Modi’s cash plan better than farm loan waivers for short-term relief, says Raghuram Rajan


Mumbai: The Narendra Modi government’s Rs 6,000/year direct income transfer to farmers is better than loan waivers as a short-term answer to farm distress, former Reserve Bank of India (RBI) governor Raghuram Rajan has said.

‘It is better as a short-term answer and it is also better if you remove some of the distortionary supports you otherwise have,’ Rajan told ThePrint in an interview, adding that the solution to tackling farm distress lies in reviewing supports and bringing technological improvements in agriculture.

Rajan, a renowned economist who is currently a professor of finance at the University of Chicago Booth School of Business, has been a consistent critic of farm loan waivers, the go-to solution for political parties looking to appease distressed farmers.

The 56-year-old is currently on a promotional tour for his new book, The Third Pillar: How Markets and State Leave the Community Behind.

Speaking to ThePrint, the former RBI chief weighed in on the Congress’ proposed minimum income scheme, the Nyuntam Aay Yojana or NYAY, which seeks to assure India’s poorest of Rs 72,000/year.

Both the Congress and the Bharatiya Janata Party (BJP), he said, seem to agree that direct income transfers are the way forward.

He added that the Congress had consulted him about the proposal, and said he had ‘absolutely no problem giving advice’ to any leader.

‘I have spoken with the Congress, spoken with other leaders too, and I give the best advice I can to the extent of my expertise in that area,’ he added. ‘Sometimes I consult with my fellow economists and we give advice together,’ said Rajan, a former chief economist at the International Monetary Fund.

‘The whole aim is, really, to improve our growth possibilities in this country and, to the extent that I can help, I join in,’ he added.

According to Rajan, where politicians introduce populist measures in response to the needs felt by people, the role of an economist as a technocrat is to see how they can be most effectively implemented.

‘As far as I understand, if you are talking about the Congress scheme, there will be a process where the technocracy will be involved once there is a scope for actually implementing it, to bring in advice on how to do it, running pilot projects on how it can be rolled out, and so on,’ he said.

‘Gap in labour market statistics’

Talking about the recent row over the GDP backseries data, prompted by a change in the calculation methodology, Rajan said it would be useful for an independent expert committee to study whether India’s calculation of growth is satisfactory, given the mechanism tweak and the ensuing back-and-forth.

A similar committee comprising experts not directly party to the matter was required to vet India’s job numbers, Rajan said, noting that India hadn’t collected detailed labour market numbers in an effective way in a long time and pointing out ‘a gap in our statistics’.

‘There have been different proposals on improving this. I don’t know where they lie just now, but it is certainly something that we should look into very quickly,’ he said.

It would help, he added, to have independent experts opine on what might be the most appropriate way of moving forward, and which set of numbers matters.

According to an unreleased draft of the National Sample Survey Organisation (NSSO) annual household survey for 2017-18, the national unemployment rate touched a 45-year-high of 6.1 per cent in the study period.

A controversy erupted when a Business Standard report flagged the figure earlier this year, but the government dismissed the criticism, saying the numbers were unverified. The final report is yet to be released.

‘Powers of panchayats, local bodies taken away’

Rajan’s new book dwells on the importance of communities and how their role as a pillar has diminished between the forces of the state and the market.

Although communities have traditionally been very strong in India, Rajan told ThePrint, some powers of local bodies such as the panchayat and the municipality have been taken away over time, partly due to the creation of a national market, and also because of a stronger national government.

‘Part of the rationale for panchayati raj was to push power back to the panchayats. That is still something that we are working on and it will take some time to make that happen fully,’ he said.

Asked about concerns about the erosion of the RBI’s autonomy, Rajan said central banks across the world were being subjected to serious questioning. He stated that there was a tendency in populist movements to question institutions and ask whether they were fulfilling people’s will. ‘But at times, institutions exist to constrain, which can cause conflict,’ he added.

‘I think across the world you see central banks being subject to very serious questioning. The Trump administration has been questioning the Fed, so I don’t think we are an outlier in this process,’ Rajan said.

‘I think what we need to do is strengthen the statutory independence of the Reserve Bank as we go forward because that will help us become a more developed country,’ he added.

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