Jayati Ghosh Explains The Economic Slowdown

Brut India

Economist Jayati Ghosh wonders why the Government of India isn't aware of undergraduate-level economics.

Transcript

00:00The government doesn't seem to have a clue.

00:02These are all economics 101.

00:04These are things that undergraduates learn.

00:07It is a shock to realize that the government is not picking up on these basic ideas.

00:30I would say that the Indian economy is in a situation where it's beyond worry.

00:44We are basically in the middle of a crisis.

00:46It's fairly evident that there's a massive, massive deceleration.

00:51And even if you don't call it a recession, because technically speaking, GDP has to decline

00:55for two quarters before you get a recession.

00:58What we've got is such a big slowdown that it is affecting demand, it is affecting employment,

01:04it's affecting living standards, and it's creating an overall crisis, which in any other

01:10country would be taken as a national emergency.

01:13People don't want to buy cars, people don't want to buy washing machines, they want to

01:16buy electronic items, less and less, because you're saving, you're insecure, or you don't

01:21have money.

01:22The government doesn't seem to have a clue.

01:25It's doing supply side measures to deal with what is really a demand problem.

01:31There's just people don't have money to spend, they don't have income, they don't have employment.

01:35So you have to do something to give them incomes and employment.

01:38You can't simply say, oh, I'll improve the conditions of, you know, of doing business

01:43and I'll provide banks, I'll tell banks to give more credit.

01:48Banks cannot give credit if investors are not willing to borrow.

01:52And why would you borrow to increase capacity if there's nobody buying the stuff you have

01:56already produced?

01:57In the last one year, what we've been seeing is that that overall lack of demand, which

02:02has been really punishing the informal sector now for three years, has actually been also

02:08impacting the formal sector.

02:10If they did recognize the problem, there are lots of things they could do.

02:13They could immediately expand, let's say, the rural employment guarantee, dramatically,

02:19two or three times, you know, increase the spending.

02:22It's only 0.2 percent of GDP.

02:25Make it 0.6 percent, for God's sake, which it was in 2010.

02:28So triple the amount you're spending on that.

02:31That puts lots of money in people's hands.

02:32They can go out there and buy biscuits and toothpaste and underwear and, you know, you

02:36name it.

02:37When they buy that, the shopkeepers will stock up more, the producers will produce more,

02:41they will employ more people, all the way up the chain.

02:44Increased social sector spending, health, education, we massively undersupply these.

02:49These are very high employment sectors that will generate many more multiplier effects.

02:54So focus your public spending in areas that will immediately revive demand and have high

02:59multiplier effects.

03:01When you've done that, then focus the new expansion of public spending into areas of

03:05public investment that are desperately needed.

03:09Basic infrastructure, amenities, roads, proper hospitals, proper, you know, care, et cetera,

03:14all of these things.

03:16All of these create the conditions whereby the economy can get back onto some kind of

03:21an even tick.

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