interview | Economy

Proxy job data being cited doesn’t provide an accurate picture: Kaushik Basu

Kaushik Basu   | Photo Credit: Sudhakara Jain

Although India appears well placed to cope with global trade and currency wars, it needs to manage its exchange rate carefully, opines Kaushik Basu, former chief economist at the World Bank, who recently said the Indian currency’s true value is closer to ₹70-71 to the dollar. Mr. Basu, who also served as Chief Economic Advisor to the government, said the biggest concern for the country right now is the lack of jobs and employment data. But more long run damage is likely from India’s global image taking a hit due to a spate of incidents of hatred towards minorities, he warned. Excerpts:

The RBI governor said recently that trade skirmishes could escalate to currency wars. Is India well placed to deal with this risk?

This is a risk and the governor’s warning is astute and deserves to be heeded. India seems stable enough to be able to weather the fallout of a currency war among other nations.

But we know from the experience of the taper tantrum in 2013 that we all have vulnerabilities.

As such you want your fiscal numbers to be in very good shape, and you want your exchange rate policy to be managed by professionals with expertise in it. Exchange rate management is a highly-skilled job, and we have seen nations falter. So we need to put in our best on that front.

What is your biggest concern for India at this point?

My immediate concern is the job situation. It is true that we don’t have detailed data on employment. But whatever piecemeal numbers are coming out suggest that unemployment and underemployment are growing. The small producers and the informal sector have done poorly over the last two years, and both agricultural and manufacturing have been performing poorly.

But my bigger concern is not the immediate economic situation but that India’s global image is deteriorating. The increasing divisiveness and incidents of hatred directed at minorities, which are being covered by the international media are giving India a bad image and can hurt tourism and also foreign investment. This is unfortunate because that is not what India is. Such acts need to be condemned and controlled, otherwise this will do long run damage to India’s economy.

The government has suspended quarterly labour force surveys by the Labour Bureau, and we also don’t have the NSSO’s employment-scenario surveys anymore. What does one do then to assess employment generation? Is using proxies like EPF or New Pension Scheme data appropriate in a mobile labour market?

These proxies are not representative enough for a large nation like ours. In India, the trouble is a huge amount of employment is in sectors that are not formally registered. So unless you directly go to households, like the National Sample Survey does, and check what’s happening there, you do not get an accurate picture. However, the good news is that the government is planning to release annual data on employment, starting quite soon. I do hope that happens.

India doesn’t have a Chief Statistician since January and now, there’s no Chief Economic Advisor either. Several public sector banks and other undertakings are headless... What is the impact of such vacancies on the economy’s management?

We certainly have a growing expertise deficit. This hurts policy making because there are some parts of economic policy, such as exchange rate management and fiscal policy that have lots of subtle needs, which a politician or career bureaucrat is likely to miss out on. The absence of expertise also hurts the global image and that can have a negative fallout on the economy in the long run.

Mistakes in economic policy can happen with any government. But there will be fewer of those if we have talented professionals at the helm.

Luckily, India is a country with a lot of talent. That talent must be used. Of course, we know that talented people are also critical people. So it needs a certain amount of confidence in government to bring such people in. They would come up and say this is wrong and this is right, and you have to give that space.

Private investment remains moribund. Does the government need to do more to revive investor confidence?

I certainly think so. Overall, India’s investment to GDP ratio has been going down.

And that is unfortunate. I am glad you asked this question because this is an indicator that most people don’t watch. So it falls out of our consciousness. India’s investment rate had risen to 38%, which was completely on par with fast-growing East Asian countries. But this has been falling in India for the last four, five years.

And this can take a toll on the growth rate — it is probably already doing so.

Do you feel there is a perceptible change in corruption incidence?

Transparency International’s data suggests no clear trend, though India’s rank in terms of corruption perception in 2018 has worsened in comparison to what it was in 2015.

India has recently been slapping import duties on several products. Could this have an adverse impact on our global trade equations?

It will be unfortunate if we slide back to import substitution and protection.

Would you say the Indian economy that was perceptibly in trouble in 2013-14, is firmly out of the woods now?

The economy did recover after 2014. Growth did not go back to the over 9% that India had seen from 2005 to 2008, but it improved and by 2015-16, it reached 7.9%. Unfortunately, the economy slowed down since then and in 2017-18 the growth rate has been 6.7%, which is below our potential. But I think the worst is behind us and the economy should begin to pick up here on.

Are you pleased with the course correction on GST from the structure it had started with last July?

I am glad that course correction is being done. GST was a needed policy but it had design problems which adversely affected small businesses. Done right, GST can cut down transactions cost of business. A related policy for which the government deserves credit is the new Bankruptcy Code adopted in 2016. This can confer large benefits to the economy by cutting down bureaucratic costs and uncertainties for business houses. India’s outstanding performance was from 2003 to 2011, when the economy grew at well over 8% per annum. If we do not make policy mistakes, we should be able to easily get back there.

What are your priorities as President of the International Economics Association?

This is a huge responsibility and my aim is to use the platform of the International Economic Association to give visibility to the best research, so that policymakers are able to use them. I also want to bring developing nations more visibly to the high-table of global discussions.

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Printable version | Oct 17, 2021 11:45:23 PM |

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