The Home And The World

Rahul Gandhi and Raghuram Rajan discuss opening up India’s economy, fighting COVID-19 and its consequences as well as a new economic vision for India and the world. 

Rahul Gandhi and Raghuram Rajan had a freewheeling chat today on a gamut of urgent and important issues. Here are the key takeaways, classified by subject. 

Opening up India’s economy

  • We have to begin opening up the economy, restarting people’s livelihoods. We can start with places where we can maintain social distancing, not just in the workplace but also to and from the workplace. We have to see whether the people working have private means of transport like cycles, scooters, cars etc. and if they depend on public transport then how do we maintain social distancing there. 

  • We have to figure how to isolate quickly, where there are cases, without having to go into a second or third lockdown. A cyclical state of lockdown or even a second lockdown will diminish trust and credibility. We can’t hope for zero cases but we will have to think of how to manage the ones we have. 

  • At the heart of this process is testing but our testing ability is limited. The US has ramped up to 150,000 tests a day. But experts and epidemiologists say they have to do 500,000. Some are talking in millions. To get the confidence the US has India has to do 2 million tests a day (considering India’s population). But we are doing 25,000 to 30,000. 

  • So we have to be clever and do mass testing. Take a thousand samples from all over the country and check if there is any sign of the virus in any of those samples. If we find any then we can go deeper into where the sample is from and test to check who and how many are infected. This is an example of how you can test so that you reduce the burden on the testing infrastructure. It’s less intensive but cleverer.  

Fighting COVID-19 as well as it’s consequences  

  • We have to fight the virus as well as the consequence of the virus three to four months down the line. Our fiscal resources are limited but we have to prioritize and keep the economy together so that when we open up it’s able to walk off the sick bed and not be impaired then. For this we have to keep people alive and well. 

  • Direct Benefit Transfer has to be realized by accessing welfare rolls like those for widow pensions and MGNREGA. 

  • These measures are especially relevant for those in the agriculture sector and the workers, so that we can get both money and food to those without a job or livelihood while the crisis is on in the next 3 to 4 months. Besides keeping them alive, this will also keep them from going onto the streets to protest or look for work during the lockdown. 

  • We need Rs 65,000 Crores to be able to give direct cash to the poor. Our GDP is Rs 200 Lakh Crores so this isn’t much out of that, considering we will be saving the lives of the poor. 

India’s place in a new global economy

  • The world will have to rethink a new global economy after this. This is an opportunity for India to lead and shape that dialogue because it’s not one of two warring parties, but a big enough country to have its voice heard. It can find opportunity for its industry and supply chains but also mould the dialogue towards a multipolar global order that has place for many countries rather than a bipolar or unipolar order. 

Decentralization in the world and at home

  • Decentralization is important to bring more local information forward but also to give power to people. Across the world there’s a sense of disempowerment because decisions are being made by someone who a person’s vote affects, but who is in a far off place. 

  • In India, from the forward movement on Panchayati Raj we are falling back on a bureaucratic DM based structure. There is an element of control in our government system. We have a district ‘collector’ instead of ‘producer’. This idea is historic, from before the British even. 

  • Southern Indian states are doing a better job because they’re more decentralised. But state governments have less power today. This is despite the fact that the problems and social structures differ from state to state. Eg. Tamil Nadu and UP. Blanket solutions for the whole of India can’t work. 

  • At a global level, the globalization of markets has led to market participants i.e. firms wanting to see the same rules, coordinating structure and government everywhere— this gives them confidence. But it takes away power from national and local governments. 

  • Also there is a bureaucratic temptation to centralize always. So rules are put forward as a condition for funding (whether to nations; or states within nations, by the centre). 

  • The central authoritarian model is appealing to people, especially when there is a figure that can develop rapport with you, make you feel ‘They believe in me’ and ‘They care for the people’. 

  • But the authoritarian figure can begin to believe, ‘I am the power of the people. My rules apply, not the checks and balances, nor the institutions, not the decentralised structure— everything should go through me.’ Historically, this model always puts too much weight on the centre, which eventually collapses. 

Inequality in the world and at home 

  • The global economic system is causing concerns because of a growing inequality of wealth & income and the precariousness of jobs leading to a ‘precariat’ (a social class of people existing without predictability or security, affecting material and psychological welfare). 

  • During pandemics like these people lose out on both their incomes and safety nets. 

  • Globally, today, we have slowing growth and a need for equitable income distribution. We can’t dispense with markets because we need growth. But we have a problem of stuck or inadequate distribution. So instead of distributing output, we have to distribute opportunity. 

A new vision for India

  • In India, social harmony is a public good. Having people believe they are an equal part of the system is essential. Our founding fathers, who wrote our constitution and early administrations realized there are some issues we were to put on a shelf and not touch because if we got into those issues we would spend a lot of time fighting each other. We will end up dividing ourselves, looking backwards into history while we’re struggling with a forward vision. 

  • A new vision for India has to have a creation of capabilities: better education, healthcare, infrastructure. But also rethinking our industrial and market system— we still have remnants of old permit and license raj. We need more freedom: to be able to trust, but verify. There has to be an accent on creating many new jobs of a good quality. 

  • According to CMIE we will have 100 million more people out of work because of COVID-19. 50 million through unemployment. 60 million because of leaving the labour force. So we need to open up in a measured way as soon as possible. 

  • Besides the scale - and financial scale - of problems, the extent and nature of inequality in India too is different from the West. India has caste and so society is structured differently. We need social change. 

  • Once a system reaches a high level of inequality it stops working. Politicians need to borrow from Gandhi and go to ‘the back of the line’ and see what’s going on there, to gain insights. This inequality is visible during COVID-19 too. The poor and migrants are being treated differently from the elites. 

  • We can bridge this inequality by doing better with food, healthcare and education; meeting the administrative challenges of reaching them everywhere so that the level of living is enhanced. 

  • Also, the lower middle and middle class need good quality jobs so that people aren’t dependent on a ‘sarkari’ job and its associated comforts. 

  • For this, let’s not pick among possibilities but create the opportunity for any area to flourish. Eg. we would never have been able to predict that software and outsourcing would be India’s strength. But it is now. 

You can read the full transcript of the talk here. Rahul Gandhi is a member of parliament and former president of the Indian National Congress; Raghuram Rajan, former RBI Governor, is professor of finance at the University of Chicago’s Booth School.

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