Motion
The house believes that the proposals made in the Economic Survey are realistic and will help the government achieve policy targets optimally.
Sub motions
1. The benefits of growth would trickle down to the bottom of the pyramid through last-mile delivery of services to the poor.
Stance: Bhavika Arora speaking in favor of the motion
The Economic survey suggests that to achieve the objective of becoming a USD 5 trillion economy, growth sustained by a “virtuous” cycle of savings, investments, and exports catalyzed by a favorable demographic phase is required. Reaganomics partially based on the principles of supply-side economics and the non-linear shape of the Laffer curve are a testament to the theory that decreases in taxes, especially for corporations, offer the best way to stimulate economic growth.
For the last mile delivery of services, the government has focused on various schemes especially the Aadhar Act 2016, which through its direct benefit transfers provides targeted support and Saubhagya, under which 99.99% of households have been electrified.
Stance: Ayushi Samaddar speaking against the motion
Aspiring for a USD 5 trillion economy by 2024-25 through the vehicle of improved savings, investment and exports are questionable at best. The Great Depression is a testament to the fact that the “save more” strategy failed and in turn caused demand to crash. One must also consider the current state of things, wherein government schemes that target the poor are lackluster at best. Of which the most reputed MGNREGA requires special mention.
In 2019, the work completion rate for the scheme was only 18%. Drawing from Sen’s line of thought, the ‘capabilities’ of the vast population has to be uplifted for growth to sustain. Also, productive investments, both private and public is what is essentially required for the effective implementation of the various schemes.
Remarks by the panelists: The panel judged that the first sub motion was incorrectly perceived by both the parties. The motion was based on the effectiveness of the trickle-down schemes suggested in the economic survey, and not on trickle-down in itself. The proponent could have backed her motion through focus on Kuznets curve and supply-side Economics, while the opposition could have used Keynesian economics to support her case, which claims that since the poor consume a higher proportion of their income (higher MPC), a $1 subsidy to the poor would have a more stimulating effect on the economy than a similar tax rebate to the rich.
To conclude, the panel believes that while trickle-down works imperfectly, it is not entirely incorrect as real wage always increases with an increase in the capital-labor ratio. Thus, the government should follow a balanced approach to focus on growth along with ensuring the efficient delivery of last-mile services to the poor.
2. Suggested behavioral approaches to policymaking in the survey will be helpful in directing people to desirable choices.
Stance: Shubhangi Sharma speaking in favor of the motion
The economic survey (2018-19) tried to highlight the key areas that provide room for behavioral economics to enter the spectrum of policymaking, in order to make the economics more about the humans than the economic agents making rational decisions. Some tools of this nature are:
1. Social norms: Eliminating cognitive and failure bias using framing effect (e.g. changing the norm from a girl child is a burden to that of celebrating her birth).
2. Leveraging default rules: Utilizing anchoring bias (e.g., making opt-out the default option for LPG subsidy).
Tax compliance, cleanliness programs, financial inclusion are other areas where these and other tools can be used to make policies more effective.
Nudging, other than being economical in terms of costs, doesn't interfere with people's liberty as it is libertarian paternalism and thus is more inclined towards benevolence. Since countries like the US, UK, Australia have established official 'Nudge units', India should not stay behind either but at the same time should keep in mind the consequences of using community and religious norms for a secular state like ours.
Stance: Ketaki Sardeshpande speaking against the motion
“Real people respond to the choice architecture”- Economic Survey, Chapter 2.
It is important to draw attention to this line in the chapter because of how it introduces the concept of choice architecture. Therein lies the questions of who is the architect and how is the architecture designed. Using the ideas laid out in the Economic survey and Thaler’s principles of a good nudge, it can be argued that, given the diversity and plurality of the country, not only is it difficult to construct a good nudge but also ensure that it does not violate the basic principles of the Constitution. Moreover, our bureaucracy is riddled with inefficiencies and corruption, making it difficult to successively implement a nudge.
Remarks by the panelists: The panel notes that proponent spent the precious initial few minutes delving deeper into the realms of behavioral economics. While explaining the hidden nuances of BE, she was flawless in highlighting deviations from rationality in our choices and the use of framing & anchoring effects to correct them. While covering issues globally, she missed out on Indian scenarios and made little comments on the survey itself.
Regarding the opponent, the distinction between Homo Economicus and Real People and pointing out that the nudges were not effective in eliminating the inherent biases in the policy itself were strong points raised during the debate. However, the panel believes that she missed out on the references from the survey, such as the use of terms like BADLAV and Sundar Bharat. Also, she didn’t strongly attack the proponent on the grounds of heterogeneity and secularism, getting clouded by these policies.
To conclude, while good points were raised, both the speakers missed out on references from the Survey. The debate shifted from policy issues to the acceptance of BE in the general domain.
3. Increasing the Retirement Age to deal with the aging population is a good move.
Stance: Rohit Chaturvedi speaking for the motion
The survey of 2019 proposed to increase the retirement age gradually by referring to the pensionable age reforms being undertaken by countries like Germany, U.S.A, UK, Australia, and Japan which are generally increasing their retirement age. Our country may not have a similar demographic structure to these countries but increasing retirement age is perhaps an inevitable step, as the population growth is set to slow down in the next two decades leading to a substantial increase in the aging population. The proportion of people above the age of 60 is expected to increase from 8.6% today, to 16% by 2041.
The success of any government policy depends on its implementation and having proper feedback and monitoring mechanism in place. Rather than focusing to win few short-term battles, we should focus on winning the long-term war. Thus, it would be a great advantage to the nation, if we take proper measures to cater to an upcoming demographic transition by putting in place policies today.
Stance: Pragya Vaswani speaking against the motion
In recent years, governments of many developed countries have gradually started implementing policies to increase the average age of retirement in an attempt to combat the economic problems associated with population aging. But India despite being on a similar trajectory, shouldn't follow this strategy because of the following reasons:
1. It would lead to high job scarcity in the public sector lead to bloated establishments. 2. An extended life span does not necessarily mean a fit working population.
3. The transition for the older population would be very difficult in this high technology-oriented business environment where the average age of employees in a company keeps decreasing.
4. The median age of India which is 27.1 years is still very low as compared to countries like Germany and USA with 45.9 years of median age, following similar policies.
At this point in time when India's economy grew at the slowest pace in six years and is facing one of its highest unemployment rates, the government should be focusing on capitalizing it's working population which comprises 55.8% of the total population.
Remarks by the panelists: The proponent brought forward key points that justify the suggestion of increasing the retirement age in India. He correctly stated that it is a proposal as of now and no clear timeline has been set for the same. Although the speaker fluently justified his stance, stronger backing was still possible. In addition to this, a parallel comparison with China for this proposal would have fortified his stance.
The opponent brought in good arguments of her own along with countering the arguments of the proponent. The arguments made were strong although using more economic jargon, theories, and concepts as justifications would have been welcome.
Overall, both the speakers had a clear understanding of the sub motion and had successfully justified their respective sides.
4. A well- designed Minimum Wage Policy is the right impetus for inclusive growth.
Stance: Akalank Jayakumar speaking for the motion
Economists have debated on minimum wage for over a century. Those who are against a minimum wage policy have contended that such a policy distorts the labor market and increases unemployment by pushing wages above the equilibrium level. However, in recent decades, conclusive evidence has emerged to prove that minimum wage has no statistically significant impact on employment. Thus, a well-designed minimum wage policy can be the solution we need to combat poverty and wage inequality.
Stance: Venkata Raamasrinivas speaking against the motion
The idea of a National Minimum Floor Level Wage (NMFLW), while on paper implies a positive step towards achieving social justice objectives without compromising on growth objectives and sustainability. However, there are major arguments against the narrative adopted in the Economic Survey with particular reference to the arguments listed in the economic survey:
● As a general argument against increments to minimum wage, a study by Pratik Mitra and Naveen Srinivasan looks at the non-stationarity of unemployment data in the last 5 decades and they establish that the non-stationarity is a result of the increase in the minimum wage in the 70s-90s.
● Within India, we have the example of Kerala, which has the highest minimum wage of 900 rupees per day. One has to only look at its production numbers and the components of its state GDP to see the ill effects of a high minimum wage and how it adversely skews labor demand. Industrial growth has been dismal with firms flocking to neighboring states of Tamil Nadu and Karnataka. Internationally India would face a similar situation if the national floor wage for every category is set too high.
● a major prerequisite to reducing non-compliance relies on social auditing i.e. the ability of the government to do routine checks on companies to ensure that their workers are not paid below the minimum wage. In a country like India, where the question of whether we can come up with a compensation mechanism for the inspection officers to ensure that they do their job instead of regressing to a position of middlemen, is a question that needs to be addressed.
● The three objectives of the minimum wage bill, as listed by the government are a reduction in income inequality, reduction in poverty and reducing gender pay gaps. Income inequality would reduce only if there is a redistribution of wealth from the top percentile to the bottom percentile. However, the top percentile does not feature anywhere in the current plan.
● To make its case on the gender pay gap, the government compares the pay for domestic servants (which is mostly women) and security guard (mostly men) and makes the claim that the difference in minimum wage between these two jobs is a fine example of gender wage disparities. It misses a crucial point that implicit in the wage paid is the risk involved in the job, in addition to other factors such as productivity.
● Any increase in labor costs, labor turnover costs will have a commensurate increase in the price of commodities and hence exert an upward influence on inflation. This will prove to be counterproductive to the objective of reducing poverty.
● The government claims that revamping the minimum wage system will increase consumption expenditure, and this is important since consumption has been the major driver of the economy in the last few years. The recent GDP numbers are surprising because it implies that consumption-led growth is not sustainable.
To conclude, National Minimum Floor Wage is a good idea in terms of coming up with a simplified structure, the line of reasoning given by the government makes one doubt if it has the knowledge to have realistic expectations and be aware of the possible consequences.
Remarks from the panellists: The proponent, in the very beginning, negated the claim that a rise in minimum wages leads to reduction in employment by citing the seminal paper by Card and Krueger (1994) on Minimum Wages and Employment in the Fast Food Industry in New Jersey and Pennsylvania. He stated other empirical studies to further substantiate the positive effects of minimum wages on employment. However, he missed out on the points regarding the impact of the policy on overall wage levels and wage inequity.
The opponent had backed his arguments primarily on theoretical grounds. He talked about the negative outcomes of a rise in minimum wages and the concept of productivity based minimum wage. He also gave the example of Kerala, a state which offers one of the highest minimum wages, yet has remittances as one of the major contributors to its GDP.
Both the speakers could have included some points regarding the Code on Wages Bill, 2019 to highlight important policy implications of the Bill in the country. Though both of them mentioned numerous academic findings, their arguments lacked points regarding the implementation and compliance issues of the Minimum wage policy in India which would have made the debate more relevant and contemporary.