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Kaushik Basu: “Pay more attention to ordinary people”

In conversation with the economist and former chief economic adviser.

A world-renowned economist, Kaushik Basu is Professor of Economics and Carl Marks Chair in International Studies in the Department of Economics and SC Johnson Graduate School of Management, Cornell University, Ithaca and New York. He served as Chief Economic Advisor to the Government of India (2009-2012) and Chief Economist of the World Bank (2012-2016). In an email interview with First line, Basu spoke in detail about the unemployment crisis plaguing the country and explored the possibilities of countering it. Excerpts:

Although figures show that the unemployment rate fell to 8.2% in January-March 2022, from 9.3% in the corresponding period last year, in June 13 million people lost their employment (mainly in the rural sector) in just one month. What does that mean ? And where do we go from here?

That unemployment is lower now than a year ago when the pandemic was raging is quite normal. We should not take this as good or bad news. On the other hand, data from the Center for Monitoring the Indian Economy (CMIE) showing that 13 million people lost their jobs in June alone is extremely worrying and reflects wider malaise and major policy failure.

It is important to dissect the economy objectively and not to blame unfairly. Inflation in India is high, but I don’t think it’s caused by the government. This is an international problem that washes up on our shores.

On the other hand, our poor job creation record is a government policy failure. It’s a reflection of what happens when all politics is big business and big business, and workers and farmers are left with little more than slogans. This combination of high inflation and very high unemployment is causing hardship for the common people of a kind that India has not seen since the early 1990s.

How did we come here? Of course, this did not happen overnight.

It didn’t happen overnight. It cannot be denied that India has long underperformed in terms of employment. But over the past five or six years, there has been a rapid worsening.

The youth employment situation is particularly worrying. The youth unemployment rate in India is now just below 25%. And it has nothing to do with the COVID-19 pandemic. We were almost at that number in 2019.

This is an unacceptable unemployment rate, much like what we see in struggling Middle Eastern countries [West Asian] economies like Turkey, Iran and Egypt. Most countries in South and East Asia have much lower youth unemployment. Thus, Malaysia, Indonesia, Bangladesh, Vietnam… all have less than 15% youth unemployment.

There are two reasons for this failure. The first is, as we have already mentioned, that our policies are too focused on big business. Second, scientific expertise is underused in policy design. If policy-making is left entirely to politicians, the tendency is to focus all efforts on immediate problems. They neglect the deeper underlying issues, which causes long-term damage. If you spend all of your time putting out fires, and no time and effort on science and research to create non-flammable materials, you will have many more fires to fight and, in the long run, your situation will get worse.

Prime Minister Narendra Modi poses for the media at the launch of the

Prime Minister Narendra Modi poses for the media at the launch of the ‘Make In India’ project in New Delhi in 2014. | Photo credit: AFP Photo/RAVEENDRAN

The government has proposed Make in India, National Skill Development Corporation, and now Agnipath, as ways to create jobs. Why are they not generating results?

That’s exactly what I meant by firefighting initiatives with little sign of long-term imagination. These are small, disparate efforts to respond to a large, growing crisis. India’s story will be undone if we are not able to take up this challenge more seriously.

For that, we have to leave the big companies alone for a while. They don’t need to be continuously fed with government support. Large private companies play an important role in society, but they do not need direct public subsidies and aid.

The government needs to pay more attention to helping ordinary people — small businesses, farmers and workers. For this, an important step is to improve our education system, the content of what students learn. The creative spirit is going to be crucial in the new digital age. We also need to foster an environment where manufacturing thrives. This is important for developing and emerging economies, where wages are low and there is comparative advantage.

We can see how this can help other Asian countries, such as Vietnam and Bangladesh. Over the past two years, Bangladesh’s per capita income has surpassed that of India. It would have seemed impossible even five or six years ago. There is no magic in it. Through basic education reforms, especially for the masses, and some reforms to our labor laws and regulations, it is possible to revive small businesses and manufacturing and create more jobs and growth.

If you had been the chief economic adviser to the Indian government today, what would you have advised?

I would have lots of advice — on how to tax, how to promote better health care, how to control inflation. But let me not dwell on these. India’s great shortcomings are elsewhere.

So my first piece of advice would be on the need to have space for dissent and new ideas. When I was Chief Economic Advisor, one of my magic moments happened a few weeks after I pitched an idea to fight bribery and corruption. I was engulfed in controversy, with calls for me to be sacked from the government. In the middle of all this, feeling a bit uneasy, I called the Prime Minister. Doctor [Manmohan] Singh came on the line and the first thing he said to me was that he had read my idea and he disagreed with me. Then he added what will remain forever etched in my memory. He said that the fact that he didn’t agree with me shouldn’t be a reason for me not to talk about it. The role of an advisor, he told me, is to bring ideas to the table. So even if my idea caused him trouble, that was no reason for me to keep quiet.

If I were chief economic adviser today, I would also talk about politics and morals. What is generally not recognized but is true is that economics is based on a multitude of political and moral preconditions. By morality, I am not referring to religion, but to human qualities like kindness and integrity, and the courage to uphold principles, as we have seen recently from several judges, including Judge NV Ramana and Judge DY Chandrachud. These qualities play an important role in creating the environment in which economic growth flourishes. They create hope for the nation.

On the other hand, it saddens me to see the rise of divide and rule politics in India. It is a tragic commentary on our state that minorities, like Christians and Muslims, feel isolated and threatened. Such majoritarianism can create short-term popularity, but almost always ends up crashing the economy. I know I would overstep my mandate, but if I were chief economic adviser today, I would urge political leaders to reverse course, to abandon majoritarianism. It is better to lose an election than to destroy the moral foundation of a nation.

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