This blog is in reaction to Mr Raghuram Rajan (former Governor, RBI)'s interviews in media channels with regards to NYAY scheme announced by Indian National Congress Party as part of Election Manifesto. As it is widely known now, Mr RR is one of the architect so the drawing his specific attention is fully correct.
Mr RR, I am such an admirer of your speeches/interviews and your unique way of explaining complex economy concepts with simple examples etc. To be frank, it is after reading your articles,following your speeches etc only I started following economical aspects with more clarity. I feel in a way sorry that I have to shoot my first blog against you but I feel it is very relevant.
You have made clear in the recent interviews that NYAY scheme is sort of
1) Need of the hour for India
2) India should find a fiscal space to implement this.
You can easily justify the above statements and also can categorically say finding a fiscal space means it should adhere to all the fiscal disciplines. If I say such statement without any substantiation it is fine, But can people like you leave that as open ended for others to guess? Don't you think a world renowned person like you in the field of economics should at-least give broader contours by which this scheme can be implemented with fiscal prudence.
If you feel Fiscal discipline can take a short term hit till the gap is bridged then when you were at the helm of affairs as RBI governor why you were so much dogmatic about Fiscal prudence? I can clearly sight examples where you were not even pragmatic despite the current NDA government lead by Mr Modi was showing clear structural changes in the fiscal management in terms of plugging in the leakages [like DTBF scheme], working in getting the IBC code [to bring NPA messes under control], GST roll out [increase in revenue collection] etc. Inf-act you were not even ready to cut interest rates sighting inflatory concerns. The famous example you gave was that it is like a patient who was brought out of Operation Theater and we have to treat him in the ward and can't start normal routine immediately. Currently you seem to be advocating a policy that can send a healthy man to ICU. So how can funding for NYAY can come without tax burden/inflation concerns/fiscal prudence?
If short term fiscal indiscipline is acceptable to you, You could have applied the same principles to allow government to spend more on infrastructure or not blocking Mudra loan like scheme. Infact even post to your tenure as RBI governor you were cautioning that Mudra loans can create NPA. But under your leadership RBI was totally clueless about the loop holes in the banking system that some crook deputy manager in a bank (PNB, Nirav Mody Scam) could siphon money outside the book of the banks and created NPAs more than what Mudra loans can create and more so exposed the mockery role of the regulator who couldn't even spot this in their audits or device processes to arrest these type of frauds. Please note this is not like a team of people working to fool the system like what happened during Lehman Brothers etc but a unscrupulous branch level manager could pull down the banking system.
So can you kindly explain how some one can implement NYAY scheme without denting the economy. You have the moral obligation to explain the scheme in details to the Indian public especially how the revenue aspect is going to be funded? This is because people regarded you as a Xavier of Indian economy so you have to explain the people in detail.
I agree it is duty bound on every citizen and state to uplift the poverty but only giving 50% information without really stating how revenue aspect is going to be managed is not correct. Please note I am a honest tax payer and I should know whether I will be taxed more or not otherwise it amounts to cheating the voter. Also note the loose idea of bringing wealth to tax to super rich is the classical "Robinhood School of Economics". There are enough super rich who have got the wealth by being tax compliant and not by evading it.
Since ages tax payers money has been wasted on poverty alleviation schemes without yielding any results. It is the combination of corrupt political system, bureaucracy which has swindled the money and also ensured poor delivery of welfare schemes of without any accountability. So I have a suggestion why don't you say that the salary and allowances of all the MLAs and MPs should be cut by 70%, all the government officials upto Group1 officers by 50% and rest all the government servants by 30% and to be used for funding NYAY. Beyond which whatever deficit is there Tax payer will be more than happy to pay.
There is a common statement you know that "Blood is Thicker than Water" and every human being is forced to take some personal decisions which are emotionally justifiable but not otherwise. But the same theory can't be extended to country level economic issues and if I extend the above analogy I feel it is the "Ideological Affiliation that is Overshadowing your Intellectual Wisdom", which is not correct.
Expecting a Honest Reply from you Sir.
Mr RR, I am such an admirer of your speeches/interviews and your unique way of explaining complex economy concepts with simple examples etc. To be frank, it is after reading your articles,following your speeches etc only I started following economical aspects with more clarity. I feel in a way sorry that I have to shoot my first blog against you but I feel it is very relevant.
You have made clear in the recent interviews that NYAY scheme is sort of
1) Need of the hour for India
2) India should find a fiscal space to implement this.
You can easily justify the above statements and also can categorically say finding a fiscal space means it should adhere to all the fiscal disciplines. If I say such statement without any substantiation it is fine, But can people like you leave that as open ended for others to guess? Don't you think a world renowned person like you in the field of economics should at-least give broader contours by which this scheme can be implemented with fiscal prudence.
If you feel Fiscal discipline can take a short term hit till the gap is bridged then when you were at the helm of affairs as RBI governor why you were so much dogmatic about Fiscal prudence? I can clearly sight examples where you were not even pragmatic despite the current NDA government lead by Mr Modi was showing clear structural changes in the fiscal management in terms of plugging in the leakages [like DTBF scheme], working in getting the IBC code [to bring NPA messes under control], GST roll out [increase in revenue collection] etc. Inf-act you were not even ready to cut interest rates sighting inflatory concerns. The famous example you gave was that it is like a patient who was brought out of Operation Theater and we have to treat him in the ward and can't start normal routine immediately. Currently you seem to be advocating a policy that can send a healthy man to ICU. So how can funding for NYAY can come without tax burden/inflation concerns/fiscal prudence?
If short term fiscal indiscipline is acceptable to you, You could have applied the same principles to allow government to spend more on infrastructure or not blocking Mudra loan like scheme. Infact even post to your tenure as RBI governor you were cautioning that Mudra loans can create NPA. But under your leadership RBI was totally clueless about the loop holes in the banking system that some crook deputy manager in a bank (PNB, Nirav Mody Scam) could siphon money outside the book of the banks and created NPAs more than what Mudra loans can create and more so exposed the mockery role of the regulator who couldn't even spot this in their audits or device processes to arrest these type of frauds. Please note this is not like a team of people working to fool the system like what happened during Lehman Brothers etc but a unscrupulous branch level manager could pull down the banking system.
So can you kindly explain how some one can implement NYAY scheme without denting the economy. You have the moral obligation to explain the scheme in details to the Indian public especially how the revenue aspect is going to be funded? This is because people regarded you as a Xavier of Indian economy so you have to explain the people in detail.
I agree it is duty bound on every citizen and state to uplift the poverty but only giving 50% information without really stating how revenue aspect is going to be managed is not correct. Please note I am a honest tax payer and I should know whether I will be taxed more or not otherwise it amounts to cheating the voter. Also note the loose idea of bringing wealth to tax to super rich is the classical "Robinhood School of Economics". There are enough super rich who have got the wealth by being tax compliant and not by evading it.
Since ages tax payers money has been wasted on poverty alleviation schemes without yielding any results. It is the combination of corrupt political system, bureaucracy which has swindled the money and also ensured poor delivery of welfare schemes of without any accountability. So I have a suggestion why don't you say that the salary and allowances of all the MLAs and MPs should be cut by 70%, all the government officials upto Group1 officers by 50% and rest all the government servants by 30% and to be used for funding NYAY. Beyond which whatever deficit is there Tax payer will be more than happy to pay.
There is a common statement you know that "Blood is Thicker than Water" and every human being is forced to take some personal decisions which are emotionally justifiable but not otherwise. But the same theory can't be extended to country level economic issues and if I extend the above analogy I feel it is the "Ideological Affiliation that is Overshadowing your Intellectual Wisdom", which is not correct.
Expecting a Honest Reply from you Sir.
Though there will be an increase in expenditure due to NYAY, no one has the complete picture. What is promised in Congress manifesto is Rupees 72,000 per house hold as a guaranteed income. What congress manifesto also promises is guaranteed work for 150 days as part of MGNREGA.
ReplyDeleteEven if we take Rs.250 as minimum wages for an unskilled labour per day and if there are two people in family, the family income will be 250*2*150. This comes to Rs.75,000. So the family doesn't get any money as their family income has exceeded 72,000. If the employment is 100 days then the family income is 100*2*250, which is Rs.50,000. So the family gets only 22,000, which is less than 2,000 rupees a month.
Since it is election season no one explains this math. Poor think they will get additional RS.72,000, middle class which most of the political parties take for granted live in a fear of increased burden on them.
But I totally agree pushing money into pockets of people will not eliminate poverty.
Most of the poor are in agriculture sector, which employs 50% of population and accounts for less than 19% of GDP. How on earth any one can eliminate poverty with such a large population dependent on the small pie of GDP.
There needs to be some innovative ideas for poverty elimination, which I did not find in congress manifesto.
Excellent Analysis Kalyan. The whole scheme may be less relevant but how world renowned economists supporting this.
ReplyDelete