7 days ago
A tribute to economist Shankar Acharya, A World in Flux, explores what needs to be done to achieve India's goal of becoming Viksit by 2047
A confession — I have known Shankar Acharya, a friend and fellow cricket junkie, far longer than he or I are willing to admit. It is an honour to review 'A World in Flux – India's Economic Priorities', a timely and deeply researched collection of essays in honour of Shankar's thinking and contributions. The book is about what change is needed to allow India to meet its tryst with a destiny that is viksit by its 100th anniversary in 2047.
The contributors are much more than eminent scholars — they are acknowledged experts in their fields. The biggest — and the most well-deserved — tribute to Shankar is that the contributors have chosen to write a learned and expert commentary. Much of what they have written and advocated as policy is spot on, so what is a reviewer supposed to do? I can summarise the issues raised by the authors, but the editors, Amita Batra and AK Bhattacharya, provide a must-read analysis — a model introduction to a very distinguished economist, policy advisor and policy-maker.
There has only been one major policy question on which Shankar and I have disagreed — and continue to disagree — and that is the danger that fiscal deficits pose to growth and inflation. He, of course, initiated India's long-term fiscal policy in the early 1980s, at a time when such a roadmap was very much needed. Before going further, I want to add that we have differences — differences that arise not out of a difference in expertise or analysis but differences in our genes. Shankar, by his own admission, gravitates towards pessimism; and when I have to err, I err on the side of my DNA++ disposition.
The 'what should be done about fiscal deficits' debate is a good point ofdeparture for illustrating why 'yeh dil mange more' than offered by the experts in the volume. Does India have a high fiscal deficits problem or a problem of plenty, one which allows policy makers from doing nothing (at best) or actually implementing bad policies? Sajjid Chinoy in his tour de force essay ('Getting Rich Before Getting Old') speaks about raising India's tax/GDP ratio from an already high level of around 19 per cent today. It is quite the fashion among Indian commentators (I include myself in this galaxy) to point to China as a worthy example to follow — when in doubt, do what China does and thou shalt succeed. China's tax/GDP ratio of 14.5 per cent in 2024 suggests we should radically decrease our rate of taxation. But our experts do not advocate that. Why?
India's fiscal problem is one oftoo high taxation, not too little. 'Easy' revenue allows the government (state and central) to indulge in ever more wasteful expenditure (freebies) which slows growth. Our slow growth, relative to potential, is the problem, not that fiscal deficits are causing inflation to be at a historic low. The IMF orthodoxy of 'when in doubt, raise tax revenue' is now hopelessly outdated. Another example of divergence between necessary policy, and one offered by experts, pertains to the low share of manufacturing (and even the ever lower share of manufactured exports). We all agree that something needs to be done, but what? One favourite solution (like raising the tax revenue) is to join the China-led RCEP. This is dictated by the specious reasoning that since China leads in manufactured export growth, by joining RCEP we will do so too. However, 13 of 15 RCEP countries have lower growth of manufactured exports than before (joining) RCEP.
As far as policy analysis goes, why not note that our two 'global champions' — Ambani and Adani-led enterprises — produce zero manufactured goods (unless an intermediate good like polyester is considered a final manufactured good, like shirts)? And why, iflack of textile growth is a problem (it is!), our reform experts (except Amitabh Kant) don't point to the fact that a very very low hanging fruit is the reduction of high import duties on manmade fibres? Why don't the experts argue that the government should choose winners like Ambani and Adani? The government should appoint these global experts to lead the march on manufactured goods. Instead of Production Linked Incentives (PIL) we should have EIL — Export Linked Incentives. If subsidies are involved (as they will be), the government should provide them. Learn from China (again) how to sidestep WTO regulations. This is how Korea, China and the US have succeeded — we will succeed too.
Bhattacharya also has a much-needed, must-read chapter on the political economy of reforms. AK notes that in the near-50-year history of economic reforms in India, an important pattern emerges. 'But once the immediate economic crisis was overcome, the pace of implementing subsequent reforms slowed considerably'. Phrased differently, the story of economic reforms in India is that reforms stop because our politicians (and the Deep State behind them) are not risk-takers, but comfort-zone seekers. They like the comfort zone of 'not rocking the boat', and thereby insure that Viksit Bharat 2047 might very well be no more than a dream.
Before ending, I have a quibble with even this most worthy chapter. Bhattacharya's path to reform is via consensus-building (the mantra of every failed and defeated optimist). But AK fails to note that the path to consensus is littered with sabotage by the major groups (or group) hurt by the proposed reforms. Why, if everything is as well-known and as dutifully documented by all of us, are we still asking for basic reforms in agriculture, manufacturing, and governance? Note that a Supreme Court survey conducted after the withdrawal of farm-reform legislation, found an overwhelming consensus (87 per cent) among farmers wanting the proposed farm laws reform.
Bhalla is chairperson of the Technical Expert Group for the first official Household Income Survey for India. Views are personal
