The GDP growth rate in the Indian economy has been robust except for the current slowdown but it is difficult to compare it to previous periods due to a change in calculation methodology.
Economists Abhijit Banerjee, Esther Duflo and Michael Kremer have won this year’s Sveriges Riksbank Prize in Economic Sciences. The prize, popularly known as the Economics Nobel, was conferred on them for their “experimental approach to alleviating global poverty”.
Their application of randomised control trials, a tool developed and successfully used by the laurates, intensifies project focus down to micro-interventions at a local level that yield results that can be observed in the short term. It is being used all over the world in programmes to improve education and health and to alleviate poverty. The larger message for Indian policymaking is, therefore, the need to use evidence as a critical input in policymaking.
Shri Banerjee said that the Indian economy is “doing very badly” even as the government is increasingly recognising that there is a problem.
Banerjee, Duflo et al. studied remedial tutoring programmes for pupils in schools in Mumbai and Vadodara. These schools were ingeniously and randomly placed in different groups, allowing the researchers to credibly measure the effects of tutoring. The experiment clearly showed that help targeting the weakest pupils was an effective measure in the short and medium-term.
With the Indian economy going through a difficult patch, with growth severely down, this is a reminder of the importance of new ideas and scientific thinking and Shri Banerjee has recently given the following ideas as remedies for the current slowdown.
- Become much pro-active in getting money into the hands of the people.
- Raise the MGNREGA wage.
- Raise prices for farmers.
- Sell public sector banks rather than trying to fix them. Give the new owners the freedom to make the changes they need.
- Tighten regulation.
- Relax monetary policy, quantitative easing, not interest rate cuts which rarely do anything in a financial crisis.
- Let the rupee slide.
None of these ideas, are however absolutely new and have been proposed and discussed in the last year or so. In fact, Shri Banerjee diagnosed demand deficit as the main problem in the Indian economy and it is only natural that he himself proposed for inclusion in Congress manifesto, a universal basic income scheme by the name NYAYA in the election time. This would have perhaps been the best expression and implementation of idea 1. Ideas 2 and 3 are alternative ways of getting money into the hands of the people and a deep cut in corporate tax is one such measure. Ideas 4 to 7 are under active consideration of the finance ministry and the RBI, although the preferred policy is a merger in idea 4 and interest rate cut in idea 6.
Shri Banerjee said that the Indian economy is “doing very badly” even as the government is increasingly recognising that there is a problem. He said that in his view when the economy is going into a “tailspin”, is the time when “you don’t worry so much about monetary stability and you worry a little bit more about demand. I think demand is a huge problem right now in the economy.”
We agree that demand is the main problem now. But on his view that the economy is doing very badly, what appears more reasonable is global investment strategist Ruchir Sharma’s statement, that in the context of deglobalisation, lower growth rates in global working-age populations, the tendency towards autocratic rule and high debt – 5 percent GDP growth is the new 7 percent for the fastest growing countries like India; we are in a low-growth world. Also, the IMF’s most current forecast of India’s growth rate in 2019 at 6.1%, is the same as that of China.
The GDP growth rate in the Indian economy has been robust except for the current slowdown but it is difficult to compare it to previous periods due to a change in calculation methodology. In this connection, India needs to enhance its standard of data collection and ensure its transparency and timely dissemination. Further, the govt. should work on ways of incorporating it into decision making as emphasized by Shri Banerjee.
1. The views expressed here are those of the author and do not necessarily represent or reflect the views of PGurus.