When asked about Rahul Gandhi making the electoral promise of income support of Rs 72,000/annum per family for the poorest 20% of the population, Raghuram Rajan says the broader aim of DBT should be to alleviate poverty
Former RBI Governor Raghuram Rajan while launching his new book 'The Third Pillar' in Delhi, spoke exclusively with BTVI's Executive Editor Siddharth Zarabi on Rahul Gandhi's 'Nyuntam Aay Yojana', the present government's transfer scheme for farmers, the current IBC process, lenders' plan to bail out cash-ridden Jet Airways, Vijay Mallya asking why Kingfisher airlines was not saved, and more.
On Rahul Gandhi's announcement of basic minimum income promise:
When asked about Congress chief Rahul Gandhi making the electoral promise of income support of Rs 72,000/annum per family for the poorest 20% of the population, and whether such a scheme meets the need of equitable distribution of wealth, Raghuram Rajan says the broader aim of DBT should be to alleviate poverty, further says social welfare schemes should be well targeted to achieve the desired results, also says the main aim should be improving the productive output of many people.
“When I say equitable distribution, it does not mean it has to be ‘equal’. I mean that beyond a certain point, inequality tends to hurt. The broader aim of direct transfers is poverty alleviation. In an economy growing richer, there will be attempts to alleviate poverty at the lowest levels. But, more people should be brought to productive work force,” says Rajan.
Elaborating further, Rajan says “With adequate healthcare, people should be operating at higher levels of production. (Minimum Income schemes) are not a bad investment for the society to make. The question is – how to target it effectively. But, these schemes should not discourage work.”
On eradicating poverty in India:
Speaking about the sustainability action plan initiated in the United Kingdom, which is about providing basic level of support for all citizens, in case they were rendered unemployed, Rajan says targeted transfers to the poorest of the poor and marginal farmers is a part of the safety net.
He says, “What happens in countries that develop is that in order to enable their citizens to participate in the market, governments make safety nets. You have to make sure that it is effective, targeted, does what it is intended for. Whether it is farmer relief, or scheme that is targeted at the poor, are all attempting to get to something similar.”
On the effect of transfer income on labour force:
On whether transfer schemes will have a bad effect on our labour force, Rajan says, “Ultimately it should be worked out. You should provide basic support, You don’t want anybody starving in a country which can afford it. At the same time, the income support is not so high that you are discouraging people from not working because there is work available.”
Rajan says it should be seen how the Congress’s proposal will emerge.
On addressing the concerns that emerge:
According to Raghuram Rajan, it should be found if the new schemes are replacing the existing less effective or poorly targeted schemes effectively and better reching the goal intended.
The former RBI Governor emphasised that the level at which it is pitched is important, and also the targeted population and the concerns emerging after the due study.
“Some of the poorest of poor live in districts where cost of living is relatively low. There is also a question – What about the cities where the cost of living is high? What is done about it? These questions should be addressed,” says Rajan.
On the direct benefit transfers, Rajan says, “Sending money directly to the beneficiaries prevents leakage on the way and if the money is in the hands of the beneficiary, it is a source of empowerment.”
“The poor should have the ability to go to both government and private hospitals. They should have this empowerment,” says Rajan.
On the Centre replicating Telangana Govt’s ‘Rythu Bandhu’ scheme:
When asked to comment on similarities between the Centre’s model of income support for farmers and Telangana Govt’s ‘Rythu Bandhu’ scheme, and whether it is commendable to resist such populist measures, Rajan says we have to make Agriculture an engine of growth rather than an absorber of subsidies.
“I don’t want to comment on acts done and acts not done. It is important to manage the budgetary constraints. Our Budget deficit is a large one. We have to make room for this spending that we need, in our budget. We have to make Agriculture is an engine of growth rather than an absorber of subsidies,” Rajan says.
Populism vs Policy: ‘Long term benefits of these schemes should be taken into factor’
Referring to the longer term aim of these benefit transfers and income support to the marginalised, Rajan says ultimately the aim should be to empower the poor, and sensible politicians should view the long term effects of what they are doing.
He says, ”Agriculture provides jobs also. This requires huge reforms. I think there are plenty of ideas around. But, we need to work on it, Alleviate the stress, but build a bridge for the future. How will the beneficiaries climb out should the target. How you are encouraging to climb out.”
“We expect them to acquire the capabilities which allow them to participate in the workforce. They would not acquire capabilities if they don’t get these transfers,” he adds.
Comments on jobs:
Stressing that jobs are the big need in India, Rajan says, “The number one issue in India is jobs. Infrastructure creation itself will generate jobs.”
He elaborates saying, “One of the big problems in the West is technological change. Creating a lack of good middle class jobs. The number one issue in India is jobs. Now that we have more automation in manufacturing, the kind of jobs available in assembly line manufacturing, are no longer available. China has moved to robotics in manufacturing. But, we haven’t crossed that first step. I am little less pessimistic about jobs being available in India for some time. But, we need to create infrastructure that is necessary for all the jobs that we need. It can pull people out of their present state and move them to somewhat better living.”
On the state of PSU banks, Rajan says 'there is need to clean up of banking system':
“How to create jobs revolves around how to create infrastructure in a rapid way. That will be an important source of modernization. And to create a infrastructure, we need to clean up the banking system. So, how should we bring sensible lending back to the banking system?. That requires governance reforms,” says Rajan.
On India’s banking system, Rajan says, “It is work in progress, aim should be not only clean up but ensure that same problems don’t reappear, and this demands a relook at our lending procedure. Do we need a banking system independent of the government?”
‘We may need an independent private sector’
He says, “We need to distance the private sector from the government. One of the problems is there is too much closeness between the two. To do that you have to take government out of the many parts of the economy. How to improve governance in the financial system is the need of the time.”
On Agricultural distress:
Rajan says agriculture issue is a problem faced by all the world countries and is not unique to India, and there is a need to look at the issue not as a problem, but to take advantage of the value farmers have created.
Rajan raising questions says, “We need to look at our system and find if the present management of the situation is appropriate or we need to move to a better system."
The former RBI Governor stresses on investments in technology in agriculture and irrigation, also says water being the biggest problem, it should be managed properly to manage out agriculture.
On the current state of Insolvency and Bankruptcy Code (IBC) process:
Rajan speaking on the state of the Insolvency and Bankruptcy Code (IBC) process, believes it should be prompt, timely and the main aim should be to ‘put assets back on track’, adds there could be an out of court settlement of issues but they all should be fair.
On bail out of cash-ridden Jet Airways by lenders:
On PSU banks agreeing to bail out cash-ridden Jet Airways, the former RBI Governor says, “Jet Airways is a good asset. Jet Airways issue should be resolved soon.”
On Vijay Mallya accusing the lenders of not saving Kingfisher Airlines:
On Vijay Mallya saying lenders could have bailed out his airline in the same way Jet Airways has received help, Rajan says, “We should have the same level playing field for everyone.”
‘Need for second generation of reforms’
Rajan also speaks about the the need for next generation reforms.
He asks, "After five years of ‘recovery’, why are investments so pathetic? Why hasn’t investment picked up? This is worrying. We need to resolve limitations on our growth. What kind of India do we want? What kind of reforms we do to get that? Are we at a time when we need a second generation of reforms?"
On the need for private sector independence:
Rajan says, "India, our governments try to do too much. I am not talking about specific government but the system. It has too little capacity to deliver on all the things it takes up. The private sector is cowed as a result. It limits out capacity to move in any particular direction. Unless we figure out what the appropriate role government is, and how to render the private sector truly independent, I think both our growth as well as democracy are not going to flourish to the extent that it should."