Need to be cautious about slipping into permit Raj: Kaushik Basu

With a record capital outflow of $16 bn in March, the biggest in a month, India must be careful about the future, he said

While endorsing India’s policy on tackling Covid-19, Kaushik Basu, former chief economist of The World Bank cautioned against slipping into the regime of Licence Raj.

“The licence permit raj in India was slow evolution. The year 1991 saw the biggest economic reform, which transformed the landscape of the economy. Right now, there is a risk (of going back to permit era). But I understand the awareness has come among policy makers, and we will not make that mistake. We must not become a system where you need to take permission for everything. We need to quickly unwind, creating space, so that people can start taking their own decisions,” says Basu at a webinar organized by the Bengal Chamber of Commerce and Industry.

Also, with a record capital outflow of $16 billion in March, the biggest in a month, India must be careful about the future, he said.

“Global players are worried about India, because in the month of March alone we saw $16 billion capital exiting India, the biggest outflow in a single month. There are many economies which are doing well amidst this crisis, like Vietnam, South Korea and Taiwan. We have to keep reforms in midst of this, so that we have a good future, along with managing the current crisis,” said Basu.

Also, while controlling the economy, India must not try to suppress market forces, he said.

“We must never thing think we can control the invisible hand, stop the market from functioning, halt the economy and have bureaucrats and Police run the state. It has not worked anywhere in the world and is a recipe for disaster,” he said.

“India has remarkably talented bureaucracy. You have to harness it and design package to pull out,” he said.

Basu said the stimulus package was a move in the right direction.

“I am glad about a big chunk (of stimulus) was announced yesterday. We needed that. For time being, we need to put aside the worry for fiscal deficit. Even if a little monetization, the stimulus is worthwhile,” he said.

“The initial moves made by India were right moves. A lot will depend how we exit from lockdown. Landscape of global economy will change, winners and loser will emerge,” he added.

Additional Stimulus 3% of GDP: N R Bhanumurthy, Professor, NIPFP

The additional stimulus would amount to three per cent of GDP, according to N R Bhanumurthy, Professor, NIPFP (National Institute of Public Finance and Policy).

“Now this Rs 12 trillion additional fiscal stimulus that PM has promised will include Rs 7 trillion because you are not going to compromise on expenditure that has already been planned in Budget 2021. We have already seen that the government actually increased the borrowing programme for current financial year from Rs 7.8 trillion to Rs 12 trillion so I think the additional Rs 4.2 trillion is largely to cover the decline in revenues," he said. 

Bhanumurthy said that his calculation suggests that the additional stimulus measure, assumimg that there will be no further changes in monetary policy, would be close three per cent of GDP. 

"And that is substantial given the fiscal condition right now,” he added.