Abhijit Banerjee, Economics Nobel winner this year along with Esther Duflo and Michael Kremer, recently delivered a sharp critique of the Indian economy and rated the fall in consumption as “extremely serious”. The 58-year-old was speaking at Brown University last week when he spoke about institutions turning into “zombies” and investment nose-diving. He also blamed the 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.
He also remarked that no one wanted to stick out their neck and take decisions. “They say ‘ok wait, we will check with the PMO’. PMO is busy, so nothing happens,” said the renowned economist, who is sharing the Nobel for an “experimental approach” to solving global poverty.
“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. For many years, I am guessing the 70s. This is a fact that should be extremely serious,” he said.
“Investment has totally collapsed by a factor of 75 percent. 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 said institutions went from hyperactive under the Congress-led UPA, to zombies. “We went from the situation where we are with no institutions to having potentially better institutions which have their own challenges, to a situation where the institutions are now an extra level of bureaucratic check on the system. Institutions went from hyperactive to zombies, and zombies are the worst because now you are completely frozen in a sense… they are not doing anything particularly,” he added.
Dr Banerjee 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 monitory policy regime, that basically tries to pin down inflation pretty low,” he said.
At the same event, former RBI governor Raghuram Rajan said there were signs of deep malaise in the Indian economy. “India is losing its economic way, in part because it is centralising power without a persuasive economic vision. We risk wasting the demographic dividend,” he said.
Many linked the initial lack of congratulatory messages from the ruling BJP to the criticism. Tweets poured in only after Prime Minister Narendra Modi’s post around four hours after the Nobel announcement. Congress leader Rahul Gandhi and Left leader Sitaram Yechury were among the opposition leaders who tweeted. “Abhijit helped conceptualise NYAY that had the power to destroy poverty and boost the Indian economy. Instead, we now have Modinomics, that’s destroying the economy and boosting poverty,” Mr Gandhi posted. His mother and Congress president Sonia Gandhi also tweeted that he had made the nation of his origin proud.
NYAY, a minimum guarantee scheme, was a key manifesto promise of the Congress, which suffered a massive defeat in the national election.
Dr Banerjee, born in 1961 in India, studied at the University of Calcutta and the Jawaharlal Nehru University in Delhi. He got his PhD in 1988 from Harvard University. Esther Duflo, the youngest Nobel winner in economics, is his wife.