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West Bengal Finance Minister Amit Mitra is an economist by both training and practice. Duke University PhD Scholar, USA In the USA, Mitra is a fervent advocate of development economics. In a phone interview with Rajeev Jayaswal of the Hindustan Times, he says the role of the Center is to live up to the true spirit of cooperative federalism and take all steps to boost the downturn economy without worrying about violating the established fiscal deficit. glide path at this difficult time of the coronavirus pandemic. Edited excerpts:
The International Monetary Fund (IMF) has reduced India’s economic growth to 1.9% in the current year, when the global economy would contract by 3%. What do you suggest to drive growth?
This is an unprecedented situation and the central government must prepare a comprehensive plan to boost the economy, which is essential to control the increase in unemployment, poverty and hunger. The Center must announce a package of 6% of GDP as suggested by CM [Mamata Banerjee] in the afternoon [Narendra Modi]. This is around Rs 10 lakh crore.
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The Union government and the Reserve Bank of India must come out of their “lakshman rekha” and make bold decisions, not incremental measures. There must be a big bang ad. Substantial encouragement is essential, and also possible, because India has scope to borrow. Compared to many developed countries, India’s debt-to-GDP ratio is less than 70%, while it is 106% for the US. USA And 240% for Japan. Furthermore, international oil prices are moderate, which favors a country like India that imports more than 80% of its crude oil needs. Another source of margin is India’s large foreign exchange reserves.
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The Center must take advantage of these incidental advantages now and stop worrying about the fiscal deficit at a time when survival is the issue. The government must provide money in the hands of the poor, who are struggling to survive. Approximately Rs 4 lakh crore could be transferred to states that have the ability to digitally transfer the required money to the bank accounts of the poor. In West Bengal, all disbursements are made digitally, no checks or cash are used in our treasury. The poor must be provided with a free ration, as we have done in West Bengal, by providing zero priced rice and wheat at ration shops.
What about the formal sector?
The industry faces supply and demand challenges as supply channels have been broken. The stimulus will help create demand and provide liquidity in the system. It can even be considered to provide what is done internationally (at those times): the government pays 80% of the workers’ wages paid by the corporate sector during the shutdown. This will allow for worker retention and this human capital can be used quickly when the Covid-19 pandemic ends.
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Liquidity shortages are acute, particularly for micro, small and medium-sized enterprises (MSMEs). Apply for soft loans for a period of four years with a moratorium on repayments and interest for at least the first year. This will give them room to breathe. Similarly, other formal sectors need calibrated support. Sectors such as aviation, hospitality, tourism and non-essential retail trade have been virtually paralyzed due to the blockade.
What is your assessment of post-Covid-19 economic growth?
It is difficult to predict at this time when even developed countries cannot give an accurate answer on when [Covid-19 pandemic] will finish. If the pandemic ends in October … with adequate policies and fiscal stimuli, India could see, at best, GDP growth of 1% (in financial year 2020-21). But if the pandemic continued any longer, it will have a direct impact on GDP, which may even contract, registering negative growth.
Does the Center provide sufficient financial support to states, particularly West Bengal?
The Center is not responding as well as it should have been in ideal cooperative federalism and at a time when states are fighting a pandemic. Finance Minister [Nirmala Sitharaman] She has not responded to any of my letters, although I did have a conversation with her. I have written eight letters, highlighting some genuine state concerns and the precarious financial positions they suffer. Of course, one or two suggestions have been partially accepted. An ideal cooperative federalism must foster a culture of dialogue. States are the true implementers of welfare policies and programs. They must be seen as an integral part of a united India.
Are you referring to the controversy over the dispatch of Inter-Ministerial Central Teams (IMCT) to West Bengal?
The Center’s decision to send two Interministerial Central Teams to West Bengal was made without consulting the state government. This is a violation of federalist protocol. The Center’s move was not in the correct spirit of cooperative federalism. Nor can we understand why particular districts have been chosen. In terms of so many [Covid-19] Cases and Rate of Increase Ahmedabad in Gujarat had a much higher number of cases and a faster rate of increase. But it wasn’t on the Center’s radar.
