Nobel for economist, tailspin for economy

Last Updated: Thu, Oct 17, 2019 10:42 hrs
Abhijit Banerjee

Everyone loves a Nobel laureate.

In the case of Abhijit Banerjee, there’s a little more for India to love than usual, given that he lived in the country of his birth longer than most of his Nobel-winning Indian-origin predecessors, and much of his research was focused on rural India.

Not long after the professor’s shared Nobel win was announced, he was asked about the Indian economy at a press conference at the Massachusetts Institute of Technology, where he teaches Poverty Alleviation and Development Economics.

With a generous helping of snark, he observed that the Indian government “has a particular view that all data that is inconvenient to it is wrong.”

There has been some inconvenient data of late.

Former Chief Economic Advisor Arvind Subramanian said in a Harvard research paper that India’s Gross Domestic Product growth had been exaggerated by about 2.5 percent between 2011-12 and 2016-17.

The Prime Minister’s Economic Advisory Council published a rebuttal, saying, “Given the fact that his paper lacks rigour in terms of specific data sources and description, alternative hypotheses, rationale of equation specifications, use of dummies and robustness-check diagnostics of estimated equations, and choice of countries in the sample and a specific list, it would not stand the scrutiny of academic or policy research standards.”

Arvind Subramanian responded saying that no country has grown at over 7 per cent with exports under 5 per cent.

More recently, the Chief Economist of the International Monetary Fund Gita Gopinath spoke about the figures in the IMF’s World Economic Outlook, which projected India’s growth rate at 6.1 per cent for 2019, as against 6.8 per cent for 2018.

Speaking to reporters in the lead-up to the annual meeting of the IMF and the World Bank, Gita Gopinath said the economic growth could lift to 7 per cent in 2020, but this would depend on the government’s ability to clear up “bottlenecks” that had a negative impact on growth.

She also said one of the most important measures would be the cleaning up of balance sheets of regular commercial banks.

Not only has there been a dip in exports, the National Sample Survey – as Abhijit Banerjee pointed out – showed a drop in consumption between 2014-15 and 2017-18.

He called it a “glaring warning sign” and said “even the government is increasingly recognising” that there is a problem, but is “aiming to please everybody by pretending to hold to some budgetary targets and monetary targets.”

This is precisely what happened last week, when Finance Minister Nirmala Sitharaman responded to a question about whether the government accepts that there is an economic slowdown by pointing to the ways in which the government was offering relief to sectors which were performing poorly.

But is the reduction in corporate tax rates enough to counter the weak investment sentiment in India?

Is it enough to counter the fall in consumer demand within the country?

For years now, the prices of household goods have been increasing as manufacturers and retailers try to make up for the Goods and Services Tax. A reduction in the GST was not accompanied by a drop in prices, and so consumers did have to pay more money while retailers benefited.

Commuters are forced to spend more money as the petrol price shows no sign of reducing despite the price of crude oil having fallen to almost a third of its all-time high.

It seems no one is happy with the economy – not entrepreneurs, with small businesses and large shutting down consistently; not consumers, as the drop in demand indicates; not the rich and not the poor.

For a while now, the Reserve Bank of India has been losing economists who refuse to toe the line.

Some days ago, it was revealed that the RBI has stopped printing Rs. 2000 currency notes. The annual report of the RBI, published in August, revealed that 17, 929 fake Rs. 2000 notes had been detected in the 2017-18 financial year, against 638 notes the previous year.

Given that demonetisation was introduced with the declared aims of curbing the hoarding of black money and circulation of fake currency notes, it doesn’t say much for the government’s efficiency that further measures are required three years after Modi’s dramatic announcement.

The promise printed at the back of every bank note was broken with a single sentence, and money turned to paper overnight.

Yet, it appears to have achieved nothing.

Even so, the government continues to have its staunch supporters. These are people who would like to believe standing in queues at banks for days on end back in November 2016 was worth something. These are also people who would like to believe the Indian economy is doing well because an economist of Indian-origin has won the Nobel Prize, irrespective of what he himself says.

More Columns by Nandini Krishnan:

Why the Diaspora has so much love to give

Hindi debate: We are all obsessed with homogeneity

We are choking the earth

When Kamal Haasan endorsed harassment

The Dalai Lama and the death of humour

The delusionary Indian intellectual

India's culture of worship has to end




Nandini is the author of Invisible Men: Inside India's Transmasculine Networks (2018) and Hitched: The Modern Woman and Arranged Marriage (2013). She tweets @k_nandini. Her website is: www.nandinikrishnan.com