Nobel Laureate Abhijit Banerjee on Economic Slowdown, Handling Criticism and Taking Forward India's Growth Story
In an interview with CNN-News18, Abhijit Banerjee spoke about the government's schemes such as Ujjwala Yojana, Jan Dhan and Mudra Yojana and what they mean for the beneficiaries and the country.
Abhijit Banerjee, one of the three winners of the 2019 Nobel Prize in Economics, at a news conference at the Massachusetts Institute of Technology (MIT) in Cambridge, U.S, October 14, 2019. (Reuters photo)
In the news for winning the Economics Nobel along with Esther Duflo and Michael Kremer for their experimental approach towards alleviating global poverty, Abhijit Banerjee speaks to CNN-News18 about handling criticism, economic slowdown and Congress's NYAY scheme. Read on for the full interview:
India is the birthplace of two Nobel Laureates in Economics. I haven’t had the chance to meet Amartya Sen yet but am honoured to meet professor Abhijit Banerjee who is in Delhi to unveil the book ‘Good Economics for Hard Times’. Professor Banerjee, first of all congratulations. Has it sunk in that you are a Nobel Laureate?
I don’t know what is supposed to happen. It has sunk in and a lot of people want to email me and want responses. I spend all my time responding to emails, texts and WhatsApp messages. There is a sense where people are extraordinarily generous, I am spending a lot of time answering one after another.
Who told you that you have won the Nobel Prize?
The Nobel Prize committee calls you at ungodly hours and wakes you up to tell you.
When did you get the call?
At 4.45am in the morning
How did you break it to Professor Esther (co-winner and wife)?
She got the call. She picked up and it was her call first and then she passed it to me. We both got the call simultaneously.
How did you break this news to your mother who was in Kolkata? I have read interviews in which she said it came too soon as you are still in your 50s.
Maybe she was saying it as revenge for not having broken the news to her. My brother broke it to her. My mother has hearing-aid, which she prefers not to wear. So when she says she didn't hear from me, it’s right but not because I didn't call her.
You will be sharing this Economics Nobel along with Esther Duflo and Michael Kremer. You and Esther are married. Two Nobels at the same time in the same family. Does it make it very special?
I guess it makes it easier. You don’t have to worry about overshadowing the other person. It’s straightforward and we don’t overshadow each other.
Given the kind of headlines, you saw that it was professor Abhijit Banerjee and his wife winning the award.
I felt very bad about it till the day I discovered [what happened] in France. In India, it said Professor Abhijit Banerjee and his wife Esther Duflo. In France, it said Prof. Esther Duflo and her spouse unspecified.
So that was worse.
Yeah, I felt a level-playing ground of nationalistic abuse.
You are the sixth husband and wife couple to win the Nobel Prize. Some have won it together and others have won it separately over the years. This kind of response and the kind of feeling one person can overshadow the other or credit should be equally distributed, did it come at some stage? Did you guys talk about it?
No. We were not exactly sitting up every night and waiting for our prize. It was not at all meant to happen. This particular issue had not quite come into our life.
Professor Duflo is the youngest-ever and the second woman to win an economics Nobel. How are you taking this?
It is great. I wish there were more women in economics. Economics is a field that suffers from too few women. It’s wonderful that it started with younger women. Now there are many more women in that cohort. If you look for women close to over 70s, there were many women at the time. If you look at women under 50s, Esther is not the only prominent woman economist. And they could find some more to give it to and that would be great to the field of economics.
Since you love cooking, did you cook that day or found time to cook after that?
The day after we had a small celebratory dinner. Some friends threw a party for us but the next day we ate at home and since then, I cook every day. I cooked dinner and it was little bit more special than normal.
From Presidency to JNU to Harvard, it has been a phenomenal journey. Did at some point in your career, at some stage, you feel that you are on track to a possible Nobel?
At some point.... but maybe in the last five years, people would ask me the question — aren't you going to get a Nobel? And I would say “whatever, who knows”. I don’t know what determines a Nobel Prize. It’s not that I spent a long time pondering this question.
What role did Tihar play? Those 10 days in Tihar? What thought came to your mind when you were spending those 10 days?
Nothing. I think those were great days. It was a 10-day vacation with a lot of friends. For me, it was. I used to be a sleeper and I could sleep under all conditions. It was like going to a camp. Other than the fact that we couldn’t leave, it wasn't particularly painful.
This book is coming at the most apt time because of the economic slowdown that we are witnessing. The world economy is slowing down at the same time. What is in store for us?
It depends on what we do, I think. This is a time when I think in the short run, there is a tendency to take stabilising macro policies. And then it’s luck I think in the longer run. In the shorter run, we could take stabilising policies. It will depend on how much demand stimulus we put in. I think this is a good time to be aware that there is a big problem and we should do something about it. I think the government is increasingly aware of the economic slowing and more increasingly concerned about it.
The Indian government?
I think the finance minister said 5 per cent and maybe 5 per cent will turn out to be a good outcome if it happens.
Nirmala Sitharaman is also from JNU. What will you tell the finance minister? What’s the one piece of advice you will give her in terms of policy intervention?
Not sure that anybody is asking me and to be honest, I am first off not a macro-economist. This is not what I do for a living. But if she asks me, I’d probably say to get some more money in the hands of the poor and they will spend it.
You have talked about putting some money in the hands of the poor. Don’t you think the government’s current grassroots schemes such as Jan Dhan Yojana, Ujjwala Yojana, Swachh Bharat Abhiyan, Ayushman Bharat are steps in the right direction in empowering the poor in terms of money?
In terms of the long run, they are probably good ideas. Other than Ujjwala, others are not putting cash in the hands of anybody. In the long run, Ayushman Bharat will save people from selling their house to pay for medicine. In the short term, they are not highly simulating policies. They are long-term policies; maybe Jan Dhan will get people to save money in the long term. But it’s not about increasing consumption; we don’t increase consumption by increasing bank account.
But Jan Dhan scheme is going to meet the similar objective of poverty alleviation
The Jan Dhan scheme is an opportunity to save. It doesn’t do anything else. It is a matter of bank account and I can put money into it. But if I don’t put money into it, I will not get richer and if I put money into it, I am going to get richer. It is not going to make me richer immediately. We see small amounts of money in the Jan Dhan accounts. Most people don’t save a lot and that’s not going to make them rich. I want people to have money to spend in a relatively short order, which is different from the thought behind Jan Dhan.
Direct benefit transfer is something you have talked about in the past. This is essentially to plug leakages. The kind of link being established between Aadhaar card and bank account, it’s helping in MNREGA and also in the LPG subsidy. The government’s estimates state that these leakages have reduced by as much as $20 billion.
I am with you on this. There are two questions: what is the efficient way to get money to the people who you want to give money to. These are good steps in that direction. Second question is if suppose there is a Keynesian downturn, I want to get money quickly into it. Do any of these schemes get money per say into people's hands? No. Whereas, if PM Kisan was let’s say doubled, that's going to get cash in the hands of the people. Long-term policies or I would say the Jan Dhan and Aadhaar create a pipeline that allows the government to connect to individuals and give them money in a way that doesn’t get lost. That doesn’t mean the money is getting there. That means I send the money to get there but the government is only sending Rs 6,000 and not necessarily all of that to some kisans.
You have said in this book that economists are like plumbers; we solve problems for the combination of intuition, grounded in science, some guest work aided by experience and a bunch of pure trial and error. This means economists often get things wrong. Going by that, would you say NYAY was an idea whose time had not come?
NYAY was not particularly well designed. I don’t take responsibility for it. Nobody asked me whether that’s how it should be designed and I don’t think it was necessarily well designed. So I don’t think it’s a question of whether time had come or not. I think it was an idea that even if politically supported, may not have been the best design scheme. Maybe afterwards, if the UPA had won, they would have to adjust the scheme because there would be political or economic pressures to change the scheme. My role in all of that was not to design the scheme but to provide information that you could use to make choices.
Did the congress fail to communicate effectively or were they not sincere about the scheme? Because had they been, then it would have been implemented in the states where they are currently in power such as MP, Rajasthan, Chhattisgarh and Punjab.
I don’t think so. I think they were sincere in the sense that I think they wanted to have a game-changer. They wanted to put their mark on policy. So I think they were sincere in the very real sense that they wanted to actually stamp a Congress view of policy and that’s what would sustain them in the future. So they were willing to embrace it. I just don't think they had the money.
Yes, exactly the finance.
The central government chooses tax rates. The finance commission decides how much money the states have to send and Punjab is bankrupt. Punjab has faced all these, past governments have spent lots of money. Punjab is extremely financially strained. It’s not about to be a state which is going to roll out a very generous transfer scheme.
So in that case, this was a scheme that had not been completely thought out because questions were asked about financial viability.
You are misunderstanding me. The federal government has the choice of choosing the tax rate. Therefore, it can actually make something viable by raising taxes. The state government does not have the option. You asked why MP doesn’t implement it; it is subjective to the money it gets from the finance commission. This is decided based on federal government’s tax choices. As long as federal government doesn’t raise tax revenues, MP can’t do anything different. Only government that can run a scheme like NYAY is the federal govt... I am not saying they should have run it... Federal government is the only one who has money for it. Think of NREGA, it is funded by the central govt.
Is NREGA successful according to you?
Yes, NREGA is hugely successful. It has raised incomes of the poor. One of the reasons why poverty has fallen after 2009-10, especially in very poor states like UP, Bihar etc is because of NREGA. I think [there is] good evidence showing NREGA has increased earnings by 7-10% in these areas. So I think it was successful and was a good use of money.
One alternative view is that instead of schemes such as NYAY, don’t you think self-help groups and income-generating skill development programmes, micro-financing schemes such as Mudra Yojana are more effective?
I don’t think so. I think one of the evidence is that we have shown that microfinance does nothing for the incomes of average people. We have shown that by a bunch of randomised control trials. Seven were published together. Each of them found zero effect of micro-finance on earnings. Self-help groups, likewise, very little evidence that they raise incomes by a lot. I think this is a story where the evidence is very much against the claim. I don’t think it is going to be. I think there is very little evidence that skill development also does anything. It’s very hard to deliver skills. There are a lot of randomised control trials in these things and this is what I do for a living and know these results. None of these things are clear slam dunks. Most of them don’t work.
Universal basic income requires significant increase in tax rates. You have clearly said if basic income does not provide reasonable living, it will again lead to increase in universal basic income and it’s almost like a vicious cycle.
I think this is not a debate I want to get into. Other people have done these numbers. You can decide what you are going to cut. You decide you are going to replace; for example, you can take out NREGA, all the power subsidies. If you start to take out a lot of subsidies, then there is a lot of money you could spend on basic income. But it’s a matter of political decision. The government takes the argument for universal basic income is precisely there is less distortionary and leads to less leakage. I don’t see a reason why. I am in favour of raising taxes and that is a separate question.
Don’t you think it is a very traditional module to tax the rich for funding the poor, essentially giving sops to the poor?
I hate the word sop. The poor are often poor because we have run an economy where we have created no jobs. We create any number of distortionary policies then we say poor are undeserving and we should give sops. I must say I have no sympathy for it. Most of the poor are poor because of a bunch of policy choices we made with land, labour, credit and every market in India; we have distorted it to make large transfers to the rich. And we give small amount of money to the poor and call it a sop. I absolutely have zero sympathy for it.
You have often said that India is under taxed.
But how can taxing the rich result in poverty reduction?
Taxing the rich has very little to do with growth. We look at evidence, it is quite clear that you could tax the rich more or less but the growth rate is not affected. Let me give you an example of the US. US was growing the fastest-ever between 1945 and ‘75. The highest margin of taxes was 95%, which was levied by Eisenhower who was a Republican President. US was growing as fast as ever in this period. I just think there is no evidence that high taxes discourage growth. On the other hand, if you had more revenues, you got to distribute it to the poor and there is no evidence that re-distribution makes the poor lazy either. On both sides, I think this is a bunch of crap people have bought into. I don’t think there is any real evidence for either of these views.
You have been critical of the state of Indian economy. There are several measures taken by the government of India. One of those is corporate tax cuts. IMF has welcomed it, saying it is a step in the right direction.
That’s their problem. I have not welcomed it. I was actually going to praise the government for raising the corporate taxes. I was going to write a piece saying please, don’t cut taxes. This is what every country does when their growth slows down. Nothing happens to growth and rich get richer. I was going to write that but they already cut the taxes. So I didn’t bother to write that piece. I was going to write an op-ed saying ‘don’t cut taxes’. I was very happy when government raised corporate tax in the current budget. I will be public about it. I thought this was a great positive step that it really needs to balance the budget. We are eating 9 per cent of GDP throughout our consolidated deficit. We don’t have enough savings.
At the same time, you say economy is in a tailspin and if these taxes are not given, the corporates won’t invest in India?
Taxes have nothing to do with investment. There are nice studies of the US where different states do different tax cuts at different times. You see what happens to growth... nothing happens to growth. It does nothing for investment. Tax cuts put money in the hands of the rich and they keep it. The rich are sitting on 9 lakh crores of cash, a very large number in India right now. The corporate sector is not investing or spending because there is no demand.
What is your estimation and definition of poverty in India?
This is not what I do for a living. There are people who specialise in it. If you take the dollar 90 per capita of 2016 prices, I think you get some number like 17-18% of the economy.
Does democracy guarantee better steps towards removing poverty?
No. I think there is no particular evidence. Some democracies have very well, some not so well. Some autocracies have done very well and some have been bloody disastrous. It’s all of the above.
I have the statistics which say India brought 271 million out of poverty in the last 10 years and emerged from a country on the verge of bankruptcy to a 2.8 trillion dollar economy in less than 30 years. This is being seen as part of India's economic growth story. One part which is often quoted...which is your statement is nobody knows why or who and how growth happens, so let’s focus on other things. Which are these other things?
Welfare. Good schooling, healthcare, environment; these are things we know how to do. Growth — we don’t know how to make it. We know how to destroy it by doing a 1970s-style policy. We could destroy growth by being heavily centralised, controlling everything, taking every decision out of the people, having high tariffs but within the normal economic space.... there are countries which have perfectly reasonable policies and don’t grow and countries which don’t have perfectly reasonable policies and don’t grow and we don’t know why.
One statement made by a Union minister recently is that while he congratulated you for your achievement, he also said you’re a Left-leaning professor whose idea (NYAY scheme) was rejected in the elections. Don’t you think the endorsement of government’s policies is electoral victory?
Alas, no. I think any government does 100 things and people have to vote on all of them. They have mostly voted for Modi, who I think is genuinely popular. They decided no other opposition leader is worth voting for and I am totally willing to give him that. I don’t think that means every single decision they have taken was voted for. People had to make one choice; they didn’t have a choice between ‘I’m going to vote for Modi for this scheme and not for that scheme’. That’s not the choice they were given. Given that choice, they would have made different choices on different issue.
It was a success of his schemes as well.... endorsement or not?
Endorsement of him as the whole package... which might be like they like some of the things and did not like some of the other things. I don’t think there is any way to tell.
You have worked closely with Rahul Gandhi. You have interacted with him... Do you think India needs stronger opposition and Congress party is failing to emerge as one?
Right now, India definitely needs a stronger opposition. This would be good for democracy in India. I think right now I feel people don’t feel Congress is ready to take that burden. It doesn’t have a present right now. Whoever is the president, they need to make that person powerful and give him the right to run the party the way they want.
Your parents have been economists, did inclination towards economics come naturally to you?
I guess so.
Thank you so much for your time.
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