Kaushik Basu: The Government Should Be a Referee for the Marketplace
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Image: Amit Verma
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Kaushik Basu, Chief Economic Advisor at the Finance Ministry
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What are the ideas you would like to see in long-term economic policy?
It is time for India to go for a major export thrust; in particular, in labour-intensive manufacturing export. This will also help mitigate the problem of poverty by enhancing India’s ability to absorb labour. But this will require a huge amount of effort and co-ordinated policy initiatives. It is not just a question of tweaking one tax rate here and giving one subsidy there. Fortunately, the mood of the country is such that you can float some big ideas and hope for them to find acceptance.
What are the long-term risks to economic policymaking in India?
One domain of uncertainty has to do with the fact that India is entering a phase of policymaking in a globalised world. The world economy is getting globalised and India is integrating into this globalised world more rapidly than almost any other country. This creates large opportunities for us but at the same time brings new challenges to our doorstep.
India is becoming, whether we like it or not, a fairly major player in the world and as a consequence, we are charting into a terrain of policy formulation that we are not familiar with.
A related challenge — and this applies to the world as a whole — concerns exchange rate policy and management. With the world becoming increasingly a common market and yet there being so many currencies, raises deep questions of exchange rate uncertainty and financial stability. Imagine the problems that would arise if within a country several banks had the right to issue currencies. In some sense, that is the problem that the world faces today. This problem was anticipated more than a century ago by [William] Stanley Jevons. Whereas Jevons merely imagined what it would be like to make policy in such an integrated world with multiple currencies, we don’t need to imagine this; we live in such a world. To the extent that India is today a global player, with robust international capital flows, we are no longer sheltered from this global problem.
What about climate change?
Climate change is a big challenge for India. As a new entrant in the global arena we have to learn to play this game differently from the way we did in the past. We can’t sit behind closed doors and say that this is what we are going to do, since what we do is now of interest to other nations; and so we have to co-ordinate with other countries of the world. If economics is an unsettled science, so is the science of climate change. Hence, crafting economic policy in the area of climate change is like one dismal science meeting another even more dismal a science — I won’t tell you which is which.
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