New Delhi: India is “barreling down” the path to disaster with its decision to cut taxes for the rich and making unnecessary public investments that could “explode government debt”, economist Abhijit Banerjee said, days before being awarded the Nobel Prize in Economics.
In a lecture at the Watson Institute in Brown University last week, Banerjee said the Indian economy is in a “crisis”, with growth slowing sharply and consumption falling for the first time in several years. The government’s response, he added, was only making matters worse.
“You cut taxes for the rich, you make public investments that are not required. All it does is hurt the income distribution and make government debt explode, often ending in a full-blown meltdown. This is what happened in Latin America. India is doing well on this time-honoured path to disaster,” he said.
India cut corporate tax rates for firms to an effective tax rate of 27 per cent, aimed at reviving investment in the economy, but many economists have argued that these measures will not help boost consumption that has been flailing.
Also read: Economist Abhijit Banerjee is the sixth Nobel winner with a Kolkata connection
Collapse of investment, consumption
Banerjee pointed out that both investment and consumption have totally collapsed and public borrowings account for 9-10 per cent of GDP.
“National sample survey data for 2017-18 shows that people on an average are poorer than what they were in 2014-15,” he said.
Average consumption expenditure at current 2018 prices fell from Rs 1,587 per person per month in 2014 to Rs 1,524 in 2017-18 in rural areas and from Rs 2,926 per person per month in 2014 to Rs 2,909 per person per month in urban areas, he pointed out.
“Average consumption going down in four years is something that has not happened in many years. This is extremely serious,” Banerjee said.
Banerjee was of the view that putting more money in the hands of the people by raising wages under the Mahatma Gandhi National Rural Employment Guarantee Scheme and raising prices for farmers are short-term measures that can help revive growth.
He also advocated a lax monetary policy regime and letting the rupee slide. “And since it’s an NDA government, we can pray,” he said.
‘Power concentrated in PMO’
Banerjee, like former RBI governor Raghuram Rajan, was critical of the entire decision-making process being concentrated in the Prime Minister’s Office.
He also voted for strengthening institutions that have weakened in the tenure of the Narendra Modi government. He said the government’s way of handling “pesky” institutions was to either change the law or appointment of people who will agree with the government.
“Institutions went from hyper active to zombies. This is part of the reason why investment has plunged,” he said.
“It is important to not act against people who look like they were contradicting the government,” he said, adding that the government should demonstrate it has sufficient proof before acting against anyone and should be more open to criticism.
He also suggested selling off public sector banks rather than trying to fix them.
This is not the first time that Banerjee has been critical of the Modi government. He has openly questioned the rationale behind demonetisation as well as the government’s handling of unfavourable economic data.
Also read: Economics Nobel winner Abhijit Banerjee a Modi govt critic, saw no logic in demonetisation
I am not going to say that this Government does not need sound advice on managing the economy. He is saying everything that antagonists of BJP have said. Unfortulately, that will ruin whatever value his advice may have. An advice which is more apolitical would work better and have chance of acceptance.
That is why he got the Nobel.
He’s Anti Indian 🙂
anti indian worrying about indian economy.what a joke when will open the eyes of india.putting a cloth on eyes of blind worships.
adding prey and prey more like words show ed he have no solution as well.
He mentioned praying as a jibe at the current government’s habit of dragging religion into everything. Read the article, it clearly mentions that.
He has been picked up just because this award for ‘Economics’ has to be awarded to someone every year! It is not a Nobel prize as originally envisaged by Mr Nobel. Nobel prize is not awarded if no one is deserving in that year, while this one (Sveriges Riksbank Award) has to be necessarily given to ‘someone’ in same ceremony of Nobel Prize distribution.
This time this award has been given to AB for his criticism of the chosen leader, his policies and exaggeration of current Indian economy. Has he come out with any workable or imaginative solutions to what is purportedly ‘Economic Crisis?’
If Sveriges Riksbank award was not given to AB it could have been any other Mr ABC…
The story developing around India’s economy in 2019 until about September 2019 has not not been different than that was predicted by this Vedic astrology writer. The predictive article – “ The year 2019 astrologically for India” – was published last year 2018 on 7 October at theindiapost.com. Later in 2019 , another article – “World trends in April to August 2019” – was brought to public domain widely in March and subsequently on 5 April 2019. The sum and substance of these predictive articles was that economic slowdown in 2019 called for more care and appropriate strategy. These predictive alerts have mostly turned out to be meaningful by October , 2019. Now , readers would be interested to know this writer’s predictive alerts for remaining three months of 2019 and also , the coming year 2020. Yes , these have been brought out on 10 October , 2019 through article at theindiapost.com/articles/predictions-for-coming-year-2020-by-kushal-kumar/
The primary problem is not where the economy is going, but we as Indians are only looking at what someone has done and what is not good in other cities. A wise ruler as well as a person is the one who takes advice from people, put them together, try to identify what may work best, and find a solution. If criticizing Abhijit, Gandhi, and Nehru will make the economy good, then be it and wait how India does. Even educated people sound like a fool. What Abhijit has told about Economy is true and it’s on the verge of collpase. So prepare to stop/prevent something instead of criticizing. Nehru and Galdhi is not the Ruling party. So people will ask question to BJP. In a country where ministers think that Boom movies is bossting economy, then you can understand the danger. Open your eyes
First this leftist commie type guy breaks all protocol and marries his own graduate student that he is supervising for her PHd, talk about conflict of interest. Then he and other Bengalis always do some third rate work on poverty , like Amartya Sen, that never actually helps tackle poverty. His own state of abengal is ranked with cholera, Dengue, nip when, malaria and massive public debt.. then they get five minutes of fame for winning a Nobel in Indian newspapers, then drop out cold. Finally, all countries that have successfully fought poverty have used capital and capitalism and trickle down economics, this is proven in history.
So far West Bengal is concerned it is only a part of India and also a victim of Partition. Bangladesh is showing the potential of Bengali speaking people.
Very true. Bengalis couldn’t live with their own and opted for partition in 1947 and now blame it for their woes.
Bengal and Punjab were partitioned to cut to size the Bengalis and Punjabis. I don’t want to say more. No point arguing with ………
Don’t worry. Eventually even America will turn left.
Trickle-down economics has resulted vin poverty eradication worldwide? Where did you read this? In a moth-eaten copy of Milton Friedman’s delusions? You do not know graduate-level economics, and here you are, passing judgements on a Nobel laureate. Welcome to the New India, where the ignorant rule and dictate to the wise.
Another Amartya Sen in the making, who is doing his bit badmouthing Modi government to stay in the good books of the loony left. The only solution that these loonies have is to throw free money at every problem, with no care for structural reforms that create a better business environment.
Opening up in all ways may be good for the economy but not for election win. P V , Bajpayee lost the elections and MMS lost the respect. Modi is doing fine with his experimental economics.
” experimental economics” Yeah Right. Sheesh!!!
Bengal have two Nobel winners and both of them are left ideologists. Bengal had been governed by left parties for continuous 36years and the poverty in Bengal continuously increased. What is the use of these people’s Nobel if they can’t even help their home state to reduce poverty with their so called economic idea.
The Nobel is much higher up the food chain. Had Dr Abhijit Banerjee won the Magsaysay Award, he would not even have merited a congratulatory tweet.
You are denigrating Magsaysay award just because Rahulji is associated with that. Magsaysay award is thousand times better and please stop looking down at the award because of your hatred of Nehru Gandhi Vadra family
He is referring to R K and not R G.
You definitely need burnol. Well wait, actually you need Rahul JI ?? The guys are confused about where your taunt is directed!! ?
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