WFH, no gold, no foreign travel | Less Petrol | Can advice alone save economy? | AI with Sanket

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[00:00:00]Prime Minister should act as the Prime Minister of the country, not the Prime Minister of the ruling party.

[00:00:06]Oh, look at the kind of trips that the that the the Prime Minister keeps making and how much his entourage the the sort of convoys of cars etc. cost.

[00:00:20]This, you know, the the Strait of Hormuz opens tomorrow. Next 4 months are going to be very difficult.

[00:00:28]You know, if if you're earning 10 11,000 rupees per month and a gas cylinder of 14 kilos, which was 950 rupees, comes for 5,000 rupees, then your rate of inflation is 60%.

[00:00:41]Absolute level of central and state state government debt went from 62 lakh crores in 2014 to over 230 lakh crore.

[00:00:53]Horrible situation. Within 73 days, we would not have had to do maybe the sharp thing that may be coming on the anvil now.

[00:01:02]>> [music] >> Hello and welcome. You're watching me, Sanket Upadhyay, on The Federal. The show is called AI with Sanket. This is the AI of news because news in India today requires not artificial but analytical intelligence.

[00:01:20]We had elections in this country.

[00:01:23]And while the elections were on, the crisis or the conversation was political in nature.

[00:01:30]Results are here.

[00:01:33]Everybody knows what the results have been.

[00:01:37]Many Chief Ministers have been installed.

[00:01:40]And now suddenly, that crisis, which never went away, is back in public discourse, introduced by the Prime Minister himself.

[00:01:52]In a rally in Telangana, the Prime Minister actually sought the people's participation.

[00:02:00]He, among other things, advised people and requested them not to travel abroad, not to use too much of petrol and diesel, not to buy too much of gold, or not buy gold at all for a year.

[00:02:15]Work from home if need be, and other things.

[00:02:20]While some suggestions are practical, while some suggestions are the need of the hour, the others are just not possible to sustain, particularly for those who are who are working, who are supporting their families. In a situation like this, asking people to cut down and not really focusing too much on the macroeconomic situation at the right time, because at that time we were busy with elections. How wise is it to have this conversation now, and not say a month or two earlier?

[00:02:57]We put all of these things, all of these points, not throwing out the suggestions of the Prime Minister. Some of them are is really sane advice.

[00:03:07]But, is this advice coming a few days late? And what really are the options, strong, undeniable options in front of the government which it has to take? Will there be a price rise in petrol and diesel prices?

[00:03:22]Let's discuss. Joining us right now are Professor Santosh Mehrotra as well as Mr. Arun Kumar. You have known them, familiar faces, speak well and logically about the state of the economy and the conditions of the economy. Now, we all knew that there is a crisis.

[00:03:41]But, because of the elections, I think the crisis itself, at least in discussions, was kept in abeyance.

[00:03:49]Elections are over, so suddenly in public discourse the talk of crisis is back.

[00:03:54]I want to start with you Mr. Arun Kumar and learn from you.

[00:03:59]When the Prime Minister says that seven things people of this nation must not do or should avoid how do you respond?

[00:04:09]I mean on the face of it these are at least they appear as pragmatic things to do.

[00:04:17]See my take is that the situation has been quite grim.

[00:04:22]So he's asking for import substitution.

[00:04:25]That's one. And second is austerity.

[00:04:28]That means those who can afford to cut back on their consumption they should cut back. They should have less of gold etc. etc. Why is this crisis there? It is because you see there's a supply shock. And supply shock is not just because of energy but along with crude many other items are also there whether it be fertilizers whether it be aluminum coming from whether it be other items which are being affected as a second round whether it be plastics or APIs for pharmaceuticals etc. So it's a very big shock. Now 20% of the crude and the gas coming from West Asia that cannot be replaced by anything else. You can try and cut down consumption. You can do but there'll be a shortage. And when there's a shortage of energy then it affects your production. It affects your distribution. It affects your consumption. People are not getting gas for cooking at home. Workers are going back to the villages from the cities.

[00:05:24]There's a crisis there of consumption.

[00:05:26]There's a crisis of transportation because transportation costs will rise.

[00:05:30]Then there is a problem of our exports because 16% of India's exports used to go to West Asia. So on the other hand whatever we are importing is costing us much more because you know our rupee is getting devalued and also because energy costs are rising. Shipping costs are rising. Insurance costs are rising. So, therefore, our balance of payment is now in jeopardy. Foreign exchange reserves are going out, foreign exchange is going out because of foreign portfolio investment and foreign direct investment also. So, in other words, there's a macroeconomic crisis, there's a sectoral crisis, and so on. So, we should have been looking at these issues right from day one because we didn't know how long the war would last, and we still don't don't know how long the war will last.

[00:06:12]Even if the Strait of Hormuz is open tomorrow, the crisis of the energy supply will continue because a lot of infrastructure damage has taken place in Iraq, in Iran, in Kuwait, in Saudi Arabia, in UAE, and so on. So, even if the Strait of Hormuz is open tomorrow, at least for the next 3-4 months, the crisis would continue. We'll be short of energy, so production will be affected, etc., etc. So, these steps are required to be taken 73 days back.

[00:06:40]This 73 days late. And in the meanwhile, what they are also doing is exporting 20 to 30% of the refined product. Now, that is the crude stock that we had is getting used for export, and our companies, the private sector companies, are making huge profit by exporting it.

[00:06:56]So, why did we not stop this? Because then it means that we are using our crude for supplying elsewhere rather than using the crude for taking care of the shortages in India. And we know shortages are coming because the data came last week that the import of crude has come down by 40% in March compared to last year. That means crude coming in is less, but its utilization is the same.

[00:07:18]That means our stocks are getting depleted, and that's why the now the Prime Minister is talking about a crisis situation. And foreign exchange reserves are going out because of the higher import bill that we have, and therefore, again, there'll be a problem. And because of the you know, crisis of investment, the rate of growth of the economy will come down because no matter what you do, the production will be affected because energy is required for all production, transportation, etc. So, the point is the Prime Minister should act as the Prime Minister of the country, not the Prime Minister of the ruling party. And therefore, he must take the public into confidence. He must take the opposition party into confidence. And if he continues to do what he has been doing in the last 60 days, that means attacking the opposition, then why would the opposition come on board? So, then you will not have a national consensus, and the kind of steps he's suggesting will not be effective. So, I think the Prime Minister is the Prime Minister of the country, not the Prime Minister only of the ruling party. And therefore, I believe that, you know, the Prime Minister should take a different attitude, and take everybody into confidence, and not play this politics of, you know, the street politics, wherein every election he attacks uh the entire opposition and so on. That is not the way to create a national consensus.

[00:08:30]Okay, Professor Santosh Mehrotra, first your opening comments, and then my questions.

[00:08:37]So, Professor Arun Kumar has already laid out, and by the way, let me just mention that he's he's my senior from JNU. We were both professors in JNU at the same [laughter] time. He just uh superannuated earlier than I did. But anyway, he's already laid out the overall scenario. Let me just make a few specific points, and and then I'll hand it back to you.

[00:08:58]You see, let's look at the historical context of that the this government for the last 10 years has had uh a his- a windfall gain of relatively low international oil prices.

[00:09:13]That meant also relatively low fertilizer prices, because we are also Fertilizers are partly produced from from oil. And and so, we were able to meet our fertilizer needs also, in- to the extent that we import. Of course, we produce a fair bit uh of fertilizer domestically. Now, the windfall gain accrued in the following sense. In the preceding 10-year period of Dr. Manmohan Singh's government, the oil prices tended to be systematically high because international oil demand was was significantly higher because you know, China, India, the rest of the world, Latin America also, they were all growing fast.

[00:09:54]That situation changed dramatically as growth tended to slow post global economic crisis and post post 2015. Now, so we the government is having a windfall.

[00:10:05]Instead of actually conserving our our face, the government went on a spending free spree and the spending spree included a fair bit of of course infrastructure expe- expenditure, which is a good thing. However, there was also a lot of freebie expenditure.

[00:10:23]A huge amount of welfare state increases in in expenditure as opposed to expenditure on health and education and nutrition, which is what should have been the priority.

[00:10:35]The and the state governments followed suit and this was driven essentially on an electoral basis.

[00:10:42]This is the first fact which resulted in a massive increase in debt to GDP and the debt to GDP ratio has gone from from 56-58% when this government came to power to what currently at 82%.

[00:10:57]The absolute level of central and state state government debt went from 62 lakh crores in 2014 to over 230 lakh crores.

[00:11:10]Horrible situation. So we So obviously the government is feeling the pinch when an international crisis hits and oil prices go up and you know, they are saying that oil marketing companies are are are under recovering at the rate of 30,000 crores per month. So when you already have a high fiscal deficit, excessive debt to GDP ratio and you stupid mistakes like cutting corporate income tax and personal income tax that as a result of which your revenues fell uh by an annualized rate of 3 lakh crores per annum then you're obviously going to face a debt crisis. So now the government has absolutely no choice but to cut back on zone expenditures and perhaps raise A fertilizer prices, B petrol and diesel well hopefully petrol prices maybe not diesel prices because diesel prices will actually raise the inflation rate.

[00:12:11]Um and most importantly it must raise the urea prices. If it does not do all these three two or three things the situation is just going to worsen.

[00:12:22]Uh all these various actions that the Prime Minister is suggesting is merely embellishments. It's going to make precious little impact.

[00:12:31]The big items I've already highlighted.

[00:12:35]It's the import of oil, it's the import of fertilizer and and and LPG and all of that and there is clearly as Arun rightly pointed out a supply shortage and therefore you have no choice but to at least temporarily raise many prices uh of the kind that I mentioned.

[00:12:57]Yeah, Professor Arun Kumar quickly coming back to you. You see you mentioned a very important point that these are steps but 73 days late. Now the Prime Minister is talking about number one the citizens' participation in what is clearly a global crisis.

[00:13:15]And these are appeals. However, all the points that have been mentioned are largely things that the top 1% of this uh of this country's population consumes, which by the way holds about 41% of the nation's wealth.

[00:13:32]The bottom 50 is only holding about 6.3% of the wealth. Avoid foreign travel.

[00:13:37]Which poor person who's living on dole will do foreign travel? Buy gold.

[00:13:43]Prioritize work from home.

[00:13:45]Cut down on cooking oil and cut down on public transport. All these are meant for the richy rich rich of the country.

[00:13:53]Do you think that that richy rich is even going to adhere to these suggestions or this appeal?

[00:14:01]No, you're right.

[00:14:03]You know, this is where the national spirit matters. Whether a nation responds to call by the prime minister of the country depends on whether they think it's credible at all. If you know, there's credibility, then it would happen.

[00:14:17]If the opposition is convinced that this is required and there's no politics being played, then it might happen. But you know, what my suggestion would be is that you know, a national consensus needs to be arrived at before these steps can be at all implemented. Without that national consensus, these things do not get implemented and therefore you know, we'll be stuck.

[00:14:39]Now, what can happen is again you know, the prime minister can say, "Look, the well-off have to sacrifice and therefore we will implement direct tax." You know, and reduce indirect taxes so that the inflation which takes place, which affect the poor people, that become less. Because you know, the inflation for the poor people is very high. You know, if if you're earning 10 11,000 rupees per month and a gas cylinder of 14 kilos which was 950 rupees comes for 5,000 rupees, then your rate of inflation is 60%. Your rate of inflation is not 4%.

[00:15:10]Your entire family budget goes out of kill and because the rural employment guarantee scheme is not there in operation in most parts, therefore rural employment is not also available unlike in the pandemic time. So, the crisis for the poor people is real. So, therefore, while we appeal to the rich, you know, we also have to say, "Look, you have to sacrifice for the country and pay more taxes." So, whether it be wealth taxation or estate duty or gift taxation, etc., these are sources through which you can raise direct taxes, and then you can support the poor people where the poor people are suffering from black marketing. The poor people are suffering from shortages of a variety of things, you know? So, the the rich will continue to use cooking oil as much as they like, but it's the poor people who suffer if we reduce the import of cooking oil because we are running short of foreign exchange. So, in other words, I think the appeal should also be that we have to go for more equity in the society. Uh if we don't appeal for equity, I don't think these things will work. And for this, a ground has to be prepared where the nation has to be taken into confidence.

[00:16:11]Otherwise, if the nation is not taken into confidence, the opposition parties are not taken into confidence, they're not brought on the anvil, I don't think these tests will work. So, therefore, you know, it's not just a question of the rich, it's a question of a national you know, consensus on how we need to proceed further because this is a situation almost like a war. In a war, your production suffers, your distribution suffers, your shortages are there. It is like that. So, therefore, you have to treat it in that same way.

[00:16:40]Even if, you know, the the Strait of Hormuz opens tomorrow, next 4 months are going to be very difficult. You know, you will continue to face this problem, and there there may be structural changes also because the fight is between China and the USA also. USA is trying to prevent China from rising.

[00:16:56]They don't want Iran's crude to go to China.

[00:16:59]Iran's 90% crude goes to China. So, those efforts may continue even further.

[00:17:04]So, therefore, you know, we don't know how long this will continue, and therefore, we have to plan for it. So, as I keep saying, let us hope for the best, but prepare for the worst. The worst is that situation will continue to deteriorate.

[00:17:18]Uh Professor Mehrotra, I'll I present to you a situation that every appeal uh is aimed at looking at a solution, but brings its own set of challenges and problems. If people cut down on travel, it harms the aviation sector and ancillary units.

[00:17:36]If if uh you don't if you appeal people to work from home, trust me, many offices are already working from home because they see great merit. They don't have to spend on big offices, and post COVID, a lot of them are doing it already.

[00:17:51]But, if everybody else is supposed to do it, then there will be a problem. It will affect productivity. There are some functions where you can't work from home, right?

[00:18:00]And many other I mean, I can go on and on where a suggestion that has been made, rather than providing a For instance, don't buy gold.

[00:18:10]The jewelry association has sought a meeting with the PMO saying that I'm a paid to kill a lot money.

[00:18:16]So, I I want to I want to know from you how does this work, Professor Mehrotra?

[00:18:23]Very very simply I think the kind of moral exhortations that he has made for those of us uncles and aunties, uh you know, like Arun and me, certainly not you.

[00:18:39]We will remember we will remember Shastri ji's exhortation at the time of the 1965 war, which you may have heard about from your parents.

[00:18:50]He is attempting to be this great statesman likening him likening himself to Shastri ji.

[00:18:58]Fact of the matter is all the I think we are all agreed, I suspect, that the kinds of actions that he is proposing are literally, at best, cherry on the cake.

[00:19:10]And he's literally just mainly talking about the cake the cake eating people, not the those who are eating uh dal roti.

[00:19:19]Now, that's why let's just go back and be very clear-headed.

[00:19:25]You can see that this has really hit a raw nerve because people are saying, "Oh, look at the kind of trips that the that the Prime Minister keeps making and how much his entourage the the sort of convoys of cars etc. cost." Let's not go there. This is too petty. That's not what the source of the problem is. The source of the problem is I think part of the problem can be resolved by mobilizing resources, taxing the very wealthy, even if it's a just a surcharge on on it HNI's and the the billionaires uh on their network. And secondly, because there is a there is a a fiscal crisis on the one hand and this is going to call call the foreign exchange crisis. But, clearly, uh so that's so much on the on the fiscal fiscal side. The bottom line is we have to continue to be dependent on fertilizer imports and oil imports and LNG and gas imports. So, what are you going to do? You have to raise prices.

[00:20:41]There's just no getting away from that.

[00:20:42]You you I'm sure what is going to happen in the next one or two days, the diesel prices uh should not be raised, the petrol prices must be raised. The urea prices must be raised because already uh Sanket, hopefully your your listeners know this, that we are using excessive amounts of urea of all the the fertilizer chemical fertilizer that is applied 85% is is actually on the ground is urea. Well, in fact, that shouldn't be the case. And the only reason that is the case is because urea is heavily subsidized, and the other two types are not so subsidized. If the other two types if the urea has been subsidized so much, it is obvious that you must raise the price because it will it will have three types of effects. One, it will reduce the consumption of urea.

[00:21:35]Then hence you Secondly, you will be you'll not have to import so much, and also you'll not have to produce so much.

[00:21:43]And the third thing it will it will benefit the soil.

[00:21:47]It will increase productivity.

[00:21:49]So, you And of course, finally, the government's fiscal will will benefit. You Have you any idea Have your listeners any idea what the cost of the fertilizer subsidy is? It's of I mean, last fiscal year it was 1.85 lakh crores. Now, that may be currently only a sort of 1. sort of 0.6% of GDP, but in absolute terms that this year is likely to be over 2 lakh crores.

[00:22:18]This is an outrageous number. When you add to this the food subsidy that you're giving. So, you I mean, it's very unlikely that they'll stop giving the the free anaj. Uh the panch kilo muft anaj. That they will not do. But, at least the urea price you have to raise for all the all the various reasons that you have to do. So, I'm saying these kinds of, you know, Shastriji type moral exhortations can be observed, and honestly, let's get down to serious macroeconomic policy making. Correct.

[00:22:50]What can actually be done? Two or three strong suggestions in the short term and long from you.

[00:22:57]Okay.

[00:22:58]Uh one thing is that you see production is going to be affected. Transportation is going to be affected because energy is used in everything, right? So, there will be shortages. That means we'll have to cut back on consumption, otherwise the prices will rise very sharply. Now, so where do we cut back consumption? We have to cut back in what are inessentials. So, we have to make a you know, sort of strategy of promoting the essential, but cutting back on inessential. And the inessentials are consumed largely by the well-off segments. They are the ones who can cut back.

[00:23:30]So, how do we do that? I think we we'll have to begin to say levy more taxes on cars. So, car production will come down, but the essential should shouldn't come down. Then you say, you know, you know, travel is cut down.

[00:23:44]Inessential travel should be cut down, but not the essential travel. Because some travel you'll have to cut back, you know, to be able to meet the shortages that will be there. So, this is categorization of essentials and inessentials is very important. Without doing that, you cannot make a strategy.

[00:23:59]If you cut back on everything, then the essentials, if you cut back on that, then we it'll be the hitting the poor people. A second is that these are the immediate steps that we'll have to take, you know, but the long-term steps are we have to go for technology. Why are we in a soup? We are in a soup because we lack in R&D, we lack in technology. R&D and technology require good education. So, we'll have to concentrate more on education as Santosh rightly pointed out, we've been cutting back on expenditure on education and health. If you increase education and health and R&D, then you'll be able to meet the challenges much better later on. You'll have to have a strategic reserve of energy because we are short. So, China has a 6-month reserve, we have only a maybe a 15-day reserve. So, for long term, we have to do that. Thirdly, we have to focus much more on renewable energy. Now, that only solves part of the problem because night time the renewable energy from sunlight doesn't come, so So still will have to do that.

[00:24:56]Then maybe you need to go for coal gasification. We have a lot of coal. You know, so coal gasification can replace some of the uses of petrol and diesel etc. that you're getting from abroad. So these are also more long-term. So you have to prepare for the long-term, but tackle the problem in the short run so that the things do not become haywire.

[00:25:15]You know, as Santosh rightly said, our macro is going to go haywire. Macro going haywire means the fiscal deficit, the trade deficit, the rupee value, all these things are going to go haywire. And I think we we're going to see that in the next few days because the government now has reached its limit in terms of what it can do by not raising petrol and diesel, and therefore petrol diesel will go up and probably this will happen indiscriminately. So if we had prepared in 73 days, we would not have had to do maybe the sharp thing that may be coming on the anvil now.

[00:25:46]Right, Professor Kumar, thank you so much. And before I let you go, Professor Mehrotra, there's one question that I wanted to ask you. And that question is this.

[00:25:56]Uh Professor Kumar says for 73 days we uh we've started now. We should have done it 73 days ago.

[00:26:03]But clearly in these 73 days there were elections. And all through the elections, I'm quite surprised that every crisis was managed, every problem was covered.

[00:26:14]Uh all all uh queues had vanished from petrol stations. And suddenly post elections you see uh this chatter and conversation. So uh if if elections can help you uh very ably manage a crisis, I say let's have another election tomorrow. Sanket, I know you said that you said this tongue in cheek.

[00:26:37]But you and I know perfectly well why uh this uh these 73 days were without taking any macroeconomic serious decisions.

[00:26:51]For the for the obvious uh political reason that you mentioned. Now, we because we haven't taken any decisions, we are now already in a crisis. We needn't have been in a crisis if we had begun to cut consumption down significantly and raise taxes on a variety of products as I have been suggesting. I'm not going to repeat what I said.

[00:27:17]So, we are now paying the price and we have no choice now but to pay the price.

[00:27:24]And the government really needs to get its macroeconomic act together henceforth. Otherwise, you know, we are all agreed that this war is not ending soon.

[00:27:37]And oil prices are not declining to less than $100 for a for a for nearly the rest of this year.

[00:27:45]In in the best-case scenario that this war ends in about a month's time and it may it may not. I have no hope actually that it will end in a month's time unless Russia and China intervene.

[00:28:00]If Russia and China and actually has been to the has been to Russia.

[00:28:05]If Russia and China were to intervene, uh it might happen. However, I do not accept expect Russia to intervene because they are benefiting from the increase in oil prices.

[00:28:16]So, the only party that's possible that might intervene is China.

[00:28:20]Let's see what comes out of the Trump visit to China.

[00:28:25]Correct. Professor Santosh Mehrotra, always a pleasure talking to you, sir.

[00:28:28]Thank you so much for your time. Thank you.