Kaushik Basu's remarks at Washington have caused a furore in India
Kaushik Basu, Chief Economic Adviser at the Ministry of Finance, India, has probably made a vow to himself to be careful at any lecture he gives in future.
His remarks on Wednesday regarding “India's Economy and the Looming Global Economic Crisis of 2014,” at Washington's Carnegie Endowment have caused a furore in India, and the eminent scholar has issued a letter disputing journalists' account of what he said that day.
At the talk, which this correspondent attended, Dr. Basu spoke of two themes, which he did not at any point explicitly link together. The first was his commentary on global economic growth prospects, particularly the risk that in 2014 they may be hobbled by loans coming due in Europe.
Global economic “tsunami”
Specifically, Dr. Basu had said that the European Central Bank (ECB) had given loans to Italy and Spain to the tune of $1.3 trillion and unless the ECB sought to continue a virtual “Ponzi” game with these finances, they would come due at the end of 2014, and could cause a global economic “tsunami.”
At this point he did mention India and the impact that a second wave of economic dampening could have on the country's growth prospects. As he has said in his clarifying letter, he noted that despite the current slowdown Indian growth would pick up, slowly at first and then after the potential European crisis of 2014, “we could see India as the world's fastest growing economy, faster than even China.”
The words that he did in fact use to describe 2014 were “rough year” but he added that for India the longer term growth prospects were “excellent,” citing specifically a growth rate of 9-9.5 per cent as “possible” in the latter period. Dr. Basu also noted that although he had disagreed with the Reserve Bank of India's actions in the past, he thought that the most recent interest rate cut would “trigger growth.”
That was one key theme of his talk. The second, spurred on by audience questions, was entirely focused on the complexities of coalition politics in India and the impact that had and might continue to have on getting major economic reforms passed under the current administration.
Perhaps he was more candid than he need have been at this point, perhaps not. However what he did say with no ambiguity was that in the cases of desirable reform policies such as the Goods and Services Tax, “the Opposition realised this is a good reform. Therefore, it was reluctant to let it happen under the current regime.”
What journalists reporting this talk may have seized upon was his subsequent comment on reform obstacles, which was that if there were to be a single-party majority in the next election, such reforms may get a fillip.
It is an open question whether it was fair to connect Dr. Basu's first point on potential growth projections for India until and after 2014 to his second point on reform barriers under the present government. What is clear is that the media made the connection and Dr. Basu had to explain himself.