Pranab Bardhan, Economist, on What the Modi
Government Has – and Hasn’t – Done So Far
By Jahnavi Sen on 26/07/2016
Economist
and professor at the University of California, Berkeley Pranab
Bardhan spoke to The
Wire about global
discontent amongst the working class, the Modi government’s
policies, the need for employment generation, the controversy around
Raghuram Rajan and more.
What would you say are the economic
reasons for the anti-establishment political forces we’ve seen
coming up, from different sides of the political spectrum, in the US
and Europe?
There are many things happening in the world, but
the ones I suppose you are referring to are the recent, unexpected
rise of (Donald) Trump in the US, the triumph of Brexit in Britain
and in general the rise of a lot of right-wing parties in Europe.
Everybody is saying that there are several factors involved.
One is the consequence of globalisation. From
globalisation, a lot of people have benefited. Certainly owners of
capital have benefited, owners of technology have benefited. People
like you and me who are more flexible because of our education and
can move around the world, we have also benefited from globalisation.
Even some poor people, like the young women in the garment export
industry in Bangladesh, have benefited. But many other members of the
working class have not, particularly in Europe and the US. A lot of
workers in manufacturing industry there have lost their jobs because
many of the industries have moved production to China and other
countries. So those workers are dissatisfied and it is not an
accident that both in Britain and in the US they have expressed their
sympathy for those kind of causes. So that’s one factor –
globalisation. Not just globalisation, the unequal benefits flowing
from globalisation.
Second, even if globalisation were not there, this
tremendous technical change that’s going on has to be reckoned
with. Globalisation has also interacted with technology, but even if
there was no globalisation, technological change would have caused
job losses of various kinds. That would have increased
dissatisfaction, particularly of workers who do not have much skill
or education to take advantage of the new technology. So there’s
dissatisfaction because of that. Automation, for example. In the
West, already robots are taking away jobs in some sectors. Robots can
easily take jobs in relatively routine type of work. That’s why
many unskilled workers who are losing out are worried. That’s
factor number two.
Factor number three. For quite some time,
for various reasons including the first two reasons that I mentioned,
labour movements in the world are getting weaker. By labour movements
I particularly mean those led by trade unions. Trade unions are
getting weaker, so as a result labour is struggling. Workers’
causes have suffered. There are not that many movements taking up
the cause of the disgruntled worker, that’s factor number three.
Factor number four, which is very important
in the US and western Europe, is immigration. Even if these other
factors were not there, just because of immigration, there would have
been discontent. Immigration is related to globalisation in some
sense. Globalisation is free movement of goods, free movements of
people, free movements of capital–of these the free movement of
people is immigration. And immigration has this special issue, which
may not be in the first three factors that I mentioned. For the first
three factors that I mentioned, their effects are largely economic.
The fourth, immigration, is not just economic. Of course
immigration has economic consequences but it also affects cultural
relations and the social fabric. Quite often, local people do not
like (whether for right or wrong reasons) the new culture that the
immigrants are bringing – new religious beliefs, morals and
cultural practices, for example those with respect to women and to
liberal values in general. So that causes some resentment. And the
other issue related to culture is that the old community bonds of
those societies are frayed.
I think if you combine these four factors, there is a lot of
disgruntlement particularly among the poor and particularly among the
older people. Older people voted largely for Brexit, for instance. Of
course in numbers the older people vote more than the young so it
comes out in the votes much more. But older workers who are used to
some types of technology, culture and social issues feel threatened.
Also, younger people can adjust more easily to take different types
of jobs, older people don’t have that. Those, I think, are the
fundamental factors behind this phenomenon.
And would you say this
disgruntlement is a serious threat to mainstream economic orthodoxy?
As I said, it’s not just economic, it’s
cultural and social too. The answer to your question would depend on
what you mean by economic orthodoxy. If you mean by economic
orthodoxy the idea that free movement of goods and capital is good,
obviously this is against that. However, there’s a different aspect
of orthodoxy, what you would call macroeconomic orthodoxy, and this
is a matter of the big dispute in the West. The economic orthodoxy
which emphasises restraining the government and the macroeconomic
policy of austerity. If you regard Keynesianism as non-orthodoxy (in
some contexts Keynesian policy is already a part of the othodoxy),
that is a big dispute. Countries which have taken the policy of
austerity have not been successful in creating jobs. So obviously
this increases disgruntlement.
The other thing is, and I don’t know if you can
call it orthodoxy or not, in many Western countries, macroeconomic
policy that gets prominence is monetary policy, interest rate policy.
In a sense Keynesians say that monetary policy is not enough, we have
to do fiscal expansion, etc. But fiscal expansion means also raising
more taxes and that is what the right-wing quite often in the US and
in Europe are resisting. So those disputes are related to the
economic orthodoxy issue.
To move a little bit to the
specifics of India, since 1991, India has been going in a certain
direction in terms of economic policy. Would you say this has been
good for the country? Also, would you say there’s been some
difference in economic policy between the Congress and the BJP, or in
the way they package their policies?
I’ll not have a simple answer to this. Do I
support the movement towards economic liberalisation that started
with the delicensing in the mid-1980s my general answer is yes.
Because when don’t allow market forces to work, and this used to be
true for the license permit raj, what happens is that those licenses
and permits go to only some politically favoured groups like the case
of earlier licenses and permits mainly going to the monopoly business
houses. I am generally in favour of opening up of opportunities for
more people. It is also important that this economic liberalisation
has coincided with a social phenomenon in India, which is often not
commented on. It is also in this period that through democracy,
gradually the lower castes and in general the weaker sections of the
population( of course only some of them not all of them) have been
able to come up and benefit from these new opportunities.
I’ll give you an example. Particularly in South
India and West India, peasant castes (not the really low but in the
middle ranks), became gradually not only more economically
prosperous, but in general socially more assertive. Take the case of
garment industry around Coimbatore; the main entrepreneurs there are
often from a caste group called Gounder, a peasant caste. They did
well in agriculture, got some money and they invested the money in
this. These are not from established business houses like Tatas,
Birlas and Ambanis, they are the new entrepreneurs.
So I’m just saying along with economic
liberalisation, this has been a period in which some limited amount
of social transformation has occurred, largely because of our
democracy. So these new entrepreneurs have been able to take
opportunities opened up by liberalisation. A lot of people say there
are a lot more even Dalit entrepreneurs now, but one should not
exaggerate. The phenomenon is observable more for the middle castes.
So in general my answer is yes, but that does not
mean I am wholeheartedly in favour of liberalisation, unless some
corrective measures are taken to curb its adverse effects. Everybody
would recognise that when you open up markets, just as opportunities
open up for people, the benefits are unequally distributed,
particularly because initial endowments and available social and
infrastructural facilities are different for different people . So
yes, I gave you some examples of lower groups coming up, but in
general inequality has been increasing all over the world, including
in India. So market reform has to be accompanied with measures to
correct those inequalities.
That’s where the Congress-BJP issues come up,
because I think in the UPA I regime in the 2004-2009 period there
were some attempts in response to this problem of inequality, some
efforts were taken to improve welfare of common people. The National
Advisory Council (NAC) that Sonia Gandhi created had some effect. For
example, MGNREGA, the rural employment guarantee, came in that period
pushed by the NAC, even though the idea of employment on public works
as a safety net for poor people is quite old in India. Similarly, a
very important measure was the Right to Information Act. That also
grew out of a movement which was there earlier. The Forest Rights
Act, which by the way is yet to be fully implemented, came as a way
to stop the long dispossession of tribal people from their land and
rights to use forests.
These are in a way in reaction to forces of
inequality generated by market reform. So you might say those are
positive aspects of the UPA regime. But there are many negative
aspects of the UPA regime too. But let me go on to the BJP. Has BJP
taken different policies? I think BJP’s difference in these matters
is often more in rhetoric than in actuality. BJP, has not got rid of
the programmes that I just mentioned. Even though they were very much
opposed to MGNREGA, it’s ironical that the BJP is now taking credit
for it. So that’s good. Earlier Modi came out with lot of things
against NREGA, saying that ‘we’ll keep it as a monument to the
failures of the Congress’. And now his ministers are claiming
credit for that. That doesn’t mean that everything is fine with
NREGA, there’s still lot of corruption and leakage in NREGA . The
government is not helping matters, as in many cases, I understand
that wage payments have not been made for several months. This is
very serious, not only because it is hurting the poor. The whole idea
of NREGA is that if I as a landless worker demands work, the
government guarantees work. If I find that when I work I’m not paid
for six months, the next time I will not demand work. So in a sense
there is a self-fulfilling aspect to its failure. In any case, it is
not true that wherever work was demanded it was given. There’s a
lot of unmet wants in NREGA. There are a lot of other problems in
NREGA, but even with all that that I would say NREGA has been a major
positive step in India.
Similarly, the other thing that the UPA regime did
which BJP has not discontinued is the National Food Security Act,
which now in rural areas is to reach around 75% of the people. In
fact people have not commented on this – in West Bengal I find, on
of the platforms on which Mamata Banerjee won was the programme of Rs
2 per kg of rice. That was very popular. What Mamata never mentioned,
and I’m surprised opposition didn’t mention much either, is that
this is part of the central government scheme. Mamata expanded on it
a little bit, but it is largely an impact of the Act.
In general I would say on many of these welfare measures which
UPA started, BJP, whatever the rhetoric, has more or less continued.
I would not say that there is a big difference.
One difference for BJP I should comment on here.
Modi in the 2014 elections, said that we have to have a new approach.
The UPA approach was “giving doles”, he said. We’re going to
create jobs instead, so that is a different approach. First of all,
he has not created enough jobs and I don’t think by 2019 the job
situation is going to change very much, I don’t expect much of a
dent on the enormous and alarming problem of not enough good jobs for
the young people. The other day, in one interview Mr Modi has
said, yes jobs are being created, but they’re as yet invisible. We
have a whole statistical machinery, very soon these jobs should have
been captured in the statistics! We don’t see that. In fact the
Labour Bureau now collects a few times every year job data for eight
industries, eight relatively labour-intensive industries. And if you
look at them, if anything it’s getting worse. So where are Mr
Modi’s invisible jobs?
This new approach of job creation, I think it was
basically a hoax on the electorate. The BJP before coming to power
gave the impression that ‘we are going to create jobs, look at the
Gujarat model’. The Gujarat model is not a model for creating
jobs! Gujarat is a state where the economic growth rate was high,
but not necessarily job creation. Economic growth rate was high
partly because Modi as chief minister gave a lot of capital subsidies
to the large companies, run by the Ambanis, Adanis, and Essar. They
are primarily in capital-intensive industries like petrochemicals,
petroleum refineries, etc. And if you disaggregate Gujarat’s
growth, a large part of the growth was in these sectors. So Gujarat
is a model of high growth but not of jobs. These two have been mixed
up in the election campaign in 2014.
But going back to doles, just now I told you that
Modi’s model, the Gujarat model, was based on capital subsidies.
What is that? That’s dole to the capitalists. Even on a
national level if you look at the data and check how much of our
subsidies go to the better off people, it’s a very substantial sum.
In fact, there are some estimates which show that of our total
subsidies that the government gives both in the Centre and the
states, the amounts that go to the better off exceed 10% of GDP.
So why do you object to doles to the poor when you are giving a much
larger amount to the wealthy (a few times larger than our total
anti-poverty programmes)?. Modi or anybody has no ground to stand on
when they talk disparagingly about doles to the poor.
What would you say the government
could be doing differently in terms of employment generation and
anti-poverty programmes?
Employment generation is a very difficult subject.
Employment is not that easy to generate, that’s why I’m
pessimistic about the prospects. Yes, there are some things that can
be done in the long run. For example, suppose you are a small
producer. Like the majority of producers in India you are in the
informal sector, you have a little shop, a little household
enterprise. So what are your main problems? Main problems are quite
often things like electricity. Suppose you are in the garment
industry, which is highly labour-intensive and creates lots of jobs.
At the moment you employ say 5-6 people, an informal household
enterprise. Now you are thinking of expanding to hire 50 people.
Quite often in India it is said, jobs are not being
created because of labour laws. Because in India the labour laws tell
you that if you hire more than 100 people and if you want to sack
somebody, you need government permission. So that restricts hiring.
But let me go back to this concrete example. This guy who was hiring
5-6 people now is thinking of expanding to 50, labour law is not a
problem. Labour law kicks in when you have 100, right?
When I’m thinking of expanding to hire 50 people,
a little larger size, what are my binding constraints? Electricity is
a major one, because at the moment the only use of electricity I
probably have is a little light bulb. Now, maybe I will need
tailoring machines or other kinds of power equipments. So then I have
to worry about whether I have a regular supply of electricity. Even
if I have regular supply, does the voltage fluctuate? With voltage
fluctuations these machines are going to burn out. So those issues to
me are concrete issues. So what we do about electricity is very
important.
To be fair to Mr Modi, he’s done a good job about
electricity in Gujarat. But now that he’s prime minister of India,
he has to do it to the rest of India. I’ve not seen many signs of
that. Electricity reform, to me, is a very important part of reform,
which neither UPA nor the current administration has done much about.
Electricity is a major input needed for people to expand jobs. Many
people regard UDAY, the programme the government has introduced for
financial restructuring of the heavily-losing state electricity
distribution companies is more like ‘kicking the can down the
road’.
Similarly, roads. Roads improve connectivity. I
understand that one of the areas in which this government has done
reasonably well is in building roads. I hope that continues. So in
the long run electricity and roads are extremely important for
creating jobs, much more important in my judgment than labour laws.
If labour laws are reformed, I have nothing against it. But I don’t
think that is major constraint. That is one of 20 other constraints.
But people give too much emphasis on labour reform.
There’s something that I would suggest for
employment generation in the short run, which I don’t find people
suggesting. Currently, in order to encourage investment, the
government gives subsidies to capitalists. So essentially you come
with your capital and you’ll get a subsidy, a tax holiday or other
facilities in a Special Economic Zone, these are all parts of capital
subsidies. When you subsidise capital, it is not a surprise that
people will use capital-intensive technology and not many jobs will
be created. So that immediately suggests to me an opposite
policy, wage subsidy. Why don’t you start a policy that says to
the capitalists, if you create more jobs instead of introducing
automation, machines etc., for each new person you hire the wage that
you have to pay will be subsidised by the government. To me there is
a great deal of scope for converting at least a part of the large
capital subsidies into wage subsidies.
In our country now bulging with young people, the
employment situation is potentially a big social problem. Already in
parts of India it’s happening. In West Bengal, I see this all the
time. In fact in West Bengal if you get a car and drive around the
state, you’ll be stopped in many places. Young people will come and
stop your car and say you have to pay money. They will of course tell
you ‘this puja, that puja’ etc. It’s just that they don’t
have jobs, essentially they’re collecting their forms of taxes.
This will happen more and more in other parts of north India. In
large parts of West Bengal now, if you want to build, you have to buy
materials from these particular young people who will charge a much
higher price and for inferior material. Otherwise gundas
will come and not allow you to build. So where are these people
coming from? As they don’t have jobs, they are into criminal and
semi-criminal occupations.
On poverty alleviation, I’m in general in support
of many of the poverty alleviation policies. NREGA I am very much in
support of. But, there are some subsidies I’m against, I think I’m
in general in favour of phasing out the fertiliser subsidies which is
at the moment is costly financially and environmentally. Similarly,
I’d in general phase out the policy of support prices given to
producing rice and wheat. Rice is a water-intensive crop which is
often grown in unsuitable areas (like Punjab), depleting the water
table. The other thing it is doing, apart from damaging the
environment and costing a great deal of money, it focusses attention
on two cereals rice and wheat. Agriculture has to diversify, we
should go much more into fruits, vegetables and dairy products,
livestock products in general. One constraint that we have is that
for products like fruits, vegetables, dairy and livestock products,
we need cold storage. So I would suggest lot more investment in cold
storage and roads.
If in India if you can reduce large parts of what I
called before the subsidies to the better off, you’ll be able to
give what is called a basic income to everybody. In my scheme any
citizen of India will get, every month, a certain amount of money, no
questions asked. I have made calculations that if the subsidies to
the better off are given up in India, then you can afford to give
every person in India Rs 10,000 a year. If you have a family of four,
that’s Rs 40,000. That’s a big change to poverty. You don’t
need fresh taxation, the only thing you need is to get rid of the
subsidies to the better off. But suppose, in the beginning you cannot
get rid of all the subsidies to the better off, well get rid of as
many as you can but meanwhile you need taxes. I think there’s great
deal of taxable capacity in our real estate sector. The real estate
sector is a sector in which values are off and on going up in every
city, even small cities. But the government is not getting enough out
of it, much of it going into the so-called black economy.
One area in which I would say both the UPA regime and
particularly the Modi regime is guilty of not doing anything is
health. This is big deficiency of Indian policy.
People often do not know that in health
expenditure, India is not just third world but fourth world. India’s
health expenditure as proportion of GDP is lower than in many other
poor nations. Secondly, most of the expenditure is not in public
health. Most of the diseases in India are because of public health
and sanitation problems. That’s where the emphasis should be. The
Swacchh Bharat campaign for sanitation (which is a continuation of
the UPA Nirmal Bharat campaign) concentrates on toilet building
through contractors, without looking into why the toilets are often
malfunctioning, why they are not used by many. The issues of public
education toward better habits of personal hygiene can be handled
better by social activists and NGO’s than by bureaucrats, but this
government is unduly suspicious of NGO’s in general. Thirdly, there
was some talk in the last few days of the UPA regime and the first
few days of the Modi regime of a move towards universal health care.
I find now the Modi government is going in the opposite direction.
There is a NITI Aayog document suggesting that we go away from
universal healthcare towards subsidised private health insurance.
That’s the US model – a highly defective and prohibitively
expensive model. This is not the right model for us. Of course it is
not easy to construct a service like the National Health Service in
the UK or a similar system in France. But you don’t have to look to
UK or France. A neighbouring country, Thailand, now has a universal
health service. Study that case and see what they have done. It’s
not that expensive to do. In health, it seems like we’re going
in the opposite direction.
In the Indian context that we’ve
been talking about with the critical employment problem and
increasing inequality, what do you make of initiatives like Make in
India or Smart Cities?
I’m not as enthusiastic as the current government
is about the Smart Cities programme. If there are no other
constraints then it’s okay, but it seems to me that most of the
emphasis in the Smart Cities programme is on digitisation, IT etc.
But most of our cities are not liveable at the moment. Make it
liveable for the majority of the population, that is where the real
smartness lies, digitisation is not the real smartness.
Make in India, I’m not even sure what it means.
If Make in India means something should be produced in India, not
elsewhere, that goes back to the old protectionist regime. If that is
the case then I’m not sure I’m in favour of it. But in general if
you want to encourage manufacturing, I’m all for it. There are many
constraints, I’ve already mentioned some kinds of constraints. For
Make in India, you need a great deal of reform in electricity and
other infrastructural facilities. You also need a great deal of
private and public investment.
At the moment, there is a big stagnation going on
in private investment because of the bank debt problem. Wilful
defaulters have not paid back huge loans, so the banks are in
trouble. Therefore, the banks don’t want to lend, so there is a
debt overhang and stagnation in the field of private investment in
India now. This means all the more that public investment has to go
up. The problem with public investment is twofold. One is where is
the money going to come from? Now I would not be against even
increasing fiscal deficit to spend on public investment, but there
both the UPA government and the current government have an external
problem.They’re worried that international credit rating agencies
will lower our rating if the deficit increases. Now what is the cost
of lowering rating? A lot of portfolio investment by foreign
financial institutions will suffer. But I am not sure this volatile
part of foreign investment should be encouraged. It may also affect
FDI. But as yet foreign investment is not coming to fields which
will create many jobs. So I think I’d worry less about foreign
investment. I’m generally in favour of foreign investment, but not
at the expense of domestic public investment. So that’s one
problem.
The other problem is that for quite some time we
have followed the mode of public private partnership (PPP), that did
not work. In fact in many cases there has been corruption in PPP. The
whole modality of PPP has to be re-thought, has to be made
transparent and less corruption prone. There is a tendency, whenever
one thinks about reforming PPP, that when the business is doing well,
private people make money, but when it’s not, there is pressure for
renegotiation of terms and the losses are on the public sector. This
peculiar principle – privatise the profit and socialise the losses
is not the way to run a PPP. So I think PPP’s, which otherwise
I’m in favour of because the government does not have enough money,
has to be re-thought of and reorganised.
One of the other big things that
Modi talked a lot about in his campaign was federalism and increasing
power to the states. But a lot of people have argued that in his
tenure what he has actually done is increase centralisation. Would
you agree with that?
I largely agree. Everybody know that power has
been centralised into PMO, the Prime Minister’s Office. In fact
that has sometimes made difficult to make quick decisions, which
goes against two of the government’s objectives, that of easing
business and of federalism.
Similarly, before the Bihar elections, Modi went to
a big election rally in the state and announced a special package for
Bihar and the way he went about it was very interesting. In front of
thousands of people, he said how much money will be given to Bihar
(without any consultation with Bihar officials) He said, “50,000
crore! Nahi, 80,000 crore! Nahi, 1,20,000 crore!”
It was like a public auction. This is not federalism. This is what I
call ‘federalism Modi-style’. To me it’s the king giving
largess to his subjects. But more substantially, yes some money
has been transferred to the states. But that is not Modi’s doing,
that has been done by the Finance Commission, which is a
constitutional body, and its dispensations are constitutionally
mandated for the government to follow, whether it be Modi or anyone
else.
Another to notice, also true for the UPA regime, is
that in recent years, in the budget, there are a lot of new cesses.
Education cess, Swacch Bharat cess, etc.. An interesting thing
about a cess is that you don’t have to share it with the states.
This is not good for federal finance.
And lastly, one institution which could have played
a creative role in federalism is the NITI Aayog. Now the problem
with NITI Aayog as I see it is that unlike the Planning Commission,
it does not have any financial powers. Planning Commission could
at least decide how much money states would get for some
centrally-sponsored schemes, so chief ministers used to take it
seriously. But now that power has been given to the finance ministry.
So that is centralisation, not decentralisation. So the NITI Aayog
has mainly policy suggestions powers, no financial powers, and
therefore many non-BJP chief ministers don’t take NITI Aayog
seriously. Second, in Niti Aayog meetings discussion is on an agenda
pre-selected by the Central government, which do not suit the states.
Third, if it is the job of NITI Aayog to coordinate with the states,
there is already a pre-existing body called Inter-state Council which
has been in existence since the 1990s. It did not meet for 10 years
until recently. In fact I have heard that officers posted in the
Inter-state Council see it as a punishment posting, because nothing
happens there. That’s the organisation created to have inter-state
coordination. I hope NITI Aayog postings don’t get a similar
reputation soon.
There is a debate among economists
about how independent the central bank should be. If they are too
independent, the charge is that they serve as the handmaiden of
private banks and are not accountable to the people. But if they are
not independent of government, it becomes hard for them to make tough
decisions when those are sometimes needed. How should a country like
India strike a balance, especially in the context of the controversy
that Raghuram Rajan’s tenure and imminent departure has triggered?
It’s really sad about Raghuram Rajan, who is such
a bright and wise person. India had a rare opportunity to have
someone like him as the central banker, not many countries have this
opportunity. We wasted this opportunity. Having RSS attack dogs
out to get him and Mr. Modi remaining silent, and opening his mouth
to utter some platitudes only after Mr. Rajan resigned – this is
scandalous, in my judgment.
In Rajan’s case something else may have happened.
He was not very popular with the wilful defaulters on bank loans,
many of whom are crony capitalists. I am sure from behind the scene
they must have out pressure, because Rajan has come out with very
strong strictures against them. He called them ‘freeloaders’,
since it is essentially taxpayers money that they have taken and are
defaulting on. I think that’s also behind it, not just RSS pressure
but also these tycoons and crony capitalists who were quite
uncomfortable with the stringent policies Rajan was following.
I also find the current way of doing things
problematic. There should be much more public debate and discussion
on the issues and the different policy opinions of the candidates .
But once you appoint , don’t interfere. I am generally in favour of
central bank independence subject not to day-to-day scrutiny but
periodic review. Policies every 3-5 years should be discussed in
public, in parliament, everywhere. But no day-to-day interference.
Rajan has recently come out with a statement that
the governor’s tenure should be at least five years, not three. I
agree with that. But like I said, every three years, parliament and
the public should have a discussion on the policies being followed in
the last three years.
In any case, going back to something I mentioned
before, there is too much focus on monetary policy. I think it should
be much more balanced, both on fiscal and monetary policy. Our
governments are always scared of what international credit rating
agencies would think if they talk about fiscal expansion even for
long-term investment.
Should India be seeking more trade
and investment deals that integrate more fully with other economies?
Should we focus on mega deals like TPP (Trans-Pacific Partnership) or
the RCEP (Regional Comprehensive Economic Partnership) that is
currently being negotiated or can they work against us?
Generally I would say yes, India should integrate
much more. These days, without integration you cannot succeed. It’s
not like the old days, when someone was good at producing something
so they sell it in the world market. What has changed is the
predominance of a global value chain. Different countries have
different locations on the chain. If you can’t find your own niche
on the chain, then you’ve lost it. The Chinese have done a very
good job at finding this niche and over time also moving up the
ladder to higher value. They are now moving out of
labour-intensive exports to more skill-intensive exports. So most
laptops, smart phones, etc. are now produced in China. We have no
alternative but to integrate – become part of the global value
chain.
That’s my general principle. It’s a different issue when it
comes to the TPP or the RCEP. I’m not sure whether some of these
trade agreements are helpful. TPP will probably help Vietnam, because
they have many things to sell to the US. But I am not sure in general
that the gain from TPP is that much. These deals vary from case to
case.
What I don’t like is that India, at the world forum, often takes a
holier-than-thou economic-nationalist attitude. I don’t think
that’s the right attitude. Then people laugh at us, they know India
isn’t a big power in the economic world. They can do without India.
Even the one sector where we were big, the software sector, is now
gradually going elsewhere, to the Philippines for instance, to
Israel. So if it comes to that, the world might say okay go ahead,
bye. We don’t have that much bargaining power, so we shouldn’t
take that attitude.
Speaking
of China, why do you think they have been able to grow so rapidly,
move so many people out of agriculture and reduce poverty so much
faster than India?
I have a book about this (Awakening Giants, Feet of Clay:
Assessing the Economic Rise of China and India). To give a
two-minute answer, the Chinese have succeeded at something that we
have not. And that goes back to something that I’ve mentioned
before, about labour-intensive industrialisation. That’s where poor
people’s jobs are. The reason we have a job problem is because we
haven’t solved this problem. We think of the IT sector, we think of
Smart Cities – these aren’t going to create jobs for poor people.
I also mentioned before the need for roads, electricity, etc. to
create jobs – this is where the Chinese’s major success lies.
Infrastructure is the major dazzling success in China. The first time
I went to China was in 1989 and since then I go quite often. It’s
just breath-taking. And we are nowhere near that.
There are things that they can do that we can’t do as easily. If
they need to acquire land, they just do it immediately. We can’t do
that, there’s a whole process. So there are things they can do
because of the political system that we can’t. But it’s not
just that. Going back to health and education, it’s really tragic
that India today is where China was in the early 1970s. Even before
the reforms, during the Maoist period, they improved health and
education immensely. As a result, Chinese workers are healthier and
more educated than ours. That in itself increases productivity.
Health and education should be improved no matter what, but
Chinese workers are more productive simply because of these reasons.
Secondly, is the physical infrastructure– roads, electricity, etc..
Physical and social infrastructure together create a base for
labour-intensive industrialisation. The groundwork was carried out in
China in the socialist period and accelerated post-reform.
This area, social and physical infrastructure, I’d say is a major
economic failure of India. And that has its effect on jobs and
labour-intensive industrialisation. That has a substantial effect in
reducing poverty.
Our poverty has
also declined, but nothing like in China. They have raised above the
poverty line nearly half a billion people within a short span of time
