified Team caught up with Dr. Soumya Kanti Ghosh, the Group Chief economic advisor of SBI to discuss recent policies and its ramifications globally. Explaining why ‘economics as a subject is rewarding’, Dr. Soumya Kanti Ghosh spoke at length about various topics ranging from Artificial Intelligence to the recent budget. Read on to find out what he has to say about the pressing issues in today’s world.
Q: There has been great talk that this time the winners in the Union budget are farmers and the middle class. What are your views on the budget?
A: In my opinion, this was a good budget that focused on boosting consumption. It does dwell on farmer welfare but I still believe that the July budget can and should do more for the farmers to help eliminate agrarian distress. Although, 75000 crores may appear to be a small amount it is still a good billing.
Speaking about the middle class, tax concession will help boost the consumption sentiment. With respect to the salaried class and their tax payments, they will definitely expect more tax concessions and so a tax concession is a good step. If possible, savings concessions should also be provided in the July budget as it will help give rise to steady savings which has not occurred in the past two to three years.
Q: Elections are around the corner. What are the major economic challenges that will exist, regardless of the result?
A: Any government that comes into power will continue with the reforms. For example, four years ago, nobody thought that the moderation in the prices of petrol and diesel would be a reform that will be pursued, and the same goes for GST. I think that reforms like fiscal consolidation will continue irrespective of which government comes to power. However, the challenge for any new government will be maintaining the growth rate, a low and stable inflation, while ensuring that we have a good administration and a good judicial system. I feel the current government has not done enough when it comes to judicial and bureaucratic reforms. Thus, if we can focus on these two sectors apart from the rural and the banking sector reforms, it will make a very good cocktail of a stable policy environment.
Q: Coming back to the farmers, the agrarian crisis for farmers in India is a pressing issue we need to tackle. What is your take on loan waivers?
A: Indeed, India’s rural distress needs to be curbed and we must provide relief to our farmers. However, I do not support loan waivers, as it is vicious and cyclical in nature. When loans are waived off, it is actually the government’s responsibility to compensate banks with funds but the government, lacking adequate funds, pays in instalments over a time of approximately two to three years. A bank like SBI for example will have an account that will be non-performing for a lengthy period thereby making it challenging to sanction upcoming farmer loans for the next financial year. In such a situation, farmers resort to money lenders who lend at exorbitant rates. Being unable to cope up with the payments, farmers eventually find themselves in a debt trap. Hence, after a few years, the same set of farmers are given loan waivers. Thus, I believe loan waivers do not act as an adequate policy measure. Nonetheless, this does not mean that we should not support our farmers, but there are more viable and effective schemes than loan waivers.
Q: UBI (Universal Basic Income) as an idea has gained popularity. Recently, Arvind Subramanian put UBI back into the realm of Indian economics with his idea of a quasi-UBI scheme that could be the future of agricultural policy in India and improve the state of the rural economy. Would you agree with him?
A:The idea behind a quasi UBI (Universal Basic Income) support scheme for the poor is noble as it lays out a path for alleviation of poverty. However, in a fiscally constrained country like India, it is very difficult to roll out UBI in rural areas. The cost would be very prohibitive and a key question that arises is if we can actually afford to spend 1% of our GDP (assuming ₹6000 is given to 27 million below poverty line people). Evidence shows if people are provided with income, they tend to get complacent thereby leading to a decline in productivity. In my opinion, we should focus on providing them with productive employment and infrastructure rather than an income. It is essential to develop policies that target enhancing gainful employment in the economy. Although, this is a long-term reform, it ensures stability and effectively tackles the crisis at the grass root level.
For example, if you ask a person if s/he is employed, it is highly probable that the person might reply in the negative. Instead, if you ask how much the person earns, s/he will tell you how much s/he earns.
Q: We always talk about the amount of money spent on education and health in India. Is it enough? Is India missing the bus on making the best of the much talked about ‘demographic dividend’?
A: I feel healthcare is one sector where there are significant opportunities. For example, over the next 2 years, the Ayushman Bharat scheme may lead to a lot of employment opportunities. I agree with you on the fact that we are not spending enough on healthcare and education, but at the same time there is not enough fiscal space to spend. The fact that health is a state subject (as like Agriculture) further exacerbates the problem.
When it comes to the demographic dividend, I think we have to invest in human capital and education. It is essential to empower our children in terms of better education and livelihood by reforming the education system. I want our universities to provide quality higher education. It would be great to see all the prestigious universities setting up campuses in India instead of our students going abroad. Furthermore, we need to reward and incentivise research. The students are budding researchers and the education system needs to provide them with adequate opportunities.
Additionally, studies show that empowering women can lead to a significant increase in GDP. Schemes like the Mudra scheme are empowering women who are now able to take financial decisions on their own. Also, 30% of the loans via Mudra Loan scheme is being provided to women entrepreneurs. Apart from that, the population growth has significantly come down in the last 20-30 years which is a clear indication of the fact that women are giving more importance to their careers and thus, the population growth has been on a significant decline.
This is a good sign but at the same time, certain problems have arisen. For example, by 2040, in Andhra Pradesh, one out of every three people will be old which is a significant 33% of the population . This would lead to an unbalanced growth across regions. States like Uttar Pradesh, Bihar would be young states whereas Andhra Pradesh, Tamil Nadu and Karnataka would be old states. In fact, primary schools in Karnataka are going empty because not enough babies are being born who could attend the schools. We need to capitalise on the demographic dividend properly which is a big challenge.
Q: How would you assess the impact of AI on emerging economies like India especially in terms of its impact on employment ?
A: I think artificial intelligence is a great idea providing numerous opportunities in terms of robotics, data analytics which could aid in policy making. For example, AI can mine and sift through terabytes of information and can help us arrive at a useful conclusion for policy making. It can help in identifying tax defaulters. With the implementation of GST, it has become easier to track down who is paying the tax and who isn’t and through which account. However, there arises a question regarding privacy and employment as a result of AI. There is always this concern that AI can eat into the jobs, but I feel this shouldn’t act as a great deterrence. Rather, we should focus on the opportunities AI provides. I believe that the beauty of AI lies in the fact that it can be put to good use and can help us in the big ticket reforms being undertaken by the country.
Q: There has been confusion regarding the employment data being collected with the government even refusing to release some data leading to the resignation of two senior National Statistics Commission Officer. What do you think about the data collection issue and about employment in general?
A: I don’t want to get into the political aspect of the resignations but I would like to highlight one important thing. NSSO (National Sample Survey Office) is one of the biggest statistical organisations in India. There have been lot of structural changes in the economy in the past 4-5 years – a large part of the Indian economy is getting formalised. So, we had an informal economy which underwent two structural changes – one being demonetisation although it is not really considered a structural change and the other being GST. The earlier estimates suggested that 90% of the economy was informal and the remaining 10% was formal. The economic survey now suggests that this proportion might have shifted to 70% informal and 30% formal.
We might also have to collect data in a different manner. For example, if you ask a person if s/he is employed, it is highly probable that the person might reply in the negative. Instead, if you ask how much the person earns, s/he will tell you how much s/he earns. Asking the second question gives you an idea whether the person is a blue-collar worker or a lowly paid worker? Also, I feel the problem is India is that we are not adequately paid. Moreover, I feel employment is always going to be an issue because almost 25 million babies are born in India every year out of which we expect 13-14 million people to join the labour force. However, we might be able to provide formal employment to only about 7 million (India also has large informal employment in sectors like Transport). The employment problem is thus aggravated more because of a wage problem than a job problem as the salary that the young people earn may not be commensurate with their level of education.
He said that he had never before observed a cycle where there is low inflation and high growth coupled with low employment but having a debt of $22 trillion. He explained how he couldn’t make any sense of what is happening.
Q:There’s a global slowdown. Is it imminent? What would the implications be for a country like India?
A: The other day I was listening to a lecture by professor Altman, who developed the z score, which was the first model in the world to predict a bankruptcy. He was talking about some very interesting conclusions. He observed that the US is undergoing a credit cycle, which is a cycle of good growth and the US has been experiencing this for the past 9 years and it is the longest cycle in the US history. He said that he had never before observed a cycle where there is low inflation and high growth coupled with low employment but having a debt of $22 trillion. He explained how he couldn’t make any sense of what is happening.
Professor Altman felt one of the possible reasons for this could be the US Fed Policy that has led to lesser corporate defaults. Having said that, a lot of pundits feel that a slowdown is imminent towards the end of 2019 and in 2020. But I personally feel that a China slowdown would have more grave repercussions than a global slowdown. China growth rates were the lowest in the last 28 years. Their auto sales, exports and imports have been hit badly. It is probably the lowest in 2 years and I think these numbers would be of more concern to the global economy than a US specific slowdown. And what would the impact be on India? Our exports would not grow at the same rate as the Indian economy has a high correlation with the US economy. Hence, I feel it is important for India to have a good domestic policy to withstand the effects of external environment.
Q: Sir, congratulations on receiving the award from The Asset magazine for Best Individual Research, India. In light of that achievement, what is your message for budding economists in India?
A: I find economics as a subject to be rewarding because there are many areas on which one can focus and we get to learn new things every day. For example, you must have heard about the issue of how monetary transmission works. It was only after I joined State Bank, I understood how this entire process worked. This whole thing might not be at all related to what we learnt in textbooks, so I feel some sort of practical application and exposure is extremely useful in our economics course curriculum.. But, I do not advocate discarding textbooks completely. Additionally, you should further hone your skills, focus on research, probably do your PhD and apply the knowledge within the Indian context because I believe there is a dearth of good economists in the country, or to put it better, practical economists who really understand the real economy and the interlinking of the real economy with the financial economy. This helps in real time policy making based on data evidence and not merely textbook theory.
– Pritika Nayak (FYBA), Durga Shirsat (FYBA) and the Declassified Team.