The opposition parties have resented the recent hike in fuel prices while the parties accused the government of keeping the fuel purposely out of the purview of GST. The hike in fuel prices has a significant impact on ordinary people. Experts on economic affairs echoed similar opinions, describing the government’s economic policies as pro-corporate and anti-people.
Anju Grover for Indian Currents spoke to JNU Emeritus Professor Prabhat Patnaik to understand the intention of the government to keep fuel out of the GST purview and not passing the benefits of low International crude price to the consumers of India.
Patnaik refuted the claims of the government about bullet train stating that the ambitious project of the Modi government would come up at the cost of several social welfare programmes like MNREGA and ICDS programmes. He said that these measures were not required at all.
Patnaik is a staunch critic of neoliberal economic policies, Hindutva and is known as a social scientist of Marxist-Leninist persuasion. According to him, in India, the increase in economic growth has been accompanied by an increase in the magnitude of absolute poverty. The only solution is to alter the class orientation of the State.
IC: What is your reaction to the recent hike in fuel prices which has hit the common man?
Prabhat Patnaik: The transition to GST is not bringing the revenue they thought it would. The reason why they are pushing up prices of petrol and diesel is to make good the revenue shortfall. Petrol and diesel have always been means of revenue for the governments. But now the government is fairly desperate because the transition to GST has really lost a fair amount of its revenue. However, they are doing it all the more.
The argument put forward by the government that it does not matter because petrol and diesel are consumed only by the relatively well-to-do, is completely wrong. Partly it is consumed by the government itself and there is no revenue gain. It has a big impact on ordinary people as it raises the transport cost. So it is not clear that the rise in petrol and diesel prices hit the rich more than it hits the poor. Also, there is no study which could confirm it.
The government is desperate at this moment because of the GST which was ill-advised and it has given rise to inflationary pressures.
Analysts say that the benefits of low International crude prices are not being passed on to ordinary people by the government. What, according to you, is the reason behind it?
If they link petrol and diesel prices to the International crude prices then that would lead to revenue loss. Should we bear revenue loss or cut back on government expenditure or should we raise revenue through some other means?
What would you suggest?
The government should raise revenue through other ways. One of the ways to raise revenue is through direct taxation. Another way is to introduce wealth tax. Top one percent of the total population owns almost 60 per cent of the country’s wealth. There is no wealth tax. It is strange that the government is raising revenue through indirect taxes like on petrol and diesel and giving concessions on direct taxes to the corporates.
The government policies are pro-corporate. The Modi government, because of ill-advice, suddenly went for demonetization and implemented GST, and has brought the economy to such a situation that now the growth rate has plummeted. The government is desperate to stimulate some growth. IT wants to do so by inviting corporate to undertake larger investments. But they are not willing to do so. Now there is talk of stimulating public investment. If you do so with a larger fiscal deficit … then it is worrying situation. And if you keep the fiscal deficit restricted then you have to raise petro products prices etc. That is what they are doing and it is inflationary. Neo liberalism generally has this tendency but this government has shot itself in the foot by going in for all kinds of measures which have really worsened the state of economy.
In view of slow economic growth, there are reports which suggest that the government may go for ‘booster’. Your views.
I can understand. The government can go for a larger fiscal deficit but are not willing to do that. If you do not go for larger fiscal deficit then how do you raise resources? These resources can be raised either at the expense of the rich or poor by raising prices of essential items. They are doing the latter. The result is that it gives rise to inflation and also some of the benefits of that boost get negated because poor people are going to consume lesser.
What about the bullet train from Ahmedabad to Mumbai at a huge cost and a big loan from Japan? Do you think it is a good initiative and it will create job opportunities for India?
The bullet train idea is not going to make an iota of difference to the economy. It is right that there is a virtually zero interest rate but it has to be paid back. On such loans, the nominal interest rate is zero but if your currency depreciates then there is an implicit rate you have to pay. Also, principle amount has to be paid back. Japanese are not giving it as a gift. This is precisely at the time when the government is cutting down expenditure on ICDS and MNREGA and welfare sector. And you are spending money on bullet train. The priority should be on improving railway infrastructure and its renovation. Japan is facing recession and hence will help Japan. It will create job opportunities in Japan and not India.
How do you see economic policy of the Modi government in the light of current state of economy?
The Modi government wanted to give the impression of macho image (of fighting black money and corruption), has done additional blunders because of which the economy now is in a very poor state. The informal sector is badly hit.(Published on 24th September 2017, Volume XXIX, Issue 39)