Growth, Development and Prosperity

Here is my latest article published in the June Issue of Pragati. This piece is based on my talk given at Sikkim Central University, Gangtok (see here my earlier post).

A bit from the piece:

• The book not only has startling articulations on numerous national and international issues but also has well-researched analysis of about 60 years of the history of economy and polity in India. For instance, it is not common to see Economists like Amartya Sen come up brutally and say that India’s GDP growth is helped by the supportiveness of the economic climate rather than by the ruthlessness of the political system and that the roots of the economic climate are being increasingly hampered by politically engaged community without the public reasoning.

Shabash Mr Surjit Bhalla!!

Dr.Surjit Bhalla is undoubtedly one of the leading Indian economists and a strong proponent of free market economics. He also delivery the 2000 F A Hayek Memorial Lecture! See "Hayek Rediscovered: The Road to Economic Freedom"

In his column in yesterday’s Financial Express, he snipped off some of the economists who some time clime to be an ‘expert’ the field of macroeconomics quite dismally!! His article is really “No Proof Required”

Why I say so? Read his column you will get my point! However, what interested me is the below paragraphs:

• Dear Persons: We, at RBI, are dedicated to deliver both growth and stable low inflation. We have been doing our best, though I must admit that we have not succeeded in our efforts, to date. However, I must frankly admit that I have not been helped by various people providing arm-chair or self-indulgent advice. I have advice for them.

• Kaushik Basu, Chief Economic Advisor, GoI: You are a very welcome addition to the policymaking body in India. Your fame precedes you, and your record as a microeconomist is at least first among equals. It is also hugely welcome that you are now espousing more ‘market’ oriented policies than before, e.g., cash transfers rather than corrupt government intervention programmes. However, try as I might, I cannot find much useful academic output from you on anything even remotely related to macroeconomics. It is never too late to learn, but in the meantime, can you stop offering me unsolicited advice on exchange rates, and interest rates, and stop making forecasts on inflation?

• Subir Gokarn, deputy governor, RBI: RBI regulates the bank deposit savings rate in India (recently raised to 4% after 19 years at 3.5%). Fat cat bankers gain from this repressive policy of low and fixed deposit rates; pensioners and depositors lose immensely from this stupid regulation. Yet, my deputy Subir Gokarn had the gall to state that RBI may not deregulate this rate because “a lot of people see this (fixed savings rate) as a safe and reliable source of monthly income”. This implies that a “free market” savings deposit rate will decline after deregulation—an impossibility given the present inflation scenario. Subir knows, or should know, that the rate can only increase with deregulation. So Subir, either stop talking or stop being disingenuous.

It does matter whoa you are!

When Kaushik Basu, chief economic adviser to the Finance Ministry, called for a certain class of bribes to be legalised, ‘civil society' simply shut its eyes and brain. The National Campaign for Peoples' Right to Information — a flag bearer of civil society — maintained a studied, shameful silence. Professor Basu was not pushing this idea in his private blog. He put it up on a Government of India website. Yet, thundering anchors who ‘skewer' politicians in television interviews uttered not a squeak. Had this insane idea come from a Ramdev, or even a Lalu Prasad, and not from a certified PLU member, imagine the fun the media would have had trashing it.

Symptomatic of a common disease in the economics

Professor Jean Drèze whistle with professor Basu’s new working paper (PDF) released in the Finance Ministry. Both of them seems to be missing a very relevant fact that any attempt to address the corruption is required strengthening of institutional mechanisms like police, enforcement system etc. Beside, there should be strong security system established to protect the persons who report after bribing. Otherwise, given the present conditions, we do not know what will happen to the bribe givers and reporter!!

                          

I wonder what would he meant when he uses the words like “common sense”, “morality” etc since he and his alike minded persons are largely away from the meaning of that words!! 

Here are Prof.Jean's argument on morality and commonsense.

• Basu’s argument is all the more puzzling as the paper ends with a plea for acknowledging the role of values and ethics in eradicating corruption: “if we want to really get at corruption, what we need to build up are values of honesty and integrity in society”. Well said. But how is the legalisation of bribe-giving supposed to help in building up such values?
• In fact, once moral considerations are introduced, the initial argument breaks down once again. Is the legalisation of bribe-giving supposed to make it less immoral? If so, that would tend to encourage, not discourage, bribing. If not, why would anyone blow the whistle after paying a bribe? That would be like drawing attention to one’s own immorality. Possibly to deal with this, Basu suggests that bribes might be “reimbursed” to bribe-givers if they blow the whistle. That would indeed give them an incentive to blow the whistle — but this suggestion takes us further and further away from anything like the real world.
• It may be argued that paying a harassment bribe is not morally reprehensible in the first place, because the bribe-giver is a victim and the bribe is an act of self-defence. I am not persuaded. When you pay a harassment bribe, you abdicate your duty to use other means to resist the harassment, not only for yourself but also on behalf of others who might face the same situation. You also secure an advantage for yourself, vis-à-vis others who may not be able or willing to bribe. This does not sound particularly ethical.
• If you find all this heavy-going, just think about it from a common-sense point of view: does it make sense to fight corruption by making it easier for people to blow the whistle on their own acts of bribe-giving, so that bribe-takers are deterred from asking for a bribe in the first place? Ethical issues aside, this is quite a fanciful idea, even if it is certainly possible to think of situations where it might work.

People are close to reality than Central Banker and The State

Niranjan Rajadhyaksha writes:

• The inflation problem continues to fox economists and unsettle ordinary Indians. However, the metaphorical man on the street seems to have had a better sense about the soaring arc of prices than the men and women with econometric models.

• A year ago, the overwhelming consensus among Indian policymakers and private sector economists was that inflation would begin to decline to more reasonable levels in the quarters ahead. For example, the Reserve Bank of India (RBI) had said in April 2010 that inflation would be at 5.5% by the end of the fiscal year. Meanwhile, the 4,000 urban households that the central bank surveys each quarter to assess their inflation expectations were more pessimistic. They had indicated in December 2009 that inflation would be in double digits in the first three months of 2011.

• The latest inflation numbers for February show that the man on the street was closer to the correct estimate than the economists. Prices continue to surge. Inflation hovers around double digits. The revised inflation number for January is 9.4% and the first estimate for February is 8.98%.

• One explanation why households have got a better handle on the trajectory of inflation than the experts is that information distributed in a complex system such as an economy is better captured by a large group of people than a single model: the wisdom of the crowds. A less Hayekian explanation is that the man on the street was just plain lucky, a factor that has a greater role to play in the prediction game than most participants would accept. 

Read the ET editorial here and interview of Chief Economic Adviser to Finance Ministry.

Sans ideology or supra ideology

Short sight conclusion is evil. Really that is what it seems to be to me from Haseeb A Drabu writing in today’s Mint. He writes:

• It is interesting to see how the larger intellectual sphere is developing and social democracy and globalisation are being confronted at the thought leadership level. In the post-liberalisation period, the traditionally dichotomous categories of the dissident intellectual and the establishment intellectual have become irrelevant. Of late, there has been a restructuring of links between the state and the intellectuals: The latter are now open and willing to be part of the establishment. Be it the eminent Leftist economist Prabhat Patnaik, or the liberal thinker-entrepreneur Nandan Nilekani or the radical social activist Mihir Shah or right-wing economist Kaushik Basu, all have been absorbed in the government.

My problem with above paragraph is the line reading “right-wing economist Kaushik Basu”. If any one who have read his earlier and until recent writings would not really say the word “right-wing” if they, its no doubt, it would turn to be an absolute stupidity!!

Particularly one should read his book Economic Graffiti: Essays for Everyone (Oxford University Press. 1991) and ponder before wording him as “right-wing” or become “right-wing”

At last D** Bites!!

By and large, economists have a justifiably well-earned reputation for being dull dogs. But some of them can be interesting as well. For example, Kaushik Basu, who is now the chief economic advisor, is an accomplished painter and playwright. Sugata Marjit is a superb Hindustani classical singer. Subir Gokarn, the RBI deputy governor, is a terrific cook. And Bibek Debroy is a Sanskrit scholar.

(From Economist's epic effort by T.C.A. Srinivasa-Raghavan)

What is of note of Indian Economy?

According to economist Mr. Debroy:

….at Ficci and the newly-appointed Chief Economic Advisor spoke there. This is what he reportedly said and it is best to put this within quotes. “In 1975, India first achieved 9% gross domestic product (GDP) growth due to the nationalisation of banks and opening of a large number of branches in rural areas, which led to the highest rate of savings and investment that made up 13% of the GDP.”

Change of guards and in search of ideas!

Two things I wanted to put down in this post- what Amartya Sen’s take of F A Hayek idea in his new book "The Idea of Justice" and the Sen’s one of PhD student Professor Kaushik Basu who is now preparing to become Chief Economic Adviser in the Ministry of Finance.

First the latter one Mr Basu seems to be changed his mind somehow but I’m certainly not sure because his past writings are not that different from our mainstream economists.

His views has been changed I mean his dissent note the Yashpal Committee on Higher Education is really worth to muse.

He said:

"If a private company wants to start a university to make profit why shouldn’t "t it be allowed to do so?"

Moreover:

• “Third, we should allow private sector money to come into higher education. Surreptitious privatization is already a fact of life. It will be better to let this happen openly; there can then also be open monitoring. The purely-private colleges should of course not be subsidized by the state. They should be allowed to set college fees as high as they choose (as long as this is made transparent). It is true that such private colleges will end up teaching mainly commercially-viable subjects and cater to relatively rich students. There is no harm in this and some advantages, since the state will now be able to allocate more money to the colleges and universities under its charge and provide good education to the remainder at a lower cost.
• There is an additional question: Should we allow these private colleges to be profit-making organizations, that is, allow the owners or the shareholders to openly keep the profit to themselves? A common presumption is that,if someone is interested in profit, that person will not be interested in providing good education. This is a fallacy. It is like assuming that, if Tata Motors is interested in making profit, it will not be interested in producing a good small car. However, in reality, its interest in producing a good small car could be because it is interested in making profits. Likewise, in education. If a profit-making company wants to start a university, there is no reason why we should not allow this. This is an idea that should at least be on the table. There are not too many examples of such universities in the world. This can be a pioneering effort on the part of India and, if successful, can cause a huge infusion of funds into our higher education system.”

On the first Professor Sen has mentioned F A Hayek in pages 77 and 442 in his book but it seems to me that he is well known to Hayek’s ideas but its not clear because one has go through the book. So after reading the book i will post what is his sense on Hayek!

Prof Kaushik Basu’s dogma

According to Wikipedia and “The U.S. State department in 1976 estimated that there may have been a million killed in the land reform, 800,000 killed in the counterrevolutionary campaign.^[20] Mao himself claimed that a total of 700,000 people were executed during the years 1949–53.^[21] However, because there was a policy to select "at least one landlord, and usually several, in virtually every village for public execution",^[22] the number of deaths range between between 2 million and 5 million.^[23][24] In addition, at least 1.5 million people were sent to"reform through labour" camps.^[25] Mao’s personal role in ordering mass executions is undeniable.^[26][27] He defended these killings as necessary for the securing of power.^[28]”

Now it is unsurprising to me when Mr Kaushik Basu says notoriously in his recent column that “during the deep Communist period of Mao, China had had stretches of remarkable growth. During 1964-66 and 1969-71, it grew at over 16 per cent per annum. What was special to the period of deep Communism was the occurrence of recessions. In 1961, China's output declined by 27 per cent; there was another deep recession in the mid-1960s. In contrast, during the period of market-oriented policies, there were no downturns. No other nation in the world has seen the kind of sustained growth that China has achieved over the last three decades.” 

Though I respect his opinion but how long an open mined person like me can or should tolerate? And how people these misleading idea will kill in future? 

I have no idea.

State is a “weak substitute” to Market…..

Almost, Mr TCA become a bogus analyst with horrified mind said a friend of mine. 

Well, if any one I wanted to call notorious in the analysis of Indian economy it will be “Cornell economist Kaushik Basu”. 

Mr Basu said in his Sage - Madras School of Economics Endowment Lecture (2007) “one undeniable factor is that India’s savings and investment rates had risen sharply from the late sixties to the late seventies. What caused this? Clearly, the nationalization of banks in 1969, with the state-owned banks being forced thereafter to open branches in remote areas of India, and the start of Unit Trust of India in 1964 were key factors in boosting the savings rate, which in turn was the first impetus for rapid growth”. 

Nonetheless, the question is important Mr. Basu “once asked why everyone held an opinion on economics but not on aircraft design. He was arguing that economics was a specialisation requiring technical skills that were no less rigorous than those required of an aircraft designer”. 

Some time back Mr TCA seems to be good analyst of economics and politics but now I realised that he also misdirected his readers. He simply scraped the India’s reforms of past 15 or more years. “….This was a big intellectual leap, made largely in the 1980s, which became mainstream faith in the1990s and in this decade. Its consequences confront the world now in the form of the financial disaster it has caused”. 

No doubt, I agree with at least this point that “It was that if you got the market design right, the danger of market failure was almost nil. This assumption led to the influx of engineers, scientists and physicists into a domain that superficially looked like their own but contained, alas, humans also, with all their foibles”. 

No matter how many business analysts, journalist, and other “…..harking back to Keynes now but nowhere did he say that the taxpayers should pay the price of private folly and greed via bailouts What he said was governments should buy goods and services when private demand fell short of what installed capacity could provide. He was treating a different problem, namely, the survival of the poor, not of the rich”. 

Our academicians including the economics departments of Indian universities are in deep sleep. They cannot back to Keynes nor look forward to Hayek or anyone else. 

It is no less folly to blame only “private folly and greed via bailouts”. Election after election, schemes after schemes, law after law, Acts after Acts, rules after rules, etc goes with publically announced “bailouts” in the name of “poor”  without mining whether it reaches or not. 

What remains a big mess is the Constitution of India which becomes focal point for everyone to speak but not to adhere, morally, mentally and physically and be responsible when get elected by people of this country.

Shameful legacy

Kaushik Basu writes in the Outlook (Why) “..tax the rich more and subsidise the poor” if that is the case, the revive of government created slavery which is a government funded death penalty will amount to cascade rather to enrich the ‘poor’. Best example is the malfunctioning India’s subsidy system. It is sad that Mr Basu has paid little attention to this big issue. And in once sense it is not surprise to see because he is also student of Mr Sen. 

However, he concludes that “that Obama spoke about redistributing wealth. I do not think he will be able to do much in this area, but if such a call from an American president causes a shift in public opinion, that could well clear the way for a more equitable and better world. ”