Ahead of the Union Budget 2013, Dr Prannoy Roy speaks to Nobel laureate Amartya Sen and Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission, about what ails the India growth story. They discuss threadbare the slowdown, and the government's reform measures like cash transfer scheme, food subsidy and foreign direct investment in retail.
Here is the full transcript:
Dr Roy: Good evening and welcome to this very, very special show here in this wonderful college Miranda House, Delhi University, which has produced some wonderful leaders of this country and also produced my boss, who used to be here, many years ago - Radhika Roy. But apart from that, it has a wonderful reputation and thank you all very much for being here. We've got a house full of students from different colleges. St Stephen's raise your hands, Delhi School of Economics, Miranda House. Wow, okay, right. Say no more.
Basically in a few days from now we are going to be faced with an Election Budget. It's a real last, real budget before the big 2014 general elections. And in that context, we want to look at what the state of India is and what can be done. We don't understand why this turn around has happened. 2 years ago or 2-3 years ago, India was the focus of the world. The world looked at India, those great hopes; great faith. We were growing at 8 per cent and what was really important for all of us was that it was the first democracy, large democracy, to be growing consistently at 8 per cent. That gave great hope to everybody and the young, you guys were or still are the hope and the energy and that's what we look for in our future for India. It really looked very bright. Then suddenly everything's changed in the last two years. We started slowing down. The world no longer really looks at India. Apparently divorced. This time we are just a side-show, when we used to be the main attraction after China. So why have we fallen off the map? The BRIC countries, the iron BRIC, many people are saying that India is going to be replaced by Indonesia. We used to be considered a breakout nation, now we are considered, in 2 years, everything suddenly changed. Why is that? Well the government is being accused of paralysis, not doing anything. Then they come out with two fairly major announcements, FDI in retail and cash transfers and that becomes a big controversy. So is our system in trouble? I think we are going to discuss some of that here tonight.
So I think first we will like to talk about cash transfers, food, and unemployment. What matters to the majority of this country and then we will move onto industry and the slowdown and then finally we will look into the future and; so if you've got issues that you would like to ask about food for example, I'll ask the first question, I hate asking the first, you should be asking but I'd like to ask Professor Sen. We've got, you've written about malnutrition, the poverty; so many people below the poverty line. And we have 70-80 million tonnes of food grain just lying there and 20 per cent of that, eaten by rats every year. How can we live with that?
Prof Amartya Sen: It's a very good question. But you know I think there is a danger of hitting the gloom button a little too early. I mean certainly we were going 8 and in fact for few years over 9 per cent. But the living standard of the people was moving very slowly indeed and it required some engagement. It would be nice to get back to 8-9 per cent and I hope we can. But there is even a 6 per cent. That was the last year and 5 per cent might happen again, and next year, depending on which prediction you take. It's still about the second fastest growing large economy of the world. Indonesia is neck to neck in that. I don't think that really is the thing to worry about.
Dr Roy: You've always said don't focus on the numbers.
Prof Amartya Sen: Yes, but also you know, I mean there in Europe and America there 1 or 2 per cent. I had to field the question for NDTV in June last year as to whether we should be so tremendously gloomy because the 6 per cent number has come up? And just to, earlier someone from France had called me to say should we congratulate you up for, after a long time? It didn't click. It didn't go to a 0 per cent growth rate; they were delighted about it; was a subject to be congratulated.
So I think, it's a little, I think, little to concentrate on one set of numbers to worry about. I think, the big thing that's happened is that we are discussing really big issues of which; why we have so much under nourishment in this country is one. What we can do about it is another and the general idea that you cannot, in fact feed the kids because fiscally it's responsible. As we compare with where these subsidies go, another thing, so on, cooking gas and Jill and John...
Dr Roy: To the middle class...
Prof Amartya Sen: Yes middle class, which has renamed itself aam admi i.e. they are relatively poor of the rich, that's the category and has a tendency to be vocal and all has to cooperate.
Dr Roy: Relatively poor of the rich now call themselves the aam admi and they are the more vocal lot.
Prof Amartya Sen: Exactly. Now I think if you look at the amount of money that goes into these subsidies. It's quite large, more than what we need to feed the kids or what we need to run a decent system of health camps. So I think the fact that the debate has move in the right direction is a very positive thing. And personally I think that the FDI in retail, I don't think it's a big deal either way actually and it's such a big issue, not comparable with the food security.
Dr Roy: Malnutrition, food security?
Prof Amartya Sen: Yes, yes, exactly. But on the other hand the FDI is an important issue. Retail is a relatively small part of it. So I think the fact that we are discussing our growth strategy, of which the FDI is what we want, that we are discussing what to do with the future would be another and I think we should also start thinking about what happened in countries like China.
You see, China is always admired and the people, lot of people, have tremendously admired China, want us to follow China without being exactly sure of what is that the Chinese do. Will they spend 2.7 per cent of their GDP on government health care? We spend 1.2. They make sure that undernourishment doesn't exist by supplemental feeding. When if need be, the organization like CDI, the China Development Foundation have been keenly on working that out. Their health care is guaranteed to everyone, basically out of pocket system for those who can afford it, and then if you have get really a hit, then, I forget the initials, ISVY or something, has come in to supplement it, which is to rephrase regular care by big expenditure. That cannot be a good way of running the health care system. Many of these would not have happened for that.
So, I think, along with the food care, we have to think about all these issues. Now aren't they getting more attention in India today? Yes they are. Is that something to be happy about that? Yes absolutely. Isn't the question, I think the fact that it's receiving a lot of attention? I don't think the slogan often gave a very good idea of the solution that might be, but that is the big issue to be discussed.
Dr Roy: So you think there is a kind of cleansing process going on and that shouldn't be confused with despondency or...
Prof Amartya Sen: No and I think they, first of all, all the countries have a low growth rate including China. We have fallen a bit more that the Chinese have, even though the gap isn't that much more than now it was earlier. But I think it has been a good influence in making people concentrating minds, people's minds as to what it is that we should be worried about in India. That is totally welcome.
Dr Roy: So Montek, I think one of the key points is that government subsidies or the focus seems to be among the aam aadmi which is actually much richer than the true aam aadmi', middle class, the urban. But these LPG subsidies, diesel subsidies, we are not focusing on the real cause. Is that one problem you do see? But we are discussing it at least.
Montek S Ahluwalia: No I think there is no doubt that the subsidy structure that has evolved did not evolve from a presumption that look, let's do something for the poor. It was there, it was allowed to develop and there is a huge understandable, political resistance to be withdrawing subsidy. Most people are not aware to what extent these things are being subsidized.
I mean for example, let's take diesel. Total expenditure in the Budget on food subsidy, which is, everybody agrees is a priority. We ought to do a better job, etc. There is no dispute on that. Does not exceed Rs 70,000 crore. The subsidy on diesel is Rs 91,000 crore. We have now taken steps, which if we carry out over the next 18 months will eliminate the diesel subsidy. If we do what we have said we will do, month by month, in 18 months, if the global price of oil doesn't rise, which it probably won't and the exchange rate remains more or less, in 18 months we will get rid of the diesel subsidy.
Dr Roy: That's huge in an Election year, because every time diesel price goes up everybody shouts that oh inflation is...
Prof Amartya Sen: ... everybody in India. The so-called aam aadmi...
Dr Roy: The aam aadmi, right...
Montek S Ahluwalia: I mean that's only an example.
Dr Roy: Okay, is there a question on cash transfers or food?
Audience - Diksha: This is Diksha from Miranda House. Sir, I would like to ask in such a time of fiscal deficit, can we really afford food security bill?
Prof Amartya Sen: Well if we can eliminate the diesel subsidy we certainly could. You know the answer but here we are trying to find out, it is what I would say.
Diksha: Regarding cash transfer can we assure that there will be no corruption in case of cash transfers because there is a large scope for that. And regarding the thing in paying them in kind, we have millions and billions of tonnes of things rotting in our godowns, so will that not be better for last mile delivery as compared to cash transfers.
Prof Amartya Sen: I think that if your fiscal responsibility is a way big one, what is unfortunate is that every time the things like feeding the kids come up, fiscal responsibility unleashes itself and tells us not to do it. While you are having the real subsidy you have electricity tax that doesn't cover the cost and there is a huge loss and we have fertilizer subsidies. We don't even have import duties on gold and diamonds and in a meeting that Montek shared, I suggested that they must do something, and I have to say I don't think it was result of my admonition that they tried to do something. But there was so much agitation from the aam aadmi, quote unquote.
Dr Roy: I think there is a key point. The aam aadmi now is not the aam aadmi, the middle class, the relatively poor among the rich and I think it's got a bit to do with the ghastly news channels that keep projecting them.
Montek S Ahluwalia: One thing I want to correct Prannoy that something you said, whatever you said sound so credible and your audience picks it after me.
Dr Roy: Whereas you mean all this is not true though...
Montek S Ahluwalia: You said that 20 per cent of the food grain stocks is eaten away by rats every year. Now with the great respect this is completely wrong. I mean there is a loss and sometimes the loss they report to me is like 0.1 per cent. I tend not to believe that. But you know this number, 20 per cent, it would be criminal if the loss was 20 per cent. It isn't. There is no, absolutely no document anywhere. The loss may be 1 per cent and if you are going to have a large stock that's part of the cost of character.
Dr Roy: So why do you have 17 million tons of food grain when children are dying? Forget how much, 12 per cent, 2 per cent, 20 per cent. Why can't you distribute that food to children?
Montek S Ahluwalia: If you are going to produce 150 million tonnes and they all are going to come two points in the year at any given time. Then there are going to be large stocks. Now the difference in our case is most of the stocks are government stocks.
The question you really asking is that why are children not better nourished?
In my view, that's nothing to do with the stocks. We should make sure that they are nourished even if we didn't have large stocks. So the question about what you need to do for the kids should be totally divorced from the size of stock. It's not as if we started exporting the stock or we didn't have large stocks, that you get up and say, well of course then it doesn't matter. So the children malnourishment is an issue. The distributional issue, the government agrees, we should do something. We are doing something. Incidentally there is another point that I want to make. You know something that the Prime Minister himself has said that the extent of malnourishment is a national shame. I mean the government doesn't have a different view from anyone else on this.
Dr Roy: But they don't do anything about it. There is a question...
Montek S Ahluwalia: No, no, let me explain. The last data that you have on malnourishment or that anyone else has is from the year 2005-2006. Because we don't collect this data except every 5 or 6 years. So it's in the last 5 or 6 years that there has been this focus. The ICDS programme being strengthened, the mid-day meals, the food security, not the Bill but the TPDS being strengthened, and what's more I mean a lot more rapid growth in rural areas.
I mean, look in the last 5 years, the 11th Plan that just finished, agricultural growth was 3.7 per cent; in the 10th plan it was 2.4. If you look at real wages of agricultural labour, they have increased in last 5 or 6 years; six time faster that in the previous year. Now my guess is, hope is and my guess also, a lot of this will have got reflected in living standards. We have to see that result in terms of the next round of data on malnourishment. Certainly on poverty; by the way numbers are coming down.
Dr Roy: So Amartya you agree on that, that it is actually just data problem? Things have improved a lot.
Montek S Ahluwalia: I am not saying data problem. I am saying you don't have the basis of judging whether in the last 6 years there has been any improvement because there is no data.
Prof Amartya Sen: I have to say 3 things on that. First of all it's certainly true that the data on under-nourishment is very badly dated and it should have been renewed. I think you are referring to national family health surveys. Which was last done in 2005-06. The lag between, that publications use, used to be far smaller than it is now and that I hold, I am, in many ways I am sympathetic to the government attempt. But I think in order to get that subject vaguely on the political agenda and public discussion we need information and there is no reason by the last said it should be 2005-06. And earlier the gap was couple of years. Now it's about 6-7 years. Now I think that's very unfortunate, very bad contribution to the public debate. That's a point to make again, partly as an economist, partly as a citizen who would like to debate these issues.
Secondly, it's true that there has been growth in the wage rate, etc. At the growth rate of wages particularly these have been abysmally slow over the years, so that in China it goes on 7 times faster than in India. Even though their growth rate overall is little higher than ours. It's about 7 times more than our growth rate. Now that indicates that there is a problem that we have in the distribution system. And other than the civil servants salaries, which have grown quite rapidly, there has not been the kind of wage wise distribution that many other countries, China, Brazil, Mexico have been relied on. So that's another problem.
Third, having seen all that what you are saying is correct, I think, that the number is probably better than what it was earlier. I think it still remains brighter as you say that you don't distribute it, and nobody distributes it but the government. That food transfers; food subsidy and ability to feed the kids particularly should be a priority. I think the way that the debate is, saying that can it be afforded? That was the question, which was the sensible question. I don't think it ends the debate in fact it only begins it. Because so many items, which are far less important, absorbs so much of the budget compared with what we do for our kids, and Indian nourishment is one of the worst in the world, of which we should be ashamed. And even also was on the glory days to which you were referring Prannoy.
When everyone was looking at India, they were looking at a country, which has higher proportional under-nourishment, more than any country in the world. But no, there is question that A. that we are debating that and we are quite right. Also, that we are withdrawing subsidies from the subjects which are less important to really important subjects. So I agree with the practical reason, the policy aspect of your conclusion, but there is an epistemological problem about the information. We do want it and I hope you do what you can to make these data more easily available. I just finished a book in India. I was absolutely exhausted trying to get more recent data on that.
Dr Roy: Question from a young man here...
Audience - Siddhartha Das: I am from IIT, Delhi. My question to you is, as of now the government is pushing for the direct cash transfer policy. A few days back you came up with very interesting points regarding how do you insure that the cash directly benefits the poor, the needy people? How does it ensure, the government, that the girl child in the home gets the food through this cash? So I would like to know what can be the check mechanism that the government should implement or we as a society should implement, and also how can technology be part of it? Like, we can have a food card kind of a thing, which we could swap for food.
Dr Roy: Technology in the role to making sure it gets to the person you targeted. So how can you make sure of that? First of all is cash-transfer a good idea?
Prof Amartya Sen: I think that there are two things to say on that. Particularly one is that you have to battle that on several fronts. One is the allocation of thing and the other is having more accountability in the system. And both of them are very important and the fact that one is important, that means the other goes away. And let me give an example when at the end of July last year the whole world was upset that India had a complete blackout, in which 600 million people suddenly were plunged into darkness. All the newspapers complained about 600 million.
There are two problems over there. One problem is that such a thing shouldn't happen. What can you do? Why is it that the power sector in India behaves so badly compared to what the Chinese do, for example, which is not to subsidise electricity, not to. Every time I am here I have to carry a pullover at the height of summer because everything is, you see that Tokyo keeps the temperature 23 degrees, Singapore at 22 degrees, Bangkok at 22, Beijing at 22. We keep at 16 or 17 on subsidized power, air conditioning at 16 or 17. So I think we have to think of how it is valid?
But the second problem is of the 600 million people who were away in darkness that evening. 200 million people didn't have any electricity connections any way. The fact that problem existed did not mean the delivery problem and how to run a power sector was not an issue. And the fact that power sector is an issue doesn't mean that the 200 million people, who are not aam aadmi quote unquote, didn't have any power connections. 1/3 of the Indians don't. The fact that the news wasn't a newsworthy story, but the aam aadmi losing the power certainly was. I think we have to look at both these issues. So yes, absolutely why? We have to look at delivery, the accountability. We also have to look how much we put in, what priority we give to them. So one shouldn't be used to eliminate the other. That we can't do a very good delivery and somehow we can't improve it and therefore, we won't put any money into it; and on that Gandhi can withdraw all subsidy, so does that go at all to the poor? I don't think that's the way to look at it. So I think any improvement in India and any progress forward has to be a multiple pronged attack in which accountability is a very important issue and also our values, our priorities. The fact that they worry about, you can't even mention about the girl-children. That's another issue, which impinges little on the cash verses food distribution system and all those issues remain. So we have plenty of problems and we have to address them simultaneously. Never worry about time to say which one do I first, because you can do all of them together. Which one do I have first or which do I have is the question when you can have one but not the other. Like whether have tea or coffee. Well then I choose one like coffee. Where then I choose one, where then I can't have coffee and tea as well, oh I shouldn't in any case. So I think if you can do many things together. Do those things together. There is absolutely no reason why you have to say we begin. We have to increase allocation for the kids only after we have cleaned up the delivery system, or we would start delivery system only after we have given a lot of money to the kids. We have to be together.
Dr Roy: So, but Montek answer that question. How are you going to make sure that the cash transfers you are doing are more targeted than the actual physical transfers?
Montek S Ahluwalia: Well you know the government has started a process of shifting some of the benefits that we now give in the form of money payments or cheque payments or whatever into an electronic transfer. Now there is absolutely no reason to believe that if you know who the beneficiary is and obviously you have to know who the beneficiary is because you are giving them some benefits. Now instead of giving them benefits by somebody writing out a cheque, somebody losing the cheque, deliberately losing it or whatever, you would now have the list of the people on a digital list. You would have their Aadhar number and you would basically electronically transfer whatever the entitlement to their bank accounts.
Dr Roy: This is your technology side, the Aadhar. The UID number may play big role in that.
Montek S Ahluwalia: I am just completing the picture. So what you can be sure about is that if you know the person you want to benefit, one big advantage is that there can't be one person claiming 3 different benefits because if they have got an Aadhar, no, that will sort itself out automatically. It's not just the number its, lot of it is work being done on financial inclusion, which is making it possible for people to have access to bank accounts without even going to a bank branch. Now that's currently being rolled out. It began on January 1 for about 7 schemes and 20 districts and it is going to be expanded to 20 schemes and 43 districts and then kind of roll out for the country, I think in another 2 months we will know...
Dr Roy: Can I just interrupt you there? The question he asks to save money to the whole set of a family. How do you make sure that they do spend on the girl child and they don't focus on other areas?
Montek S Ahluwalia: No, no. When it's a cash transfer. So far what we are doing is we are transferring scholarships and all you can make sure is the person is actually enrolled in the school. Now you cannot, scholarship is not what is paying the fees, the scholarship is providing him or her with the, you know, the opportunity to take other expenditures but you don't monitor every rupee that they spend. The same thing would be true for example if you are making the cash transfer at some point in order to help people to get food from the PDS. You could for example give it to the women in the household not the man. That would, most people believe, and I believe, that it would actually improve the probability that the money would be used for the family and particularly for the children.
Prof Amartya Sen: Can I comment on that? I think there are two different issues here. The Aadhar and the getting the exact information is a good way of doing it and that certainly would be an improvement if it works well. There would be a temporary problem if there is some lag in people getting there. But these are problems of the administration that you have to deal with and be aware of. But that would be good whether not you do cash or food transfer. In either case we need that identity. I think the question, haan, why to him particularly. Mr Das, did I get the name right, yes, was, that how could you make sure with distribution. Mow even with food you cannot be sure, but there is more fundability with cash than with food because food comes in, you know. You know I'm really surprised how much people can eat if they try. But you know I think with hungry children that there is an advantage, the advantage of the other side. Of course monitoring is much easier with cash. As well as in some ways the argument has been made that stalking corruption and detecting it is easier with cash. So you know it's a question and speaking to this audience, and I have been teaching now for very long time, for decades. More than I can even imagine but I also see myself at this soon. We always try to learn and we have to learn these things, how to balance these things. There is a consideration in the form of cash because of its ease, its speed, and its monitoring ability and there is an advantage in favour of food, which Mr Das was referring to. I think, namely this comes in the form of food, then the chances of its being spent on adult goods, as sometimes it would be different. Now one thing is also right, that if the money is given to the woman of the house that would be quite a big change in the Indian system. It could be quite different. The family allowance that the Britishers used to have, they seem to have all gone now, came to the women of the family, women of the household and that statistically has much better impact on the kids.
Dr Roy: Is that a possibility Montek that it would go to the women of the household?
Montek S Ahluwalia: Well either the cash or goods could certainly be done. Let me say giving...
Dr Roy: The government considering that the cash or the goods be given to the women of the household?
Montek S Ahluwalia: We have been, in the Planning Commission that's our view, that the entitlement should be, when it's a family entitlement, the entitlement should be for the women in the family. Now of course if there's a family and that has a women, you can have some difference. But you know, you know, let me just say even if you deliver, pretend that you are delivering food, nothing stops the recipient from simply taking cash in lieu of the food and letting the shopkeeper sell it in the market. So quite frankly I am not convinced that the food thing makes a big difference. What is important? Let me just, what is important is that food should be there. There is no use of giving people cash if there is no shop with the food. What we would be thinking of....
Dr Roy: Go down. 70 million tonnes in the godown being eaten by the rats. Sorry I won't get back to that. Now giving example of Nitish in Bihar. He wanted to give cycles for school in families because there is a large dropout rate because back and forth was a big hassle for girls. So instead of giving them cycles, he gave families Rs 6000 or Rs 5000. So I asked him, why didn't you just give them cycles, why did you give them cash? And he said first of all if I had given them cycles I would have to have a government tender; there would have been corruption, they would have got terrible cycles. And when I gave my next election speech it would have been all there with their broken cycles and they would have said this is what you have given us. And he said we have given cash. It is about a 97 per cent success rate, in the sense that 97 per cent of people are giving their girl the cycle because of social pressure. Other families are giving their daughters cycles, I better give that as well. So it's not though cash always go to...
Prof Amartya Sen: I think it's absolutely right. By the way I was in Bihar recently since now Nalanda University, which we are trying to re-establish, which happens to be in Bihar. And the bicycle programme is a great success for the reason that you mention Prannoy. I think we all underestimate two things, one is the moral assuaging argument namely this one is for bicycle and then for a kid to say, look back what happened, we got money for my bike. I didn't get it. So you know there is certain amount of moral dialogue we tend to systematically underestimate, and I think economics, as a discipline, has done much to undermine that perspective that we are talking about morality lot of the time. So there is that and that would apply to food too, that this money came for the kid's food. The other point is what concerns something called a nudge. You know it's getting cash is one thing, having food, you can take it to shop and sell it, but another nudge is in the direction of the not. If you actually have the food, to actually go sell your food while your kids are hungry requires both a kind of moral, I won't say monstrosity, what a nasty name, which is hard to deal with.
So I think both these factors have to be pertinent.
Audience - Yashaad: Good evening Sir. I am Yashaad from St Stephens and my question is to Dr Ahluwalia. Sir the success of the direct cash transfer schemes is linked with the Aadhar. Now the Aadhar, it depends on the coverage of the banks and now you had a scheme where kerosene was transferred through the direct cash transfer, linked with Aadhar. It was not a very huge success. So bank coverage is really a huge problem here because banking coverage in India is 50 per cent or 60 per cent at the most. And the second problem Sir, as you mentioned, is about the intended beneficiaries. The Aadhar scheme does not really recognize who a BPL is or who an APL person is. So how do you plan to recognize the intended beneficiaries in Aadhar?
Montek S Ahluwalia: Well, let me address to the second question first. You know the...
Dr Roy: Just one second, the 60 per cent banks at least it goes to the aam aadmi.
Montek S Ahluwalia: On the issue how are you going to identify, it's no longer going to be linked to BPL or APL, because you know there is a poverty line we are revising it. It will be raised a little bit. Rangarajan Committee will give us the answers. But the current Bill that has gone to Parliament says that something like 25 per cent of rural area, rural population would be entitled and 50 per cent of the urban. So the average youth comes to 67 per cent and no one has pitched the poverty line to make 67 per cent of the country below the poverty line. So BPL is a separate issue. We will have the poverty line. We will monitor how the growth is bringing people above the poverty line and that's just a sort of development performance indicated. This is going to be simply telling the country yes, we want to give food benefits to 67 per cent of the population. We will have to identify what that means in individual states. So we will use the national sample survey or something and that will mean that 80 per cent Bihar will be eligible and may be 30 per cent or 35 per cent of Punjab. Now who is going to identify the people, the state government? Not the Central government and there are some census being done both in urban and rural areas, which don't actually talk about income, but they talk about other criteria like, I mean if you are schedule caste or schedule tribe, but you are not an income-tax payer or you don't have, let's say, formal sector job then you are deemed to be included, or if you have a family that has a car, deemed to be excluded. I don't have the full details but they have done a census based on a number of different indicators. That census would be used by the states to decide who gets it and who doesn't. At the margin people will complain but not to the Central government. They will have to complain to the state government.
Dr Roy: This is just passing the buck as far as he's saying.
Montek S Ahluwalia: Of course. You can expect the Central government doing...
Dr Roy: Amartya did you say this once, I am not sure if I am misquoting you, that 'we may not know exactly how many poor people there are but one thing is sure, the poor are certainly use to getting counted again and again and again'?
Prof Amartya Sen: I didn't say it today.
Dr Roy: No, you said it like about 30 years ago.
Prof Amartya Sen: Yes, they get counted a lot, whether they count for something is a different thing.
Audience - Aditya: Good evening everyone, I am Aditya Kelwar from IIT Delhi. Sir my question is that the Fiscal Responsibility and Budget Management Act which was introduced by the Indian government, what was not adopted by the UPA government. But now there is a talk about introducing some of its vision in the new budget. But Mr Chidambaram had himself called the Bill too adverse for social responsibilities of the government. So what was the ground on which initially it was struck down in 2004?
Montek S Ahluwalia: No, no one, it hasn't been shut down. The Fiscal Responsibility Act is there and it's operational. You know, all the Fiscal Responsibility act does, is it forces the government to say what is its fiscal deficit going to be and somewhere, in November or so, report back are we on track or not, and if we are not on track, then explain to Parliament why the fiscal deficit is higher. There are no penalties other than what Parliament can impose. Now if Parliament had the approach, that if you've exceeded the fiscal deficit, we should have a vote of no confidence, there would be an immediate penalty. The problem quite honestly is that if you go to Parliament and say I had to exceed my fiscal deficit because I doubled the following subsidies, and I increased all these various others expenditures, generally you get applause. There is no perception I feel, generally amongst politicians, even amongst public that high fiscal deficit cause damage and that sort of view does it little bit as a free launch. So somebody comes up and says why don't we do something and somebody says you know that would increase the fiscal deficit. The general view is that well it doesn't matter really. It's a good thing to do. And that is why we have got locked into such humongusly big subsidies, which Amartya was talking about.
Dr Roy: I just want to, now that you have raised Parliament, how many of you with all these walk outs and I mean Parliament hardly functions; how many of you are deeply worried about the way our Parliament functions in India? Raise your hands. How many of you think it's doing fine? That's 100 per cent. Amartya, does it worry you to see Parliament functioning like 10 per cent of the time or is it good thing that they don't make any wrong decisions? Well how do you solve this problem?
Prof Amartya Sen: Well one thing is, probably a formal for that...
Montek S Ahluwalia: Well I am not in a business of criticizing Parliament because people of India can express their views. No, let's be clear. I think Parliaments go through periods when you, when it sort of sits a lot and others where things get disrupted. That's not the real issue. The issue I was raising is not about Parliament at all. I don't think in the public there is a perception that if you do something that is going to raise the fiscal deficit, that will lead to some crowding out. That will lead to loss of confidence. That will lead to inflation. No not at all. I think when you have an informed public, when the aam aadmi is sufficiently concerned about what the consequence of mis-performance which...
Dr Roy: Which aam aadmi? The real aam aadmi or the aam aadmi?
Montek S Ahluwalia: But the large enough number. Frankly I mean that's the key. If people are concerned then this is a issue that will automatically get attention.
Audience - Anupriya: Good evening Sir. I am Anupriya from Delhi School of Economics. My question goes back to cash transfer. I wanted to know how cash transfer takes consideration about the fluctuation in market prices.
Montek S Ahluwalia: Flexibility in market prices?
Anupriya: Yes, fluctuations like for the particularly...
Montek S Ahluwalia: Okay let me explain. At present all that we are doing is transferring scholarships and pension payments and so on which are denominated in rupees, but instead of you going to collect your cheque from some local office or something it is going to be transfered to you electronically. So the issue of fluctuation in market prices doesn't arise. But if you move at some point to, lets say, the grain entitlement going in the form of cash transfer, what would happen is not that you would get the money and there would be no PDS shops. The idea is that there would be a PDS shop. It would be the responsibility of state government to make sure there is a PDS shop. That PDS shop would sell you grain at whatever the economic cost is. You would still pay the subsidised price, but what would be transferred to your account is the difference between the economic costs and subsidized price as a credit, which you can then move into the shop. Now the advantage of this is A, at present if you are getting subsidized price you have to get the rice. You may prefer to use that subsidy on grains, you may use it on edible oils, and you may prefer to use it on a number of other food commodities. So actually when you do this transfer you could make sure that transfer can be used by a person not to purchase only wheat and rice, but the wheat and rice and pulses and grains and whatever. There would be linkage to food and the prices would be whatever they are, you know, in the shop.
Dr Roy: Amartya, just to carry on from his question, if banks are covering 70 per cent of of the country, the real aam aadmi, how are they going to get this cash transfer?
Montek S Ahluwalia: No, no, can I answer that?
Dr Roy: No, let Amartya answer that.
Prof Amartya Sen: No but you are the right person who can answer that. I want to hear then I will respond.
Dr Roy: Alright.
Montek S Ahluwalia: First thing is that banks don't cover 60 per cent. They cover a small number. But the idea is a following, once you have an Aadhar number, even if there is no bank branch in your village, I mean after all there are 40000 bank branches in six hundred thousand villages, we will have a very large number of banking correspondents in villages. These are individuals equipped with a little mobile device. On the basis of which you plug in your, if you have an Aadhar number. He will ensure that you have an account, a sort of low frill account. With that account, whatever money the government transfers, you get credited to your account.
Dr Roy: Now let's get back to Amartya's reaction.
Prof Amartya Sen: I think what he is saying is that whenever you take a major, new institutional initiative, like this one, you will accept a certain adjustment and in this case what Montek was arguing, is that it takes the form of mushrooming of a kind of low frill banking system. To deal precisely with this problem, so actually to assume that whatever we have now with total number of banks, and you are still trying to inject money into it isn't the right way. We are not thinking about it. What remains to be seen is to what extent it would succeed. What fails in this plan is and whether given that whether is there any merit in sticking to the old system, which is how we begin this discussion of food, subsidies and cheaper food rather than you are getting the cash. So that question will remain in my mind. I am not against cash transfer nor am I absolutely sure that it will serve the purpose exactly to the way it is being taught, but we have to go on doing departures and experiments of this kind, because in the situation in which we are food is only one of them. Health care system I think is in enormous mess. Now we need a major change, in that all of these there have to be experimentation with some probability of success and watching how is it going. What I think we have to be against, you and I, and the others here, since we are in the long run, academic culture as it were, is for people to know the answer absolutely. It would definitely work only if the market works, and nothing else works, only the state works. The market is always exploiting it. We have to find out empirically to what extent we can adapt the institutional structure to precisely the need we have in India today, and that requires a real departure, as well as an open mind. You know when Ambedkar, at the time the Constitution was being made, said that 'what we need, is to, I think the slogan was something like, educate. I forget, discuss and organize' and I think that educate is really important. I think that the major change India requires is commitment. Requires more political commitment and I keep grumbling that even the political party of which I am generally supportive have not done that bit at all, in getting these issues aired. We have to do that at the same time. We have to constantly educate ourself, did that work? Is not to take a different track? So I would be happy enough with what Montek said. I would be happier still if he said what would be the lines of feel safe, thinking might be if you found that it didn't quite work that way. So I think it may be unfair to ask that question now, that it is unfair to air that we all are concerned about that.
Dr Roy: One second Montek. Would that be your saying in the banking area, that India's going to have its own barefoot bankers. Do you think barefoot bankers, barefoot doctors and if you are going get to the real aam aadmi?
Montek S Ahluwalia: The two real reasons why people cannot actually get assured access to the banks. One is that the banks have a sort of know your client requirement and if you are poor you don't know the right people, you can't. That's been completely overwritten now because the Reserve Bank has actually made it a regulation that if I have an Aadhar number it becomes the duty of the bank to open a bank account, and in fact all you have to do is punish the people who don't open it. So that's not going to be a problem.