Elegant theories but no practical solutions to deal with messy real-life issues
Kaushik Basu is now the senior vice-president and chief economist at the World Bank. He is also slated to take over as the president of International Economic Association in 2017. Dr Basu studied economics in St Stephen’s College, Delhi; did his MSc in economics in London and his PhD under Amartya Sen before returning to India in 1977, to Delhi School of Economics. In late-2009, Dr Manmohan Singh, the then prime minister, invited him to be chief economic adviser in the ministry of finance, a post he held up to July 2012.
This book covers his insights into some of the policy issues he dealt with as the economic adviser. Basu, being a disciple of Sen, understandably, deals with issues like poverty, right to food, public distribution, etc. But, being an academic, he peers at these issues like a self-absorbed scientist in a laboratory. He is quick to apply elegant economic theories to messy problems that afflict this poor nation: Nash Equilibrium, Pareto Principle, Game Theory, Hyperbolic Discounting and so on. There is a dose of behavioural economics as well.
The end result is a passage such as this—on food and poverty: “To close on a methodological note, whenever a new policy intervention is proposed, there will be critics saying that that if there is no evidence of to show that the policy works, we must not implement it. This is an invalid argument reflecting more than anything else our penchant for the status quo. If for policy X we do not have evidence whether or not it works, then for policy not-X we do not have evidence whether or not it works. Hence, if that is the reason not to do X, that is reason not to do not-X. But not doing X and no doing not-X is impossible, thereby establishing that the initial claim was false.” I guess, the author has won plenty of debates from St Xavier’s School (Kolkata) to the London School of Economics and is, therefore, tempted to score debating points everywhere.
But if you are impatient, practical and result-oriented about India’s problems, such clever arguments will leave you exasperated. In a whole chapter titled “Food and Poverty”, where the economic scientist Basu spends a lot of effort in exploring a new ‘design’ of food delivery to the poor, he does not mention, even once, how the Food Corporation of India (FCI) functions. According to a previous economic adviser, the FCI (along with Coal India) are the two most corrupt organisations in the country. I had the good fortune (or misfortune) to audit both these organisations. Economists, who discuss food delivery design, must be sent on a six-month tour from one FCI godown to another before they earn any right to discuss ‘designs’ in their taxpayer-funded laboratories. A similarly detached Basu approaches the menace of chain-money schemes arguing apologetically: “We may need regulation to prevent contracts, despite the fact they may be fully voluntary.” This economic-speak is a far cry from reality. Chain-money sponsors are politically connected and have police protection. Basu also shows no awareness that the Reserve Bank of India, which regulates deposit-taking of certain kinds, should have been entrusted with monitoring chain-money schemes and not the Securities & Exchange Board of India. What are the ‘securities’ here?
There are contradictions in the book even regarding basic policy measures. Basu points out that the ‘popular’ view—that anybody caught cheating and adulterating should be punished—is flawed. He asks ‘punished by whom?’ “For that, we have to rely on another layer of bureaucracy and the police force, which will open another layer of opportunity for cheating the system.” And yet, severe exploitation by moneylenders in rural Bihar convinced him about the ‘need for usury laws’. Apart from the fact that India already has usury laws, which have not prevented usurious lending, how we do we answer the question: Moneylenders will be “punished ‘by whom’?
Basu, like most economists, wants India’s tax-to-GDP ratio to go up. He shows no outrage on the way taxpayers are forced to support salaries and interest cost of a bloated Central government and many government-funded organisations, ‘autonomous bodies’, commissions, institutes, many ‘schemes’, and various ministries that constitute the vast wasteland of a big State. He does mention that India needs administrative reforms but India has been at it for four decades now. Questions that should interest policy-makers are not about what needs to be done theoretically any more, but what kind of strategies are needed to pull them off, in real life. You won’t find any of that in this book.