Nobel Laureate Abhijit Banerjee On Ailing Indian Economy

Abhijit Banerjee, the Indian-American economist who was among the awardees of Nobel In Economics on Monday, offered some prescriptions for the ailing Indian economy last week while responding to Raghuram Rajan, former RBI Chairman, as part of the OP Jindal Lectures at the Watson Institute of International and Public Affairs, Brown University, US.

The present

• Growth has slowed massively, probably much more than the government acknowledges
• Analysis of National Sample Survey (NSS) data in 2017-18 states that people on average are poorer than they were in 2014-15
• Average Consumption going down in the period of four years hasn’t happened since the 70s
• Private Investment has collapsed by a factor of 75% from its peak
• Exports are not growing for a long time
• We are in a crisis

What changed

Banerjee spoke about the bunch of initiatives taken by the UPA. Despite such initiatives as NGT, Land Acquisition Act, RTI, a fair amount of autonomy given to the courts and the tax authorities, etc, it did not help the UPA.

The NDA reaction

Here he brings forward the way the current NDA government responded to various economic challenges:

• Re-centralise all the powers which were earlier given away.
• Appoint people at the top who don’t have any real decision authority to do what they are told
• Punish those who dare to stick out their neck
• Insert PMO into every line of control

Is this the only things that’s gone wrong?

Banerjee spoke about demand deficit which is the result of:

• Demonetisation
• GST implementation
• The monetary policy regime
• The financial crisis

The Future

• Sharp growth slowdowns are not easy to manage
• The expectations are high — no one wants to admit it may take years to fix the Indian economy

What is the alternative: In the short run

Banerjee then offered some prescriptions for the revival of the Indian economy in the short run:

• Focus on putting money into the hands of the Indian public
• Raise the wages for India’s employment guarantee schemes,
• Raise prices for farmers
• Let the rupee slide

He also advocates clearer regulation that does not depend on the government controlling what people think or how they act.

The last item on the list? “Pray.”

On the longer run:

Here Banerjee says it is important the government’s budgeting do not rely on presumed economic miracles.

• Strengthen Institutions
• Withdraw cases that look politically motivated
• Encourage media to pursue transparency
• PMO should not interfere with decisions made by professionals and reward curry favours

On the list, for the longer run? “Pray more.”