Skip to main content

Industry in India "barely growing", export growth 0%, whither moral anchors?

Prof Kaushik Basu (middle) with Kumaramangalam Birla, Errol D'Souza 
Counterview Desk
In a sharp critique of the Modi government, the Indian Institute of Management-Ahmedabad (IIM-A), one of world renowned economist Prof Kaushik Basu, who is Professor of Economics and Carl Marks Professor of International Studies at Cornell University, has told students at the IIM-A’s 54th Annual Convocation on March 16, 2019 that they have a “special responsibility” on their shoulders, “the responsibility to reject narrow sectarianism, uphold scientific thinking, openness to new ideas, and freedom of speech.”
Without naming Modi, Prof Basu regretted, under him professionalism and morality in managing the economy are taking backseat, leading to such decisions as demonetization and manipulation of economic growth data. In sharp contrast, he praised former Prime Minister Manmohan Singh for showing extraordinary degree of professionalism in revamping the economy in 1991.
Recalling his years of working as chief economic adviser under Dr Singh post-2009, Prof Basu -- flanked by IIM-A director Prof Errol D’Souza, and Kamaramangalam Birla, IIM-A chairman, who called him "one of India’s most illustrious economists" -- said, India was then known for its “quality and integrity of its statistical system” among World Bank circles as also top economists like Nobel laureate Angus Deaton – something it may lose now.

Excerpts:

I have, over the years, become convinced that reasoning is the most under-utilized of human faculties. Read some of the discussions and commentary on social media, and listen to television debates, and you will wonder where reason has vanished. This is a telling commentary on education and explains why we make so many policy mistakes.
Within economics game theory illustrates the power of good reasoning. One important axiom of game theory asserts: It is not good enough to be rational yourself. You must recognize that others are likely to be rational too and take that into account.
Policy mistakes, such as the demonetization, which has hurt India’s growth, would not have occurred if there were policymakers that paid heed to this simple axiom. For every policy, you have to anticipate how ordinary individuals and also bureaucrats will respond. That is the key to designing successful policy mechanisms.
How good, professional reasoning is critical for good policymaking is illustrated well with India’s foreign exchange reserve story. For more than 20 years, till 1991, India’s foreign exchange reserves used to be roughly 5 billion dollars. The years 1991 to 1993 India saw some of the most far-reaching and well-designed reforms ever undertaken.
Those were the reforms that changed India’s growth story. One of the policy changes pertains to foreign exchange reserves. For a long time, the government’s belief was that since we have so little foreign exchange, we must not let people take foreign exchange out of the country. What this missed out on was not realizing that if you don’t allow people to take foreign exchange out, they will not bring foreign exchange in.
This logic led to the conclusion that you have to make it easier for people to take foreign exchange out of the country to increase the amount of foreign exchange in the country. This was part of the policy reform package of 1991-93. The benefit was magical. The foreign exchange reserve which used to be roughly 5 billion dollars for 20 years, rose in the next 20 years to nearly 300 billion dollars. It was professionalism with fine reasoning that led to this huge success.
Traditional economics talks a lot about profit-motive and individual rationality. What is often forgotten but is actually as important for a society’s long run success is morality. Morals and trust provide the nuts and bolts of society. Without those you can get short run success but not long-run development.
In 2009, when I was Chairman of Cornell’s Department of Economics, and taking a vacation in India, I got an unexpected phone call from the Prime Minister’s office. The caller, a Joint Secretary, quickly got to the point. Dr Manmohan Singh wanted to know if I would consider being the Chief Economic Adviser to his government.
The following day, after I met Dr Manmohan Singh and had a wonderful meeting, I made a vow. I told myself that, since my life till then had been one of pure indulgence, that of the joys of research, if I were to wean myself away from that, I must do so with only one purpose, that of serving society. That is what I tried to do during the 7 years I worked as a policymaker – 3 years with the Indian Government and 4 with the World Bank. Looking back, I feel better.
In the rough and tumble of everyday life, in trying to be successful at any cost, many people push aside all morality. We see this among politicians, who try to win elections at all cost; we see this among business persons, who try to earn more profit at all cost. This is the cause of many of society’s woes. Indeed, for long-run success of a society, it is essential to have these moral anchors.
Let me briefly turn to India’s economy to illustrate some of these arguments. There are unmistakable signs of India’s economy slowing down over the last few years. The latest data on industrial growth, pertaining to January 2019, shows that India’s industry is barely growing, with the growth rate down to 1.7%.In the year 2017-18 India’s exports were a little less than what the country exported in 2013-14, which means virtually 0% growth in exports on average for 4 years, which has rarely happened in the past.
What is happening to overall growth? The official data shows that GDP growth in the last quarter has gone down. And there are analysts, such as Arun Kumar, in Caravan magazine, arguing that growth is even lower because the unorganized sector for which we do not have proper data shows signs of a massive slowdown.
Further, the agricultural sector is in recession, and the farmers feel neglected. The most worrying is the jobs situation. If you put together all the piecemeal data coming in, it is clear that our workers are suffering greatly, with unemployment rate at over 7%, according to the Center for Monitoring the Indian Economy, and youth unemployment at 16%, as per a study by Azim Premji University. It is unfortunate that data on unemployment are being held back.
The concern about this, expressed recently by 108 leading economists, is a genuine concern. When I was Chief Economist of the World Bank, it was always good to see that India stood out, not just among emerging economies but all countries, for the quality and integrity of its statistical system.
The Nobel prize-winner, Angus Deaton, in an article with Valerie Kozel in 2005, gave India tribute for its pioneering statistical work. He mentioned how India’s “NSSO surveys, pioneered by Mahalanobis in the 1940s and 1950s, were the world’s first … household surveys to apply the principles of random sampling.” We must take care not to damage this reputation. None of all this is necessary. India’s fundamentals are strong and we should be doing much better.
The two reasons why this is happening are a shortage of professionalism and a disproportionate focus on big businesses and their interests. The first pertains to reason and the second to morals. Professionalism means policymaking based on data and reasoning. The economy is too complex to be handled by hunch and gut feeling. Passion is important but you cannot have exports booming, jobs being created by passion alone. Expertise and professionalism are critical.
Make no mistake. Business and enterprise are important. Big business is also a fact of today’s world and technology. But in trying to nurture business and enterprise we must not neglect the poor and the unorganized sector. India is still largely an agricultural nation and it is sad to see this major sector suffering.
India’s is a remarkable history. Around the time that we got independence, several nations – in Asia, in Africa, in the Americas – also gained independence. Many of these nations wanted to be open and democratic. It is an amazing fact of history that the only new nation from that time that has managed to hold on to democracy, secularism, and free speech, for all this time, is India.
We were lucky to have open-minded founding fathers, like Gandhi and Nehru, and thinkers with global humanity, like Tagore. They had their own struggles but in the end they strove to build a nation that was open to all religions, all races and tried to banish divisions of caste and gender.
Did India do right by holding on to democracy, secularism, free speech and quality higher education so early? I do not have a definite answer. But I do know that nations like the United States by holding onto these qualities did phenomenally well in the long-run. In the early 20th century, Argentina and United States stood neck to neck in terms of economic status.
My point is simple, whether or not the early investment in democracy, secularism, free speech and higher education was right, having made these investments, we must not fall into the trap of narrow-minded group identities, and begin to imitate nations that do not value these qualities, and make ourselves in the image of those nations.
On February 8, 1994, on the occasion of receiving the Indira Gandhi Prize, Vaclav Havel, Czechoslovakia’s great revolutionary and, later, president, spoke about his admiration for India and its founding fathers. And how India’s victory “was a great victory for the ideas of nonviolence, tolerance, coexistence, and understanding.”
He went on say, “I am convinced that the creation of multicultural civilization I have talked about, the creation of conditions based on mutual respect and tolerance of different cultures … will always find one of the important sources of its vitality in Gandhi’s work.”
India commands a huge global respect for its polity of openness and tolerance. There are forces at work in the country that want to destroy this and make us in the image of failed nations.
---
To eead full speech click HERE

Comments

TRENDING

Buddhist shrines massively destroyed by Brahmanical rulers in "pre-Islamic" era: Historian DN Jha's survey

By Our Representative
Prominent historian DN Jha, an expert in India's ancient and medieval past, in his new book, "Against the Grain: Notes on Identity, Intolerance and History", in a sharp critique of "Hindutva ideologues", who look at the ancient period of Indian history as "a golden age marked by social harmony, devoid of any religious violence", has said, "Demolition and desecration of rival religious establishments, and the appropriation of their idols, was not uncommon in India before the advent of Islam".

RSS' 25,000 Shishu Mandirs 'follow' factory school model of Christian missionaries

By Bhabani Shankar Nayak*
The executive committee of the International Union of Anthropological and Ethnological Sciences (IUAES) recently decided to drop the KISS University in Odisha as the co-host of the World Anthropology Congress-2023. The decision is driven by the argument that KISS University is a factory school.

India must recognise: 4,085 km Himalayan borders are with Tibet, not China

By Tenzin Tsundue, Sandeep Pandey*
There has as been a cancerous wound around India’s Himalayan neck ever since India's humiliating defeat during the Chinese invasion of India in 1962. The recent Galwan Valley massacre has only added salt to the wound. It has come to this because, when China invaded the neighbouring country Tibet in 1950, India was in high romance with the newly-established communist regime under Mao Zedong after a bloody revolution.

August 22 to be observed as Apostasy Day: International coalition of ex-Muslim groups

By Our Representative
In a unique move, an international coalition of ex-Muslim organisations has decided to observe August 22, 2020 as the Apostasy Day. To be observed for “the abandonment or renunciation of religion”, the coalition, calling upon people to join the call, said, the decision to observe the Apostasy Day has been taken because of apostasy is “punishable by death in Afghanistan, Iran, Malaysia, Maldives, Mauritania, Qatar, Saudi Arabia, Somalia, UAE, and Yemen.”

Swami Vivekananda's views on caste and sexuality were 'painfully' regressive

By Bhaskar Sur*
Swami Vivekananda now belongs more to the modern Hindu mythology than reality. It makes a daunting job to discover the real human being who knew unemployment, humiliation of losing a teaching job for 'incompetence', longed in vain for the bliss of a happy conjugal life only to suffer the consequent frustration.

Time to give Covid burial, not suspend, World Bank's 'flawed' Doing Business ranking

By Maju Varghese*
On August 27, the World Bank came out with a statement suspending the Doing Business Report. The statement said that a number of irregularities have been reported regarding changes to the data in the Doing Business 2018 and Doing Business 2020 reports, published in October 2017 and 2019. The changes in the data were inconsistent with the Doing Business methodology.

Delhi riots: Cops summoning, grilling, intimidating young to give 'false' evidence

Counterview Desk
More than 440 concerned citizens have supported the statement issued by well-known bureaucrat-turned-human rights activist Harsh Mander ‘We will not be silenced’ which said that the communal riots in Delhi in February 2020 have not been caused by any conspiracy, as alleged by the Delhi Police, but by “hate speech and provocative statements made by a number of political leaders of the ruling party.”

WHO chief ignores India, cites Pak as one of 7 top examples in fight against Covid-19

By Our Representative
In a move that would cause consternation in India’s top policy makers in the Modi government, Dr Tedros Adhanom Ghebreyesus, World Health Organization (WHO) director-general, has singled out Pakistan among seven countries that have set “examples” in investing in a healthier and safer future in order to fight the Covid-19 pandemic.

Tata Mundra: NGOs worry as US court rules World Bank can't be sued for 'damages'

By Kate Fried, Mir Jalal*
On August 24 evening, a federal court ruled that the World Bank Group cannot be sued for any damage caused by its lending, despite last year’s Supreme Court ruling in the same case that these institutions can be sued for their “commercial activity” in the United States.