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Govt must conserve key economic assets: Dr Roy

By R Dutta Choudhury
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GUWAHATI, May 17 - Noted economist and University Distinguished Professor of the Southern Methodist University, Texas, Dr Santanu Roy said that under the present crisis, the Government would have to prioritize and conserve the key economic assets. Roy, who is the chair of the Department of Economics of the University, also expressed the view that the strength of the post pandemic economy would depend on the way the pandemic evolves.

The following are the excerpts of an interview with Roy, who hails from Assam and studied in Cotton College and Hansraj College in Delhi before proceeding to USA.

The Assam Tribune: What will be your suggestion for revival of the economy of Assam following the COVID-19 pandemic?

Santanu Roy: The strength of the post-pandemic economy will depend largely on the way the pandemic evolves and the damage it causes. During the crisis, we will naturally focus on the immediate suffering and hardships faced by the population due to both the disease as well as the loss of income earning opportunities and access to goods and service resulting from measures to control the disease. Amelioration of this suffering will strain the resources of the State severely. However, what can handicap economic revival and growth (after the pandemic) is damage to physical and human capital of our society built up painstakingly over many decades. The severe resource crunch and the need to attend to the pandemic may prevent public investment in sustaining our key social and economic infrastructure. Further, lockdowns and breakdown of supply chains (including supply of workers and equipment) may make it difficult to carry out repairs and maintenance at reasonable cost. Disruption in education will make it difficult to sustain the quality of our human capital. Downturn in business and industries will lead to layoffs and loss of skilled workers as well as loss of technical knowledge embedded in these workers; many of them may be lost irreversibly to the State�s economy. Some of the industries will experience exit of business firms that strip assets and will never come back. Perhaps most importantly, the breakdown of social and economic networks that enable businesses to work with each other and keep the economy going, the critical connections as it were, will be difficult to rebuild. It is important therefore to prioritize and conserve our key economic assets through the crisis no matter how painful it might be. We need to continue to allocate resources to prevent our social and economic infrastructure from depreciating severely. We need to conserve our knowledge base and minimize disruption of primary, secondary and college education. We need to target key industries and help failing business firms to stay afloat if their reason for failure is the crisis (i.e., were doing well before the crisis).

Other businesses that close down should be prevented from asset stripping; we should encourage transfer of ownership (for instance, through mergers and acquisitions). Availability of adequate credit for businesses to tide over the crisis (after proper screening) will be important.

We should identify and prioritize important categories of skilled workers (including professionals) in our economy and incentivize them to stay on.

AT: The lockdown following the outbreak of COVID-19 exposed several weaknesses of Assam. One of the major weakness that came to the fore is that the State is heavily dependent on other states of the country for essential items. What will be your suggestion to deal with the issue in the days to come?

SR: We live in an age of specialization, exchange and globalization. Economic dependence is a strength, not a weakness. Yes, it appears as a weakness during a crisis when the links are disrupted - but it is not a structural weakness. It is unwise to suggest that we should become a self-dependent economy forever; that would be like being North Korea. We should maintain a reasonable stock of essentials for occasional crisis (perhaps, three months� need or a bit more); Assam should diversify its regular supply networks to include neighboring countries (China, Bangladesh, Myanmar etc) so that we are much less dependent on other states of India. A crisis like COVID-19 has never happened in the past century; nobody ever assigned a high probability to a crisis of this magnitude (not even in science fiction). That also makes it an extremely rare event. It was perfectly sensible for us to ignore the risk of such a rare event and organize life accordingly (except probably for the fact that North East India was not allowed to develop brisk trade linkages with neighboring countries). Once the crisis is over and fear has dissipated, the world will again learn to live ignoring the risk of such a pandemic; we will be at serious disadvantage if we sacrifice economic efficiency to become �self-dependent�. Unless of course, there is scientific evidence to suggest that these pandemics or similarly disruptive events will be significantly more likely in the future; at this stage, I don�t see such evidence. I am quite alarmed by the rhetoric coming out of the ruling party and government in India.

AT: This year the lockdown posed a major threat to the farmers, mainly because they failed to sell their products. Weak system of marketing seems to be a major issue in Assam. What will be your suggestion to improve the marketing system?

SR: Farmers not being able to access buyers because of lockdown and the pandemic is a global problem; it is there in small or large measure in every country. In the US, farmers are destroying their crops and animals because they cannot access final consumers while the latter are going to stores and observing shortage of meat and other food items. The supply chain - a complex link of specialized intermediaries has broken down. The more advanced the economy, the more complex the supply chain and therefore, greater the disruption. I don�t think this is any indication of the �weakness� of our agricultural marketing system. As I have mentioned above, we are not going to be in a pandemic forever. However, I do think having more digital and smart communication enablers that allows farmers to access retailers more directly might not only make it easier for them to get over disruptions in intermediary chains but also increase their bargaining power and the price they receive.

AT: Tea is one of the major industries in Assam and according to an estimate, the industry suffered heavy losses in the lockdown. As exports are coming down over the years with China, Kenya and Sri Lanka marching ahead in tea exports, what will be your suggestion to boost the tea industry?

SR: Assam�s tea industry needs much better branding and marketing in the global stage. This is difficult for individual estates. Industry wide coordination is important. One issue here is that a very large number of producers are producing lower quality tea perhaps expecting there is not enough demand for better quality tea leading to a chicken and egg problem. Major investment is required to move to better quality tea production and the much-needed marketing; most tea estate owners are unwilling to make this kind of long- term investment. Labour laws also reduce flexibility of tea cultivators. The policy of the State government to assume control of sick tea estates to protect employment has created adverse incentives for private owners to mismanage their estates. One needs to look afresh at the whole gamut of labour, bankruptcy and industrial laws and regulations affecting the tea industry. Assam produces some of the best tea in the world. There is absolutely no reason why our tea should not be on top of the market.

AT: Unemployment is a major problem for Assam and because of the lockdown, more than five lakh youths from Assam, who are working as security guards, hotel waiters etc in other states of the country, are returning home. Is there any possibility of providing them with self employment opportunities?

SR: Self-employment, by definition, cannot be provided. It has to be self-created entrepreneurially by the agent. It can be enabled by access to credit and by freedom from official red tape. Some steps in this direction may be useful. But in the present climate, I am not too hopeful.

AT: Despite best efforts, Assam has not yet been able to attract investors from outside to the desired extent. What will be your suggestion in this regard?

SR: Investors will come when return on investment is high enough and risk is small. Infrastructural growth, removing policy impediments on business and industry and a more stable socio-political climate (that does not flare up every few years) would go a long way. A lot of this requires political will. Politicians that thrive on social dissonance and fissures and make money out through business extortion are unlikely to do much in the years to come.

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Govt must conserve key economic assets: Dr Roy

GUWAHATI, May 17 - Noted economist and University Distinguished Professor of the Southern Methodist University, Texas, Dr Santanu Roy said that under the present crisis, the Government would have to prioritize and conserve the key economic assets. Roy, who is the chair of the Department of Economics of the University, also expressed the view that the strength of the post pandemic economy would depend on the way the pandemic evolves.

The following are the excerpts of an interview with Roy, who hails from Assam and studied in Cotton College and Hansraj College in Delhi before proceeding to USA.

The Assam Tribune: What will be your suggestion for revival of the economy of Assam following the COVID-19 pandemic?

Santanu Roy: The strength of the post-pandemic economy will depend largely on the way the pandemic evolves and the damage it causes. During the crisis, we will naturally focus on the immediate suffering and hardships faced by the population due to both the disease as well as the loss of income earning opportunities and access to goods and service resulting from measures to control the disease. Amelioration of this suffering will strain the resources of the State severely. However, what can handicap economic revival and growth (after the pandemic) is damage to physical and human capital of our society built up painstakingly over many decades. The severe resource crunch and the need to attend to the pandemic may prevent public investment in sustaining our key social and economic infrastructure. Further, lockdowns and breakdown of supply chains (including supply of workers and equipment) may make it difficult to carry out repairs and maintenance at reasonable cost. Disruption in education will make it difficult to sustain the quality of our human capital. Downturn in business and industries will lead to layoffs and loss of skilled workers as well as loss of technical knowledge embedded in these workers; many of them may be lost irreversibly to the State�s economy. Some of the industries will experience exit of business firms that strip assets and will never come back. Perhaps most importantly, the breakdown of social and economic networks that enable businesses to work with each other and keep the economy going, the critical connections as it were, will be difficult to rebuild. It is important therefore to prioritize and conserve our key economic assets through the crisis no matter how painful it might be. We need to continue to allocate resources to prevent our social and economic infrastructure from depreciating severely. We need to conserve our knowledge base and minimize disruption of primary, secondary and college education. We need to target key industries and help failing business firms to stay afloat if their reason for failure is the crisis (i.e., were doing well before the crisis).

Other businesses that close down should be prevented from asset stripping; we should encourage transfer of ownership (for instance, through mergers and acquisitions). Availability of adequate credit for businesses to tide over the crisis (after proper screening) will be important.

We should identify and prioritize important categories of skilled workers (including professionals) in our economy and incentivize them to stay on.

AT: The lockdown following the outbreak of COVID-19 exposed several weaknesses of Assam. One of the major weakness that came to the fore is that the State is heavily dependent on other states of the country for essential items. What will be your suggestion to deal with the issue in the days to come?

SR: We live in an age of specialization, exchange and globalization. Economic dependence is a strength, not a weakness. Yes, it appears as a weakness during a crisis when the links are disrupted - but it is not a structural weakness. It is unwise to suggest that we should become a self-dependent economy forever; that would be like being North Korea. We should maintain a reasonable stock of essentials for occasional crisis (perhaps, three months� need or a bit more); Assam should diversify its regular supply networks to include neighboring countries (China, Bangladesh, Myanmar etc) so that we are much less dependent on other states of India. A crisis like COVID-19 has never happened in the past century; nobody ever assigned a high probability to a crisis of this magnitude (not even in science fiction). That also makes it an extremely rare event. It was perfectly sensible for us to ignore the risk of such a rare event and organize life accordingly (except probably for the fact that North East India was not allowed to develop brisk trade linkages with neighboring countries). Once the crisis is over and fear has dissipated, the world will again learn to live ignoring the risk of such a pandemic; we will be at serious disadvantage if we sacrifice economic efficiency to become �self-dependent�. Unless of course, there is scientific evidence to suggest that these pandemics or similarly disruptive events will be significantly more likely in the future; at this stage, I don�t see such evidence. I am quite alarmed by the rhetoric coming out of the ruling party and government in India.

AT: This year the lockdown posed a major threat to the farmers, mainly because they failed to sell their products. Weak system of marketing seems to be a major issue in Assam. What will be your suggestion to improve the marketing system?

SR: Farmers not being able to access buyers because of lockdown and the pandemic is a global problem; it is there in small or large measure in every country. In the US, farmers are destroying their crops and animals because they cannot access final consumers while the latter are going to stores and observing shortage of meat and other food items. The supply chain - a complex link of specialized intermediaries has broken down. The more advanced the economy, the more complex the supply chain and therefore, greater the disruption. I don�t think this is any indication of the �weakness� of our agricultural marketing system. As I have mentioned above, we are not going to be in a pandemic forever. However, I do think having more digital and smart communication enablers that allows farmers to access retailers more directly might not only make it easier for them to get over disruptions in intermediary chains but also increase their bargaining power and the price they receive.

AT: Tea is one of the major industries in Assam and according to an estimate, the industry suffered heavy losses in the lockdown. As exports are coming down over the years with China, Kenya and Sri Lanka marching ahead in tea exports, what will be your suggestion to boost the tea industry?

SR: Assam�s tea industry needs much better branding and marketing in the global stage. This is difficult for individual estates. Industry wide coordination is important. One issue here is that a very large number of producers are producing lower quality tea perhaps expecting there is not enough demand for better quality tea leading to a chicken and egg problem. Major investment is required to move to better quality tea production and the much-needed marketing; most tea estate owners are unwilling to make this kind of long- term investment. Labour laws also reduce flexibility of tea cultivators. The policy of the State government to assume control of sick tea estates to protect employment has created adverse incentives for private owners to mismanage their estates. One needs to look afresh at the whole gamut of labour, bankruptcy and industrial laws and regulations affecting the tea industry. Assam produces some of the best tea in the world. There is absolutely no reason why our tea should not be on top of the market.

AT: Unemployment is a major problem for Assam and because of the lockdown, more than five lakh youths from Assam, who are working as security guards, hotel waiters etc in other states of the country, are returning home. Is there any possibility of providing them with self employment opportunities?

SR: Self-employment, by definition, cannot be provided. It has to be self-created entrepreneurially by the agent. It can be enabled by access to credit and by freedom from official red tape. Some steps in this direction may be useful. But in the present climate, I am not too hopeful.

AT: Despite best efforts, Assam has not yet been able to attract investors from outside to the desired extent. What will be your suggestion in this regard?

SR: Investors will come when return on investment is high enough and risk is small. Infrastructural growth, removing policy impediments on business and industry and a more stable socio-political climate (that does not flare up every few years) would go a long way. A lot of this requires political will. Politicians that thrive on social dissonance and fissures and make money out through business extortion are unlikely to do much in the years to come.

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