well joining us now Another former chief economic advisor to the government of India this time under the government Professor Kaushik Basu are joining us from the United States Professor Basu, thank you for being with us Our first of all the centres decision to reduce this excise duty on fuel How much is it actually going to help? Because there is a real concern that inflation has become entrenched in India. Are you worried about that as well? Yes. Let Pierre clarify I ting this particular boof to lower the taxes and give an immediate relief Two people it is high time and in this should have been done because it's the poor and even the middle classes Quah being hit by this inflation very badly But you have to be very careful as you do this lower the taxes, your fiscal deficit could go up and it's the fiscal deficit goes up then your long run you're feeding into the inflation even more can if I'm a step back and point to something about the inflation which in fact we should be much clearer about this simply because today fortunately, while fortunately or unfortunately, the inflation is not something which is brewing inside the country. It is something that is coming from the international situation, the supply chain bottlenecks which is causing the inflation. That being so. It is important given that the responsibility is really of the initial inflation is not with us, but it's coming from outside. We should be much clearer about its effect on the people and it is the poorer and the smaller businesses who are getting it right. But much of the world is dealing with high inflation at the moment. In the U. S. It's at a 40 year high UK, other parts of Europe as well. However, in India, you know you have the P inflation, which has been in double digits for more than a year now, continuously and retail inflation at an eight year hires well, so is this combination hurting all of us much more here in India at the moment, I think you're pointing to something exactly valid because what happened initially, the p in session, the wholesale inflation when that went into double digits, which happened 13 months ago, more than a year ago, we were not paying enough attention to that because it's the retail inflation which hits people directly, that we had our eyes six tonne. But now you realise what's happening is retail inflation 7.8% which is high. But by international standards, not really that high wholesale price inflation very, very high by any standards and there's been some controversy are seen. The last time we had at this level of wholesale price inflation was about 24 years ago, late 19 nineties and something is happening because of this wholesale price, inflation being hired and retail inflation mean that for small businesses, micro enterprises, the price at which they are buying things, which is the wholesale price that's shooting up, they are not being able to pass it off elsewhere. So our small businesses are being hit very, very badly, and one fall out of that is unemployment. You know, on the inflation figure, I agree with which lots of people will point out that the world situation is probably more grim than what's happening in India. But the employment situation is very bad in India and youth unemployment in particular the data that is coming out as India's one of the worst performing countries in the world and this crease between the wholesale price and the retail price hosted price. Shooting up means small businesses are floundering. They're employing fewer people. Another thing is the retail inflation will come under more pressure because as the wholesale by sensation, which is at 15.1% 15.8%. And remember, since you pointed out that this is not something which has happened over the last few months, but over 13 months, there is no base effect which is causing this in session. This is real wholesale price inflation. This is going to transmit more to the retail inflation. My own calculation is retail inflation is going to cross the 9% mark. This is going to happen, but government should put in every effort to make sure it does not go into double digits and try to turn it around there. This is the momentum that has come from elsewhere. But we are not paying enough policy attention to the smaller producers and the workers, the farmers who are paying the big dump of the price inflation and the squeeze between the wholesale and the region. We're finally professor bus who just wanted to ask you about, you know, the social fabric, communal tensions, India. They deeply polarised at the moment. How does that impact economic growth if it does Mehdi on the inflation? Frankly, I don't think that the social tension of the political tensions is causing the inflation. But I do worry about India's long run growth prospects because study after study shows long run growth does not just depend on your economic policies, trust among people, confidence in ordinary things. In life. There are lots of documentation that that plays a role, and I do one that the political polarisation, the divisiveness in society that we are seeing is going to damage our long run growth prospects. And, you know, the Economist magazine Have a cover storey last year, a. Last week. Think about India's prospects, the potential being very high, and I agree, if you look at the fundamentals, we have great strengths. But the politics can undo it because if it becomes divisive, India is not going to grow, um, on the growth scenario. By the way, I should point out that yes, over 21 22 India's growth was very high, but that shows nothing but getting climbing out from the huge tip which had taken place. India's was one of the worst performing economies during 2019 2020. So the climb back D view of one year growth boost the future is to be seen. We have the fundamentals. But if the politics remains so divided, India's growth prospects will begin to flounder or Professor Basu thanks very much for joining us.
