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Power Of One Team

Sreenivasan Jain: Hello and welcome to power of one
exclusive, by all accounts corruption seems to be rising, inflation is up,
growth is slowing down, but by jugglery govt. statistics, poverty has come
down, to talk on other fascinating, contradictions of Indian economy, I am
joined by Kaushik Basu, chief economic advisor to the finance minister, thanks
very much indeed for joining us. explain to us this miraculous
transformation  of poverty figures  by which poverty seems to come down
dramatically in the course of the same period, earlier statistics show that
they’re fairly high almost 37% but now it has fallen almost by 12%, is this
statically fudgy or has poverty really come down



 



Kaushik
Basu:  In percentage point term it has
fallen from 37% to roughly 30%, 29 point some percent and that's



 



Sreenivasan
Jain: Seven percent



 



Kaushik
Basu: 7% it has dropped, yes, which is one of the most rapid drops in poverty,
may be the most rapid drop in poverty in five year period we have seen since
independence



 



Sreenivasan
Jain: This is the between 2005-2010



 



Kaushik
Basu: Roughly 2005-2009-10 over that five year period in that decline



 



Sreenivasan
Jain: Is this rope in poverty or government fudging statistics



 



Kaushik
Basu: No, not at all, actually the drop in poverty is certain and let me just
explain, you know  how do we measure
poverty by drawing a line  somewhere and look
at the number of people below that , if you hold the line constant this is the
figure you get , if you change the line you will get different poverty figures
for both years 2005 & 2010 but the drop will be there very very similar so
you can change the line and number be different 
but the decline is virtually independent where you draw the line so the  celebration in terms of decline  is for sure



 



Sreenivasan
Jain: Okay, what people are saying that what govt. has done that in 2009-10,
for that period, figures they gave supreme court in affidavit for fixing the
line was Rupees 32 roughly, for urban areas and rupees 26 for rural areas and
six months later it changed 28 for urban and 22 for rural



 



Kaushik
Basu: No, let me clarify.



 



Sreenivasan
Jain: And that's why there is dramatic decrease.



 



Kaushik
Basu: But this is pure misunderstanding, it’s like a typographical error, let
me explain, the figure that was given 32 rupees that was for the year 2011 when
the Supreme Court asked.  fire that they
have given now, 29 and  28.7 something
for urban area, this is actually for 2009-10, so for an earlier year when the
prices were lower, so there is no, for 2011 and the figure that now has hit the
headlines was for 2009-10 when the prices were less and therefore the cut off
was lower.



 



 



Sreenivasan
Jain: So inflation hasn't kicked in, basically the figures have been adjusted
for the inflation



 



 



 



Kaushik
Basu: So this was completely numeric misunderstanding



 



Sreenivasan
Jain: So that is pretty big misunderstanding or pretty big error on the part of
the planning commission to give these contradictory figures, I mean you give
different figures to the Supreme Court and then you release different figures



 



Kaushik
Basu: No one asked the poverty line in 2011 planning commission gave that and
now they were doing it to the national sample survey year 2009-10 they gave one
for that what you could argue that they should have put it in bold that one is
for 2011 and other is for 2009-10 it’s not as if for the same year we are
giving two different numbers.



 



Sreenivasan
Jain:  They should have clarified it much
more explicitly that we are giving figures for two different years not that we
have just changed the line and therefore effectively reducing poverty.



 



Kaushik
Basu: Absolutely but they didn't give this in the same document but never the
less given the misunderstanding that this created may be this should have been in
bold that these are references to two different years before and after the
inflation in particular when the inflation changes become more marked.



 



 



Sreenivasan
Jain: Okay, but many would argue that this entire exercise of drawing this
poverty line or even having a poverty line is become increasingly irrelevant
because if you look at as you said the absolute numbers of poor people remains
staggeringly high and secondly if you look at so many other social indicators



 whether malnourishment, literacy and so on,
India continuous to perform abysmally , so for example UN said that one in
every third children is malnourished child in the world and so on so fourth, so
essentially do these figures, these statistics really have any meaning.



 



Kaushik
Basu:  Actually there’s lot of meaning
and lot of criticism against India is very valid criticism but I would not
abandon measuring poverty because this is something we have been doing from
1973-74 and you also want to know over the years, 30 years how have we done ,
here we should do virtually what we are doing is to fix that yardstick, hold it
constant over time , we have made some changes not to deny, in 1993-94,
Tendulkar in 2004-05 but more or less the same yardstick, with that you can see
how India has performed over the  years



 



Sreenivasan
Jain: Okay now you would still argue that it’s important to have poverty line,
it’s important to carry out these measurements but post these figures coming
out and despite  the government's
clarification, perhaps the technicalities are not fully digested by the
politicians as you  know there is huge
furor, it’s almost that the give has disowned these figures and have set up an
expert committee to relook t poverty figures and there is also now  great deal of consideration about what these
figures actually mean for the poor, are they actually linked to entitlements or
not linked to entitlements and that as well we are hearing conflicting things



 



Kaushik
Basu: That controversy is also legitimate one, when you give out subsidies to
the poor, food you give to health facilities, free education etc., where do you
take the cut off to be, there is lot to debate, they don't have to be pegged to
this rupees 29 and rupees 22, that's indeed an open question and my feeling is
that we should draw the line higher for that



 



 



Sreenivasan
Jain: I  will come to that drawing the
line higher in a second,  but currently
as we are place we have heard two different conflicting views from the govt.
that whether the poverty line is going to be linked to entitlements  or not , first we had someone like Mr. Jairam
Ramesh saying it’s not going to be linked to entitlements at all, it’s just
going to be merely a measuring tool but subsequently had Mr. Ashwini Kumar
saying that it will be linked to all other entitlements other than subsidized
food under the national food security act so which of the two is it



 



Kaushik
Basu: It’s actually the truth is somewhere in between in those two



 



Sreenivasan
Jain: I was hoping you won’t say that



 



Kaushik
Basu: see what's going to happen is line we will hold on to do our statistics
and measurements but when it comes to give benefits, for food we have already
know that the food security bill is going to target much larger population than
the  population below the  poverty 
line so the line doesn't become immaterial, you certainly want to cover
all those who are counted by planning commission as poor  but you also want to count many more people ,
the vulnerable, the dependence and there are categories, children in school
etc., so it will be beyond this. Other benefits, it will depend a lot, I mean
if you are thinking  of health benefits
you will think of  the poor below this
line and also very old and may be not so old but very old without
independent  set up so it is going to be
linked to entitlements and benefits , this is not going to be tied one on one ,
if you are below the poverty line, one treatment for another so below this
poverty line, yes you qualify but what kind of benefits we are talking about,
we may decide to draw on other segments of the population and give them certain
advantages



 



Sreenivasan
Jain: Okay just to simplify this, is it fair to say that poverty line will be
linked to entitlements in several cases, several govt. schemes, benefits and so
on and so forth



 



Kaushik
Basu:  I will give it a one word answer,
yes, but one sentence line answer  the
poverty line will be very very important , so those are below it are in need in
several possible ways, they will be qualifying for all kinds of benefits  but above that depending on the kind of
benefits , food many more people because its absolute necessity, other  things, there will be other categories which
will be drawing in, but the lines play major roles, the line and the benefit is
not one on one



 



Sreenivasan
Jain: Okay let’s talk about the actual line itself now what is today the line,
are we looking at 32 and 26, or 28 and 22



 



Kaushik
Basu: In 2009-10 for which the study have been done very very properly, its 29
and 22, there are some decimal points as well, 29 and 22 rupees per person, per
day, and this nothing but infusion correction from 1973-74 when it used to be
very interestingly, I can tell you the average was 1.20 paise per person per
day.  73-74, the average is 22-29 rupees



 



Sreenivasan
Jain: Right now, its 29 & 22, that’s the line we should look at



 



Kaushik
Basu: That’s the statistics of poverty measurement if you want to compare how India
has done historically, you have to use this because this is what we have done
in 2004-05



 



Sreenivasan
Jain: OKAY now the other debate around in all this of course is whether this is
a realistic figure are all and how possibly can anybody even those we count as
poor, extremely poor or destitute survive on that figure, 29 rupees, it seems
incredibly low



Kaushik
Basu: Giving this figure is very self-critical of govt. because even with its
low line, we are saying there are roughly 350 million people below this line so
its a great self-indictment that poverty is huge so contrary so what people are
saying that we are white washing, we are actually making self-critical remark
that its a still huge problem



 



Sreenivasan
Jain: But isn’t that somewhat hair slitting, i mean to say that its
self-critical why not have a realistic figure that what actually people need to
survive



 



Kaushik
Basu:  But then you won’t know that
whether it has gone up or gone down, if you create a new figure and say I have
changed from the figure we had earlier, I will you one very different example
demographers calculate the ageing of population by taking people above the age
of 65, if in one year you change that to 65 to 75 at least over time whether
the society has aged or not you will lose the thread because you have changed
your yardstick



 



Sreenivasan
Jain: May be that's I am not worst in economics ---- as you are but surely
trying to break this for an average person, if you tell anybody and i am not
saying this has to be some urban middle class view but you are expecting people
survive at 29 rupee a day as the acceptable poverty line is just something that
would seem unexpected specially today with inflation what it is?



 



Kaushik
Basu: No, but inflation is been connected with this, if people are listening to
me very carefully there should be persuaded that 29 rupees per person per day
for the households where there are economies of scale for a month of course,
becomes a very different figure but even that is very low but that we use for
statistical purposes over time but for benefits and i am agreeing that when you
are talking of the needy who are the people who will need support for food, who
are the people who'll need support for education, we need to have other
benchmarks.



 



Sreenivasan
Jain: So are you saying effectively we need two poverty lines in this country?



 



Kaushik
Basu: No one poverty line for the statistical measurement but another set of
lines depending on, you want to cover very large population when it comes to
basic education then you can't say that we are going to provide free education
to say up to the end of school for 80% of the population, government can't
afford that there we may want to have different line, multiple lines for
different kind of benefits, for the fundamental need everyone has to be covered
for something else which is not as fundamental you draw a line somewhere else
and tell people that look you have to go out and fend for yourself



 



Sreenivasan
Jain: This is gonna keep government statistician busy for a very long time, we
are going to have multiple lines for multiple needs but anyway I take your
wider point , let me completely change track and ask you  something else which is actually linked to
the budget which created a fair amount of controversy and that was to do with
the budget provision which actually allow government to tax Vodafone in the case
which had lost in supreme court once , the review petition was deleted so it
sneaks the provision in to this budget so that it can catch up, was that
unfortunate?



 



Kaushik
Basu: I have allowed you to ask this long question because i am not going to
give an answer to that it’s a legally intricate matter I don't have the cover
of it being subjudiced, i can't say that but never the less it has sufficient
intricacy's and it’s not a part of the budget that i work on so no comments
only because of that reason



 



 



Sreenivasan
Jain: Just coming quickly to something else which has happened recently and
this is something we spoke about earlier as well when we were discussing fuel
prices which is that now state governments seem to be something which the
center has been talking about for a long time but putting that in to action and
Goa has been the first state government to actually reduce VAT on petrol which
resulted in a dramatic drop in petrol prices in Goa. Is that going to pick up
as a trend you think, what are your reactions to something like that?



 



Kaushik
Basu: It's actually very good it’s actually progressive thinking on the part of
the government then want to drag these taxes to zero, after all there is an
environment side to it and if you look at countries expecting united states
they all tax for very good reasons but for a state to say that yes we are not
going to stand between the global prices and the consumer , lower the VAT and
pass on some of these benefits is a very very good move and it was very welcome
to this happen.



 



Sreenivasan
Jain: Just to give the context to that for very litter of petrol you buy
roughly half of it goes to government taxes, so?



 



Kaushik
Basu: It is little less than half and I’ll tell you European country most of
them its more than half so they tax much more heavily than what we do.



Sreenivasan
Jain: Essentially it’s up to states, if they want to reduce the amount of VAT
and Goa is reused to 11% which is quite a large amount , but is there a problem
in that because straight away you'll also have dip in your revenues?



 



 



Kaushik
Basu: Ya it’s a state which is preparing to do that to take that dip what i'll
go in the long run lot of taxes, we give subsidy in one hand and tax with the
other, you want to move in the direction where you don't do both of these and
this is first of all cumbsum quite apart from cumbsumness there is another
great inequity the tax we imposed it’s on all operators private and public ,
whereas when we give subsidy it’s to the state own oil marketing company so
this taxing with one hand and subsidizing with the other does disadvantage one
group of players, so i think Goa has made a good move and it’s a kind of
direction we should look at and earlier the finance minister had appealed to
the states to say precisely this that look internationally prices are rising
with that consumer will have to we can’t take it all at the level of the centre
the states have to come in, if some relief in it and this was welcome to see
that this was happening.



 



Sreenivasan
Jain: But at the time when we are worried about the burgeoning fiscal deficit
and at a time when we are seeing growth slowing down if you are also going to
see a dip in revenues even for states, is that a problem how do you compensate
for that?



 



Kaushik
Basu: You have to be very careful, fiscal consolidation is the target has to be
central, so i am just underscoring what you are saying so we don't want to give
up on this there is an element of centre and state sharing and there is a
feeling overtime that the states are doing fine and actually you look at the
fiscal deficits of states they are actually doing reasonably well, so to that
extent the states have bit more room, some states not all there are states in
great difficulty but whole lot of states have bit more room flexibility and it
will be nice if the states take on this flexibility and provide some relief and
the centre we fight on this funds but we begin to share and i think this was
the way move which was made by Goa.



 



 



Sreenivasan
Jain: What you make of the entire debate over kingfisher and whether or not a
private airline company in the kind of situation it is deserves some extra
support from the government or is that favouring just one player?



 



Kaushik
Basu: See again i can't get in to the details of it but I don't have sufficient
knowledge but here is a general principal again I am not in favour of
individuals being picked up and supported so you set out very clear rules that
this is the class of situation where we get in this situation or we don't get
in and you stick by those, so ya, I won't comment on this particular case but
as a principal it should be very level because to you don't want to get in to
------ and that's what a good market economy is set the rules and then you sit
back but you do of course, a lot of thinking when you are setting the rules but
then you have  sit back once the rules
have been laid out.



 



Sreenivasan
Jain: Just tell me over all as we start to wrap up where are we really going
now with the economy, i don't want to get it in to a prolonged debate with you
because that's already been debated but enough of this was being said that how
it was not growth leading budget this is been a very state budget, some have
said far worse. Where is growth going to come from?



 



Kaushik
Basu: First of all this is actually this is a very good budget, in the kind of
year it was its a very workman like budget let’s put the politics behind us and
get down to work looking further in to the future i think budget is really
trying to stabilize the economy and put us back again on the path of fiscal consolidation
and in terms of growth my expectations are very simple, in the coming year we
will see a slow pickup,  from 6.9 to 7%
to 7.6 what we are forecasting which is well below what we were doing but i do
feel very optimistic that India 2 years down the road 3 years down the road look
at couple of strongest sectors where we are doing well , investment again this
year has been a bad year i don't expect us to pick in 6 months we will continue
to do badly for a while but if you take overall investment the last full year
figure that we have its 35% of our national income is missionary factories
investment goods, exports we were beginning to very well last year getting in
to exports of products that we did not do earlier engineering goods,
manufacturing goods couple of months but yes i am not denying that the last six
months have been very bad but if you look at this fundamental long run drivers
investment exports, India was beginning to do very well and was does not mean
just six months over the last 4-5 years so badly over six months and 4-5 years
the indicators we are picking up and even more recently the purchasing managers
index is that we look at very closely shows that even the mood in private
sector is beginning to pick up, so a low pick up over the next year and a
tremendous pick up and India will be the in the front over the next 2-3 years.



 



 



Sreenivasan
Jain: You know the finance ministry is really going to miss you, how are they
going to manage; is it true that you are going back and why is that?



 



Kaushik
Basu: I am going back, you know i come from the world of research and that's
what i have done most of my life, i do research with lot of common sense and
earthy sense, so i have enjoyed this transition but just go back to thinking of
new ideas which right now its firefighting most of the time frankly.



 



Sreenivasan
Jain: But isn't that exciting in its own way? Not as exciting as research
that's going to be a hard one to sell, you could try to sell me the fact that
India’s growth story is looking rosy but this one is going to have a lot of
people



 



Kaushik
Basu: Very exciting but slow excitement it’s a huge excitement in research not
the sort of day to day but a week to week, month to month excitement also in a
big way.



 



Sreenivasan
Jain: but anything here could keep you back perhaps not this role but some
other role as an economic manger



 



Kaushik
Basu: I am going back now, its all stitched up and i am going to my job of
research but i have enjoyed it immensely



 



Sreenivasan
Jain: RBI governor? Will that excite you?



 



Kaushik
Basu: It's an exciting job but for an economist it’s an most exciting job but
now



 



Sreenivasan
Jain: Because you are actually in the cockpit you are in the driver’s seat of
the economy



 



Kaushik
Basu: Let me talk something extremely important, i know its the driver of the
economy its ---- a fantastic job right now, i think i have little disagreement
with the reserve bank of India policies here and there , but i think its a
great organization with great amount of professionalism.



 



Sreenivasan
Jain: There's still about a year left in the present governors term changes so
you could come back as RBI governor



 



Kaushik
Basu: I could come back to India with anything i don't know quite what but



 



Sreenivasan
Jain: But we are going to headline that as Kaushik Basu might come back as rbi
governor



 



Kaushik
Basu: No, i could come back in to anything but i am going back with the chunk
load of interesting ideas so right now my focus is really that i want to go
back an work on that.



 



Sreenivasan
Jain: And Pranab Mukherjee has sort of allowed that?



 



Kaushik
Basu: Ya, i'd like to think that he is not happy about that the fact that i am
going away its been a terrific equation but he also understands that i juggle
different world and really i have got good important ideas for India which
can’t be done in the firefighting atmosphere of deadlines and putting out
papers but i think i'll do important work over the next six months you'll see
that output coming out slowly



 



Sreenivasan
Jain: But i am sure you'll miss north block, none the less.



 



Kaushik
Basu: I will miss that greatly.



 



Sreenivasan
Jain: Thanks very much in deed for talking to us. Thanks very much.




7 years ago

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