From Criticising Demonetisation To Prescribing Prayers For Indian Economy, Nobel Winner Abhijit Banerjee On India

Indian-American MIT professor Abhijit Banerjee is among the three laureates awarded the Nobel Prize for Economics 2019 ¡°for their experimental approach to alleviating global poverty¡±.

Fifty-eight-year-old Banerjee and his fellow laureates ¨C wife Esther Duflo and Michael Kremer¡¯s innovative research, based on field experiments, has laid the foundation for the best way to design measures that reduce global poverty, The Royal Swedish Academy of Sciences said while announcing the prize on October 14.

¡°Their experimental research methods now entirely dominate development economics,¡± the academy said.

Banerjee is Ford Foundation International Professor of Economics at the Massachusetts Institute of Technology. He studied at the University of Calcutta and Jawaharlal Nehru University in India and received his PhD from Harvard University in 1988.

Views on Indian economy

Just last week, Banerjee was speaking in response to noted economist and former RBI governor Raghuram Rajan, as part of the OP Jindal Lectures at Brown University in the United States.

He put together a few prescriptions for what the Indian economy needs right now. The last item on the list? ¡°Pray.¡± On the next list, for the longer run? ¡°Pray more.¡±

This is what he prescribed:

It is worthwhile noting that Banerjee has remained quite vocal and straightforward in criticising government policies and the way they are implemented.

Banerjee, criticised the Modi government for demonetisation in November 2016 that wiped off close to 90 per cent of the country's cash out of circulation.

¡°I never understood the logic behind it. For one, why introduce Rs 2,000 notes? And I suspect the pain is much greater than is being currently anticipated,¡± he told News18 in an interview.

When the Reserve Bank of India, in August 2018 (after taking an awfully long time), finally finished counting the money that was returned to the central bank after the Modi government¡¯s decision to demonetise, the results were nothing short of scandalous.

A total of 99.3 per cent of the Rs 500 and Rs 1,000 notes were returned to banking system, officially stating that demonetisation was nothing but a monumental failure.

In March, 2019, Banerjee, without mincing words, expressed concerns over ¡°political interference¡± in influencing statistical data by Prime Minister Narendra Modi's government. He was one of the 108 economists and social scientists who called for the restoration of ¡°institutional independence¡± and integrity to the statistical organisations.

He has been a staunch supporter of politics based on economic interests ¡°because those are aspects that we can deliver on without creating social divisions.¡±

¡°The advantage of economic interests is that they can often be addressed, whereas sectarian interests cannot be addressed other than saying that we will hurt those others, which is frightening,¡± he told India Spend.

He was also quoting as saying: ¡°At some broad level, we were sympathetic to the idea that India as a newly middle-income country should do something for its desperately poor."

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With reference to swelling unemployment in the country, he once wrote ¡°something will need to be done, and it will probably eventually take the shape of a minimum income guarantee.¡±

In April, he contended that India must move towards some form of a universal basic income, writing that, ¡°it won¡¯t be easy, but if the political will is there, it should be possible to set aside one extra per cent of GDP every year for a few years... there is some chance such an intervention will jump start our stuttering growth process.¡±

Pointing out the need for financial viability in context with pro-poor government schemes such as Congress¡¯ proposed NYAY and BJP¡¯s KISAN, Banerjee noted, ¡°I feel we are not taxing the economy enough. I think we are under-taxed. We need to bring down our interest rates and give some semblance of balance to our budgets. This will involve figuring out the subsidies that need to be cut and taxes to be increased, or risk going back to high inflation.¡±

He asserted that the problem of not imposing enough tax must be solved.

Speaking on wealth accumulation in a few hands and rural distress, Banerjee said, ¡°One of the things governments can do is to create low-cost spaces for migrants to live in so that it is more viable to work in urban areas¡­ My prediction is that we will move towards cash transfer as many of these lives are only marginally viable, especially among the younger, more educated generation that does not want to do the same jobs or have the same lifestyles as their parents did. We have this political problem that needs to be solved.¡±

The developmental economist, apart from calling Modi government¡¯s supposed masterstroke on eliminating black money ¡°weird and bewildering¡±, has criticised the haphazard implementation of the Goods and Services Tax. Banerjee, otherwise, is a supporter of GST.

In December 2018, he flayed government for appointing retired bureaucrat Shaktikanta Das as the next RBI Governor, and warned that the decision leaves a lot of ¡°frightening¡± questions about governance issues at key public institutions. MA in History, Shaktikanta Das is first non-economist in 28 years to be RBI Governor.

Banerjee suggested an impartial person, preferably someone from outside, should be assigned the task of going through the changes and confirming if it meets the best accepted practices.

He had also expressed concerns on the current state of affairs, claiming he sees a political paralysis where the ideas are being good but there is a bit of trouble implementing them due to political reasons and lack of manpower within government.

Banerjee is co-founder of Abdul Latif Jameel Poverty Action Lab (along with economists Esther Duflo and Sendhil Mullainathan).

He also co-wrote with Rajan a summary of prescriptions selected from a book that the two edited, along with others last year. The book offered eight directives for India as it moves forward including less burdensome regulation.

His new book, co-authored with Esther Duflo, "Good Economics in Hard Times", is a follow-up to Poor Economics and will be out in October 2019.