Sunday, September 20, 2020

Proposal for Self Reliance, Full Employment & Price Stability

The purpose of the proposal is to show the Government & other stakeholders that it is possible to provide employment and basic essentials to entire citizenry, particularly a country like India which is resource rich. And we are providing a model & structure to do that.  

Is it possible to provide basic essentials? 

India occupies top 3 position in production of many of the farm products. To sustain this and get the maximum benefit out of this, we need to streamline the entire process. India gets plenty of rain, but storage is very limited. Rural India is home to farming and vast number of unorganised labour, who are not productively employed. Rural India also is lacking in facilities to produce value added farm products & other essentials which could be produced  with rural workforce itself. Rural population is 980 million, out of which 400 million could be part of this productive activity. 

So, rural India has all the necessary real resources to create facilities to produce basic essentials.  

Water security is an integral part of this process, as only 8% of rainwater is stored in a year (detailed presentation on water security is provided in our Oct 9th proposal). Multiple water bodies to store rain water have to be built. 

Energy needs can be met by local solar projects to encourage distributed power systems and our traditional gobar gas system could be revived.  

Additionally need to have investment in educational facilities/research facilities/health facilities/sports facilities/supporting infrastructure to promote high quality/emission friendly service sector expansion and greatly enhanced real wealth/higher standard of living without adding to emissions, etc.  

We have availability of all the raw materials, including cultivable land, water which needs to be stored, human resources which needs to be employed and sunlight throughout the year to generate solar power. So, real resources are available to produce basic essentials. As producer, consumer forces are in Rural India itself, if production, value addition & consumption are localised to the extent possible, it would reduce carbon footprint, in addition to plethora of other benefits.  

Rural enterprises owned by workers & managed by local & district administration would be an ideal model to execute this. 

Is it possible to sustain full employment? 

India is a vast country with huge population, predominantly living in villages. It has an extremely high share of informal workers, 85% of the workforce. Dependence on agriculture & related activities are at least 65%. Everybody wants to transition to better employment, but the problem is lack of choice in villages. So, they become migrants, live in pitiable conditions in cities, as their work is not valued much wherever they work. As big farmers shifted to mechanisation, small farmers & farm labourers move to Cities & other States for most part of an year to earn some money, leaving their families behind. So, an ideal solution is providing better employment opportunities in the village itself, as the size of the rural workforce is humongous & there are many issues connected to migration. 

Given the above context, we are talking about providing guaranteed work to at least 400 million people. This is massive for a transitional job guarantee program, both in numbers and works that could be provided on a transitional basis. Also, as the organised sector employment is very low, to meet the necessity of having a larger organised workforce in private sector for the transitional mechanism to work efficiently, the rural program could be operated as private enterprises. The existing NREGA, expanded to urban areas with the number of days extended to 300 in stages, could be the transitional job guarantee program. 

With this, we could employ all available workforce, which will generate a vast producer, consumer community consisting of at least 400 & 980 million people respectively, the largest in the world in both, also the largest self reliant community in the history of humanity.  

Nature of work in rural enterprises is production related. NREGA works are related to asset creation & maintenance in water storage & conservation, ground water recharge, soil productivity enhancement, rural housing, livestock promotion infrastructure and other social infrastructure. With the growth of rural enterprises, infrastructure demands in villages will grow. Water storage in series of ponds should be expanded massively to capture most of the rain water.  

So, NREGA could be expanded to 300 days in a year and acts as a transitional job guarantee program, expanding during downturn and shrinking during upturn in economy, so that it supports it as an automatic stabilizer. NREGA wage also has to be increased in stages.  

As long as loose enough fiscal is maintained, the NREGA pool won't grow all that much as workers transition to private sector employment.  

The infrastructure required for the rural enterprises could be created as part of the NREGA work. As the rural enterprise is a producing-consuming group, additionally producing value added essential products for sale, it is structurally self reliant and profitable. So, within a year of operation, it could become self sustaining and start making profit. 

So, with this model, full employment is sustainable. 


As this program streamlines the existing production based on actual need/demand and also increases and makes available all the essentials, it leads to greater price stability. The plan clearly shows, real human resources produce and consume real products and services and in this real economy, the role of nominal money is to make it all work. 

The following execution & funding plan is our suggestion, particularly funding through direct Government spending arises out of MMT view of fiat monetary system operation. Alternatively, the plan execution could spread over shorter period, instead of 10 years, if policy makers fully understand how fiat money operates and all the supporting institutional structure is in place. 

We have clearly shown that if the entire operation is seen in real terms, the funding part could be seen for what it is, just facilitating real products & services produced by real labour. But, if MMT view of real monetary operation is not acceptable, the second option given could be utilized.

(I) The rural enterprises program is suggested to be executed over 10 years & program outlay for each year is taken at Rs 4 Lakh Crore ($54 billion).  

It will be funded by direct Government deficit spending, issuing treasury bills of maturities 3 months. RBI then simply 'offsets operating factors' to keep rates on target. 

NREGA gets funded by the Government as usual. 

(ii) As the rural enterprises will achieve self sustenance within 1 year, beyond that it doesn't need funding support. If Govt is delaying the decision making or reluctant, it could be availed as a loan at concessional rate of interest & repaid over 5 years. 

This essential economy requires only planning & will, everything else is available! A country of 138 Cr people with assured income and basic facilities would be a land of peace & comfort, one of its kinds in the world!

The above proposal has evolved out of conversation with Warren Mosler & the verbatim extract of the correspondence is given

Evolution of the Proposal in Conversation with Warren Mosler: A Verbatim Report

The above proposal has evolved out of conversation with Warren Mosler & the verbatim extract of the correspondence is given below: 

Warren Mosler: Thoughts on proposing to make the rural poor employment program universal and with a somewhat higher wage? 

Rajendra Rasu: The employment program for rural poor is called NREGA (National Rural Employment Guarantee Act) program. 

WM: Ok  

Raj: We need to carefully look at the situation. Indian context is unique, compared to developed economies. It has an extremely high share of informal workers, 85%. 

WM: Is the NREGA wage above informal sector wages? 

Raj: NREGA wage has been increasing every year, presently it is at Rs 200 ($3) pet day. It is lower than prescribed minimum wage which is Rs 300 per day. Informal wage varies hugely state to state, based on demand & supply. In Tamilnadu, it is very high Rs 600 per day for men, Rs 400 for women. Other Southern States closer to this. In North, where jobs are few, it is close to NREGA  or minimum prescribed wage, except in Punjab.  

WM: So initially the wage could remain at 200/day to avoid flooding the system and then be increased over time probably to 500 ultimately (inflation adjusted).

As long as loose enough fiscal is maintained the NREGA pool won't grow all that much as workers transition to private sector employment etc.  

Raj: Agreed. Rural population is 980 million, out of which 750 million needs to be uplifted, we can call them poor & lower middle class. Dependence on agriculture & related activities are at least 65%. 

WM: Ok, agriculture probably could have the same output with a lot less employees?  If so, the trick is to transition those who want to transition to other/better employment?  

Raj: Exactly. Everybody want to transition to better employment, but problem is lack of choice in villages. So, they become migrants, live in pitiable conditions in cities as their work is not valued much wherever they work. Also, as big farmers shifted to mechanisation, small farmers & farm labourers move to other States for few months in a year to earn a little, leaving their family behind. Ideal solution is providing better employment in village itself, as the size of rural workforce is humongous & there are many issues connected to migration. 

WM: Exactly 

Raj:  One, is to ensure food & water security in the long run, two, migration makes them live in unliveable condition in cities, three, cities are overcrowded, four, pandemic time all came back to villages, they are reluctant to go back, five, agriculture produces don't get good price, six, middlemen & retail shops gain at the cost of farmers, workers & consumers.  

WM: Increasing agricultural yields via investment and economies of scale can mean more food with fewer employees.  That kind of productivity gain is critical for an improved standard of living.  Too often productivity is conflated with unemployment to the detriment of all.  

Raj: Yes. So, in the above context, if we make NREGA universal, challenges are:

1. Size. Even though it is a demand based guaranteed program, presently only 50 million are employed for 60 days in a year, even though scheme is for 100 days 

WM: A low enough initial wage might keep the initial size down, and wages increased as management is developed?  

Raj: I meant that the size is Himalayan, in billions. 

We are talking about feeding 1.4 billion people, providing work to take care of 1 billion people. 

So, they should not be moved out of villages.

Rural enterprises in villages producing value added food products & essentials could provide employment to all of them. Allied enterprises could be in water storage (only 8% of rainfall is stored & it is predicted to have huge water problem)(my Oct 9th proposal has complete details on bringing water security) & other activities as you listed in the last point. 

WM: Yes, water storage issues need to be addressed immediately.   

Raj: 2. Quality of assets created. Very low. 

WM: Not a problem as the purpose will be to facilitate the transition to private sector employment, which it will do. 

Raj: Food security has to be ensured. Now, farmers get pittance because they sell their produces as such. Value addition is done by middle men. Do that value add in village through villagers owned rural enterprises. We need to see this little differently from typical PV. Profit has to go to workers rather than nonworking private promoters. This will keep the prices also lower. It should have district administration continuous role play, for planned production on macro & micro level to avoid waste & excess, price control, management help, etc. Amul in Gujarat is a world class company, owned by milk farmers ( 

WM: Good points. 

Raj: 3. Only assets are created, no production. 

WM: Not a problem, as above.  The large pool of employed will act as an employment agency for the private sector, allowing fiscal relaxation to increase aggregate demand to attract NREGA workers.  

Raj: Yes. Not only workers, Govt & its arms would get convinced, once it rolls out and provide more support. Once the benefit is seen, program also will evolve. 

So, a very clear district wise planning is required, involving the entire administrative machinery, to build food based enterprises, producing all food products(value-added) including farming, and other essentials. 

WM: I would suggest a move to higher agricultural efficiency- more output with fewer workers- via investment by private sector farmers, and investment ieducational facilities/research facilities/health facilities/supporting infrastructure to promote high quality/emission friendly service sector expansion and greatly enhanced real wealth/higher standard of living without adding to emissions, etc. 

Raj: Agreed totally, this could bring in food, water, energy security, meet their health, education & recreational needs. 

Investment part only has to be looked at differently. Project outlay could be debt at really low cost or no cost, govt supported. 

WM: Finance isn't the issue.  Real investment needs have to be determined and the finance follows.  And best for direct/normal gov deficit spending.   

Raj: Get it. Human resource is there, managerial support would come from Govt, land could come from Govt if it holds locally, otherwise it can be taken be on lease/purchased from small farmers, water bodies will be created, gobar gas was a big thing during 60's which could be revived, along with solar for energy need, with distributed energy as focus. For each village or group of few villages, specific suitable production activities could be identified. Each village can have a health centre with remote diagnostic tools & nurse attached to Drs at nearby hospitals. Similarly, all other basic needs have to be established, together with storage & processing centres. Handicrafts would be part of this. 

Ownership of the enterprises can be started as PPP & workers getting majority stake thro performance based creeping acquisition, benefitting entire village, not individuals. Active & continuous participation of district administration, which is headed by IAS(highly respected & efficient) is required. One point to note is NREGA has a phenomenal infrastructure, with digital every minute reporting system which could be tweaked for this ( 

WM: Again, think real terms first, and then nominal.  If the real resources are there, the nominal can make it all work. ;)  

Raj: Agreed. 

Options of funding: 

WM: The answer here is normal deficit spending.

I'd limit bond sales to maturities of 3 months only to eliminate market vagaries. 

Raj: Agree with you. If Govt is open & willing to listen, that is a solution to most of the problems in one go.

As I anticipated reluctance or delay from Govt, I offered the alternatives and also mentioned about direct bond sale. As the enterprises could be made profitable in a short time, I thought even a loan would be fine.  

WM: Whatever is simplest. New private capital can work if it's determined a private firm best suits public purpose in real terms.

If not, direct gov spending most efficient, like the military, for example.  

Raj: Agreed, whichever is suitable for the public purpose. I thought, as explained below, expanded NREGA could be direct gov spending as a transitional job guarantee program & the rural enterprises funded by debt (@4%) from govt, so that all workers would benefit, as I thought compensation in real resource would be better. It could also be from private capital. 

OTHETWISE, we can even think of a unique solution to countries like India, expanded universal NREGA with higher wage as a transitional job guarantee program & the rural enterprises fully funded by debt, producing all essentials providing decent living standard, ensuring secured supply of essential products & services & price stability. This provides transitional element to the entire schematic. 

To benefit the urban poor, the marketing & distribution arm of these enterprises could be manned by them. 

WM: It's about hiring the best qualified for this type of thing, which can include training programs.