Tolerance is not just good value but good economics: Kaushik Basu, Chief economist, World Bank
Kaushik Basu spoke on diverse issues including the upcoming Budget and how social norms and mindsets can contribute to economic development.
In his new book An Economist in the Real World, he addresses a range of topics on economic policy-making in India. In Delhi, for the launch of the book last week, Basu spoke to ET Magazine’s Ishani Duttagupta on diverse issues including the upcoming Budget and how social norms and mindsets can contribute to economic development. Edited Excerpts:
Based on your two-and-a-half year stint as chief economic adviser (CEA), what advice would you have for the current CEA when making economic policy?
The general principle is the same now as it was during my time. The CEA’s job is one of the most important for an emerging economy like India. It is to bring the best ideas of economics to the table and to explain them as lucidly as possible to the finance minister, the prime minister and even the media. It is important to acknowledge that journalists are usually better at explaining ideas to the laity than you are. While you should be passionate about your ideas, remember that you have to carry members of parliament with you to be most effective. This is not an easy task since some members of parliament find lectures on economics sleep-inducing.
You say in your book that the approach of seeking economic development by focusing narrowly just on economic policy may be flawed…
When I joined the World Bank one of my of my first projects was to initiate a report on ‘mind, society and behaviour,’ about the role of psychology and social norms in promoting development. I was putting into action what I wrote about in my book. This is because of my belief that this is neglected terrain. When we think of development and growth, we stress on getting our fiscal policy right, monetary policy right, taxation system right, and indeed those are extremely important. But a society’s development also depends on the social norms and mindsets of the people. There are cross-country studies that show that nations in which there’s a lot of trust among people do well economically. Basic honesty and integrity are not just good in themselves but promote growth. Tolerance is not just good value but good economics.
People work harder and are more productive when they feel included. While I give credit to government for having done well on the economic front, I cannot deny my worry that this will not be long-lasting unless we can nurture these social traits. People should have the freedom to criticise politicians, the government, the World Bank. That must not be reason to marginalise people and label them antinational. India will be diminished in the eyes of the world and hurt itself if it does not keep this in mind. India has great prospects and it will be a shame to damage this.
How closely involved are you, as the World Bank’s chief economist, with projects in India, and current government initiatives like, say, the ease of doing business?
I do get to work on India and of course, as an Indian, I have a special interest in India. But my attention is now spread over the entire emerging world, unlike in my previous job as CEA, where the focus was entirely on the Indian economy. The Doing Business report is a good example. This entails tracking 189 countries, and we are fastidious in using the same yardstick to evaluate each of them.
What are your views on the ease of doing business in India?
India has done well over the last year, improving from 142nd to 130th, among 189 countries. A part of this was for technical reasons of improvements in the method of computation but part was because of India’s own reforms. But even with this improvement there is a great distance to go. Bureaucratic costs are unacceptably high in India and effort has to be relentless to cut red tape. It is entirely possible for India to move into the top 100 countries within actually two years.
You write that transition from academe to policy-making was hard because you got into the former not with the intention of making the world a better place but for your own intellectual satisfaction...now, as chief economist at the World Bank, clearly one would expect you to be thinking of making the world a better place!
Fortunately or unfortunately, that is true. Research is driven by an aesthetic urge. It is in many ways a selfish activity. You do it for its innate joy; it is like composing music or painting. You don’t do it to make the world a better place. That is a by-product of research not its driving force. What I said in the book is that when I was offered the job of CEA, I told myself that if I took up the offer my main reason would be to do my best to make the world a better place. And that is the same motivation that drives me in my present job as chief economist of the World Bank. The canvas of course now is global. Just before coming to India, I was in Bangladesh, where I spent several days speaking to political leaders, economists, garment workers, and poor villagers. And it is exciting to try to contribute to making a better society and a flourishing economy.
What in your opinion should be the important takeaways in the upcoming Budget in India?
I don’t follow India’s Budget as closely as I once did — but I should mention that fiscal parameters are among the most important policy instruments and have to be used judiciously. The aim has to be, not the short term gains but sustained and inclusive growth. Turning to a specific matter, India has to raise its tax-gross domestic product (GDP) ratio. Most countries that have grown and done well, from the US to European economies, have a much higher tax-GDP ratio. If India manages to plug the loopholes in the tax system, its tax-GDP ratio will rise and it will be able to spend more on food and education; it will be able to spend more on infrastructure and investment, and all of these will empower the economy.
You say that public opinion is actually a big hindrance to good policy!
What I was stressing is the need to educate the population; a basic economic literacy in the citizenry is important because in a democracy politicians will respond to popular belief. If the popular belief is an educated one then it creates an opportunity for policy makers to make better policy. I mention in my book that one of my discoveries on joining the Indian government was the high intelligence of the people at the helm. During my time in government, I witnessed some of the finest debates and discussions. But they did not translate into policy well, simply because you have to carry public opinion before you implement a policy and, if public opinion is misguided, it can thwart the best of intentions.
You say the Indian bureaucracy is the most talented and also the most obstructive in the world...
India’s top bureaucracy is very talented at an individual level but too tied up in bureaucratic red tape; it’s like having ace drivers to drive cars and locking them up in a traffic jam. The Indian bureaucracy attracts some of the most talented people but then traps them in a logjam of decision-making.