Siddhartha Ahluwalia 00:01:36

Hi, this is Siddhartha Ahluwalia. Welcome to The Neon Show. I’m your host and also co-founder of Neon Fund, a B2B SaaS fund that invests in the most emerging software companies coming out of India, building for the globe. Today I have with me Professor Arun Kumar. Sir, so glad to have you in the podcast today.

You have been a professor at economics at Jawaharlal Nehru University. And you have published six books, you know, the books are Black Economy, Higher Education, Indian Economy, Citizen Independence, Demonetization, GST, and your latest book on COVID. Right. And I’m looking forward to your new book on, uh, the Indian economy.

Sir today in the podcast discussion, the goal is to provide our listeners a framework to see the truth really where we are and what better we need to do to move ahead. Uh, possibly what, what is required for India as a first step to go towards a 10,000 dollar GDP per capita, uh, goal. Right? Like we have various goals floating like the 2047 goal, right?

But I think a good quality of life, a good education, a good healthcare system for all, right? That’s what, you know, uh, is a good framework to see, right? The truth. And I want to start today by, you know, saying that at 1947, you know, when India got its independence, all the Southeast Asian countries, uh, China, You know, even Singapore and others, Thailand, Indonesia, they were at Korea, Japan, they were all at the same level.

Even in some countries, the basic infra was completely destroyed. For example, Japan, right? The US has completely shattered after the world war two. their infra. What these countries did differently in the next 50 years, right? What did we do that they are where they are and we are where we are?

Arun Kumar 00:03:38

So Siddhartha, thanks for having me.

Uh, it’s a pleasure to talk to you. Uh, you’ve raised many questions actually together, you know, um, I think we need to go. step by step and see, uh, what has India done or not done as you rightly said. Uh, and, you know, if you look at Southeast Asia, uh, and India in 1947, when we got independence, they were roughly at the same level of Um, poverty, illiteracy, ill health, that we were, and then they pulled ahead.

So, uh, in 1986, there was a paper which showed that what did they concentrate on? They concentrated resources on education and health. They had all children in school by 1965. So they gave good education and good health. which we could not. And even till date, all children are not in school because we still have child labor.

Child labor means they’re not going to school. The proportion may be much smaller than what it was earlier, but nonetheless, we haven’t achieved that goal, which the South Asian countries managed to achieve by 1965. So what has happened is that their labor has become more productive because good education leads to better productivity. Good health means you’re more productive. So all these countries, whether it be China, Korea, Malaysia, Thailand, they’ve all got very productive labor. In India, we have that problem that the ACER reports come from 2005. They show that in government schools in rural areas, 50 percent children in the 5th class cannot do 2nd class reading, writing and maths and they drop out.

They don’t have basic, uh, training. Recently the ACER report which came out 5 months back showed that the age group of 14 to 18, um, this is different from that earlier part, but age group of 14 to 18, 40 percent cannot do 2nd class reading, writing and maths. So in other words, the training is very poor. The education is very poor.

Now, if your education is very poor, then you cannot absorb knowledge. If you cannot absorb knowledge, then you cannot develop knowledge, you know, and you cannot therefore develop a technology also. So we’ve lagged behind in these parameters of education, health, and technology development. So for any nation to become great, it’s the human resources that have to play their part.

The human resources that we are producing, where large number of children are unable to cope with modern technology, that is the setback that we have at the moment. Whereas in these other countries, the Southeast Asian countries, there people are able to absorb technology to develop. So South Korea became a developed way back in the late 1980s.

Uh, China has, stolen a march over us in the last 40 years. Their per capita income and their GDP are now five times, India’s, you know, and they become competitors with the USA because they’re spending 3 percent of GDP on R&D, India’s spending only 0. 7%. So in other words, China’s spending 20 times more on R&D than India’s spending.

And as a result, they become the manufacturing hub of the world. Uh, similarly in say advanced technology like chips, et cetera, South Korea has done well, et cetera. Now, how do you develop education and health? You have to actually give resources for these things, huh? So yes, as compared to the colonial times, we have given more resources for education and health.

We’ve set up many more schools, universities, IITs, IMs, and so on and so forth. But in totality, our expenditure as a percent of GDP is very low. So Malaysia and all I heard have gone up to 10 percent of GDP on education. We’ve never as a nation crossed 3. 8 percent on public education. So that’s very low compared to what we need to spend.

Similarly on health, we should spend 3 percent of GDP on public health. We’ve never crossed 1.3 percent on public health. So therefore the health and the education that would actually make our labor productive, that would make it be able to take on the challenges that are coming. That has been low. Now, today, the world is globalizing.

Now, in a globalizing world, you have to meet the global challenge. And the global challenge is coming from technology. And technology means education and R&D. So if we don’t spend enough on education and R&D, then we will not be able to take on the challenge. And there are any number of examples available, like for instance, defense is a very critical area.

Now, in the case of defense, we started the light combat aircraft project way back in the late 1980s. And still it is not fully where it should be. Uh, the engine is borrowed from G It’s G404 engine, uh, and then, you know, we started the main battle tank also making it in the late eighties. We had the plan to do it.

And that also has the Leopard engine of Germany from that time. So we in critical areas. you know, whether it be shipbuilding, uh, so aircraft carriers or, uh, uh, submarine building, et cetera. We haven’t managed to get the self-sufficiency that a big nation requires if you want to be one of the top nations.

So this backlog of education, health. higher education, R&D has plagued us all through, uh, since independence. So I’m not saying we have not done well in education. You know, we have improved compared to 47. In health also we have improved and that’s why our population rate of growth rose because the death rate declined, because the health systems are built up, hospitals, dispensaries, etc.

So I’m not saying we have not done anything. We’ve done, But not compared to what Southeast Asia has done or what was required. Now, the second thing that you asked was about our growth. Now, growth of an economy can take place, but you have to also see whether the growth is taking everybody along with it.

So, are disparities rising or disparities declining? So, in India, what has happened is that there are two sectors, the organized sector and the unorganized sector. The organized sector is doing well. The unorganized sector is the one that is suffering. And 94 percent of the people are in the unorganized sector.

Only 6 people, 6 percent are in the organized sector. So, the 6 percent are doing well, 94 percent are not doing that well. As a result, the disparities are growing. So even though in terms of per capita income, we are at the 140th level in the world. Okay, uh, but the number of billionaires, we are the third.

So we have more billionaires than countries which are much richer than us, like Germany, Japan, Britain, France, huh? Uh, so that itself indicates the kind of disparity that you have large number of billionaires, but very large number of billionaires. Poor people also at a very low per capita income. Our per capita income is only about 5 percent of that in the rich countries.

So, it’s 1 20th or 1 30th at times compared to the rich countries. So, if we have to develop, then the development should be also more even. Otherwise, we’ll not be able to call ourselves a developed nation. Now, to be a developed nation in today’s terms, you have to be at 14, 000 dollars per capita, uh, income. Uh, we are way behind that.

Now, assuming that the data is correct, that the Indian government is putting out, uh, we will need at least a 9 percent rate of growth if in the next three years we are to reach the third largest economy, uh, that 5 trillion dollar goal. And we’ve had only 6. 5 percent average rate of growth for the last 10 years.

So we are unlikely to achieve suddenly 9 percent rate of growth also. Similarly, if by 2047, We have to become a developed economy. We have to reach 14, 000 dollar per capita. From where we are, that would require a 11.5 percent rate of growth for the next 25 years. Now, hardly any economy has achieved over 25 years 11.5% rate of growth.

So we are also unlikely to do that. So, we may reach, you know, uh, maybe 9, 000 dollars per capita or something like that, but we’re not likely to achieve 14, 000 dollars per capita. So what is likely to happen is that the, the better off countries, the developed countries, they’re also growing at one or two or two and a half percent.

So 14, 000 dollars, which is the definition. So these countries are also progressing. So their, uh, per capita income will also grow. So the distance between us and them will reduce, but will still be quite considerable. So to become a really a developed nation, we need to have bottom up approach where we take everybody along.

It can’t be that 6 percent or 10 percent do well and the remaining 94 percent or the 90%, uh, they, they remain at a low level. And you have evidence for that. For instance, if you look at the income tax data, then you have nine crore people filing, uh, return. But five crore are filing almost nil return. That means that income is below the taxable.

And as the prime minister said in his 15th August speech two years back, he said only 1. 5 crore, that’s 15 million, are effective taxpayers. So these are the well-off. So in a 140 crore population or 1. 4 billion population, you have only 1. 1 percent who are effective income taxpayers. So those are the well-off people.

On the other hand, we have the e-SHRAM portal, where the unorganized sector workers are supposed to register. And on the e-SHRAM portal, 300 million, that’s 30 crore have registered. And 94 percent of them say that they’re earning less than 10, 000 rupees per month. So, you can see this gap. Those, this 1. 1 percent who are doing well, uh, who, uh, have substantial income and we pay substantial income tax.

And then this huge number of people who are working at 10, 000 rupees or even less than 10, 000 rupees per month of income. So, this gap is enormous. So, our development has been a top-down development rather than a bottom-up approach. Gandhi was the one who said during the national movement that we need to have a bottom-up approach.

We have to develop from village upward. Unfortunately, what happened post-independence was that we went for a top-down approach. Why did we do that? Because we were very keen that we should become a developed economy. So we started setting up big factories, big dams, and so on. But that does not generate many jobs.

So, therefore, that top-down development meant that trickle-down should have taken place, but trickle-down has not taken place. It has remained confined to a small percentage of the population, this, uh, fruits of development. And that’s why these disparities have grown. Now, as a result of this top-down approach, What is happening is we are investing now in more and more capital-intensive areas.

So the organized sector with highly capital-intensive technologies and so on is not generating jobs. And that’s why in spite of 75 years, organized sector employs only 6 percent of the workforce and 94 percent is there. So, these people who should have come up and got absorbed in the organized sector, they’re not getting absorbed in the organized sector.

They’re remaining unorganized. So if we had development from below, Then everybody’s income would have risen and the organized sector would have also done well because if people at the lower level have higher income Their demand would be more and when the demand is more then the organized sector would also do well So to give an example, suppose you give 100 rupees to a rich person That rich person will spend 5 rupees and save the remaining 95. So demand will not increase much if you give 100 rupees to a poor person in the unorganized sector Then he spent the entire 100 rupees. He’ll buy a chappal for himself, maybe a blouse for his wife, maybe a school bag for the child, maybe, uh, you know, a katori, uh, for, for the kitchen or something, but the entire hundred rupee would be spent.

So demand would get generated. And when demand gets generated, then industry does well. Today, the problem is given the disparities that are there, where the top is doing well, the people, the 90 percent below, they’re not doing so well, demand has become a problem. That’s why even before the pandemic, the rate of growth officially was dropping.

In 2017 18 quarter 4, the rate of growth was 8%. It dropped to 3. 1 percent in 2019-20 quarter 4 just before the pandemic. And why was it dropping? Because the disparities were rising and with the rise in disparities, the rate of growth declines. So, we have to remodel our policies today. If we don’t remodel our policies, which are more equitable, which give more precedence to labor-intensive sectors, then this problem will continue.

And the rate of growth may go up at some point and then come down again. So, for instance, look at the current budget. The current budget has raised capital expenditures, huh? So, from 5 lakh crores to 7 crores now to 11. 11 lakh crores. But where is this expenditure going? It’s going in big railway freight corridors, big highways, you know, in the power sector and so on, you know, infrastructure.

But modern-day infrastructure doesn’t give much employment. Earlier in the 70s and 80s, if I saw a road project, there’d be hundreds of people who people working, you know, because all, all manual. Today, these big road projects or highway projects or these freight corridor projects, there you see 10 people working with big bulldozers, big cranes and so on.

So direct employment generation is very low in the modern-day infrastructure sector. But our emphasis is on that. So, therefore, they will not generate jobs. They’ll not generate employment. So where will you generate employment? In the labor-intensive sectors. And which are the labor-intensive sectors?

Education is there. Health is there. Rural development is there. Agriculture is there. And then the rural employment guarantee scheme. But you find that in real terms, We are not allotting more funds to these, whereas we are allotting more funds to the capital-intensive sectors. So this is promoting the organized sector, but not the unorganized sector.

So, think about the unorganized sector, because if we don’t focus on the unorganized sector, the rate of growth cannot go up very much because if 94 percent are suffering, then the rate of growth cannot be very high. So, I’ll come back to this question of growth rate a little later, but think about it that what is the unorganized sector, agriculture and small and micro sector. So, agriculture, 85 percent of the farmers are small farmers. They have less than five acres of land. So they’re very small and they are saying that their incomes are not going up because the costs are rising and the price they get in the market is not high.

So, therefore, their incomes are very low. So, the 2017 18 survey showed that from agriculture, an average agriculturist gets only 27 rupees per person per day. which is close to the poverty line. So, these 85 percent of farmers are close to the poverty line. Their incomes are very low. So that’s one segment, huh?

Other segment is the small and the micro sector and the self-employed that are there. Now, of the MSME sector, the micro, small and medium sector, the micro sector is 99 percent of the units. And 97. 5 percent of the employment. And this micro sector suffering and the small sector suffering. So these large segments, you know, because the big industry doesn’t generate job.

So, in the year 2000 or so, we used to say there’s a jobless growth. Investment is taking place in big industry, but jobs are not getting created. Now we say job loss growth. Because growth is taking place, but work is becoming less and less. So I was recently talking to a worker in Maruti and he said that, you know, 10 years back we used to produce one car in 58 seconds.

One car would leave the factory gate in 58 seconds, huh? And we had 10 workers and 10 robots working. Now we have 20 robots and 5 workers. So output is increasing, but employment is decreasing. Similarly, take banking sector. Now in the banking sector, we are all benefiting from the fact that we can work on our mobile phones, we can use our laptop, et cetera, and get to the thing.

We don’t have to go to the bank branch. So the work of banks has increased in the last 30 years by a thousand fold. But the staff in the banks has become half. So, the work is increasing, but the number of people you need is much less. This is the state, state of, uh, affairs in large part of the organized sector that it is increasing, it’s growing, but it’s employing less and less people. That’s why it’s called job loss growth. And that is because more and more mechanization is being used. More and more automation is being used, and this is before AI. Now more and more AI is being used. And AI will displace large number of people who are doing normal work like call centers, BPOs. Now you can have bots doing that work.

You can do even 3D printing. You can make a house, a small house. You can’t make a big house at the moment, but a small house can be made through 3D printing. But very soon you’ll have even bigger structures being created by 3D printing. Then you may not need masons and you may not need workers who do manual work, lifting bricks and cement and all that.

So in other words, coming times, the AI, the way it’s going, uh, you’ll displace even skilled workers. I mean, like ChatGPT can displace teachers for a, uh, at certain level, not completely, but at a certain level. Doctors, because a lot of, uh, you know, uh, surgery can be robotic surgery, et cetera. You know, it can be centrally done from one place, you know, by somebody.

Uh, what kind of medicine to give, uh, AI can maybe prescribe better than maybe a doctor because the AI can absorb one lakh articles, whereas a doctor in his lifetime may absorb thousand articles. So a lot of these things, even in skilled jobs is going to displace, uh, skilled people. So, the threat to employment is enormous.

So as it is, we have a huge backlog. Uh, of employment. And we had done a report in 2022 showing that in India, there are four kinds of unemployment. First is those who are looking for job and not finding. So they are unemployed. But in India, because we don’t have social security, therefore, what happens is that you have to do something.

The poor people cannot afford to sit at home and say, unless I get proper work, I’ll, uh, wait, even if I have to die. In, in advanced countries, you have some social security. So you have unemployment dole and you can wait, but not in India. So people will do something, but they’re not getting adequate work.

So in India, our definition of employment is that if you do one hour of work in the week, you are called employed. Now, but can you support your family with one hour of work? So you’re underemployed. So India is characterized by underemployment much more than unemployment. So government’s official data shows only 3%, 4 percent unemployment.

Actually, underemployment is probably 10 to 15 percent at least. So underemployment is a crucial thing. Then the third is that there’s disguised unemployment. Because if you have nothing to do, you’ll go and sit at your parent’s shop. You’ll go to the field, but there’s nothing to do. So these are called disguised unemployed.

Because we count these people as employed if they’re going and sitting in the field if they’re going there. So third category is disguised employed. Fourth is those who stop looking for work. So in India, we have the periodic labor force survey, which gives us a data on employment, unemployment. This periodic labor force survey, this tells us how many people are in the workforce.

Uh, so in America, in China, in Brazil, you know, about 65 to 70 percent of those in the relevant age group are in the labor force. In India, as per ILO definition, only about 45 47 percent are there. So we have 20 percent less people in the labor force as compared to these, uh, other countries. So why is that so?

That shows that these people have stopped looking for work. They haven’t been able to find work. And they’re concentrated amongst women and educated youth. So the recent ILO report showed that maximum unemployment is amongst the educated youth. Eighty eight percent of the Unemployed are educated youth.

And that’s why you see this massive rush for work. You know, I mean, recently, about six months back, there was the police exam in UP, and 47 lakh children applied for 60, 000 jobs you know. And you could see the huge rush at the railway stations, at the bus stands, because the people are trying to travel to get to the exam center.

And the tragedy was the exam got canceled because there’s paper leakage. So they have to again do it. So this paper leakage has become a big problem. Then in UP, in I think 2016 or 17, one of those years, I forget the exact year, but you had 360 jobs of peons in the UP government and 23 lakh children applied, of which 380 were PhDs, 2 lakh were B.

Tech, M. Tech and B. Com, M. Com. So you can imagine that you get a degree and you’re not getting a job appropriate to your skill. So there are a large amount of unemployed, educated youth and women and so on. And this is resulting in a huge social and political problem. Why is the social problem there?

Because these children are getting frustrated. They’ve done a degree, they’re not getting a job appropriate to what they are. So, you know, on NDTV they were showing in 2019, It was that MBAs are doing cleaning of the drains. So they were asked, why are you doing that? So they said, this is a test for becoming a Safai Karamchari in the municipal corporation.

So you’ve done an MBA and you’re not getting a job and you’re willing to do a job of a Safai Karamchari. So that shows the mismatch and the frustration that the children are facing. And the parents are telling them, you are not good for anything. We have sent you to Allahabad, to Mukherjee Nagar, to Kota, we spent money.

And you’re not getting a proper job. So that adds to the frustration of the children. Because the family doesn’t recognize, the neighborhood doesn’t recognize them. And they realize that they don’t have a job. So with this they’re getting into substance abuse. So either they’re sitting on their mobile phones and wasting time, or they’re doing substance abuse, you know.

drugs, drinking, et cetera, et cetera. Now they don’t have money because they don’t have an income. So snatching money at home. So violence is entering homes where their children who are unemployed, uh, their violence is entering. So there’s a big social impact of this. And political parties are using these youth who are unemployed who are looking for some small thing.

So parties are drafting them. So there’s a political implication of this. And then the uneducated youth itself is now protesting. So that also has political implication. So this unemployment is a huge issue. And this unemployment is a result of the government policies and the technology together. Because technology is not enabling enough jobs to be generated in the organized sector, those which are the desirable jobs.

So in our report we estimated that these four kinds of unemployment mean that the 280 million Indians don’t have a proper job. Only 320 million Indians have a proper job out of 600 million. So what does it mean? It means 320 million who are earning, they have to support a population of 1. 4 billion. That means each working person has to support 4.4 people. If these 280 million also had work, then 600 million would support 1. 4 billion. So each one would support 2.3. So family prosperity would grow. So unemployment is the reason for continuing poverty also. So even though wages have risen, but in the last 10 years, the real wages have not risen because there’s been inflation also.

So you have, on the one hand, wages not rising. On the other hand, the corporate sector profits and the organized sector profits, they have risen. And that’s the source of disparity. Now, what does all this suggest? All this suggests that there is the unorganized sector, which is declining. The organized sector is rising. So where does the data come from? We don’t get data for the unorganized sector. We get data for the organized sector, and we are usually discussing the quarterly data that, you know, every quarter, what is the rate of growth of the GDP. That data is coming from the organized sector. The unorganized sector is assumed to be growing at the same rate as the organized sector.

Now, we know from the field that the unorganized sector is declining, whether it be in textile sector, leather goods sector, whether it be pressure cooker sector, whether it be luggage sector, uh, and so on. So unorganized sector is declining is the organized sector is rising. So in other words, we are proxying the unorganized sector by the organized sector, which means we are proxying a declining sector by a rising sector.

So therefore, the 7 percent rate of growth, which is officially given, is actually the organized sector’s growth. It is not the unorganized sector’s growth. Unorganized sector is declining. And one, another hint that has come to us is from agriculture, which is the big chunk of the unorganized sector, where 46 percent of the workforce is employed.

Last year, the government said we’ve had record production of wheat and of paddy. Now if you had record production of wheat and paddy, why is it that wheat and paddy prices have been rising sharply? And because they were rising, we banned the export also, and yet the prices rose. So what agriculture experts are saying is that agriculture data is not correct.

The manner in which we collect our agriculture data is not correct. And that’s why the data for agriculture is not correct. The unorganized sector data is not available, and therefore, whatever alternate data is available shows that it’s declining at about 5%. So 55% of the production from the organized sector may be rising at 7%. That gives you 3.75% rate of growth, but the 45%, which is from the unorganized sector that is declining at 5%, that gives you. minus 2.25. So your real rate of growth is not 7%, but more like 1. 5 to 2%. So this is the big problem that our official data is not reflecting the reality of the decline in the unorganized sector.

And to get a totality of the picture, we have to look at the unorganized sector separately and the organized sector separately, and then come to a conclusion. So if this is the reality that since the time of demonetization, because demonetization hit the unorganized sector, GST hit the unorganized sector, then next year, NBFC hit the unorganized sector.

And then in 2020, the pandemic and the lockdown hit. So the unorganized sectors had four big shocks. So you can ask, why is it demonetization hits the unorganized sector? Because unorganized sector is very tiny, small. The micro sector has 1.7 average employment. That means one person and one worker. So it’s very tiny.

It works in cash. It has no accounts. When it works in cash and cash is short, then they had to close down. They didn’t have the working capital for either buying raw material or for hiring people and so on. So large part of the unorganized sector closed down. Doing demonetization and could not recover.

Then GST hit them because GST also requires accounts to be kept. Unorganized sector does not keep accounts. I mean, you go to a neighborhood, uh, you know, say fabricator of steel work or something. He’s not keeping accounts. He only got a rough idea of what is his input and what is his output. So these people have been hit very hard by GST because they don’t get input credit.

Whereas organized sector gets input credit. So its cost has come down. So therefore, demand has shifted from the unorganized to the organized sector. And this is, you know, I remember the statement of Mr. Jagannathan, who is the chairman of the prestige pressure cooker, uh, you know, company. And he’s the, uh, he was the head of the pressure cooker industries also.

So he gave a statement in 2018. One year after the GST was implemented, that we are five units in the organized sector. We are very happy. We are growing at 24 percent. He said there are 25 unorganized sector units and they are declining because they can’t cope with GST. So this pressure cooker industry is a clear example of how demand has shifted from unorganized to organized sector.

Same way, In the luggage industry, Mr. Poddar, the chairman of the VIP industry, he’s, he also said the same thing that the unorganized sector is the dominant sector in luggage industry. They’re declining. So our demand is going up. Same thing was said by the leather goods industry, the biggest leather goods company in India.

His chairman was being interviewed on CNBC. He said exactly the same thing that unorganized sectors declining. So our demand is going up. So this is coming from across the board. So we have to correct our data. Now people say that, look, but IMF is supporting the government saying we have a 7 percent rate of growth.

World Bank is saying that we have a 7 percent growth. We are the fastest growing large economy and so on. But the point is, IMF, World Bank, ADB are not data collecting agencies. They take the government data and then they give their figures. They will add a little, subtract a little, but their figures are close to the government figures.

So, because the errors are there in the government data, there are also the errors in the data from IMF, World Bank, and ADB. So, in fact, I’ve been arguing that India has one of the best databases among the developing world. And if Indian database is so incorrect, the database of the other developing countries also must be equally, uh, compromised.

Therefore, I’ve been arguing that these tables that the World Bank, IMF, and ADB generate of for global, uh, you know, economies, right, they are, uh, hugely in error because the developing world, what, what gets captured in that is coming from the government and government data is incorrect, then their data will also be incorrect.

So we have to be very careful. We have to look at our situation and we have to move the unorganized sector. If we are not able to move the unorganized sector, we will continue to have these problems of poverty, of unemployment, and so on. And this is also having a political impact because if there’s such a large amount of unemployment and the youth is frustrated, then it’s bound to have a political impact, you know.

Siddhartha Ahluwalia 00:35:17

And Sir, what you mentioned is, is having several societal impacts also, like in spite of 75 years of independence, what recently happened in Kolkata, around 12 years back happened in, Delhi, Nirbhaya case, right? These incidents keep on happening. Right. Uh, right. Whereas in developed world, these incidents are far and few, like America has gun problems, but not women’s safety problems.

Arun Kumar 00:35:44

Well, they may have, you know, some, but not on this scale, not on the scale that we have every day. You have these reports. And this is where I had a recent article in the leaflet where I said that there are broken systems. In India, we’re not able to fix our systems, you know, because what is happening is there’s a huge amount of corruption.

What I have researched, the black economy, you know, and this black economy has meant that what should be done is not done. So I characterize the black economy as digging holes and filling holes. What does digging holes and filling holes means? That during the day, you set one person to dig a hole, at night you set another person to fill the hole.

And therefore, Next morning you have zero output, but two incomes are earned. So I call this activity without productivity. So it has meant that our investment productivity is low. And I keep giving this example that you lay a road, you don’t put enough tar in it. You don’t put enough aggregate. Rains comes, it gets washed away. So roads are pothole. So therefore, the speed, will get affected of the cars that axles will break down more accidents will take place, right? So what I’ve argued is that black economy means the systems are not functioning and policies fail. So if as Rajiv Gandhi said in 1988 when one rupee is sent from the center only 15 paisa is reaching the ground So if you’re trying to set up a school and only 15 percent is going then you’ll take seven years to set up the school rather than one year. So education targets get hurt.

Similarly in the health sector. There’s massive amount of corruption on every kind of thing You know, uh, for instance doctors will prescribe tests that are not needed, you know they’ll give medication that is not needed and medication. There’s a huge amount of spurious medicines. So there was one study I won’t name uh, uh this but they found that rifampicin which is used for TB treatment they took samples from different parts of Delhi And they found that instead of 600 milligrams that should be there, some of the rifampicin had no rifampicin in it.

And some had 50 grams, some had 100 grams. So you may be taking the drug in time, but your TB will not get cured because you need one milligram per kilogram of weight. But you’re not getting that. So spurious medicine means your health will get affected, right? Uh, so in the context of the three students who died recently because the basement got flooded in this Rao study circle, why is that? That shows the broken systems everywhere. Why are roads get flooded? Because the drains are not clean. Why are the drains, uh, uh, uh, uh, stuck? Because we as citizens are throwing our garbage in the drains. You know, we eat, uh, paan parag or we eat some potato chip and we throw the thing there. It goes ultimately into the drain and chokes the drains.

So citizens are responsible for the drains getting choked. The municipal corporation is responsible because they’re not cleaning the drains in time. The contractors who are supposed to do it are in the pay. So they, you know, don’t employ the worker that they need to employ. Then this Rao study circle is holding it in the basement because that’s cheap.

You know, they’re trying to save money on that, so they charge a lot of money, but they don’t do it. So, in other words, if you look at one of these and analyze in detail, everything is wrong. So, why is it that we’re not able to correct these simple things? Why is it that our education system is not able to teach children so that they don’t have to go to these coaching centers?

Because exams are held in a certain way, those exams have to be multiple choices, okay, in a particular way. So, therefore, we are not teaching properly because of which coaching is there and because the coaching centers have to attract students. So they’re willing to do all kinds of hanky panky, including question paper leakage and you know, marks fixing and so on.

So you had the Vyapam scam in Madhya Pradesh. What are the Vyapam scam? The Vyapam scam was fake degree certificate. So you haven’t done a degree and you, uh, get a degree. So you, you don’t know that the engineer actually has done engineering or the doctor has actually got a doctor’s degree, right? So therefore we are victims of that, you know, and that’s how the Vyapam scam was caught because somebody’s mother died.

And then he discovered that the degree that the doctor had was a fake degree. So he exposed that, right? And 47 people associated with the Vyapam scam died mysteriously. So the systems are very powerful. The corruption is enormous. So this black economy has set back all systems. Because people are interested in making money rather than actually performing well.

So, in India, our attitude is chalta hai. If we had done something, then, you know, that’s okay. We don’t achieve perfection. So, in other words, you know, the point that you’re making about these, uh, uh, women and so on, it is because there’s corruption in the police, there’s corruption in the municipal corporation, and that money goes right up to the top.

So, it’s not that, you know, only people at the bottom are corrupt. So why is it that we are not able to set proper medical standards? Why is it that our institutes are not functioning properly? Because there’s, you know, the head of the institution is a political appointee. As long as the political contact is there, they doesn’t have to care about how the system is functioning in the hospital or in the university or in the college.

So the teaching is very poor because now I’m told in very good colleges, et cetera, also people have to pay money to get a lecturer’s job. So who can afford that? Only somebody who has black money. So only the top 3 percent or 4 percent who have substantial black, their children can get those jobs. So if you recruit children who are, uh, not capable, then your teaching will suffer.

So, on the one hand, we say, because of reservation, we are taking people, uh, who are not capable. On the other hand, we are taking people who are, you know, uh, coming because of money. They can afford to pay the capitation fee in medical colleges, in the engineering colleges, and then, uh, get into, uh, jobs, uh, which are, uh, paying more, right?

So this black income generation. Is the single biggest problem that we have. So I’ve shown in a paper in 2005, that because of the low investment productivity, because you are doing this digging holes and filling holes, uh, the low investment productivity means, India has been losing 5 percent rate of growth since the mid-70s when the black economy became more than 10%.

So if you add 5 percent every year from the mid-70s, today Indian economy would be at least 8 times larger. Wow. So instead of, you know, 3.5 trillion, you’d be about 26 trillion. You’d be larger than the US economy. Okay, so the black income generation is what has set back a lot of policies, a lot of what India could achieve because policy failure means you’re not able to achieve what you want to achieve.

And therefore, Chidambaram in the 2005 budget said, expenditures don’t lead to outcome. In the budget, you allocate funds. But those are not properly spent and therefore the outcome is not there. So whether in education, health, drinking water, and so on. So drinking water pipelines laid everywhere, but still every home will have a RO, will have boiled water, will, you know, have a bottled water.

So you first spend money on that and then you have to spend money on all this. So tremendous inefficiency. So in other words, policies failure, policy failure, that’s a big thing in India. We’re not able to achieve. So government intervention may be there. Okay, government is trying to improve, but because the systems are all corrupt right up to the top, therefore, we are not able to achieve the So as a nation, systems are broken, and therefore, we are not able to achieve what we need to achieve, what we should achieve.

And that’s why our development gets set back. So even though the well-off may do well, But after all, the well-off also have to live in Bombay or in Delhi, in their own farmhouse, etc. If the environment around them is unclean, if, you know, uh, the education of, uh, workers is, uh, weak, then they will also suffer from it.

So they may have done well through illegality and various other things, but the kind of services that they can get in an advanced country, they will not get. They will have to, uh, live at a lower standard of living, even though they may have more servants and so on and so forth.

Siddhartha Ahluwalia 00:44:07

And that brings me, uh, to my, you know, data point. Is the number getting reported that we are a 3. 6 trillion dollar economy. Is that correct number or not?

Arun Kumar 00:44:19

That’s what I mentioned, that since demonetization, the unorganized sector has been declining. So our rate of growth has not been 7-8%, it’s been more like 1, 2, and so on. And in some times, like demonetization, actually it became negative.

Because the unorganized sector declined dramatically. And the organized sector also, we could see for those months of November, December, January, that, you know, malls were empty, the people are not going out shopping because they didn’t have cash. You know, I, uh, on NDTV, they interviewed a beggar woman and I was there for that interview.

And she said that, uh, she did not, she used to get 200 to 300 rupees, uh, uh, AMS every, uh, day, and she was getting only 20 rupees and she could not feed her children. So one of the child who was sick died. So the unorganized sector, I mean, this is an extreme case, but the unorganized sector declined dramatically and could not recover for quite some time.

I went to, uh, uh, Gwalior in the month of March, uh, 2017, uh, almost, uh, five months after that. And I went, I said, let me go to the. Wholesale market. Let me go to the labor market and see what’s happening. And Gwalior is, you know, in the heart of India. It’s a prosperous, uh, uh, town. So there the wholesale market had not opened till 12 o’clock.

And the, uh, the, the owners of the shops, they were sitting outside playing cards. So I said, how come you’re not opening? He said, we are not getting clients. We are not getting the retailers from the neighboring villages because they don’t have cash. So what’s the point of opening? We’ve come here, we’ll open for one or two hours in the afternoon and that’s it.

Then I went to the labor chowk and at 12 o’clock, it was full of people because they, I said that if you’re not got work, they said, no, no, even if we get one quarter of day work, we’ll wait. So they’re waiting for work. So that means demonetization, uh, that actually economy declined, even though the government’s data shows an 8 percent rate of growth for that year.

But actually the economy declined. And that’s because the unorganized sector is not captured. GSTs hit it next, and GST hit the unorganized sector very hard. And that effect is still there. So again, the economy declined, but that’s not captured. Then the NBFC crisis, because the NBFCs are important for the small sector and for consumers also.

So that again hit it, and then the pandemic hit it very hard. Okay. So these data are not captured, the unorganized sector data. And the unorganized sector is not able to recover. So our data is incorrect. As I said, unorganized sector is declining at about 5%. The organized sector may be growing at the rate given by the government of 7, 7 and a half percent. If you combine the two, then our rate of growth is not more than 1 to 2%.

Siddhartha Ahluwalia 00:47:01

So what’s the real number of our GDP right now if it’s not 3.6 trillion? Where do we stand at then?

Arun Kumar 00:47:07

So I think we are probably at still 2. 5 trillion dollars because in the last eight years since demonetization from 2016, we have not been growing at an average of six and a half, seven percent, but more like one or two.

And in some years like demonetization, we declined. Then again, you know, when the government said, before the pandemic, the rate of growth was 3. 1%. So if the organized sector is growing at 3. 1 percent and the unorganized sector is declining, that would have been also minus 1, minus 2%. So of these years, the average could not be more than 1.

And therefore, we are still probably at about 2. 5 trillion or thereabouts. Uh, and that’s why you see you have unemployment. That’s why you see continuing poverty That’s why you see the various kinds of problems The disparity also that you see is because the unorganized sector is declining the organized sector is rising so you cannot explain Uh, if the economy is growing at seven and a half percent or seven percent, then why is unemployment so high?

Why is the youth protesting so much, you know? Why is the distress so much? In the agriculture sector it is it can only be the problem that we are confronting can only be explained If the unorganized sector is declining and the rate of growth is really only one to two percent and not seven percent. So at seven percent the picture of the economy should be quite different from what it is presenting Itself, you know people would be more happy. There’d be more income. There’d be more expenditures and so on So organized sector is doing well six percent of india working in the organized sector is doing well, but the unorganized sector is not doing well, and that’s the 94 percent and they are in distress and their distress is, uh, increasing. So, we have to disaggregate India to find out which sector is doing how, and then come to a conclusion about, the economy as a total we can’t just look at the organized sector and make our thing and the Unorganized sectors in every sector. So it’s it’s across the board Uh, so for instance in hotels and restaurants, you have five star hotels and you have dhabas. In transportation you have railways, which is organized sector and you have rickshawwalas, you know, who are the unorganized sector, right?

Uh, you may have malls etc. And then you have the neighborhood stores And trade sector is one sector which is one of the big sectors where the unorganized sector is declining because e-commerce is growing. E-commerce has been growing at 20 30 percent when the economy is growing at only 6 7 percent and if they’re growing at 23-30 percent they must be growing at the expense of the neighborhood stores.

So neighborhood stores are declining. I mean, I can say for our family also, before the pandemic, we ordered nothing from e-commerce. Today, 90 percent we are ordering from e-commerce. So we are not going to the neighborhood stores, right? So neighborhood stores, and after agriculture, that’s the second biggest employer, the trade sector.

So the trade sector is suffering that they are declining. So this kind of evidence, you know, of the decline of unorganized sector. So you may have biscuits manufactured by Britannia and your biscuits manufactured locally. You have sweets manufactured by the big guys and your sweets manufactured by the local.

So every sector has organized an unorganized sector. And this unorganized sector is suffering. So you have 6, 000 large companies, 6 lakh small and medium companies, and 6 crore micro units. And the 6 crore micro units give about 11 crore employment. The large and the medium don’t give much employment, they’re highly automated.

So the small and the micro sector that’s giving bulk of the employment, and that is where the unemployment problem is coming. So we have to disaggregate the economy. Look at agriculture, look at the small, micro, uh, large sector, industries, and so on. Then only we’ll be able to get the real picture of the economy.

Siddhartha Ahluwalia 00:50:52

So then, then it’s a, it’s a government failure. If you change government, would it be fixed? It’s a policy failure. It’s an execution failure. What, what level are we? Because you mentioned, clearly we need to fix things bottoms up, right? Bring, you know, people in agriculture. in organized sector, uh, up, right?

Either they move to, by scaling, they move at a large scale to organized sector, right?

Arun Kumar 00:51:20

No, so you can’t, see, uh, uh, average micro sector employs 1. 7. It can never become organized. Okay. An organized sector is using more and more technology and not generating jobs. So it will never become organized.

Siddhartha Ahluwalia 00:51:35

How do you separate the lines? How do you define both these sectors first?

Arun Kumar 00:51:39

So organized sector is one where unions exist, where they’re able to bargain for a wage. Unorganized sector, they cannot bargain for a wage. So that’s how we define. Formal and informal is different. Formal means you’re registered with the government. Informal means you’re not registered with.

But formal sector is employing a lot of unorganized labor because there’s a lot of contract labor now. So like even in our university in JNU, for the last 20 years increasingly, it’s the service providers which are providing jobs at very low income. So you can look at the gap. Look at a postman in the government, maybe getting 60,000, 70,000 rupees. A courier guy doing the same thing will be getting 10,000, 12,000 rupees. A guy who’s a chauffeur, in a company or in the government, maybe getting 60,000, 70,000 rupees, a driver in a private this thing or a taxi stand, maybe getting 10,000, 12,000 rupees, right? So the gap is enormous between the unorganized and the organized sector.

So this gap is what is creating the problem and these people who are self-employed etc will never become organized. But we have to support them to generate more income. How do we do that? Yeah, that’s the next question government’s policies have to change. We have to focus on education and health. We are not doing what we need to do.

Even the Kothari Commission in 1968 said we should spend 6% of GDP on public education. We have not crossed 3.8%. Right. So we are not doing what we need to do and because we are way behind in education compared to other countries, we need to go to 10%. Hmm. In health also. So health is abysmal in India, you know, pandemic showed that most tier two, tier three cities and villages had no health facilities and people are dying.

I did an interview with 25 different districts of UP. Some friends organized that and there they were saying that earlier in our village, one person would die in a month. Now one person is dying in a day. That means 30 times more deaths and they’re not recorded. And they said the people are saying we’ve had a breathing problem and then they died. There’s no doctor to diagnose, no medication, no oxygen available. So our health is abysmal in villages, in semi-rural areas, in small towns, etc. So we need to improve that. That’ll give product. So education and health. That’ll improve productivity. That’ll give a lot of employment because these are also employment-generating sectors.

We need to do rural infrastructure. Our urban areas have rural infrastructure, but rural areas don’t. They won’t have dispensaries. They won’t have schools. They won’t have proper roads. They won’t have proper telecom. So compared to urban areas, which have all this, they’re backward. So what’s happening?

You’re not generating jobs there. So people are migrating to the cities. But cities are very expensive. You know, to create infrastructure in cities costs a lot of money. So if you have to set up a school in Delhi, you need 15-20 crores of rupees because the land is expensive and then you give facilities.

In a village, you can set up a good school in 50 lakhs. So, you can set up, you know, 20 times more schools in the amount that you’re spending in rupees. But look at our policies. You’re not generating job in rural areas, so people are flooding into urban areas and they’re flooding into slums. So, therefore, you’re doing the wrong thing.

If you did development from below, people would not come flooding into urban areas. So, our development would not be so expensive. You know, today in a big city like Bangalore or Delhi, you need flyovers, you need metros. And these are hugely expensive, you know, at 100 crores per kilometer of metro overhead and 300 crores per kilometer underground.

It takes a lot of money. You know, in a few lakhs, you can provide a road in a rural area, but resources are being preempted by urbanization. Okay. So, this urbanization is preventing resources from being invested in rural areas. Okay, because we are focusing on that. Now, we may say that urban areas need it.

Okay, but the point is so do rural areas, but our priority is urbanization. Okay, so with the result that we have all the wrong things coming up because resources are not there, employment is not there, so people will come flooding and therefore cities are bursting. 60 percent of the city, uh, people probably are living in slums in Delhi, Bombay in very poor condition.

So, health problems come up, uh, education problems come up and so on and so forth. So this has to be changed where if we begin to have micro sectors developing, micro sector provide a lot of employment.

Siddhartha Ahluwalia 00:56:28

What would be example of micro sector in villages, for example?

Arun Kumar 00:56:32

All kinds of things that they’re doing in the thing, you know, whether it You know, small production of, uh, FMCG goods, soap, this, that, you know, the kind of Gandhian program where, you know, he said you can make soap at home, you can make biscuits at home, you can make sweets at home, you can have all kinds of things which are being produced for the rural areas. What is being produced in large scale by the, say, FMCG company like Hindustan Unilever, Nestle, etc., you know, you can produce also at home or in small units at the local level. But this big network of roads and of freight corridors will enable Unilever and Nestle etc to penetrate into rural areas and therefore kill whatever is there. So what are the problems of micro sector? There are two big employers, micro sector and agriculture. We have to try and get them up. So agriculture. The incomes are very low. So how do you boost their incomes? You boost their incomes by giving MSP.

If you give the minimum support price, then only will their incomes go up. They may be producing more, but if they’re not able to sell it at a good price, then their incomes will not rise. So that’s why farmers are saying we want MSP on full cost, not MSP on some partial cost. So MSP on full cost will increase incomes in agriculture.

When incomes in agriculture increase, then the demand for micro sector will go up and demand for organized sector will also go up. So, everybody, so that’s 46%. So their agriculture income now, there you had to also improve technology. What’s happened is that expenditure and R&D on agriculture has also gone down.

And extension services, which used to be there in 60s, 70s, I’m told, are no more there. So how do you take technology to the field? Through extension services. So you need to spend a lot more on extension services for agriculture. So agriculture becomes, uh, better in terms of technology and productivity and so on.

And then people there are surplus. So you have to take them out, where will you take them out? Into the micro sector, because the organized sector will not give them employment. So micro sector has to be boosted. How do you boost the micro sector? Micro sector has three problems. Average employment is 1.7. So how can they develop technology or how can they develop, you know, finance or how can they develop marketing? So you need to produce cooperatives of these. So just like you have farmers producers organization being set up so that the small farmers can get together and access the market, the micro sector also you need to make cooperatives.

So like Aligarh may have brass. You know, or locks, uh, Khurja may have ceramics, Bhadohi may have carpets, Ichalkaranji may have textile. So you create cooperatism. As a cooperative, then they can do marketing and they can access finance. Technology research will have to be done by the government and provide better technology to them so that they can continue to upgrade themselves, right?

So the focus has to be different. GST has to be reformed. GST has been the big damage that done to the micro sector. So GST make it a last point tax. I’ve been arguing since 2015 in an article in EPW. Why GST is not appropriate for India because we are a dominant unorganized sector micro sector, small sector, which is not the case in France or in other developed countries, which went in for VAT and GST much earlier than us.

So what they could do, we can’t do. We have to actually have our own, uh, you know, method of doing things. So in other words, GST, which is now collected at every stage. So you collect two paisa from the chartered accountant and four paisa from the transporter and then, uh, X paisa from the supplier of raw material and the Y from this thing.

So you have hundreds of stages for any production. And ultimately it’s collected from the citizen. So it’s a final point tax. So just collect it from the citizen. Forget all these intermediate stages. It’ll simplify GST. And it’ll mean that no input credit is required. And therefore, the disadvantage to the unorganized sector of input credit, that will go.

And therefore, they’ll have the same, uh, situation as pre GST when they were competitive with the, uh, organized sector, given the, uh, the concessions that they had. So make GST the last point tax, okay? Uh, that will not reduce, uh, your tax collection because 95 percent of the tax is collected from the organized sector.

Only 5 percent is collected from others. And Jaitley famously said 5 percent units pay 95 percent of the tax, 95 percent pay only 5 percent of the tax. So therefore you’ll only collect from the organized sector and organized sector accounts are there and you can continue to collect from them as you’re doing So therefore that’s next is you reduce the GST to just maybe two slabs.

At the moment, it’s very complicated. There are eight, nine different counting. If you count, uh, gold and if you count, you know, uh, jewelry and so on, uh, and then you count the composition scheme, 1%, then there are eight, nine taxes. It makes for complication. So just have two simple, uh, rates. One, which is completely exempt, a normal rate and, uh, uh, you know, a luxury rate and apply it to the final goods.

And final, luxury goods. Then how do you get revenue? You have to collect from direct taxes. Direct taxes at the moment are paid by a very small percentage of the population. As the Prime Minister said, effective taxpayers are only 1. 5 million, 15 million. That’s 1. 5 crore or 1. 1 percent of the population.

And that is because the black economy is very large. So you have to tackle the black coin for which you’ll have to use wealth tax and inheritance tax, which the rich oppose at the moment. Okay, that will help in generating resources. So when you get more direct taxes Then you can cut the indirect taxes which will lower the inflation and which will lower the impact on the unorganized sector also. Now in India, We are a grossly under-taxed nation.

Only 6. 2 percent tax is coming from direct taxes, which fall on the well-off. And 11 percent is coming from the indirect taxes, which are regressive, which are coming from the, uh, a large part is coming from the poor people who consume something or the other. So, if you reform your taxes to collect more from direct taxes and less from indirect taxes, then it’ll benefit the unorganized sector lower the inflation rate. Lowering the inflation rate means that the purchasing power of the poor people will go up. The demand will go up, etc. So reform of the public finance of direct tax indirect tax will be another step that would be required and mind you because of the black economy Uh, our direct, our tax GDP ratio is only about 17 and a half percent. If you check the black economy, then this could rise dramatically. Because at the moment, large number of people who should be paying direct taxes are not paying direct taxes. So you could collect a lot more from direct taxes and then reduce your indirect taxes.

Siddhartha Ahluwalia 01:03:24

Sir, I fail to understand when the bottom of the pyramid, the villages, the rural areas constitute 50 percent of the Vote Bank for the government, uh, and it makes sense for the government, right, to develop these, uh, right. And, uh, uh, at least keep the people there. So first step is maybe build systems of higher education there. So people don’t move out. People migrate first for education and then for jobs. Right. And once you have higher system of education, then develop industries, uh, they’re micro macro or large scale, right? You can also through your incentive structure, uh, get larger industries to come to the remotest part of the country. And because you are saying that my road network is already developed, right, uh, uh, your cost of transportation of goods will continuously go down. Uh, over a period of time. So this is, this makes common sense. Why is it not happening then?

Arun Kumar 01:04:30

See, it’s not happening because our policies right from independence have been top-down. So, we’ve decided to develop the modern industry first. So modern industry meant that certain centers got developed. Right. The public sector, the only one which started setting up industries in remote areas, like BHEL Haridwar was set up where, you know, there was not even adequate transportation.

They had to strengthen bridges so that you could move generators and so on. You developed a steel industry in the remote parts, uh, of, uh, you know, where the iron ore was available, Bhilai, Bokaro, and so on and so forth. But private sector will go only where there’s a developed infrastructure. Private sector will not go into areas where it’s underdeveloped, where they’ll have to spend money on development of infrastructure.

But public sector also post 1991 now has to generate a profit. So they’re also not going to go on their own, unless the government tells them to go. They’re not going to go into remote areas and do the development and so on. So as a nation, We have to reorient policies. As I said, we are going for capital-intensive rather than labor-intensive.

That’s also part of the way that organized sector is being developed, right? Uh, then we’re not focusing enough on education and health. So, if we’re not focusing on enough on education and health, we’re not going to set up good, uh, institutions in rural areas, right? Uh, but there’s need for good education everywhere. So all children have equal opportunity. Today the children of poor don’t have an equal opportunity as compared to children of the rich. So not only do those who are well off have contacts where they can get their children placed, but also they get better education, they get better infrastructure, etc. So our focus has not been right, right since independence, but in the last, uh, 10 years, what has happened is that the focus has shifted even further towards concentrated, uh, development towards organized sector away from the unorganized sector. And that’s why you’ve had one after the other GST and demonetization and digitization, et cetera, which are impacting the unorganized sector further. Uh, so we have to realize as. That these policies are not going to be able to deliver. So, you can see that there are, we’ve had policy-induced crisis. Demonetization was not required. It was done. That, so that’s a policy-induced crisis. GST could have been better structured. Structurally, it wasn’t done again to help the organized sector.

Siddhartha Ahluwalia 01:07:02

But why does the government want to help organized sector?

Arun Kumar: 01:07:05

Because you see, you must look at the political economy. All political parties need funds for election. These come from big businessmen. So big businessmen then dictate policies? What kind of policies to follow? The rural areas may have 60 percent of the population. Voting population. But they don’t, they don’t count because you see all political parties are favoring the organized sector, the big business and so on. That’s where they get their money from. So in other words, you’re marginalizing. Otherwise, as I said, unorganized sector is 94%. But they’re not, they’re not organized. So they cannot have the political influence that they need to have. If tomorrow they could get organized, then all political parties will cater to their interest. So political parties cater to the interest of those from whom they get money, and then they actually are fooling the average public. So what has happened is that this government is developing big conglomerates, you know, like the Chai Balls of South Korea, huh? So you have Hyundai and Daewoo, Daewoo of course closed, but Samsung and so on and so forth, right? But those Chai Balls develop because they develop technology. Whether it be automobile technology, whether it be steel, whether it be, uh, you know, uh, uh, uh, uh, your, uh, mobile phones or whether it be chip technology and so on, right? Indian Chis have grown by acquisition, not by developing technology. Neither Tatas have developed technology, nor Adani, nor Ambanis, uh, et cetera. They’ve imported technology and on the basis of imported technology, they’ve done it. So our Chai Balls are growing through agglomeration, through acquisition. So this is spoiling the investment climate because any profitable enterprise, if say, uh, Adani is wanted and they get it, then those who are running those profitable enterprises will run away. Okay, so that’s why large number of high-net-worth individuals are leaving the country between 2014 and 2019. Uh, 23,000 left the country in 2019, another seven and a half thousand left. We don’t have the data in between, but in 2022, it was reported another 7,000 left the country so 2,50,000 high net worth individuals, 10-12% are leaving the country. That shows that the investment climate is poor. So not only demand is a problem, but even the investment climate has become a problem that if you have these big agglomerates, which are able to acquire assets easily. And the cement is one prime example where, you know, Ultratech was trying to acquire these two companies and suddenly at the last minute the two cement companies were acquired by Adani’s. So airports, ports, you know, the power in everything, you know, these agglomerates are dominating. So you have that on the one hand. On the other hand, you know that the poor are suffering. So you start giving five kilo of ration, you start giving, you know, gas, you start giving free bus tickets and so on. Because now the public doesn’t trust the politicians. We have been saying, look, we will develop at the top and reach you. It’s not reaching. So public now says, what are you giving me today? If you’re not giving me something today, I’m not voting for you. Okay. So therefore the entire competitive politics, we are now spending resources on giving these things.

Siddhartha Ahluwalia 01:10:21

You, you want to give them instant gratification.

Arun Kumar 01:10:24

Instant gratification in each election you have to give. So, you have 80 crores who are being kept poor and then you’re trying to get their vote by giving this instant gratification. Okay. So they, the 80 crore gets fooled by these things. It’s not going to help them in their long-term development. Right. And you are getting, uh, the big. Uh, organized sector, these agglomerates, uh, to, uh, grow. So this is the wrong strategy. The country cannot become a developed country in this manner. We have to change our policies to a bottom-up approach rather than a top-down approach. And politics has to become more democratic, where the voice of the it crows, the unorganized sector and so on, that voice has to come up. Okay? But that’s a political process. In the political process. I mean, look at your trade unions. They’re divided. The trade unions are not able to organize the unorganized sector. So, therefore, the workers are not able to pitch the demand that they need to pitch. And therefore, the parties are also doing the bidding of the big business.

So it’s a political question that has to be sorted out in the country before policies change. So economics and politics go hand in hand. You cannot separate economics from politics because those who are big players, they would like the economy to be in their favor. So this development paradigm that we have adopted, that needs to be changed, but that’d be changed only if those at the bottom, they get enfranchised, they get empowered. But the big business and even the middle class would like the unorganized sector to remain because that keeps wages low. Okay, so when you keep wages low businesses make more profit Okay, and middle class and the upper middle class is able to employ cheap labor at home So we have servants and we have drivers and so on now think of a middle-class person in the US. Maybe getting 40 times more than a middle-class person here, but cannot afford a full-time servant. Okay cannot afford Well, maybe part-time once a week or something they can get But they cannot afford a servant. They cannot afford a driver. So in other words, cheap labor serves the purpose of the middle class and the well off and the businesses. Okay. So that’s why this unorganized sector, I call the reserve army of labor, because everybody in the organized sector is worried that if I lose my job, I’ll be in the unorganized sector at one-fifth the salary. So I don’t want to, so you’ll not be as, uh, uh, vociferous. in, uh, demanding what your right is as if the employment situation is much better if the unorganized sector is declining.

So it’s part of the political economy, which is leading to the kind of situation we are in where with lack of education, lack of understanding, uh, lack of empowerment, you know, the unorganized sector is not able to demand what it should get.

Siddhartha Ahluwalia 01:13:15

Then, then how will India even become a developer? Because this is a vicious loop, right? If we don’t get out of this loop, we’ll be where we are.

Arun Kumar 01:13:25

We’re not going to get a, become a developed country by 2047 or 2060, unless we change policies.

Siddhartha Ahluwalia 01:13:31

Even forget about becoming a developed country. Even if we have to double our GDP per capita, it won’t happen because of this vicious loop.

Arun Kumar 01:13:39

No, you can, you can still have, with this kind of thing, you can maybe double your GDP per capita.

But all the gains will be at the top, the top 6%. The bottom will remain more or less where it is. Okay. But if you want to go to a per capita income, which is 20 times, 30 times, then you have to change your policy. And only when your per capita income becomes 20 times, 30 times what it is, will you catch up with the advanced countries.

And mind you, you also need to remember that our population, which is 1. 42, uh, 1.42 billion now cross 1.6 billion. So the population is also increasing. So not only does your GDP have to increase, but also have to take into account this. That’s why I said that by 2047, at 7 percent rate of growth, we may reach 9, 000 dollars.

But we won’t reach 14, 000 dollars. So at for 14, 000 dollars per capita, we require 11 and a half percentage of growth because the population is also increased So what is 1.42 billion will become almost 1.6 billion So therefore your per capita income will rise less because the population is still increasing. But now we know that our fertility rates have dropped.

China’s fertility rates dropped and therefore now its population started declining and that’s why we’ve crossed China’s population. But our fertility rates are dropping slowly, uh, and therefore in some areas, especially North India, the population will continue to rise. And we’ll probably stabilize at 1.6 billion or thereabouts.

Siddhartha Ahluwalia 01:15:11

But, but do you still think, uh, uh, in the, in the current model, even if you take the next 50 years, I don’t think then, uh, the current framework, it’s they’re going to be a developed India forget. 2047.

Arun Kumar 01:15:28

Yeah, you’re right. You’re right that to become a developed nation without the 94 percent in the unorganized sector coming up, we’ll not become a developed nation.

Siddhartha Ahluwalia 01:15:37

How’d China become it? You mentioned that they are focused on education and healthcare, but they would have also Was it a bottom-up model that they adopted in China?

Arun Kumar 01:15:46

No, it’s not a bottom-up, but you see, uh, there the state intervention enabled people to come up because with education, with health, your productivity goes up. Your small sector did very well. Your, you know, small industries and so on. Agriculture also came up and workers were siphoned out of agriculture into industry and services. So therefore, what China did was not quite a bottom-up approach, But the spread of the, uh, development was much wider, uh, than what we see in India. I had gone in, uh, 2008 to Shanghai and I went to a village. I asked them to take me to a village. So they took me 50 kilometers out of Shanghai to a village. There were a few huts, but very few. Most of the houses had become pakka, the development seemed to have taken place over there, etc. So they did manage to get the fruits of development, uh down now That’s because I think the the local bodies there and the state bodies they had more autonomy. So I think autonomy is another issue that in India we face that our autonomy given down to the local bodies is very little, their resources are very few and property tax, which should be a good source of income for them, property tax is not adequately paid or property tax rates are low because the well-off segments don’t want to pay much property tax.

So it’s become a vicious cycle where, you know. Resources are not being made available for education health and they should go to local bodies and local bodies should be able to raise their resources and should have check on health and education in their area. So this, uh, uh, decentralization is also very important.

So there’s been a discussion on decentralization and, uh, when we were campaigning for alternate policies in 1990, 91, 92, we had this formula that 50 percent of the resources be with the center and 50 percent be transferred to the states and states resources 50 percent go down to the local body. So that there’s a formula 50, 50, 50.

So if the local bodies have more resources, they can generate employment in the local areas. So, like the rural employment guarantee scheme, you need an urban employment guarantee scheme where the local bodies would generate resources and would spend. So that’ll generate more employment, more education, more health, and that could become a way of transforming the economy and becoming more developed.

Siddhartha Ahluwalia 01:18:19

I think, uh, in India, it’s always been that we, we never lagged the brain, uh, right? Because we have the best think tank, right? Uh, our CEOs almost run the, the US corporate economy. Uh, but the same, uh, execution, we are not ready to bring it.

Arun Kumar 01:18:45

So there are two things. One is, you see, as I said, 95 percent of the children have very poor training. So they’re not the people that you’re talking about, right? We accidentally produce 20, 30,000 world-class people because they are excellent. They’ll do well, no matter what. Even poor, decrepit education system will still produce these people. What about the 95%? They’re not at that level. So when we talk about these things, we have to talk about the level of education, the quality of education, you know, uh, how we learn, we learn through rote. So in my, uh, teaching from 84 onward, because I’d seen that at Princeton, I used to give open book exams. And children were scared of the open-book exam. They didn’t want an open-book exam. Because I would say that then you don’t need to mug up, you’ve got your class notes, you know, you need to apply. But they were not used to the idea of thinking in an exam. So they’d say, sir, sir, please don’t give open book exam. I would get feedback every semester and they would say, uh, we don’t want open book. But I’d say, no, you should know one exam. which is different from the way you’ve been learning. So I had complete sympathy with them that for 15 years, they’d learned by rote and then mechanically reproduce the, uh, answers and got good marks, but here they had to think. So I had complete sympathy that suddenly you can’t start thinking. So I would, you know, correct their scripts. There are a lot of mistakes and then give them marks liberally. But in India, the absorption of knowledge is very poor. Even in a good university like JNU, um, We had difficulty. So, as I said, we produce accidentally, not because of our education system. In spite of our education system, we still produce twenty, thirty thousand. But otherwise, the education system is greatly lacking. And why is that? Because of several reasons. We don’t give enough emphasis to education. You know, uh, we have not given autonomy to teachers, which we need to give, because if you’re teaching at a higher education level, then you need to teach what you think is the subject, but we constrain that. So we give autonomy to vice chancellor, but not all the way down to the teachers. So with the result, uh, uh, uh, vice chancellors or deans or, uh, head of the departments are like feudal lords controlling the system. Whereas knowledge generation requires free thinking. You require freedom of thought, huh? Now, if you’re told you have to teach this, then where is the freedom? If you’re told that you have to do research, where is the thing? So I have argued often that my head of the department can’t come to my room and say, today you have to give a good lecture. A good lecture comes from the heart. Their days are prepared well for a lecture, but it hasn’t gone well because I can see in the eyes of the children that they’re not understanding. They have to modify that to make it interesting. So a good lecture will inspire the children. An indifferent lecture will bore them to death. They’ll forget it. They’ll not learn. So we need good teachers, huh? Who will inspire the children? And that’s not happening. It’s a very mechanical thing. People with poor capabilities are becoming teachers. Similarly, my vice chancellor can’t come and say, today you have to do good research. A good research also comes out of my commitment. If I work 10-12 hours a day, it’s not because I’m going to get paid, but because I enjoy doing research. Okay, so you have to enjoy doing research. Now, when can you do good research? If you absorb the subject, if you’ve not even absorbed the subject, you’ll cut and paste. I mean, most of the publications in India are, you know, of that nature. Uh, they, they take something from here, something from there, add it up and, uh, publish a paper, but that’s not original work. So large number of PhDs, large number of MPhils, large number of papers that are published are not worth the paper on which they’re done. So if you have such poor education, naturally you produce very few people who are capable. So you need to reform your education where autonomy is given. Today, we are saying, For instance, in the new education policy that we want to decolonize the Indian pine. And indeed, our minds are colonized, you know, because we had the Macaulay system of education.

And we think that what comes from the West is better than what we are doing. So we are not generating our own ideas. We are just copying from China, from USA, from this, that, and the other. But that’s not the way good education can be done. So what we need to do is, we need to actually promote indigenous thinking, which will come if there’s autonomy to the teachers, if they’re good teachers and there are good academics, then only will it happen. It will not simply happen by, you know, the new education policy saying that we decolonize the mind. Now look at the contradiction. When we say decolonize the mind, then we invite foreign universities. If foreign universities come, they’re not going to take our framework, they’re going to take the framework of their universities, their society. So the decolonization will not happen, right? Then what does decolonization mean? Does it mean that all the knowledge that is developed in the last thousand years, you’re going to give that up and start again? It can’t be that. So decolonization of the mind is a good idea, but you have to take the knowledge that is existing and generate from that new knowledge for which you have to reform your education system so that children are not learning by rote. They’re actually absorbing the knowledge. For that, you need good teachers. For that, you need good education infrastructure, and that should be available to all so that everybody gets opportunity. Now, very often it’s said resources are short. I think it’s not a question of resources. Whatever you have, you can utilize it better. And if you check the black income generation, then the resources that are wasted because of the black economy, they will also be available. So it’s a question of the political will of the country. It’s the political will of the country that is damaged. Where we have all these problems of top-down approach, focus on the organized sector, you know, uh, good, uh, people going abroad. And we are also trying to export. We are saying demographic dividend. And what is demographic dividend? That our youth will supply them. Those economies which have less of labor, that we’ll supply them. Now, how can you export your best talent and say that we’ll develop? So it’s a contradiction. We have to try and retain the best by giving them work here and trying and develop fast. Now think of it, if you were a Vishwaguru, why are such a large number of Indians going to Canada and Australia and so on? Are Canadians and Australians trying to come to India? Are Americans trying to come to India? A Vishwaguru would attract talent rather than export talent. So these are enormous contradictions in our thinking. Of policymakers and the new education policies, another disaster along these lines, because it’s a very confused. I mean, it has very nice words. It has very nice thing. But if you look at the totality of it, the thought that should be there to develop education system is in words, but not in the practice in which it would work. So as a nation, we have to take care of all these contradictions of these confusions that are there in our mind and come out with clear thinking About our education, about our development, about our, uh, unorganized sector, about our agriculture. So, uh, somebody said that outside one of the South African, uh, universities, it is written the best way to destroy a nation is to destroy its education system. If your education system is bad, if your education system is weak, then everything up the line will also, your policies will be incorrect, your understanding would be incorrect, the public would not be empowered, they would not be able to demand what is required. So, focus on education, on health, and will become even more crucial in the coming years as AI comes. I mean, we are going to be in soup with the current situation and the AI developing the way it is developing. We’ll be in a tremendous soup.

Siddhartha Ahluwalia 01:27:16

And you have been in academics for almost 40 to 50 years now. First as a student and then, you know, uh, leading economics at JNU. Have you seen any vast difference on our education system or has it gone backwards?

Arun Kumar 01:27:36

Well, from what I can see, uh, it has deteriorated. Uh, for instance, JNU. the way it has been treated in the last 10 years, it has gone downhill. You know, this idea that we’ll capture JNU, uh, has actually meant, you know, that it’s gone down. You know, now JNU’s number one university, if you leave out Indian Institute of Science, Bangalore, it probably is remaining number one because other universities are going downhill even further. So the autonomy that was required has been killed. The kind of research that should be done that has been affected very adversely. So in other words, you know, uh, what I see from JNU and what I see of Delhi University, the two best universities in the country, because Kolkata, the Chennai and, uh, uh, Bombay universities had declined considerably even earlier. But these two good universities, they have declined, I see, in the last 30 years. The kind of critique of policy, the kind of critique of theory that used to come out, uh, I don’t see that coming out, uh, so much now. So, uh, the idea of a university is knowledge generation, socially relevant knowledge generation. That idea seems to have declined. We’re borrowing more and more, copying from outside more and more. We’re saying, you know, Bombay should be like Shanghai and things like that, you know. Uh, where it can’t be. So JNU has to be JNU and Harvard has to be Harvard. We can’t say JNU should be like Harvard because originality cannot be copied. That’s a contradiction in terms, right? So it’s this confusion that is there, which I find enormous confusion, uh, which is creating a problem. You have, you know, problem of, uh, corruption in recruitment. You have an enormous problem where there’s ad hoc teachers, part-time teachers who don’t have their heart into teaching because they’re always worried that they may lose their job. They’re being given a lot of administrative work, the school teachers are given a lot of administrative work, like, you know, earlier they were even asked to cook the midday meal or if election comes and they’re given election duty, et cetera. So how many hours do they get to really focus on teaching? So they think that by keeping the authorities happy, uh, they can get their promotions. So why should they concentrate on teaching? So I think teaching and research has to be taken far more seriously in our country, if we are to become a developed country.

Siddhartha Ahluwalia 01:30:06

And you rightly said, right, even sometime, I think in five, six years ago, what happened was that education university like JNU was a narrative was trying to develop that it’s anti-nationalist.

Arun Kumar 01:30:26

Because you see, by nature, education has to be critical. Yes. If I keep saying Amartya Sen is the last word, then economics will not advance. If I keep saying Einstein is the last word, then physics will not advance. So, when I got my students to research, You know, I’d say take this paper of Samuelson or this or that and critique it. So you have to be critical about what is going on in society for it to be improved. So, therefore, a student of JNU was always critical. Now you say that that’s being anti-national. So anti-national is different from being critical for knowledge generation. And then we see that poverty persists. So, if you say that poverty persists and these are the reasons, you’ll have to be critical of the policies. Now, that is not anti-national. That’s only trying to help the development of the nation, that you have to have better policies. But, so this distinction between what is critique of policy and what is anti-national, that has been confused. that any criticism is treated as anti-national and unfortunately in our nation large number of people don’t understand this distinction that being critical of policy is not anti-national. So the government spread the propaganda that’s anti-national tukde tukde gang and that labels have got widely, uh, sort of, uh, accepted in the population because people don’t understand. Most people don’t understand the nature of higher education, nature of knowledge generation and so on. So to them, if you’re critical, then you’re anti-me, you know, so the being critical and anti-me, uh, is something that most people don’t understand the difference. Uh, so knowledge generation is receiving a big setback because without critique, you cannot develop knowledge generation. So like for instance on one TV debate, uh that I had in 2016 soon after the this incident that took place in JNU. So they said what do you teach in JNU? What do you students learn? There is a question So I wrote a piece in the Tribune. What do we teach in JNU and what do our students learn? So I said we teach the children to critique we teach the children to say this is what is lacking in the knowledge This is what is lacking in the policy and this is how it can be reformed. Okay, and that’s how knowledge will advance. So we teach the children to be critical. Now, if we teach the children to be critical, then they will critique. If faculty has to be critical, they’ll be critical of policies also, because that’s how policy will change. So, what is good in higher education, if you take it negatively as being anti-national, then knowledge generation will suffer. And that’s why today we are getting set back in knowledge generation.

Siddhartha Ahluwalia 01:33:05

Thank you so much, sir. I would like to have a further discussion because I think, uh, you know, I learned a lot from you and I hope my listeners learned a lot and applied that critical mode of thinking, you know, that, that you showed us a glimpse of in this podcast episode. Right. That to, to become a developed nation, we don’t have to be on the box. Right. We have to, to, to find the truth for ourselves. Right. Act on it. Right. Right. Thanks a lot. Thanks.