Vadodara born Lord Meghnad Jagdishchandra Desai went to secondary school at the age of seven, matriculated at 14, was an economics honours graduate by 18, had a Master’s degree before 20 and was a PhD in Economics from Pennsylvania University at 22. A noted economist and Emeritus professor of London School of Economics, Desai was awarded the Padma Bhushan in 2008.
Desai has authored numerous books and has more than 200 published articles to his name. He has been active in the British Labour Party, becoming chairman between 1986 and 1992. He was made a life peer as Baron Desai of St Clement Danes in the City of Westminister, in April 1991.
In an email interview to PRASHANT MUKHERJEE, Lord Desai highlighted the need to pay immediate attention to job creation and labour reforms apart from other economic measures to revive growth.
Q. In a recent newspaper article, senior BJP leader and former Union finance minister Yashwant Sinha said the Indian economy is on a downward spiral and is set for a “hard landing” by the time the 2019 Lok Sabha elections are held. He also said many BJP leaders know it but do not say it out of fear. What is your take on Sinha’s biting critique?
A. Yashwant Sinha has described the statistical trends. It is not clear that he has explained why they are the way they are. It is not possible to say as of now whether the last four data points indicate a downward trend or are reversible. Thus, if demonetisation has caused a fall in growth rate or GST has implementation problems, these will be removed from the data and growth could resume. As of now we should note the facts but not make any extrapolations from them. The statement about 2019 is just a guess.
Q. There have been growing concerns in India over economic slowdown. The recent official data showed GDP growth in the first quarter of the current fiscal plunging to a three-year low of 5.7 per cent, from 7.9 per cent in April-June 2016. And the GDP growth has been falling consistently for six straight quarters. So, what is your diagnosis and prescription to address this situation?
A. We need an explanation as to why growth has dropped. No one has given a satisfactory reply yet. My own article in Financial Express dated 19 September pointed out some longterm structural reforms which need to be adopted ~ labour market reform, land market reform (repeal of the 2013 Act), solution of the PSU banks’ NPA problem, reduction of the large number of subsistence farmers by moving them to non- agricultural jobs. These will take a long time.
Q. How do you look at Prime Minister Narendra Modi’s move to reconstitute the five-member Economic Advisory Council headed by Bibek Debroy? Former FM and senior Congress leader P Chidambaram has said it is a bid to “put band aid on several broken limbs”.
A. Manmohan Singh had such a Council. Modi has taken a while to constitute his Council. He relies more on civil servants than on experts. This has never been satisfactory as the demonetisation implementation showed. Now the constitution of the Council is a good step. Chidambaram is just playing politics.
Q. Do you think at a time when the Indian economy had been coursing smoothly some major disruptive moves like demonetisation and a “hastily-implemented” GST threw a spanner in the works?
A. No comments.
Q. With the recent RBI data indicating that 99 per cent of the old high denomination currency notes came back to the system, followed by the recent GDP numbers that have shown a dip of nearly 2 percentage points, do you agree with the government that the entire demonetisation exercise was a success?
A. Yes. I wrote about the scheme during its implementation in November-January. The money coming back is not a sign of failure as now the money is visible and its laundering will be traceable. What is more, in future large cash transactions will become difficult. I had myself advocated such a scheme ten years ago in a lecture at the RBI.
Q. Do you think that the lower dividend announced by the RBI, will create an imbalance in the government’s fiscal deficit math?
Q. Then when do you think the growth cycle will begin, given the fact that the economy is crippled with high NPAs, lower private investment and virtually nil credit take-off?
A. If the government can give a fiscal boost and/or the RBI can cut interest rate, the economy will revive. It is not rocket science.
Q. How do you see the implementation of GST? Are you satisfied with the fixation of rates and its execution? What do you make of the many rates that are existing?
A. The GST took 15 years to complete because states have different needs compared to the Centre. They are jealous of their revenue take and not interested in efficiency gains. The multiple rates will be simplified once the states get used to revenue flows. Such a huge tax change sixty years overdue should not be judged as a failure in six months. The long run allocation effects will be beneficial. Why otherwise would all political parties have been for it?
Q. As this government will have to answer ahead of the 2019 elections on account of jobs, what is your suggestion to the government to create jobs for the unemployed?
A. Job creation is happening but these are not traditional jobs. There are earning opportunities but these are with irregular hours, no fixed contracts and the workers are virtually self-employed. This is called the gig economy in UK. India has grown a large gig economy in the services sector. But we define jobs in the old way as 9 to 5 jobs with contracts and retirement and pensions. Those jobs may be created much more slowly as outside the government sector (which is old fashioned and unreformed) the economy is changing dramatically.
Q. W hat do you think are the biggest challenges PM Modi faces in the run-up to the next general elections?
Reviving growth while keeping inflation low and creating jobs.
Q. What do you make of the recent Supreme Court verdict of ‘privacy being a fundamental right’ in relation to government asking people to mandatorily link Aadhaar number with virtually everything.
A. I have no views on the SC judgement.