New chief economic advisor Krishnamurthy Subramanian tells Banikinkar Pattanayak that Rs 2,000 to a small farmer every four months under the income support scheme is a great help, as the probability of him having less than Rs 2,000 in a particular four-month period in a year is over 50%, although his average annual income is around Rs 30,000. He says the investment cycle is picking up, as many firms have hit capacity utilisation of 80%, which is when they usually start fresh investment. Subramanian adds that the fiscal slippage for FY19 is just two basis points — 3.36% against the targeted 3.34% – and while the focus is greater on the number of jobs created, the more important matter is demand-side issues like proper skilling. Edited excerpts:
The government has promised to give Rs 6,000 a year to small and marginal farmers. Critics say it’s “too little and too late”. What is your view?
The support of Rs 2,000 every four months to small and marginal farmers amounts to a substantial 20% of their annual income from agriculture (based on the findings of the report on how to double farmers’ income, adjusting for inflation). Farming involves a lot of risks, which are vastly out of sync with returns. The actual variability in farm prices is huge. For instance, in rice and wheat, the variability is about twice the annual average. In vegetables like capsicum, potato or cauliflower, the variability can be as high as 40 times. Based on the variability factor, the probability that a farmer has an income of just about Rs 2,000 in a particular four-month period is more than 50%, even though his average annual income would be Rs 30,000. So providing Rs 2,000 in those four months is akin to doubling his income in that really vulnerable period.
Have you prepared the list of beneficiaries of the scheme, as Rs 20,000 crore is proposed to be offered in this fiscal itself?
The scheme is for those farmers who hold less than two hectare. Comprehensive land record data are available in many states, which are being collected. Since data on tenant farmers don’t exist, the support is meant for those farmers who have land records in their names. The aim is to ensure that benefits reach the intended beneficiaries and implementation becomes easier within a short period. As for tenant farmers, they constitute about 14% of farmers and continue to benefit from all other government schemes like MSP, interest subvention on loans, MGNREGA, etc.
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Private consumption has been slowing in recent quarters, while private investment has remained elusive for a long time. Do you actually see a reversal of this trend soon?
Yes, given that significant benefits have been provided to the middle class in recent years, consumption will get a boost. The important point is the capacity utilisation of many firms is reaching 80%, which is when they typically start fresh investments. Private investment was adversely affected by the dual balance sheet problem. This issue has been addressed through various steps, mainly the Insolvency and Bankruptcy Code.
The 6.1% unemployment rate in 2017-18, the highest in over four decades, has generated a lot of controversies, with critics pointing at “jobless growth”. Also, NITI Aayog’s involvement in the release of back-series GDP data and its craving to play a larger role in data dissemination have put a question mark over the non-political nature of the statistical system.
First, when we have a significant proportion of the work force in the unorganised sector, the right issue for me is meaningful employment. Second, much of the narrative has focused on the supply side (like where are the jobs) whereas not much is being discussed about the demand side—which is basically a question of right skilling. Third, due to technological changes globally, capital is substituting labour. So while jobs are being created in certain sectors, they are also being lost in some others. So, on a net basis, not enough jobs are being created worldwide. This challenge has to be acknowledged.
The GDP growth during the current regime has been the highest, even though credit and investment growth has been way below the UPA levels. Has the economy become so efficient now?
We all know what happened due to the indiscriminate lending of the past and the spike in credit growth. GDP growth doesn’t come from thin air. The fact that it remained robust despite credit not picking up at the desired pace due to legacy issue should be appreciated.