Economics

Interview: Pranab Bardhan on What the Modi Government Has – and Hasn’t – Done So Far

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 exceec 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 discuss 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.

  • varadananda

    What about businesses that now employ 50 to 100 people? What would happen to them if they attempt to employ more than 100 people? Are there no such businesses in India according to the author?

    Which type of businesses in India that are now more capable of expanding having alredy the ability to mobile more capital and having land and having orders for their business expansion, businesses with 5-6 people and thinking of expanding to employ 50 people, or businesses now employing 50-100 and trying to expand to employ more than 100 people?

  • Radhakrishnan Puthenveetil

    This is a breath-taking interview, both in scope and sweep. Economist Pranab Bardhan has fielded questions on all major issues concerning development of contemporary India. However, I did not see much on , the Modi government’s policies, presumably because Bardhan the questions were focused on economy and not society and polity. One issue I particularly liked is Bardhan’s following observation:
    “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.”
    Bardhan is perhaps the first academic to come out with the usage “RSS attack dogs”. This will soon be picked up by other sections of the media, and gain much needed currency.