From kings to cabbages

This collection of pieces by Kaushik Basu, written over the last five years, is verily a potpourri of thoughts on a variety of subjects, the only common element being the catholicity of his tastes.

Basu has had a fairly long stint abroad holding prestigious academic positions. Yet he retains the Indian weltanschauung lightly without being righteous. Respected for his research on development economics, industrial organisations, and globalisation, among others, he has edited commemorative volumes in honour of Nobel Laureates Amartya Sen and Joseph Stiglitz. He is a self-confessed agnostic; but may not mind a prayer to Goddess Kali of Kolkata for its continuance! (He has a delightful piece on Praying at the foothills of Mount Fuji to get over his stomach pains!)

READER'S DELIGHT

A collection of this kind is surely a reader's delight, but a reviewer's peril. The subjects range from kings to cabbages: a comparison of the performance of India with China's; the state of the Indian economy, its strength, potential and failings; personalities; current economic issues; personal memorabilia; a couple of stories translated from Bengali and, finally, a play set in academic cloisters.

Full report here Hindu

Fractures in world economy

After the global financial calamity struck in 2008, many analysts put the blame on the uncontrolled credit expansion in the United States that preceded it. But E.H. Carr reminds us that complex historical phenomena are rather like an accident that takes place during a misty night when a driver speeds along a slippery road, a pedestrian crosses it, and the brakes of the motor vehicle fail. What exactly caused the accident?

Fault Lines: How Hidden
Fractures Still Threaten
The World Economy
Raghuram Rajan
Harper Collins
Rs 499; Pp 288

Land of inequalities
The merit of Raghuram Rajan's work is that he traces the many fault lines that lay beneath the surface not only in the American economy, polity, and governance, but also in the increasingly distorted economic and financial relationships between nations. Rajan begins with the American scene. America is a land of opportunities, but they can be taken advantage of only by those who have the resources, physical as well as human. Because these resources are unequally distributed, it is becoming a land of growing inequalities. In 1976, the top one per cent of households accounted for 8.6 per cent of income, but by 2007 this had shot up to 23.5 per cent. And in 2008, seven out of 10 Americans had stagnating incomes. Because of the strong commitment to the free enterprise system, the country is also rather backward in the safety net it provides for workers. But a democratic polity cannot completely ignore them, and there is something of a moral commitment to help the needy.

Full report here Hindu

A pre-fab earthquake

The foreteller of the financial crash ignores a Left-Right binary, faults endemic inequality and political quick-fix

If he were that sort of person Raghuram Rajan would have said, “I told you so!” He had more reasons to say it than almost anyone. In 2005, he shocked a room full of top US policymakers and bankers in Jackson Hole. They were celebrating the legacy of Alan Greenspan, who was about to retire as the Federal Reserve chairman. Rajan argued that financial innovation (partly made possible by Greenspan’s scepticism over financial regulation) had made the world economy less safe.

“I felt like an early Christian who had wandered into a convention of half-starved lions,” recalled Rajan, who is professor of finance at the University of Chicago’s business school and formerly chief economist of the imf. One of the few to sound an alarm before 2007, Rajan was “raining on the parade” that sought to prove that Greenspan was the best central banker in history. No one likes a Cassandra; Rajan was roundly criticised for his views by a cast of luminaries. One of them was the distinguished Lawrence Summers, who now heads the National Economic Council at the White House. Summers derided Rajan for his “slightly lead-eyed premise”.

Full report here Outlook

For a sustainable economic growth

India's growth performance since1991 has been characterised by some economists as “on the growth turnpike”, “India's turn,” and “India the emerging giant”. Pulapre Balakrishnan's book, apart from surveying the country's economic history since Independence, projects what can be expected in the near future. Balakrishnan views growth as an endogenous cumulative change and uses the ‘analytical growth narrative' methodology to study India's growth. He partitions the period since 1950 into three sub-periods — namely, 1950-64, 1965-91, and post-1991 — based partly on the policy regime in vogue and partly on the political configuration, since both evolved.

MORIBUND ECONOMY
Commenting on the Nehru-Mahalanobis planning strategy that focusses only on the supply side, he says that the Nehru era witnessed the revival of a moribund economy and the lighting of a growth process that has remained undimmed for over five decades, during which the rate of growth hastened slowly. The 1965-91 time span witnessed exogenous shocks, including war, drought, and a steep rise in petroleum prices. The Indian state had to come to terms with reduced autonomy and at the same time persist with an interventionist economic policy. The author finds that the Green Revolution not only placed food production permanently on a higher growth trajectory but, through forward and backward linkages, energised the rest of the economy. The growth of the manufacturing sector decelerated in the mid-Sixties and remained depressed for the next decade and a half. He attributes the fast growth of the services sector to a widening income inequality, a faster growth of employment under government, and the impact of the regulatory environment on the supply side of the economy.

Full review here Hindu

Kaushik Basu’s home truths

The Economics of Foodgrain Management in India By Kaushik Basu, chief economic adviser, government of India, ministry of finance

The government has been pulled up by the Supreme Court for allowing foodgrain to rot in its godowns while the poor go hungry. The judges have ordered the food to be distributed free. In response, the Prime Minister has said it’s impossible to supply free food to the 37% of the population below the “poverty line”. Who’s right, the politicians or the judges? Kaushik Basu, chief economic adviser at the finance ministry, has in this paper said that it’s perfectly possible to feed everyone in the country and the problem is the faulty food procurement and distribution system.

But first, here are some facts. On 1 April, the stock of wheat and rice with the government was 202% of the minimum needed under the buffer stock norms, at a time when price rise was forcing the poor to cut back on food. Basu points out scathingly: “If the reserves are never to be used, they may as well not be there.” Not that the government hadn’t tried releasing foodgrain—in December, when inflation was at 20%, it decided to release some stock, but at a price higher than that at which it had obtained them, plus a mark-up for transportation and storage costs. Basu drily notes, “There are no surprises in the fact that there was no demand for the wheat thus put on sale; the sales in Delhi were actually zero. Evidently, the strategy used for releasing foodgrain has scope for improvement.” He argues that if the grain is priced so high that it finds no takers, it’s equivalent to selling it at zero price—the fiscal deficit goes up even more. Here’s the author at his acerbic best: “In the case of India, the release has fallen well short of procurement. The statement by a senior member of this government that, when it comes to hoarding, it is the government of India that leads the pack is not off the mark.”

Full report here Mint

Perceptive ‘economic theorist'

In reviewing the collected papers of one of the most accomplished economists of his generation, there is a temptation to focus only on the examples of excellence. There is a great deal to be said about the significance of Kaushik Basu's contributions to the use of game theory in economic analysis and his other diverse interests reflected in this collection. But with endorsements from Amartya Sen, George Akerlof, Ariel Rubinstein, and Jagdish Bhagwati, among others, we can safely take this part of the story as read, allowing us to focus on a more subterranean theme. When seen in the context of Indian economic thought over the last four decades, his papers are also a subtle commentary on the challenges economics as a science faces in India.

DIVIDED
When Kaushik Basu chose economics from a bouquet of options in the 1970s, the field was deeply divided between the neo-classical economists and the neo-Keynesians, with Marxists typically lining on the side of the latter. This divide took deep roots in Indian economic thought with the emergence of Jawaharlal Nehru University as a major centre of Marxist economics. Most, if not all, economic debates were between those who believed in the supremacy of the market and those who insisted on providing the state a central role.

Full report here Hindu