Govt's stringent commitment to low inflation resulted in farm distress: Nobel laureate Banerjee

Nobel laureate Abhijit Banerjee on Monday said the government's stringent commitment to low inflation has resulted in farm distress by adversely impacting support price for agricultural produce. Striking a note of caution, he said Prime Minister Narendra Modi has more faith in corporates than him.

"I think Mr. Modi has more faith in the corporate sector than I do. The recent tax cuts show that someone in the administration believes that you have to give the corporate sector lots of money to get growth. I do not believe that" Banerjee, who has been awarded this year's Nobel Prize for Economics along with two others, said here. Banerjee added that the corporate tax cut would not bring growth but probably moderation in direct tax could push the growth northward.

The government last month slashed the corporate tax rate to 22 percent for domestic companies to push the sagging economy. "The commitment to low inflation dove it to clamp down on support price...agricultural income went down relative to the rest of the country. This was agricultural distress. Farmers are unhappy," he said.

As a result, he said the government was forced to put money for PM-KISAN. On the stress in the banking sector, he said part of the problem is that decision-making is absolutely frozen.

The economy hit a six-year low of 5 percent for the first quarter of the current financial year. The tax rate was brought down further lower at 15 percent for new manufacturing companies.

Speaking on the government's drive to divest its stake in public sector enterprises, the economist said that selling government stake in PSUs was not a long-term solution to bridge the fiscal deficit target. "In the short term, selling PSU is a good idea but it is not a long term solution," he said.

The government aims to raise Rs 1.05 lakh through disinvestment in the current fiscal. He also said disinvestment is not a long-term solution for bridging fiscal deficit.

Monetary Policy Committee headed by RBI Governor is entrusted with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 percent within a band of (plus, minus) 2 percent while supporting growth. The headline inflation, as measured by the Consumer Price Index (Combined), rose to a 14-month high of 3.99 percent in September from 3.28 percent the previous month.