"New Order" Doesn't Like Nobel Winner Abhijit Banerjee's Advice

It would probably come as something of a shock to Indian Twitter that the movement founded by Abhijit Banerjee and his co-Nobelists Esther Duflo and Michael Kremer is often criticised by left-leaning economists for being insufficiently political. 

The three economists won for their contributions to the experimental evaluation of policies, particularly in developing economies - a subset of development economics that strikes many left-wingers as ignoring imbalances of power and being far too indebted to governments in general. Indeed, one of the most impressive critiques of the "evidence-based policy" for which Banerjee et al have become famous comes from a certain Jean Drèze. 

This is perhaps hard for the Indian public sphere to comprehend, given that it seems necessary to assume that people like Banerjee (PhD, Harvard) are intrinsically antagonistic to the new political order (Hard Work). Banerjee himself has multiple strikes against him, from this point of view - he is a Bengali, he studied at Presidency College, he went to Jawaharlal Nehru University, and of course he is an economist when in the New Order the economy is meant to be studied by CAs and lawyers. 

Many have pointed out, for one, that Banerjee reportedly advised the Congress Party on the design of the income support scheme it promised in this year's election manifesto. This is entirely possible. The crucial point here is: the Congress asked for advice. It is also entirely possible that, if the government or the ruling party sought his professional advice as an economist on a similar income transfer scheme, he would have given it freely. It seems hard for Indians today to comprehend the notion of the public service that should be expected of any academic. In fact, given the amount that Banerjee and Duflo have written and spoken about the Indian economy, what should be surprising is not that they are willing to dispense advice but that so few politicians are willing to listen. 

Perhaps part of the reason that some people are so twitchy about Banerjee's discussion of basic income support is precisely because of the Modi government's track record with experts and expertise. It is not as if there have not been excellent advisors available to the prime minister, his ministers, and their officials. Over the past five and some years they have had on hand at various points - to name just a few - Raghuram Rajan, Arvind Subramanian, Rathin Roy and Ila Patnaik. Any and all of these economists - who have varied backgrounds and specialties - would have been able to provide excellent advice. Some of them did, on matters such as demonetization (Rajan) and a simple revenue-neutral GST (Subramanian), only to be ignored. Instead bureaucrats, tax officers, lawyers and CAs have been allowed to run amok and set India's economic policy. 

This is why we are in such a hole today. The Indian economy is facing a slowdown that has both structural - long-term - and cyclical - shorter - components. We can't say for sure how much of either is at work, but getting out of the hole is massively complicated by the fact that economic growth is being pulled down from so many different directions. 

If you want a sense of what the government has been choosing to ignore, then you could do worse than listening to a recent lecture on India's growth problems delivered at Brown University by Rajan, which was followed by comments from Banerjee. Rajan pointed out that the central problem was that India lacked a coherent economic vision, set by the prime minister and followed by the entire Union government. He is right; pithy slogans and abbreviations are no replacement for a comprehensive strategy for development. India needs "new sources of growth", he pointed out, and is yet to find them. While the government may pride itself on its welfare schemes, it is hard to defend rolling them out at a time when the budget was about to be severely stressed. And demonetization and the poorly implemented GST were unleashed on an economy that was ill prepared to deal with the fallout. 

Banerjee was even more blunt. He said there was no escaping the fact that the Indian economy was in a "crisis". The first order of business was to get money directly into the hands of the people most likely to spend it. In other words, raise minimum support prices - even at the cost of food inflation - and raise the MGNREGA wage provided to the unemployed. Privatise public sector banks, and "pray". In other words, all that still might not be enough. Then, if you're granted some breathing room by these short-term fixes, address the longer term problems, by reducing your own power. Independent institutions - like the RBI, for example - are crucial to sustained high growth. Make sure that the PMO isn't imposing answers on them. End over-centralisation (a point Rajan also made), clean up the budget, stop frivolous tax and enforcement cases, listen to advice, and then "pray some more". 

This is all sensible advice, and the simple fact is that there are few economists of any quality who would argue otherwise on the essentials. Which brings us to the real problem about the New Order's relationship with expertise: they don't like what the experts advise. Everyone knows independent institutions are essential for growth, but the myth of a "strong PM" means that every step the government is to reduce the importance of other centres of power. 

Public sector banks have become crucial for the government's system of political patronage, and so privatising them is out of the question - instead, they are being ordered to hand out loans in 1970s-style loan melas. When every economist of note seems to think you're doing something wrong, from Amartya Sen to Abhijit Banerjee, then you're left with no option but to claim that "foreign economics" itself is not helpful. 

There's a reason that economists like Sen and Banerjee were awarded the Nobel, and it's not because the Bank of Sweden wanted to anger the Indian right wing. The Economics Nobel is not a left-wing enterprise - quite the opposite. They were given prizes because of their careful study of issues related to poverty, welfare and growth. Nobody should imagine that they are right all the time just because they won a prize. But if they and all their peers are convinced India is on the wrong path, then India's leaders would do well to listen. 

(Mihir Swarup Sharma In NDTV)