Fiscal deficit won't matter if spending is prudent, says Pronab Sen

Pronab Sen, India’s former chief statistician and newly appointed chairman of the Standing Committee on Statistics, has said that the forthcoming Budget should boost demand by putting more money into MNREGA, PM-Kisan and rural roads as these were guaranteed ways of ensuring that money gets down to ground level where it’s most needed and would be immediately spent.

In an interview with Karan Thapar for The Wire, Sen said he would have no problem if, to boost demand by increasing expenditure on schemes like PM Kisan, MNREGA and infrastructure, the central government’s deficit reached 5.5 per cent. While along with the deficit of state governments and public sector units, this would push the overall national deficit to 11.5 per cent, he said this was the critical need of the hour. The prime duty of the government was to revive economic growth rather than protect the fiscal deficit target, Sen said.

On infrastructure, Sen said it was very important to carefully select the projects that were funded. Rather than start new projects, where the gestation period was likely to be long, he said more money should be spent on existing projects that were underway, perhaps by ensuring that projects intended for completion in two years were finished in just one.

He was not in favour of the demand to cut personal income tax as it would affect a very limited section of 30-50 million people who anyway were high savers and, therefore, only a small percentage of what they saved in tax would be spent on fresh consumption.

Terming the economic situation as “very bad,” Sen said that post 2016-17 India’s economic statistics measuring GDP growth were “largely guess work”. This is because the informal sector, which is said to be 45 per cent of the economy, is measured on the basis of a projection of the performance of the formal sector. At a time when no one knew how badly the informal sector had been hit by demonetisation, this projection could be entirely wrong, he added.

While he was in favour of land and labour reforms, the present economic crisis is the wrong time for labour reform, Sen said, adding giving industrialists the right to hire and fire would lead to substantial proportions of their workforce being laid off and that would only add to the present crisis. He said such reforms should be done after the economy had recovered and not at a time when it’s in the doldrums.

He expressed concern about youth unemployment, which according to recent surveys had jumped from 9 million in 2011-12 to nearly 25 million in 2017-18. He said the problem of youth unemployment had been exacerbated by the impact of demonetisation on the informal sector. This was because most young people first found jobs in the informal sector and then, after a few years of training, hoped to move into more formal areas of the economy. However, post demonetisation the informal sector had stopped hiring. This meant that for the last three years, young people, who would have obtained jobs in the informal sector, had been left unemployed, Sen said.