‘We are in a crisis,’ Nobel winner Abhijit Banerjee describes state of Indian economy

Expressing concern over the slowing growth of the Indian economy, Indian-American Nobel Laureate Abhijit Banerjee in an exclusive interview to CNBC-TV18 said that the government should make policies which work and not policies which they imagine will work.

He said that the decline in Gross Domestic Product growth rate, which slipped to 5% in the April to June quarter, was a big concern. He said there was a willingness in India to announce new policies because they “sound good” or have a political purpose.

Abhijit Banerjee, Economics Nobel winner this year along with Esther Duflo and Michael Kremer, said that the “Indian economy is on a shaky ground” and “the government should do pilots of policy initiatives more carefully”.

“I think there is always a little bit of a willingness in India to announce a policy because they sound good or they have a political purpose. The general message is you should carefully evaluate them, understand whether the policy works or not and take it from there. Even now I think it is not that the policies are evaluated based on accepted criteria and looked at as an option. PM says it, it happens. That style of thinking is partly what we are resisting,” he said.

Abhijit Banerjee has also been critical of the Narendra Modi government’s demonetisation exercise previously.

He recently delivered a sharp critique of the Indian economy and rated the fall in consumption as “extremely serious”. He was speaking at Brown University last week when he spoke about institutions turning into “zombies” and investment nosediving. He also blamed centre’s big-ticket economic decisions – demonetisation and implementation of Goods and Services Tax – for what he called a “demand problem”.

“I talk to my business friends. And they say that it is impossible to invest, you don’t know who is going to call you up and say that’s not the right thing to do,” Abhijit Banerjee said on October 9 at Watson Institute, Brown University.

“Over a four year period, average consumption is going down, (which) hasn’t happened in many many many many many years. And this is after being corrected for inflation. By many years, I am guessing the 70s. This is a fact that should be extremely serious,” said the renowned economist, who is sharing the Nobel for an “experimental approach” to solving global poverty.

“Investment has totally collapsed by a factor of 75 per cent. Exports are not growing. I think this is a crisis. We don’t call it a crisis if we want, we can say it could be a crisis, but I think we are in a crisis.”

He also assessed the 2016 notes ban and the implementation of GST as factors in the slump. “In addition, there is a demand problem. And this is a combination of demonetisation, which had a huge effect on demand and had a multiplier, GST implementation, and also in the monetary policy regime, that basically tries to pin down inflation pretty low,” he said.

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