The Exchanges

Q is the real per capita consumption is only growing three to 3.5%. So where is this gap? Like, why is the consumption not growing with the GDP, right? And Also want to understand from you when GDP of India grows by one percent. So this is for people watching the podcast. How does that actually translate into people's life? Does it lead to better jobs, higher income and affordable housing?

A So thank you Siddharth for having me again. I'm glad that the first one, even though it was long, You know, you had so many views. Uh, so that's shows how much curiosity there is amongst people to know what the reality is. So as we discussed in the earlier program, our GDP is not growing at the rate at which the government is saying, because that's the rate at which the organized sector is growing. That's not the rate at which the unorganized sector is growing. Uh, and as we had discussed, the unorganized sector has been hit hard because of demonetization, the structurally faulty GST, the NBFC crisis, and then the pandemic. So in fact, actually the unorganized sector is declining. So our rate of growth is not six, seven percent as the government would like us to believe, but since demonetization, the average may be two percent or one and a half percent or something thereabouts, huh? But because the data that we take is largely from the organized sector, so we keep getting this data thing. Now that explains a lot of things. Because you see, if unorganized sector was growing, then people's income at the lower run, they would be growing. And then that consumption demand would also be there. If they are declining, Then naturally they are the ones because unorganized sector, 94% of the total employment. So if their incomes are declining, then naturally consumption would be affected.…

AI assessment note: “if the income distribution is shifting in favor of the organized sector... consumption rise would be slow”

Q So what is the real number of our GDP right now if it's not 3.6 trillion? Where do we stand at then?

A So I think we are probably at still 2.5 trillion dollars because in the last eight years since demonetization from 2016, we have not been growing at an average of six and a half, seven percent, but more like one or two. And in some years like demonetization, we declined. Uh, then again, you know, when the government said before the pandemic, The rate of growth was 3.1%. So if the organized sector is growing at 3.1% and the unorganized sector is declining, that would have been also minus one, minus two percent. So of these years, the average could not be more than one and a half percent. And therefore we are still probably at about two and a half trillion or thereabouts. And that's why you see you have unemployment. That's why you see continuing poverty. That's why you see the various kinds of problems. The disparity also that you see is because the unorganized sector is declining, the organized sector is rising. So you cannot explain, ah, if the economy is growing at seven and a half percent or seven percent, then why is unemployment so high? Why is the youth protesting so much? You know, ah, why is the distress so much in the agriculture sector? It is, it can only be the problem that we are confronting can only be explained if the unorganized sector is declining and the rate of growth is really only one to two percent and not seven percent. At seven percent, the picture of the…

AI assessment note: “I think we are probably at still 2.5 trillion dollars”

Q You can also through your incentive structure, uh, get larger industries. To come to the remotest part of the country. And because you are saying that my road network is already developed, right? Uh, uh, your cost of transportation of goods will continuously go down, uh, over a period of time. So this is, this makes common sense. Why is it not happening then?

A See, it's not happening because our policies right from independence have been top down. So we've decided to develop the modern industry first. You know, so modern industry meant that certain centers got developed, right? The public sector, the only one which started setting up industries in remote areas, like BHEL Haridwar was set up where, you know, there was not even adequate transportation. They had to strengthen bridges so that you could move generators and so on. You developed a steel industry in the remote parts, uh, of, uh, you know, where the iron ore was available, Bilai, Bukaro, and so on and so forth. But private sector will go only where there's a developed infrastructure. Private sector will not go into areas where it's underdeveloped, where they'll have to spend money on development of infrastructure. But public sector also post 1991 now has to generate a profit. So they're also not going to go on their own unless the government tells them to go. They're not going to go into remote areas and do the development and so on. So as a nation, we have to reorient policies. As I said, we are going for capital intensive rather than labor intensive. That's also part of the way that organized sector is being developed, right? Uh, then we're not focusing enough on education and health. So if you're not focusing on enough on education and health, we're not going to set up goo…

AI assessment note: “See, it's not happening because our policies right from independence have been top down.”

Q But the, the, the, the GST, uh, that's, uh, center is collecting, let's say, uh, on any good, there's 18% tax, right? Nine percent is going to center, nine percent going to state. So it's an equal division.

A No, no. But you see, GST is only one of the taxes. You have customs duty, You have income tax, you have corporation tax, you have wealth tax, and so on and so forth, right? So the center collects bulk of the taxes. And of that, 41% is supposed to go to the states as per the finance commission and so on, right? But the way the center collects the CES and the other things, only 30% is going to the, or 35% is going to the states, right? So therefore, there's a shortage of resources. Second is black income generation means that what tax you could collect, you're not collecting that. So again that this thing, and then because the public now doesn't believe in policies, public says you've been promising poverty removal. You've been promising various things and you haven't delivered. So what are you going to give us today? So therefore the competition culture has come to freebies that in every election, I have to give something this election. I'll give free bus rides in this election. I'll give, say, maybe a mixie or a sari or something or the other. So the state's budgets are getting overstretched. Because political parties are coming on those promises. Because public is not believing the politicians.

AI assessment note: “No, no. But you see, GST is only one of the taxes.”

Q And you have been in academics for almost 40 to 50 years now. First as a student and then, you know, leading economics at JNU. Have you seen any vast difference on our education system or has it gone backwards?

A Well, from what I can see, it has deteriorated. Uh, for instance, JNU, the way it has been treated in the last 10 years, it has gone downhill. You know, this idea that we'll capture JNU, uh, has actually meant, you know, that it's gone down. You know, now JNU is number one university if you leave out Indian Institute of Science, Bangalore. It probably is remaining number one because other universities are going downhill even further. So the autonomy that was required has been killed. The kind of research that should be done, that has been affected very adversely. So in other words, you know, uh, what I see from JNU and what I see of Delhi University, the two best universities in the country, because Kolkata, the Chennai and, uh, uh, Bombay universities had declined considerably even earlier. But these two good universities, they have declined, I see in the last 30 years. The kind of critique of policy, the kind of critique of theory that used to come out, uh, I don't see that coming out, uh, so much now. So the idea of a university is knowledge generation, socially relevant knowledge generation. That idea seems to have declined. We are borrowing more and more, copying from outside more and more. They're saying, you know, Bombay should be like Shanghai and things like that, you know, uh, where it can't be. So JNU has to be JNU and Harvard has to be Harvard. We can't say JNU shou…

AI assessment note: “Well, from what I can see, it has deteriorated.”

Q to income ratio is at 11 nationally, far above the global benchmark of five. And household debt in India has jumped from 32% to 37.6% of GDP since 2020. While household savings have decreased From 7.2% to 5.1%. So, so what is happening with the middle class? Like why are middle class families now being forced into debt to afford basic things like a home, education, health care, and retirement?

A So, you know, it, it all depends, uh, which segment you're calling middle class, huh? If you are in the organized sector, then you're doing better off. But within the organized sector also workers' wages are not rising. Uh, the real wages. So therefore, they come under stress. And most of the savings are done by the well off segments. Most of the savings are not by done by the poor. If you're not able to fulfill your consumption requirement, that means you're not saving. You're possibly dissaving. Or you're saving very little. So your lower middle class, your middle class has very little savings to fall back on. And therefore there's distress amongst them. So as I said, you know, uh, two, three percent would be well off and the upper middle class, et cetera. Then maybe, uh, five, six percent would be middle class. And then another 10% would be lower middle class and so on. So this 10% lower middle class and the five, six percent middle class, they are the ones who are facing stress. Of course, the poorer, poorer facing stress, but these people are also facing stress because of this, uh, rise in, uh, inequality, the problem of unemployment. You know, the problem of unemployment impacts the middle class and the lower middle class acutely because their children are not getting proper jobs. Uh, so this rising unemployment is another factor which would, uh, burden the middle class. …

AI assessment note: “within the organized sector also workers' wages are not rising. Uh, the real wages.”