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Among the few things I have learnt in my life, one is this, be selective about the things
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I am still some way off from mastering the fine art of being dispassionate, but more
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and more when I watch the outrage erupt on social media or the newest scandal on news
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television, I tell myself not to get involved, not to get all het up about it.
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My slogan to live by is a simple one, not my circus, not my monkeys.
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My power to change the world is limited, so why sweat what I cannot control?
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Now, I would imagine that this is what many economists would think if they were actually
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asked to become a part of government and help run the economy, especially in India, known
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for its oppressive state, so resistant to change and its venal toxic politics.
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Stay away and pontificate from a mile high view.
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My guest on the show today is a well-known economist who was asked six years ago to join
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our central government as a chief economic advisor.
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He might well have refused the offer, thinking, not my circus, not my monkeys.
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Welcome to The Seen and the Unseen, our weekly podcast on economics, politics and behavioral
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Please welcome your host, Amit Verma.
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Welcome to The Seen and the Unseen.
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My title for this episode is What a Long, Strange Trip It's Been, and I'm actually referring
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One is that of the Indian economy through 70 years, a complex monster passing through
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complicated times, starting small and ending troubled.
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The second journey is that of my guest, Arvind Subramanian, who joined Narendra Modi's government
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in 2014 as chief economic advisor, excited about having the chance to do work that could
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have an impact on the lives of millions.
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He held that post for four years and continues to speak out today as a public intellectual.
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I was delighted when he agreed to come on the show to speak about both India's journey
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in the last 73 years and his own in the four years he spent in government.
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I have been a constant critic of this government's economic policies and did not refrain from
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asking hard questions, Arvind showing tremendous grace and patience gave me forthright answers
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for more than three hours.
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I'm sure even his former boss, Arun Jaitley, never grilled him for so long.
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No, but seriously, this was one of those digressive conversations that I really enjoyed spending
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as much time on large meta questions as on policy nitty gritties.
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Do note one thing, by the way, due to a technical glitch, there were some minor sound disturbances
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in the recording, which we have tried to cover up in the edit.
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I'm sure you'll get lost in the engrossing flow of ideas and not even notice.
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Before we begin our conversation, though, let's take a quick commercial break.
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It costs rupees 10,000 or $150.
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This link will be in the show notes.
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Arvind, welcome to the scene and the unseen.
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It's great to be on the show.
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You know, before we start talking about your exciting career and various aspects of that
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are so interesting to me, both your time as an economist and your time working as you
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know, in the government to actually bring about change, I want to talk a little bit
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about your sort of personal growth because I was sort of looking at your CV and I found
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it very interesting in the sense that I assumed that, oh, you know, you must have taken the
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typical economist part where you've kind of gone abroad and done a PhD and all of that.
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But you actually, you know, you did an MBA from IA in Mahamudabad.
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And what I can see from all your public readings and speeches is that unlike the, you know,
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most economists have this almost as dry repetition and of not being interested in other things
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and always, you know, engrossed in numbers.
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But you've actually given a lecture on, you know, what economists can learn from literature.
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You are the only person I can think of who can quote both Keats and Keynes.
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So tell me a little bit about your time growing up, your formative influences and, you know,
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what your personal journey was like.
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You know, it's a bit always a little bit awkward to talk about oneself, of course.
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But let me just begin by saying that when I said it's great to be on the podcast, I
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should have added that it's almost now a mark of you only arrive as a public intellectual
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in India when you've been on Amit Verma's podcast.
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I think this is a certification of that.
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So thanks for having me on the show.
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Yes, so in terms of, you know, growing up in a in a very kind of pretty conventional
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middle upper middle class household, my father was in the government.
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He was in the audit and account service.
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And he was a very unusual civil servant, you know, he was posted in the most godforsaken
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places where everyone would try and want to be in Delhi, whatever he would, you know,
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we spent five years in Dandekaranya, you know, in Nagaland, Shillong, you know, Ajmer, Udaipur.
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So I've, you know, traveled all over with him.
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And then, you know, and of course, he was also a painter and a writer.
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And so so so growing up, the household was full of books and things.
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And what I remember, of course, is that even when I was growing up, you know, this was
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what in the 60s, my father used to subscribe to, you know, time, Newsweek, life, all these
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things would physically come to the household.
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So, you know, just almost by osmosis, not that, you know, I was particularly studious
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or anything, but just by osmosis, you know, I could pick it up.
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And, you know, I have to say that so just to give a give an example of, you know, things
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that we pick up that we forget that we've picked up unconsciously.
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So one of my, you know, all time favorite pieces on foreign aid, which I teach in class
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is by this New Yorker writer called Philip Gurevich.
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He also has a great book on Rwanda on the Rwanda genocide.
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And you know, in the early part of the book, he describes the first foreign aid intervention,
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which is one of the early foreign aid interventions, which was, you know, what happened in Nigeria
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And he has a line describing, you know, the famine that happened.
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And he describes those, you know, children with, you know, the victims of the famine
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as stick-limbed, balloon-bellied, ancient-eyed.
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And you know, I was just blown by that description.
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But then I remember that the reason why it, you know, it evoked so much in me was because
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I remember these pictures in Life magazine of the Biafra crisis and that picture of the
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boy or the child actually with a distended belly and so on.
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So I mean, this is just an aside growing up.
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So then I finished my, at about the age of 13, you know, my elder brother was a voracious
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But at the age of 13 or 14, suddenly I realized that, you know, wow, that's this whole world
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of books out there, which I've not at all explored.
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So almost as a conscious act of catching up on lost time, I would ask my brother to give
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me a list of, you know, 10, 15 books every time he would come.
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He was in college and I was still in school.
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So you know, I started reading quite voraciously then.
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And then, of course, you know, I finished my schooling from Chennai and went to Delhi
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to do an undergraduate degree in economics.
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I think it was fairly unremarkable.
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I think what was great about that period was we picked up almost everything from our peers
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so it was really a great, you know, my love of Hindustani music, you know, a love of sports
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literature reading and all of that was intensified in, of course, growing up, you always listened
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to Carnatic music at home, but my love of Hindustani music came in college.
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Then of course, you know, at that point, you either go to Delhi school or you go to, you
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know, do an MBA at that point.
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Those were the kind of standard options.
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And I had always wanted to, I think, join, I think the government, in fact, I think I
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wanted to join the Foreign Service then, I think.
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So I did my MBA and in my second year, I wrote the civil service exam and I failed.
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I mean, I mean, I wasn't high enough to get either the IFS or the IAS.
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And then, of course, I guess it's a sign of the elite networks that we were part of that
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I got this scholarship.
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I'm not sure I deserved it entirely, but I got the scholarship to go to England.
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So after my MBA, I worked for a brief period, three months with the Tata.
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They had this Tata Administrative Service, which was like the private sector equivalent
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But then they gave me leave, actually, to go abroad.
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And I went to Oxford to do, in fact, I went to do an MPhil in management studies because
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that's what I'd done in MBA, but I quickly switched to economics.
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And I think I had, again, a fairly unremarkable MPhil in PhD.
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I was still kind of unsure of what I wanted to do, not completely confident that I had
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actually acquired because, you see, an Oxford PhD, unlike an American PhD, it was completely
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You kind of did what you wanted.
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And today, for example, I mean, it's a dirty secret.
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Almost all my academic papers are empirical papers, but I have not done one course in
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econometrics all my life.
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Even though I'm a PhD in economics.
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So, you know, you could do that if you went to England in those days.
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So I felt and then when I finished my MPhil, I did get an academic job.
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And the truth is, I felt that mediocrity shows up so clearly in academics and feeling that
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I was an imposter and mediocre, I kind of ran away from academics, as it were.
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And then I went to work for international institutions.
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And then my first job was in the GATT, actually, at the time that the Uruguay Round was being
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I still remember I was at the GATT, I was, you know, a young, very young, lowly officer.
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And I was assigned to be part of the intellectual property negotiations trips, you know, I don't
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know how many of you remember the Uruguay Round, the most contentious issue for India
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and for many developing countries was patent protection and intellectual property.
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And, you know, at that stage, so while working, I did some, you know, fairly not very sophisticated
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empirical research showing that, you know, this TRIPS agreement would be harmful for
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And I even kind of roughly crudely quantified that.
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And I guess my early kind of moment of epiphany then was this was not even kind of probably
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wouldn't have even been published in any academic journal.
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But I do remember, you know, when and those negotiations, by the way, were were really
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I mean, I don't know how many of you recall that it was almost touch and go India was
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almost considering not signing on to it because because of the intellectual property things,
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because you know, pharmaceutical prices would go up, access to medicine would come down.
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So I remember and I, you know, did this work.
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So I remember my moment of kind of, you know, kind of epiphany, but also kind of sense of
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wonder of, you know, what the life of a policy economist could be.
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You know, I was working there and one of the Indian officials one day, this was, I think,
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I don't know when it was.
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He came and he was a senior person, senior civil servant in the Indian government who
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used to work in the commerce ministry.
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He came and said, I have to tell you, you know, last week or a month ago, Carla Hills,
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who was the US trade negotiator, very tough lady.
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She was called Carla Crowbar Hills because she wanted to price open markets in developing
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And so what had happened was when I wrote this, I think Montaigne was the commerce secretary
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So this official had passed it on to Montaigne and apparently and Chidambaram was the commerce
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minister and he had passed it on to Chidambaram.
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So this person came to me and said, Carla Hills came and met Mr. Chidambaram to say that
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why are you Indians fussing over this intellectual property negotiations?
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You know, it's going to be win-win for all of us.
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It's good for India, et cetera.
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And then she said, look, I have a bunch of 10 studies to show that this is the case.
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And apparently, I don't know, of course, it was later confirmed.
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Apparently, Mr. Chidambaram, the minister said, well, Ambassador Hills, I have another
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study which shows exactly the opposite.
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And he presented her my paper.
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And so that was a kind of wow moment for me that, you know, one could do policy research
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and have it taken seriously by policymakers.
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So that was a kind of quite a heady moment of, you know, and I was very young then.
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And then after that, of course, I went to work for the IMF and, you know, again, fairly
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But then, I mean, basically, my kind of academic life took off in around 2000, I think.
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I was the, you know, for the IMF, you know, IMF, you go around, you know, to all the countries
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I was the mission leader to Mauritius.
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And it's just such an interesting country, you know, for so many reasons, literature,
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history, you know, the Indian presence there.
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And when I was in Mauritius, I actually saw a festival that you only see in Chennai, you
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know, a very unusual festival in Chennai, which is related to the god Kartikeya.
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I saw that actually I saw that in Mauritius, you know.
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So it's kind of really, I mean, just to see how traditions kind of persist, you know,
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So I was working on Mauritius, fascinating country.
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There's a great Naipaul piece on Mauritius, you know, of course, Joseph Condit was in
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You know, of course, the Amitav Ghosh trilogy begins in at least part of it is in Mauritius.
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So I wrote a paper on Mauritius, basically saying, how can you explain this miracle?
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And I sent it to, you know, Danny Rodrik, who was then a friend and a co-author.
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And you know, within kind of an hour of receiving that he said, I mean, I want this for my volume.
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And then of course, then, then I became for about 10 years, I think I was doing hardcore
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economics research, but never situated in academia, I was never, I was always, you know,
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So Danny and I did a series of research papers, then Raghu and I did a series of research
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papers, then I did on my own, a number of research papers, then I moved to this think
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tank in Washington, the Peterson Institute for International Economics and the Center
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for Global Development.
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Because you know, my academic research is mostly on, you know, development and global
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and you know, the global economic system, and almost all of that.
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So I left the IMF partly also because, you know, people think that in government, you
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have to be restrained in your public utterances.
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That was getting becoming true of the IMF as well.
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Because actually, Raghu and I wrote a series of papers on on aid, then I wrote some pieces
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on Nigeria, which I think, senior management management, they were having difficulty allowing
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So I left it because I wanted to write publicly much more.
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And then of course, I wrote a book on China when I was in the Peterson Institute, which
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about the rise of China and so on, which was, so I got a bit into China as well.
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And then, of course, this, you know, what is probably the most exciting three years
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and nine months of my life was the, you know, being chief economic advisor.
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It was really a completely transformational experience for me in many, many ways.
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You know, what you learn about politics, about politicians, about the policymaking process,
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what you learn about oneself, you know, how you build teams.
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And of course, the other thing is, you know, is how should one kind of behave as a public
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intellectual in government, you know, what are the dilemmas that you face, the, you know,
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the moral dilemmas and things, you know, so many so many unusual things happened when
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I was in government and so many choices had to be made.
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So so so and then of course, now I finished that and left a year before my second contract
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was about to end because I felt that, you know, I had personal reasons, but also I felt
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that my usefulness, effectiveness was kind of reaching their limits.
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And so I was working as at the Kennedy School, I was teaching here.
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And now, of course, as of July 1, I've joined Ashoka University.
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And so look forward to, you know, probably the last phase of my career.
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That that's a fascinating life you managed to summarize into.
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So little space, I have a couple of follow up questions.
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And for one, I want to go a little bit back because, you know, as you were talking about
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your childhood and growing up and going across India, and I felt a little nostalgic because
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even though I am like 15 years younger than you, I'm in my mid 40s now, it strikes me
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that I also read a significant part of my growing up before liberalization.
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I was also a privileged child, my father was a civil servant.
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So I would imagine that, you know, just thinking of all of the people growing up in similar
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circumstances, you know, in those times, certain kinds of music which you end up listening
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to the certain kind of books which you end up reading, you know, everything that you
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kind of mentioned about the magazines and just sort of thinking about myself, I've often
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thought that what that upbringing did to me is that I grew into a sort of default view
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of the world that I had where you take the necessity of this of state paternalism for
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granted that, you know, you have a certain approach to everything.
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And then later on, as you go through the years, the scales fall off your eyes now in and you
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see the world differently in subtle ways.
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And obviously, this journey would be different for everybody.
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Now, it's interesting that, you know, at a certain point, you've done your MBA, you've
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completed that, and then you go abroad and you spent, you know, most of your career abroad.
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So my first sort of question is that, were there moments where you felt that you could
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And you know, there were some scales that fell off and you could take a step back and
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something which had seemed one way to you, you know, seemed different, like, would you
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say that there was a process like that?
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Or was there a period of time where you felt that you began to look at the world differently?
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And you know, if so, what was the change like?
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Were there thinkers who influenced you and or books that, you know, kind of changed or
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shaped the way you looked at the world?
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Yeah, I don't think it would be accurate to say that there was one, you know, point of
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one or two epiphanic moments when you say, oh, my God, whatever.
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So it was very much, I think, a gradual process.
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And as you said, I think this whole, you know, the state is part of your state and, you know,
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is part of your DNA growing up.
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I think the first thing, kind of the intellectual changes, you go out and you see, wow, you
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know, all that the state has done wrong, you know, the liberties it's taken away the, you
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know, the whole license control rods.
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And, you know, you kind of we used to take, you know, 100 and 200 percent tariffs as kind
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And then you go abroad and say, what?
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You know, three percent, five percent tariffs and, you know, what's going on kind of thing.
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And of course, then you read.
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I read the old, you know, the wonderful Bhagwati, Desai, Srinivasan literature, you know, you
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And so I think that process of seeing what we were doing wrong, I think it just hits
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you gradually over time.
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But then, of course, I think in some ways, you know, the journey in some ways gets completed
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because then you say, well, but yes, markets, yes, freedom, yes, liberalism.
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But you know, what about all the things that this, you know, the acts of omission that
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the state has committed?
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You know, we know the sins of commission.
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Then you come back and you say, well, what about the sins of?
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And so I think the last ten, fifteen years have been, I think, a lot about understanding
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and reflecting on, you know, state and markets in India, you know, what I call the whole
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stigmatized capitalism, how that's come about in a way that's detrimental to both capital
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And so I think that's been kind of the intellectual journey to some extent.
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And I remember, I think in terms of intellectual influences, you know, I was reading a lot.
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But in the academic literature, I think that, you know, I would almost say that I learned
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kind of macroeconomics reading Paul Krugman's writings, actually.
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I would actually read almost everything that he wrote early on here, some wonderful and
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just, I think, just how to write clearly as an economist.
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I think that's been a big obsession of mine.
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It's not just, you know, obviously the ideas matter a lot, but actually how do you make
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And then, you know, both for me, Danny Rodrik and Paul Krugman were really very influential,
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You know, Danny's early writings on political economy were, I think, very, very insightful
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So also to think about, you know, not just state and markets, but the whole, you know,
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because remember when we used to speak about, you know, market failure.
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But I think, you know, the whole question about what is state failure was a very important
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issue, and therefore understanding political economy, you know, what are all the things
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going on, ideology, interests, institutions, the rich interactions between them.
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I think that was something that I always read about and followed kind of very, very closely.
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And you know, my second question arising from that is that, you know, when I read your work,
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when I read your writings and your speeches and so on, I sense this deep sense of conviction.
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Like, you've very often spoken about how during your time as the chief economic advisor,
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you would wake up every morning excited about the day because, you know, every day was so
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And obviously, it's exciting because you actually get a chance to sort of make a change in the
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And earlier when you were, you know, talking about your sort of career that, you know,
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you do an MBA, the civil services doesn't happen.
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So you go to Oxford and after that, you know, you feel academics is not the place for you
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and then so on and your entire career path.
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And there it seemed like, okay, you're sort of going along a career path and, you know,
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there's a little bit of serendipity to it.
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So at what point did you start feeling this sense of conviction about your work that look,
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my work can make a difference to the world?
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Like, was there a time where you looked at something and said, this is a problem, I want
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My next study is going to be about this.
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You know, was that a mindset that you kind of had from the start or did it sort of, you
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know, evolve over a period of time?
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Yeah, I think that, you know, to be honest, it was never.
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I think the sequence was always, you know, you find yourself somewhere and then you say,
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wow, this thing kind of like when I was in the gap, I was working on the intellectual
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And then, you know, I said, oh, my God, there's such a big issue involved here that I wanted
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Similarly, when I was in Mauritius, you know, again, I said, wow, what a fascinating development
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So it's been it's never been consciously kind of trying to find something so much as, you
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know, I find myself somewhere, whatever, for all kinds of, you know, historical persistence
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And then, you know, you say, so all the aid stuff that we did, because I was working in
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the IMF, you know, in the research department.
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And you know, debate was going, you know, there's a raging debate between, you know,
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Billy Staley, Jeff Sachs and others.
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And then, you know, I said, you know, maybe one can contribute here.
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So it was much more that, you know, not so much consciously seeking as, you know, just
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finding yourself in places.
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And of course, I mean, to be honest, I the thing is that, you know, my kind of principle
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guiding my research is that, A, the question has to be, you know, very important in terms
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You know, I'm not going to do anything that doesn't have a policy impact and that it has
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to, you know, the contribution has to be novel and new.
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So the combination of important in terms of policy.
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But if I must have something new to say, otherwise, you know, it's not what I bother, you know,
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So there is a kind of, you know, kind of a shock or a novelty element to, you know, the
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And part of it, of course, is, you know, part of that is also a way of getting people's
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attention to important policies, because I remember the even the, you know, the early
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patent work that I did, you know, I kind of said, you know, the loss is like one billion
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So putting numbers onto policy questions, I think is also something that I really, you
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know, that kind of, you know, really turns me on and motivates me as well.
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So the combination of, you know, new, important and new facts to kind of evidence to bring
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to bear and the difference, I guess, why I don't maybe haven't chosen this hardcore
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academic career is because, I mean, I've been less kind of obsessed with this whole, you
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know, you must show causation in kind of rigorous ways.
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I mean, for me, the big facts are as important as anything else that should be done.
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And I think facts change the world.
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I mean, I can give you examples of that, not my own research, but lots of other people.
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It's much more the big facts that I think that have a big impact on the world and policy
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making as much as any kind of sophisticated attempt at showing, well, you know, this happened
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You know, that's important.
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But I think its role is I'd love a couple of examples of big facts that had that kind
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So I think that, you know, to give you one example, you know, Karthik was on your show
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a few weeks ago, you know, for me, certainly that the finding that the work on teacher
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absenteeism in India, I think kind of changed a little bit the way we thought about the
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education debate in India that, you know, you focus on or, you know, whatever, you know,
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you need to pour money or you need to do other things.
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But then suddenly this fact comes and hits you and says, wow, you know, this is like,
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you know, we've completely forgotten about, you know, teachers not showing up and, you
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And I think that set in train a whole different way of looking at it.
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And I think, you know, similarly, I think, you know, the pattern stuff that I spoke about,
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I think that, you know, for example, if you look around the world, the whole, you know,
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the work that Piketty and his co-authors have done, you know, kind of documenting, you know,
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the rise in a particular kind of inequality, top inequality, you know, you may disagree
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with the policy conclusions that follow.
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But the fact is, the world is a very different place in terms of understanding the world
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because of knowing those facts about the world.
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So I think that there are, you know, the other, you know, just to give a personal example
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is that, you know, in the economic survey, we did some work on migration based on data
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that nobody had ever used in India and data that, you know, we had the privilege of getting
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access to because I was in government, this was the railway data that we had.
#
And my team and I, we made some use of it.
#
And the numbers that came out, you know, were pretty striking, much bigger than what we
#
had believed migration within India was all about.
#
And of course, we presented it.
#
I think it didn't gain a lot of traction or people weren't kind of, didn't gotten on
#
But when the actual COVID crisis happened, the migrant crisis happened, it kind of showed
#
that that work was in some ways, you know, not incorrect in the quantification of the
#
So I think, you know, kind of facts are really, you know, but doing it very carefully, rigorously,
#
but on important issues.
#
And that's what I think is really, for me, is very, very challenging and important.
#
Even in government, I think people underestimate, you know, the quality of a simple chart, because
#
I remember very early on, this was, you know, I joined late 2014, early 2015.
#
And we were having these discussions within government on, you know, what to do, etc.
#
And I think, you know, it's not rocket science.
#
I showed Mr. Arun Jaitley a chart of, you know, real wages declining, rural real wages
#
And, you know, I could see that, you know, he really made a real impression on him.
#
And of course, he acted on it in ways that I'm not sure, even I don't know fully, but
#
And I think that, so things like that, I think, are really quite, quite important.
#
In fact, in one of your interviews, you use the phrase the Dracula effect, which is, you
#
know, to shine sunlight on something so that it kind of becomes obvious.
#
And I was struck by that.
#
So I want to follow sort of a couple of simultaneous paths during the rest of our conversation.
#
One is that through your readings, through your books, through your writings, rather
#
than through your books, I've, you know, gained a lot of insights about India's economy post-independence.
#
So I want to sort of discuss that journey, the journey that the Indian economy has made
#
from 47 to here and sort of where we are today and obviously zoom in on the years that you
#
were actually in government and all of that.
#
And at the same time, I'm fascinated by, you know, your experiences within that beast we
#
call the Indian state and your efforts to sort of bring about reform within that.
#
And many of my listeners are not sort of trained economists that they'll kind of be familiar
#
with all of this already.
#
And so what I'll say is that, you know, to begin with, can you give me a sense of, you
#
know, go back to the choices that we made post-independence and maybe for two or three
#
decades since and what was so unique about this experiment?
#
Like, you've spoken about what you called a precocious development model and, you know,
#
the two significant ways in which this was so strikingly different and a unique experiment.
#
So can you elaborate on that a bit?
#
So, you know, maybe I will, you know, jump first forward and then backward in time.
#
And I'll come back to your question.
#
So I guess my first real academic piece on the Indian economy, which was also a kind
#
of, which, as you know, triggered a massive debate in India, which was this paper that
#
Danny and I wrote on, you know, how growth took off in the 1980s, especially in 1979,
#
even though the reforms began only in 1991.
#
So you know, it provoked a massive discussion because people said, no, no, no, you know,
#
you know, because there are two camps, right?
#
The camp that says, you know, you get growth through reforms.
#
And then even the fact that actually some people had noted that, you know, India's actually
#
the growth takeoff happens actually 79, 1980, when, you know, before that we had the Hindu
#
rate of growth, you grow at about three, three and a half percent.
#
And then suddenly from 1979, 80 onwards, we grow at about six percent.
#
And so just highlighting that fact and then saying, we have to try and understand this,
#
that if you, you know, if you accept this, then how did we get this sudden, because the
#
real acceleration is not between, you know, the 80s and 90s because remember the 90s growth
#
is pretty much the same as the 80s growth.
#
So how did that happen?
#
And so that was for me, a real, you know, eye opener and that, you know, my partial
#
explanation for what happened in the 1980s kind of then allows me to now kind of step
#
back and say, come back to your question, which is that, you know, if you look at the
#
kind of broad development choices that we made, you know, and choices to some extent
#
is within quotes, because, you know, some of it is just persistence in history and,
#
So, you know, how much active agency there was in these choices when we use the word
#
choice, we can note agency, which may not, at least historically may not be completely
#
But I think there were two or three, I would say the big development choices that we made,
#
One is, you know, from day one, you're a democracy and not.
#
So, so if you look at, you know, there's a recent paper that I wrote with Rohit Lamba,
#
which kind of brings it out even more clearly, it was first there in the economic survey.
#
If you think about it, if you look at the successful models of economic development,
#
there were the two big models, right?
#
One is Western Europe and the US, which is essentially what happens is that you economic
#
development happens over, you know, 150, 200 years and political development, you know,
#
So, there's slow economic and co-terminus, co-evolving, slow political development.
#
And that's happened over 200, 250 years, successful and so on.
#
The other model is the East Asian model, which is, you know, post 19th, World War II, you
#
have a sudden burst of economic growth, you know, just to put some numbers, Western Europe
#
grew at about, let's say, two and a half percent per capita over 200 years.
#
East Asia, you know, Japan, the Tigers, China, Vietnam, they grew rapidly, Korea, of course,
#
they grew rapidly over 50, 50, 60 years and kind of achieve almost the same level of,
#
you know, income as the advanced countries.
#
But so there's more rapid economic development, right, but there's a sequencing, you know,
#
economic development comes first and then political development follows.
#
So you have these two kind of broad models.
#
And India defies that, you know, India's model, which says from day one, you have democracy.
#
So both economic development happens after or at least the attempt is made to happen
#
after political development.
#
So that kind of and remember, again, important historical fact is that it's not that this
#
has not happened at all.
#
There are only four or five other countries in the world that began democracy and embarked
#
on economic development.
#
But these are very small countries, you know, Costa Rica, Botswana, the Caribbean countries
#
So there's no comparable, you know, large.
#
So this is really striking.
#
So therefore, what does that mean for development?
#
And something that I come to just say, so that was one big choice, you know, democracy
#
first and then you embark on development.
#
Then of course, we had, you know, the whole commanding heights, et cetera, et cetera.
#
But remember that the whole import substitution, protecting domestic industry, et cetera, et
#
cetera, that India chose whatever we may have done it to a much more serious extent than
#
But I think we should never forget that that choice of state led development was completely
#
consistent with the zeitgeist of the times, you know, not just at that point.
#
We thought, you know, the the Russian model was doing very well.
#
Remember, I think there's a very famous scene event when Khrushchev goes to the United Nations.
#
He picks up his shoe and bangs it on the podium and says, we will bury you.
#
And people thought he said we're going to, you know, devastate a nuclear holocaust of
#
But actually what he meant was we economically, we will devastate you.
#
We are model is doing so well that we will show you that this is the right model.
#
So if you look at Russia, if you look at the Great Depression, if you look at many developing
#
countries and of course, the whole rise of the welfare state in Europe as well.
#
So that choice, I think, was not at all unusual, you know, say right, wrong, we can come to
#
But it was I think what was really distinctive about India is that we combined that with
#
this horrendously complicated system, which, you know, Rajaji famously called the license
#
quota permit Raj, which, you know, there was the complexity, there was the corruption that
#
happened, you know, which is going to be, you know, which is probably the most devastating
#
But what was distinctive about that was, look, and this is something that people don't, you
#
know, grasp sufficiently.
#
When you protect, you want to help the domestic entrepreneur, you know, whatever, you know,
#
the Bombay, we remember the Bombay plan, basically self-serving, saying, you know, protect so
#
that, you know, we can, so that's understand, but the whole, especially licensing, it actually
#
taxed domestic producers.
#
So whereas protection gives you, you know, is a favor granted to domestic industry, license
#
is a tax on domestic industry, because you say you can't produce more than so much, you
#
know, every time you want to do this, you have to come and ask someone.
#
So that tax on domestic production in a sense, so it was a very unusual model where there
#
was both import substitution, but a tax on domestic, basically domestic entrepreneurial
#
activity was taxed in a way that very few countries do.
#
So that was the second kind of the big distinctive thing.
#
The third, of course, I think, big choice was that, and the way I like to put it is
#
to say that, you know, this is the country, it's a premature democracy, democracies redistribute,
#
There's, on top of that, there's the overlay of this hideous hierarchy that we call caste
#
So how do you redress historical inequality?
#
I think broadly, there would have been two ways of doing it.
#
One is the whole opportunity route, you give everyone education, etc.
#
But I call this, you know, we, of course, did not do that.
#
I think it was our second original sin.
#
But instead, what we did was we went in for these guarantees.
#
So I call this in the opportunity versus guarantee thing, you know, we went in for guarantees,
#
which is the whole what we call reservation and so on, and we can talk about.
#
So these were kind of three big choices that we made.
#
Now, I want to link that why did I jump start with 1980-1990 is because in some ways, what
#
happened in the 1980s was that that tax that we imposed on domestic industry was when we
#
kind of said, let's relax these taxes.
#
Because remember, we call those pro-business, not pro-competition reforms, because the competition
#
only began in 1990 after the opening up.
#
The 80s reform was very much, you know, helping incumbents, helping domestic business by giving
#
them better access to inputs, technology, you know, all of that.
#
So in some ways, the 80s rectify or began to rectify the distinctive tax that we imposed.
#
And that's kind of partly our explanation for why kind of.
#
So if I wanted to put it provocatively, I would say that the 80s were in fact the first
#
decade that we actually did import substitution, because, you know, we continue to protect
#
our domestic industry, but we remove the tax on them.
#
Of course, the rest is history.
#
We had a crisis, et cetera, et cetera.
#
I was sort of struck by these sort of broad strands which are happening through Indian
#
And it's not only economic, but obviously, the thinking encompasses that one, as you
#
pointed out, is the whole command and control mindset, which, as you said, was, you know,
#
it was the belief of the time, it was completely the rational way to go.
#
In fact, it would have been going against the grain to not go that way.
#
So that's completely understandable.
#
The second thing that really happens in the political domain, but the thinking carries
#
through, I think, to how you should run the economy is that we don't build a new state.
#
We take over the existing colonial apparatus, and that is essentially the state.
#
And that, of course, has, you know, is incredibly oppressive.
#
In the words of Somnath Lahiri, it's like a state designed to be a policeman.
#
And that mindset somehow seems to carry through, where not only do we do the sort of welfarism
#
and the redistribution that is inevitable, because we are a democracy, even though, you
#
know, we've reached that stage much earlier than other democracies, which became wealthy
#
before they began to redistribute, we don't have that option.
#
But that's kind of fine.
#
But not only do we do that, we also constrain private capital and distrust private capital,
#
like Nehru once said to JRD Tata, do not talk to me of profit.
#
It is a dirty word, stock quote.
#
And that mindset seems to kind of carry through.
#
And like you, I'm inclined to excuse, you know, Nehru, for some of these errors, because
#
they were very much the fashion of the time, like you said, import substitution and whatever.
#
And like you've pointed out that, you know, the industrial policy regulation was a huge
#
And you've also spoken elsewhere of bank nationalization being one of the original sins.
#
In fact, there's a great quote of yours, which I found, you know, would not come from other
#
economists, but from someone who reads a lot of literature, which is where you've pointed
#
out quote, over time, original sins become lasting virtues, stop quote.
#
And that's something I'll come back to, because I think some of the original sins are not
#
these specific policies, but a way of thinking about the world, which, you know, one can
#
argue remains to this current day.
#
And those debates sort of over the, you know, the 1980s, your 2004 paper with Danny Roderick,
#
the debates with Srini Vasan, Panagariya and so on.
#
But what kind of strikes me is that even these sort of reforms, where first you have the
#
pro-business reforms of the 80s, and you remove some of these restrictions, and then the limited
#
liberalization of 91, which, you know, did not touch factor markets, and so much more
#
But despite them being so limited, they had such a massive impact on the people, you know,
#
they caused so much good that one can only, you know, fantasize about what the counterfactual
#
So I think, I mean, just to go back on a couple of points on the historical thing, right?
#
You know, when I try and understand why we did industrial licensing and, you know, that
#
whole apparatus of regulating and taxing domestic industry, and you see, one has to try and
#
And one of the ways I think one partial explanation is that, to me, that it was kind of like the
#
Gandhian overlay on kind of policy, which is that, you know, remember, in those days,
#
we had this mortal fear of big, you know, big business, you know, people becoming too
#
big, and therefore, you know, what will happen to our democracy if, you know, if you have
#
these very powerful actors.
#
So in a sense, the only way one of the ways I understand this whole industrial licensing
#
was to say that, you know, we don't want even domestic capital, we don't want them to that's
#
why we had, you know, MRTP.
#
And you know, the sticks and carrots given to remaining small and preventing small from
#
I think I see that as, you know, the other big idea underlying the early choices, you
#
So, you know, so if you go deeper than just saying, why did we tax, you know, domestic
#
capital, I think the deeper thing is that, you know, this, you know, kind of thing we
#
had for small, but it was Khadi village industries, you know, reservation for the small scale
#
sector, you know, you know, all these laws applying, coming into play when you exceeding
#
certain size, and the whole fiscal regulatory apparatus, if you look back, was really about,
#
you know, you know, favoring the small and preventing the becoming big.
#
And I would argue that, you know, that aspect actually has come to hurt us quite a lot over
#
time, especially when we look more recently at how we've done on, you know, low scale
#
manufacturing, which, you know, exports of low scale manufacturing, which require really
#
So I think that's one thing, one historical fact, I think, which we should keep in mind.
#
The other is this whole premature democracy thing, right?
#
I think that, as you rightly said, that, you know, the famous finding is that, you know,
#
by definition, democracy, you know, if you look at the work of Asimoglu and Robinson,
#
they almost say that, you know, democracy, in a sense, was a pre-commitment to redistribution
#
in a way that just a promise of redistribution could not guarantee.
#
So, so democracies have to redistribute.
#
And of course, in addition, remember, what is distinctive about India is that you not
#
just have the imperative of redistribution on one axis of class.
#
You also have it on obviously caste, you know, we have so you have it on the basis of region.
#
That's why we had all these policies which says, you know, regions should be whatever.
#
So, so when you have this desire to redistribute or this imperative to redistribute on along
#
not just one line, but many lines, you know, you're going to have a problem.
#
And the premature part comes in is that, you know, your capacity to do that is just completely
#
incommensurate with that.
#
And kind of this speaks to your point about, you know, you inherit a state that's basically
#
a kind of, you know, police state performing all these functions.
#
It neither has the capacity nor remember, I think we should be harsh on our early things
#
that after all the state at that point should have said, you know, we can't do many things,
#
but we should provide, say, health and education to everyone, like what China did.
#
And of course, you don't have the fiscal capacity either to deliver on redistribution or in
#
kind of raising the resources required to this.
#
So that is why what happens is that redistribution willy nilly takes the form of messing with
#
Because remember, prices are the, you know, if you can't, you know, today we say, you
#
know, redistribute, either you build schools or whatever education or you have transfers,
#
efficient transfers, whatever, right.
#
But then you had neither.
#
And then so the only way you redistribute is through messing around with the price system
#
and distorting everything, you know, low prices for goods, cheap inputs.
#
And so you just tamper systematically with the price system.
#
And then that's what, you know, persists over time.
#
It exacts a huge cost toll in terms of the economy.
#
But again, I think you can be very critical about it.
#
But I think the criticism should be more that conditional or not either being able to or
#
choosing to do other forms of redistribution.
#
Then you're really nearly left with this.
#
So just to give you a modern day counterpart of this, you know, and this is the GST.
#
Because I was kind of privy to these discussions.
#
So take the GST discussion, for example, right, on the what should be the rate structure for
#
And I think this really typifies the early dilemma in some ways, except that it's 75
#
So we all know that, you know, one rate is the best system, you know, by definition,
#
you know, that's it's clean, it's simple, it reduces corruption, it's easy to administer.
#
It's going to improve your tax collection efficiency.
#
And as the IMF shows, I think after 2000, almost 80% of the countries that adopted the
#
value added tax, which is the GST, went in for one rate.
#
So in India, so we have this discussion, as you know, I wrote a report then saying we
#
should have three rates, not one rate.
#
Now, think of it this way, that I would have been completely in favor of one rate, right?
#
But remember, if you go for one rate, you will have to have some rates going up, right?
#
You know, the rates for essential goods will have to have one rate by definition, some
#
will go up, some will come down, but some will go up.
#
And those going up will be affecting those, you know, those are goods generally consumed
#
If you have instruments to protect, you know, those in some ways, you know, transfers, whatever,
#
then of course, you would say, you know, one rate.
#
But if you don't have those, you have a dilemma, right?
#
But can you just say one rate and say, you know, go to hell?
#
I mean, I think the political process will not allow that.
#
What we've done historically, of course, is, you know, for every good we say, oh, this
#
is consumed by this strata, this is consumed by this strata.
#
So you have a multiplicity of rates.
#
Each of them is, you know, trying to meet two objectives, the efficiency objective and
#
the kind of equity objective, but, you know, in all its messy complexity.
#
So what I thought the compromise was that we can't do one because state capacity is
#
limited to do the compensation.
#
Therefore, a compromise would be to have, you know, one rate, but applying to all goods
#
at the lower end, you know, a standard rate, and of course, one demerit good, which applies
#
to all the luxuries and so on.
#
So in some ways, the three rate structure that, you know, that I propose, of course,
#
in practice, it now has become a multiple, multiple rate structure.
#
And so it's gotten, it's really, it's gone back to the side of erring on complexity.
#
And actually, so conceptually, therefore, you know, a three rate was kind of a compromise
#
between efficiency and equity, because you couldn't ignore equity completely.
#
But historically, what we did was, you know, we would have as many rates as there are categories
#
of people we wanted to satisfy.
#
And so that, in a sense, was the early dilemma that, you know, you didn't have.
#
Remember, in 2016, we at least have some mechanisms for redistribution, like PDS, Mondrega, you
#
know, now more and more cash transfers.
#
But at that stage, we had nothing.
#
So willy-nilly, the price system had to bear the brunt of that.
#
And that's where we are.
#
So in some ways, therefore, you know, again, one has to be careful.
#
It's not that, I mean, obviously, you know, maintaining and sustaining a democracy are
#
fantastic achievements.
#
And you know, what's happening to that now, of course, is not within my range of expertise.
#
But to not realize that that created also some serious consequences and adverse consequences
#
and burdens, one could almost call it the democracy tax, as it were, the premature democracy
#
tax, as it were, you know, you could see that happening.
#
And to some extent, I think we're paying the price for that.
#
While you were speaking, a couple of related questions popped up to mind about sort of
#
that historic period before we come closer to present time.
#
So I wonder what you sort of think about these.
#
One, it's always it's not always one in the last couple of years or more, I've been reading
#
up on it, and I've done a bunch of episodes on the history of and politics of that period.
#
It struck me that much as we think of the fifties as a time which were Nehruvian, it
#
strikes me that only Nehru was Nehruvian.
#
And it was kind of serendipitous that he was a man in charge.
#
Now it certainly seems to me to be this way, at least in the social domain.
#
For example, if you look at all the other tall leaders of the Congress from Patil to
#
Prasad to Pant to Lal Bahadur Shastri later, and all of those guys were leaders with a
#
tilt towards Hindu nationalism, like, you know, Pant was CM of UP and Lal Bahadur Shastri
#
was Home Minister when the idol was installed in the Babri Masjid.
#
So there it seems that Nehru was a man who kind of stood alone.
#
But in economics, is it necessarily the case that, you know, had Nehru not been there,
#
for example, I think socially India would have looked very different, but economically
#
would it have been any different?
#
I mean, one hears of the exceptions like Rajaji and Masani and so on, who sort of offer different
#
bent of mind, but one, do your readings give you a sense that there were different directions
#
that could have happened?
#
And it was this one individual who happened to be there.
#
And you know, that's just how the luck played out.
#
And the other question, which is related, so I'll, you know, ask it at the same time,
#
is that it seems to me that a lot of the economic policy of, you know, that period was determined
#
after actual intellectual query, where people were grappling with these questions in good
#
faith, even if we can look back in hindsight and say this was a bad decision or this was
#
a good decision, they were grappling with it in good faith and trying to figure it out
#
But what seems to me to have happened towards the end of the 1960s is that, you know, we
#
know that a lot of Indira Gandhi's leftward tilt, the bank nationalizations, Farah and
#
so on and so forth, a lot of that leftward tilt was because she had to politically position
#
herself as being distinctive from the syndicate who were her rivals in the Congress.
#
And it seems that at that point, there are sort of three other imperatives that gradually
#
come into the play and consolidate.
#
One is political imperatives and the incentives that politicians face either if they are appealing
#
to populism or to short-termism because, hey, everybody's got their eye on the next elections.
#
Second, the natural inertia that sets in into any system, particularly a large bureaucratic
#
system like ours and not just inertia of action, but inertia of thought.
#
And third, the interest groups which then get settled in and entrenched and make it
#
difficult to change anything.
#
So was that perhaps a tragic shift which people don't remark on that we begin with policies
#
that we can criticize today in hindsight, but that were made in good faith with people
#
like Nehru actually engaging with ideas.
#
But we move to a cynical time where ideas don't really matter and you have these incentives
#
from these three different directions driving policy.
#
I mean, really a terrific question.
#
You see, I think that we forget when we look at kind of histories of nations and that there
#
are these critical junctures in countries' history when some special things can happen.
#
It could be at the time of independence, it could be a revolution, it could be a crisis.
#
So there is something I feel, if you look at it historically, something distinctive
#
about certain points in time.
#
And I think, you know, clearly for India, that distinctive period was the post-independence
#
period, partly a result of this.
#
So I think, therefore, kind of two or three things come together, right?
#
One is this moment of, you know, idealism and so on, and that's critical juncture.
#
Second is almost intrinsic to these movements is you are going to have politicians with
#
the temperament of, you know, let's set aside personal things and whatever.
#
Maybe the third aspect what happened in those early years also was kind of the dominance
#
So you don't have, you know, political competition.
#
I'm not saying that's necessarily good, but you did have this kind of, you know, because
#
when Mrs. Gandhi comes into power, it becomes more competitive, and as Atul Kohli and others
#
have shown, you know, that, you know, that creates the whole dynamic that you mentioned
#
about interests and, you know, you need money and so on.
#
So I think a combination of these three things, you know, the critical moment, the idealism,
#
the quality of leaders, you know, the monopoly of the political monopoly, which kind of allows
#
you to do certain things that might otherwise not happen.
#
But then that comes to the other point that you raise about, you know, was it all narrow?
#
You know, I think it's undeniable that, you know, state-led industrialization, you know,
#
the emphasis on technology, the emphasis on higher education, I think that certainly comes
#
from, you know, you read Discovery of India and things, you know, what he wants, you know,
#
the whole rationalism, emphasis on science, because, as you know, I think somewhere in
#
Discovery of India, he says quite prescient, I mean, quite accurately that if you look
#
at history, for example, around 1450, Mughal India, Aztec America, Aztec Mexico, the Ottoman
#
Empire were, you know, and of course, Ming China were at the top of, you know, development.
#
And that's when the Great Reversal happens, you know, from about 1500, 1600 onwards.
#
And then you have the Great Reversal where the two rich countries become poor.
#
And Nehru's point is that even then, we were losing this edge in science and technology,
#
which kind of contributed.
#
So he was very much into that and therefore signed it.
#
But having said that, you know, he had a really dominant role, I think we forget that, you
#
know, one, agriculture, you know, agricultural income was never allowed to be taxed, not
#
He would have happily taxed it.
#
It's because of, you know, Siddharth Patel and the whole, you know, agricultural thing.
#
Then you also have, as I just said, you know, the overlay of, you know, small, remaining
#
It's not just a Nehruvian obsession.
#
I think it's also this, you know, broader obsession with remaining small, which is,
#
I think, you know, partly a Gandhi legacy, you know, village and small and so on.
#
And of course, also, we forget that, you know, I think Nehru's instincts would have been
#
to push land reform much more, but, you know, land reform never went anywhere because partly
#
it was his own democratic instinct, you know, you don't want to do anything by coercion,
#
but partly there was this broader thing.
#
I think so, therefore, while his imprint was very strong, you know, he loved these big
#
temples and dams and things, you know, so all of that, that whole commanding heights,
#
I think is very much him, but there were lots of other things which perhaps were not due
#
And, you know, again, counterfactual history is very difficult because my sense is that,
#
I think it's an important point that we forget that I'm not sure, you know, that the whole
#
Rajaji's strand of thinking, whether that was ever dominant enough to have, you know,
#
because at that stage, you know, people were completely unfamiliar with how a market economy
#
in all its kind of full blown thing functions.
#
So I think it would have been, you know, I think our choices, even looking back, I think
#
our choices would have been, you know, statism or less statism, never, you know, a full blown
#
kind of market economy.
#
But I think some of the more egregious, I mean, industrial licensing, I think was something
#
that we could have really avoided.
#
And of course, I think, you know, I'm just being, you know, unnecessarily kind of, you
#
know, bold here, but I think had we done the education and health that a state should have
#
done and, you know, not had industrial licensing, for example, and allowed actually domestic
#
entrepreneurship to flourish, you know, maybe, you know, trajectory of Indian history would
#
On that wistful note, let's take a quick commercial break.
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Welcome back to The Scene and the Unseen.
#
I'm chatting with Arvind Subramanian on both the fascinating journey of India as an economy
#
and his own fascinating journey in playing a part in shaping this economy.
#
And we've sort of been stuck in history for the first half of the show.
#
Let's kind of get closer to modern times now, where you've kind of spoken about one of the
#
transitions that India made was in sort of moving from socialism with restricted entry
#
to capitalism without exit.
#
And you've also spoken about the Latinization of the Indian economy, and all this is of
#
course happening post-liberalization.
#
And you know, sir, tell me a little bit about these currents of change that are happening
#
within the Indian economy, you know, for the two decades leading up to 2014, when you know,
#
you finally arrive in India as a CEO.
#
So I think that India's growth takes off in the 1980s.
#
And then we have this macroeconomic crisis in 1991.
#
Of course, partly it was because the 80s growth was also fueled by this, you know, fiscal
#
And of course, the fiscal binge we went on was partly also for the first time politics
#
Remember, at that stage, the Congress loses monopoly, not just at the center, but also
#
So politics becomes much more competitive.
#
And therefore, I think we find, you know, fiscal policy becoming much more an instrument
#
of, you know, politics, a much more intrinsic, you know, part of politics.
#
And we have this binge, we have, you know, imports, you know, going up, classic running
#
out of foreign exchange.
#
It's what, you know, Krugman and call a first generation crisis was essentially, you have
#
a fixed exchange rate, the government spends too much, you run out of foreign exchange
#
And then, of course, we had, you know, the real opening of the Indian economy.
#
We moved from the pro-business reforms of the 1980s to the pro-market and the pro-competition
#
And of course, you know, there are different phases of what happens.
#
But essentially, when I look back at the Indian economy, and I'm, you know, doing some work
#
with a colleague, Somitra Chatterjee, on how India's trade is done, but if you look back,
#
I think that the 90s and the 2000s leading up to about 2011, 2012, I think it was just
#
a golden age for the Indian economy.
#
I think that, you know, in broad terms, I'll come to what happened, why it kind of ran
#
But I think it was a golden age, you know, we were obviously we opened up, we reaped
#
a lot of the benefits of opening up the efficiency and so on.
#
Then, of course, we had this, some would say serendipitous, whatever this discovery of
#
the service sector, the IT sector.
#
But if you look at the 90s and 2000s, I'm beginning to see how across the board, how
#
well the economy performed.
#
It was not just, you know, services, it was not just manufacturing, it was just across
#
So clearly, we reaped benefits.
#
And what has struck me recently is that, you know, in the boom of the 2000s, you know,
#
every economy in the world boomed, but we did much better even relative to other economies.
#
Even our exports were growing gangbusters in the 2000s.
#
That's something that I've been really surprised by.
#
So we had this, you know, incredible, you know, kind of the golden age of, you know,
#
the Indian economy in the 90s and 2000s, definitely, you know, some of it, of course, as we said
#
earlier, is also catch up, you know, you do a little bit of reform, you're so far away
#
from the frontier, you know, our per capita GDP, let's say 1980 was like, probably three,
#
four percent of US per capita GDP.
#
So you know, there is a logic which says if you're very far behind, you will have some
#
advantage of cheaper labor, you know, so you can grow much more rapidly.
#
And so we reaped so a combination of, you know, that, you know, the advantage of backwardness
#
as it were, we were very poor, then we did these reforms.
#
And, you know, some basic, you know, ability in the economy, some, you know, skilled labor,
#
some modicum of state capacity, whatever, allowed us to do gangbusters.
#
And then, of course, you know, the global financial crisis happens, you know, the world
#
And really, my reading is that we never really recovered from that era.
#
So that in a sense was what happened.
#
We never really recovered from that.
#
And of course, you know, this is where I think a new kind of problem arises.
#
And and the other problem that let me speak about both of these is that remember, we never
#
We never believed in capitalism.
#
I mean, that is always and in a sense, the license quota Raj kind of in some extent intensified
#
that, you know, you could in fact, some people call it the era of crony socialism, not just
#
crony capitalism, but crony socialism, some truth to that.
#
I mean, we forget today how even some of the early entrepreneurs, I mean, really became
#
big by manipulating the minutiae of the excise and tariff code.
#
I mean, you know, it's incredible, right?
#
So it was always, you know, it was always stigmatized capitalism.
#
Then, of course, we had this brief period where we says, wow, you know, we've now got
#
at least a modicum of capitalism, which is not based on proximity to the state or favors
#
And that was the rise of the services, you know, that whole period of the services boom.
#
It was not just services, but saying, wow, India can do a form of capitalism that is,
#
you know, based on good governance, corporate governance based on not getting favors from
#
government and, you know, and can be internationally competitive.
#
So this is kind of, you know, the brief window when we said, oh, my God, you know, Indian
#
And then, of course, what happens is that we have all these scandals of the 2000s, you
#
So the way I phrase that period, you know, what Rajaji called the license quota permit
#
Raj, I called that period the rents, Raj, because and, you know, just to be a little
#
bit cute about this, I said, you have ethereal rents, terrestrial rents and subterranean
#
rents, which is, you know, spectrum, you know, land, coal, you know, so the rents, Raj.
#
And then, of course, the rents, Raj is absolutely devastating because, you know, you say you're
#
back to this old kind of, you know, a stigmatized sort of a crony socialism capitalism, but
#
really not really gone past that, you know, really messy relationship between the state
#
And, of course, as a result, you know, both come out with their legitimacy completely
#
And so therefore, you know, we're back, in a sense, post those scandals in terms of political
#
We're back to a situation where, you know, neither the state nor the thing has legitimacy.
#
So what do you do about it?
#
So coming now to the period that, you know, I was in government for 2013-14 onwards, I
#
mean, I do think that a lot of the choices looking back, sorry, the other thing I forgot
#
to mention in that era of, you know, thing was the whole, you know, we had the infrastructure
#
boom, but it also was financed by, you know, the public sector with all the phone, telephone
#
So that is part of the rents, Raj, that happened.
#
So fast forward to 2014-14, so on, I think a lot of the choices then were taking place
#
against the background of this, you know, stigmatized capitalism.
#
So that constrains a kind of lot of your choices going forward.
#
And of course, and this is where then you come to this capitalism without exit problem.
#
And the two are related.
#
So let me explain that.
#
Yeah, I just wanted to sort of sum up my understanding of this period and ask you if, you know, it
#
broadly sounds OK to you and also end with a question.
#
And one is that it seems to me that what happened in 91 was obviously that it was serendipitous.
#
And, you know, I've had Ajay Shah on the show before, and he's spoken about how, you know,
#
that intellectual infrastructure of reforms was actually happening from the 80s.
#
You know, you had would-be reformers all there thinking along those lines.
#
And there was some back end there.
#
It wasn't just serendipitous.
#
But what it seems to me that happened was that, look, a crisis forced us into this bunch
#
of changes, but then we got complacent very fast.
#
We took the growth for granted.
#
We took the progress for granted.
#
But the mindset remained the same.
#
The state apparatus remained the same where the Indian state remained one, which doesn't
#
do like it should do a few things well, instead of which it does a lot of things badly.
#
And that kind of broadly continued.
#
And we take the growth for granted and don't learn the big lessons that we should learn
#
from it about unleashing private entrepreneurship and so on.
#
And then there's this excellent book by Pooja Mehra, I wonder what you think about it, called
#
The Lost Decade, where she recounts events, you know, after 2008 and what happened in
#
UPA too, where basically because of the terrorist attacks in Bombay, Chidambaram is shifted
#
And so Sonia Gandhi wants Pranab Mukherjee in the Finance Ministry as he's installed
#
there and he remains there for a long period.
#
And his mindset is the 70s sort of socialist mindset of the Indira Gandhi era.
#
And it is pretty disastrous because that is when, you know, you're having the phone-alone
#
scandals, you're having the retrospective taxation.
#
And it's as if the mindset has just done a complete reverse and we start going downhill.
#
And Pooja's narrative, of course, has him being booted up stress to the presidency.
#
But there's not enough time for Chidambaram back in the Finance Ministry to make much
#
And she describes that period of the, you know, when the Modi government comes into
#
power, the first few months has been pretty hopeful.
#
You have the bankruptcy code, you have a lot of good people in good positions like yourself
#
and, you know, like Mr. Panagari, Niti Ayog and whatever.
#
So there is some hope that reform will happen.
#
But then there are those jibes of Sudbootki Sarkar and then there are, you know, state
#
And, you know, like you also mentioned, the Sudbootki Sarkar jib, in a sense, speaks directly
#
to the fear of stigmatized capitalism.
#
And what has happened in all this time is that people in India, sadly, still confuse
#
pro-markets and pro-business and they still, you know, mistake capitalism for cronyism,
#
whether you call it crony socialism or crony capitalism, doesn't really matter.
#
But it's cronyism, it's not free markets.
#
And all of this leads to the political imperatives changing and not enough reform happening there.
#
And we'll, of course, get to the sort of the specific economic policies of the Modi government
#
But, you know, is this a summary that you broadly sort of agree with?
#
And if so or if not, were you sort of, you know, how cognizant were you of this entire
#
changing picture and the politics of the situation when you joined?
#
Yeah, firstly, just going back to the point that you made about the 1990 reform, I think
#
that there is no doubt that it was, of course, part of the crisis, but there's no doubt that
#
there was a, you know, something else going on.
#
And I would put that something else, partly as, of course, all these, you know, would
#
be reformers, you know, exposed to ideas outside coming in and, you know, having more, more
#
But I also think that, you know, if you look back after all, it's not that just, again,
#
intellectual history that in the 70s and 80s, after all, people said, look, look at the
#
East Asian Tigers, they're doing well, you know, what you guys, I think that the reaction,
#
the pushback always was, you know, but we're India, we're big, whatever.
#
I think a critical element of the change also was the rise of China.
#
I think that here was a country that, you know, embraced reforms, foreign direct investment,
#
I mean, we come to the, you know, the other part of the Chinese stories, which also, which
#
we haven't internalized, which is the early health and education thing that we talk about.
#
But certainly when, you know, when China in the 80s started booming and embracing things,
#
I think that took the final leg out of the, you know, the pushback that, oh, no, no, this
#
I think there was intellectual thing building up, but also shaped by experiences around
#
the world and a critical one being the rise of China.
#
See now coming back to, you know, what you said about, you know, Pooja Mehra's excellent
#
book and how you read what happened.
#
Look, I don't think we have to be a little bit careful here.
#
I don't think anyone believes today that we should go back to, you know, 60s, 70s style
#
And I think that has been a decisive shift.
#
I think that's no, I don't think there's any, it's more, I think that once we've transitioned
#
from the state as owner to the state as regulator and the state potentially as provider of other
#
public goods, I think that's where I think now the locus of action has shifted to that.
#
I think the problem is that all these discussions have really been, you know, messed up by that
#
experience of the 2000s and all that happened that you described and you described that,
#
you know, in Pooja Mehra's book as well.
#
And look, I think the closer we are to history, the more we try and put it down to individuals
#
and so on in a way that I think it's something that we need to guard against.
#
I think it's true that, you know, in the 50s, we were talking about the 50s, we talked about,
#
you know, not just Nehru, but all the things.
#
So there's a natural, the closer you are, the more you try and look at it in terms of,
#
you know, individuals and he went here and he went there.
#
And all that I'm not saying is not true.
#
It's just that I think that we don't have the kind of distance to step back and say,
#
are there kind of deeper things going wrong?
#
And in my view that, you know, it's not that I think we said, let's go back to statism,
#
I think we've decisively, the sense that I think that we should be more open is there.
#
So if you look at the early, some of the early actions in the Modi government, so, you know,
#
opening up to FDI, for example, was, was think, and, you know, there's the whole exit problem
#
that we realized that, you know, remember that, you see, I think this is where I think
#
we need to be a little bit careful about history also is that the exit problem was first signaled
#
in a sense by Ashish Gupta and the House of Debt reports, we were seeing that that was
#
And of course, essentially, everyone played this extended pretend strategy, because, you
#
know, exit is very difficult in India.
#
And that's why I think capitalism without exit is a serious problem.
#
Now let's kind of delve in.
#
So in the early period, there was definitely a sense of optimism.
#
And let me say one thing that's a little bit, I think it kind of speaks to this, you know,
#
reduced legitimacy of the state and markets, right?
#
So if you were to ask me, just as an outsider, as someone who thinks a little bit about these
#
things to say, okay, how do you reverse this, you know, because stigmatized capitalism is
#
not going to go away, you know, whatever, right?
#
It has to be done consistently over time.
#
And one, the only way you kind of reverse that is the state acquiring legitimacy, right,
#
in one sense, and states saying we will be distant from capital.
#
Now, in some ways, you could interpret the early actions of the Modi government as going
#
exactly in that direction.
#
Remember the complaints that happened from business that, you know, you know, nobody
#
sees us, you know, et cetera, et cetera.
#
That was, I think, one way of signaling that, you know, we were going to, you know, put
#
our distance with, you know, crony capital, I mean, people would say it wasn't uniform
#
But at least the overt signal was, you know, we are going to be distant.
#
And then on the other side, and this is where I think this, in my view, was one of the major,
#
you know, partial achievements of the government, which I think needs to think, is that, and
#
this is what I think is the distinctive brand of the new welfarism of the prime minister.
#
Now, remember, the old welfarism is, you know, you have to, you know, give these, you know,
#
the handouts, you know, I mean, I'm just caricaturing here, handouts, you know, PDS, Monrega, whatever
#
But the Modi brand of the new welfarism was, as I called it in my book, the public provision
#
of essential private goods and services, right?
#
It's not a handout, so that's distinctive.
#
It's not health and education.
#
So it's not providing public goods.
#
And I'll explain for reasons why I think that was the case, but it's the public provision
#
of private goods, essential goods, you know, power, toilets, bank accounts, and then more
#
recently water, and then a couple of others.
#
So essentially, the logic is, if you step back, is that the state regains legitimacy
#
by delivering these things effectively, so you regain the trust to be able to do the
#
And I'm going to give you an example of that and use it, you know, by leveraging the new
#
And that's where this whole jam thing came in, you know, Jandanaadar Mobile, which, you
#
know, the coin phrase that, you know, we coined in the economic survey early on.
#
So in some sense, the combination of, look, early on, so to put some kind of method on
#
that initial period, there's a sootboot sarkar overhang, right?
#
So we cannot do, remember, and remember, this is people forget, the first opportunity to
#
reform happened on coal when the Supreme Court said, you know, you can, you know, remember
#
that in I think August of 2014, before I joined government, the early opportunity to reform
#
You know, the Supreme Court came down in favor, but I think the government chose not to.
#
So that was a sootboot sarkar because, you know, you don't want to be a thing.
#
But, you know, we distance ourselves from capital and we embark on this to regain the
#
legitimacy of the state.
#
And that's the new welfarism, the public provision of private goods and services.
#
Then we come to the capitalism without exit.
#
So here's a problem, very evidence becoming bigger and bigger.
#
And you know, in 2014, 2015, you know, many of us pointed this out and, you know, of course,
#
we wanted to do the bad bank, the early attempt to grapple with this exit problem.
#
Now the problem, stigmatized capitalism and capitalism without exit come together because
#
in order to exit, right, you have to do haircuts.
#
You have to do these things.
#
And sootboot sarkar means that no public official, no thing is going to be in the business of
#
doing this haircuts because, you know, immediately the allegation of crony capitalism would be
#
And so instead of a quick expedited executive led process, and this is what I wrote in my
#
piece yesterday on Mr. Jaitley as well, therefore, you know, it was really a pass the buck strategy
#
Luckily, you know, the IBC had been passed and, you know, they said, let's pass the buck
#
to the judicial process.
#
And that's where I think the whole sootboot sarkar once again came in the way of, you
#
know, those decisions of, you know, we could have done it quicker, faster, but it will
#
require some political courage.
#
But then we opted for this judicial process.
#
And you know, we know what's happened on this judicial process.
#
It's once again run up against all these things.
#
But the point is that I think over the course of the government of this tenure, you know,
#
at least the hope and the expectation was that accumulate enough legitimacy by doing
#
these other things, which are good in themselves.
#
I mean, you know, after all, provision of toilets, you know, nobody talked about toilets,
#
you know, toilets, you know, whatever is really the way to you gain the legitimacy that gives
#
you the political space to do the other things.
#
So my own reading is that, you know, the corporate tax cut, for example, is an example of discussions
#
of this happened early on.
#
And there was no way the corporate tax cut would have happened early on because sootboots
#
You come in and you do the corporate tax cut.
#
You know, this is just, you know, UPA too, but in a more legitimate way.
#
But then, you know, again, of course, there was, you know, challenging times near crisis,
#
corporate taxes were done.
#
But I do think that at that stage, the kind of confidence and courage to do something
#
that was explicitly pro-capital came also because of having some accumulated some goodwill,
#
some legitimacy and so on.
#
So I think that's how I understand the process, by the way.
#
And so and of course, also the early hope that, you know, the government attract a lot
#
of FDI, the GST happened, the IBC happened, this whole, you know, the new welfarism.
#
So in some ways, there was almost you could, you know, post facto intellectualize this
#
and say, look, there was a kind of coherent thing.
#
But then, of course, you know, things have turned out the way they have for various reasons.
#
Yeah, no, that's extremely insightful.
#
And I have a couple of follow up questions on that before we dive into your tenure as
#
One question that sort of strikes me and this is also, you know, one of the chapter titles
#
in your excellent book of Council, where, you know, you write about the relationship
#
of the state to the individual.
#
And I want to sort of discuss this particular point, not with reference to your own role
#
within the government or within this government at all, but just at a realm of ideas where
#
it strikes me that when you speak about the relationship between the state and the individual
#
sort of shifting, it seems to be shifting in a sense of better directed paternalism
#
that okay, you know, we'll do provision of these private goods, we'll use jam, which
#
is, you know, Jandan accounts and Aadhaar and mobile.
#
And we'll, you know, we'll do all of this much more efficiently.
#
And therefore, we'll build legitimacy and I kind of get that.
#
But the mindset is still a paternalistic one, it's saying we'll be paternalistic in a more
#
And what sort of the directional shift, which, you know, I crave to see, and I don't know
#
how much of that we've seen, perhaps since the Vajpayee government is a shift towards,
#
you know, empowering people to help themselves.
#
I mean, markets are a mechanism through which, you know, society solves its own problems.
#
That's how I've always seen them.
#
And yet, you know, we've gained the ease of doing business ratings a little bit, but it
#
hasn't really improved.
#
You know, I have so many friends who run factories and who run businesses.
#
And of course, this is anecdotal from my experience, but many of them are viscerally devastated
#
and not now because of COVID or whatever.
#
But you know, over the last few years.
#
So that's kind of one question where I have a little skepticism that if I want the relationship
#
between the state and the individual defined, I would like it defined in terms of empowering
#
individuals more to help themselves, which is what markets do, rather than, you know,
#
more directed paternalism.
#
And my other question also, the thought that kind of struck me is something that you articulated
#
while you were talking about it, when you spoke about the post facto nature of, you
#
know, giving a direction to all of this, where what, you know, you were speaking about that,
#
okay, the state needs to improve its legitimacy.
#
We can't do XYZ like corporate tax cuts because of stigmatized capitalism.
#
How do we improve legitimacy?
#
Let's provide, you know, private services better and all of that.
#
And all of that sounds very logical, but looking from the outside in, if one looks at our politics,
#
you know, one, the leaders in charge don't seem the kind of people who would think it
#
through in this kind of manner.
#
Rather, you've had sort of a haphazard ad hoc mix of policies going in different directions
#
and catering to different incentives, most of them political.
#
But also the fact of the matter is that, and we'll, you know, discuss the work that you
#
did as CEA, and I loved your economic surveys, by the way, and how closely you worked with
#
Mr. Jaitley, but it seems that a lot, you know, there were key decisions like demonetization
#
in which even Mr. Jaitley wasn't, you know, too instrumental or couldn't do much about
#
So I'm just wondering that how much of this is sort of looking back and rationalizing
#
the things that happened.
#
Or at the time, is this something that people actually thought that, you know, you had cabinet
#
meetings where you discussed that, OK, we need to first increase our legitimacy as a
#
state, so let's do X, Y, Z, and later we'll do future reforms.
#
Was they thinking like that?
#
And if there was, why did that then get derailed?
#
Very, very probing and good questions.
#
Let's come back to first, you know, the whole mindset issue, the state and the individual,
#
I think in a country like India, given this whole legacy where, you know, it's all state,
#
state, state, and, you know, the process is one of, you know, kind of the Leviathan being
#
slowly, slowly taken off the back.
#
And this is where I think the failure of the state to equip every Indian with the basic
#
human capital to, you know, kind of, you know, then, you know, it's a completely unleveled
#
playing field unless so.
#
So in some ways, if you haven't done that basic, which is what, by the way, China did
#
that very early on, the Chinese Communist Party did that early on.
#
And so in that sense, that original sin having been committed, I think all these notions
#
that, you know, the individual should be left to the market, et cetera, you know, they become
#
less, I think, meaningful, or at least the discussion of that has to be qualified by
#
the fact that, you know, you haven't provided health and education.
#
I mean, you know, I'm doing some research with Devesh Kapoor on this.
#
I mean, if you look at, you know, stunting and heights and everything in India, you know,
#
you think, you know, that, you know, or if you look at, you know, the results on learning
#
So if those two key ingredients are so badly under provided and also so asymmetrically
#
provided between, you know, the vast mass and things, then the whole, you know, capitalism
#
as an equal opportunity space where people thrive, I think that discussion just becomes
#
You know, I hear this observation often from people who support stratism, which I know
#
you're not doing, but I hear this argument often, and I feel it that it's a little bit
#
For example, in education, you don't allow private enterprise, you don't allow for profit
#
So therefore, you know, we remain underserved and under educated.
#
And then you say that, listen, they are not getting educated, the state has to do it.
#
And therefore, you know, you sort of justify the role of the state by saying that it isn't
#
going to happen otherwise, but you're not allowing it to happen otherwise.
#
And this seems to me to be an unfortunate situation that can then, you know, just continue
#
in this vicious circle.
#
Yeah, I think that's, I mean, that's a fair point about, you know, how much the, you know,
#
I don't know the sector well enough, you know, you had people who know much more on this.
#
But I think all I think is important to notice, whether it's it's an act of omission or commission.
#
And you're saying it's also a sin of commission, not just a sin of omission.
#
I think the fact is that, you know, once you have individuals who are not equipped to take
#
advantage of opportunities, it's it's that's what the second thing I think is that, you
#
know, the state has regulated because remember, we can't have, you know, no one thinks that
#
a market economy, you know, almost everything should be done by the private sector, obviously.
#
But you know, certain basic things like health, maybe health education along with this, but
#
also some amount of reasonable regulation has to be there.
#
But I think so the failure in the last few years has also been that in the last decade
#
or so is that the state as a regulator, I think, has become a very problematic thing,
#
you know, both, you know, the under capacity, the lack of thing, and of course, the capture
#
on the other side from the usual thing.
#
So I think you've had you have both sets of problems.
#
And therefore, you know, so on the one hand, you say, you know, yes, we believe in markets,
#
we think, but the essential wherewithal, you know, 90 percent doesn't have the wherewithal.
#
And then post facto, you know, it's kind of you can't have a marketplace where, you know,
#
you know, firms can pollute, firms can be corrupt, you know, firms can do.
#
So I think in some ways, we kind of stuck right neither at the ex ante stage nor the
#
expo stage, you have that thing.
#
And then we say, you know, whatever.
#
So it really is and I say, you know, I think there are just so many things that the state
#
just should not be doing.
#
I mean, you know, state in telecom, you know, as a provider, I mean, states should not be
#
a provider of almost, you know, everything except a few core things.
#
But the state needs so ex ante exposed to have such a weak state.
#
And then you have a kind of overobcrusive state on all this, you know, just this, you
#
know, starting a business.
#
I completely agree with you.
#
I don't know whether you saw that, you know, I saw this on Twitter, you know, how many
#
approvals you still need to start, you know, a small business.
#
So it's like a triple whammy, you know, you don't have the wherewithal, the post facto
#
regulations thing, and you have this thing.
#
And so it's a very fair question as to, you know, why on all of these we haven't a change.
#
By the way, on the regulatory side, there was a period, you know, in the early 2000s
#
when I feel there was some hope that we could get, you know, very effective regulation.
#
I think the early try, for example, was actually doing quite well.
#
And somehow there to, you know, the whole regulatory state has become less.
#
I mean, I think even the RBI, for example, you know, you've got so many, you know, it's
#
a wonderful and highly respected, deservedly respected institution.
#
But all these, you know, things that have happened are partly it's because I think partly
#
kind of Urjit Patel's point, partly it's because of public ownership, because there the regulator
#
has less say, but partly it's also because, you know, in the areas where the regulator
#
has freedom, we've not been able to, I mean, to have a series of scandals like this in
#
a financial system, I mean, it's part overbearing state, but part also kind of weak regulation.
#
So, so I think that, you know, when we think about therefore, and that is why now coming
#
to the last point on the state and the individual, and we can talk about that in terms of the
#
ideas that, you know, we were associated with when I was government, I do think therefore
#
that, you know, a UBI, a universe, something like a universal basic income, it's kind
#
of says, look, you know, that minimum wherewithal for you to survive, not fall into poverty,
#
not be subject to the vicissitudes of health and education shocks, et cetera, you know,
#
we provide you that wherewithal and that allows then, you know, the kind of the agenda that
#
you have for the state to kind of, you know, get away from the overobtrusiveness.
#
I think that's why ideas like UBI for me resonate a lot because they're very valuable in themselves
#
in terms of this whole what we want social protection to be.
#
And that's why I remember UBI is something that both the right and the left like for
#
very different reasons, but it also allows you to kind of not burden the price system,
#
you know, the efficiency cost that the price system has to bear for providing redistribution.
#
That's where ideas like that matter.
#
Now come to your questions about, you know, post facto rationalization versus, you know,
#
in real time, you know, do you actually have discussions like this that say, look, we've
#
had stigmatized capitalism, you know, look, I mean, something that came up in your discussion
#
with Pratap as well, I think for me, one of the fascinating, you know, things about being
#
in government is just, you know, getting a glimpse into, you know, personalities and
#
how, you know, personalities really and their, you know, deeper psychology, you know, can
#
be so important in driving these things.
#
You know, nobody ever studies it.
#
Nobody is going to, you know, write about it because there's so many kind of, but I
#
But I think on this thing about the fact that the provision can reclaim legitimacy, I think
#
was actually, I have no evidence, whatever, but just observing, I think one could even
#
in real time, get a sense of that, even in real time.
#
So I wouldn't say it's all post facto rationalization.
#
There was a, I think we have to, you know, some stage credit leaders with, you know,
#
at least some leaders with a sense of, you know, being driven by, you know, obviously
#
they're driven by all the, you know, sordid things that politics is all about.
#
But also, I think there are, I think deeper things that drive, and I think this trying
#
to overcome stigmatized capitalism, recognizing that what does one need to offset?
#
I think there was, I could get a sense of that, you know, at least in the early years
#
Before we get to the sort of your personal experience as a CEA, which, you know, I have
#
a lot of questions on that, and I find that sort of that whole experience we must have
#
But before that, another sort of question in the realm of ideas, because you mentioned
#
the UBI, and I was going to kind of come to that later, which is that, and I also simultaneously
#
want to bring up the GST in this context, which is that there are often ideas which
#
seem to us from a purely conceptual point of view that, oh, these are, you know, so
#
brilliant, this is why they'll make such a great difference, this is why they make sense,
#
Like GST, for example, I was so excited, you know, the first time I heard about a GST coming
#
And like you said, people's views of the GST might be colored because of what happened
#
during demonetization, and we'll come back to that as well.
#
But, you know, I've done an episode of The Scene and the Unseen with the journalist
#
Devang Shudatta, where he pointed out, and this was before the GST was passed, and he
#
pointed out quite presciently all the things that could go wrong with the GST.
#
And as it turns out, I think they did go wrong.
#
Like, when I think of the GST, I think of something now, and this is in hindsight and
#
obviously post-facto, that it's something that is a phenomenal idea.
#
You want to reduce the friction of so many taxes, and you want something much more simplified.
#
But at the same time, it was perhaps foreseeable and even foreseen by others what problems
#
Many of these were unavoidable.
#
They were part of the political economy, like the multiple rates and the exemptions and
#
the different interest groups fighting all the way, and the discretion to the lowest
#
level tax officer, which, you know, frankly, I am at sort of that end of the economy where
#
so many of my friends are at the receiving end of what I can only describe as tax terrorism.
#
And you know, one of my friends actually is a manufacturer, runs a couple of small factories,
#
and he keeps telling me that, dude, GST was far worse for us and demonetization was.
#
So I asked him to send me some pointers of what went wrong with it, and I'll quickly
#
He talks about how compliance was much more expensive and tedious, and they now have to
#
have additional full-time employees, a consultant to make sure they're not in violation.
#
The confusion of the initial months costs them actual real money in loss transfers from
#
The rules and the guidelines keep changing.
#
Is KitKat a biscuit or a chocolate?
#
You know, and more tellingly, that a number of small vendors that he used to work with
#
simply shut down because they were not able to survive in the new regime that was sort
#
of the transaction cost of shifting from one regime to another, and the cash locked up
#
in the system has made doing business more expensive.
#
And even for me, I have to file my, you know, GST every month, and a fair amount of time
#
Now, I'm not asking you to address any of these specifically.
#
My larger point here is that, you know, in their excellent book, In Service of the Republic,
#
Vijay Kalkar and Ajay Shah made the point that given Indian state capacity, we should
#
have presumptive laissez-faire, which is a separate point.
#
But the larger sense there is that whatever policies that, you know, we think about, we
#
should think about in the context of what they call how much state capacity is there.
#
But what I would think of is not just state capacity, because there might be state capacity
#
to implement a lot of this, but also what is the structure of the state?
#
Like when I look at the structure of the state with regard to taxation, it seems to me that
#
it is by and large predatory and parasitic, that where, I mean, tax terrorism is a very
#
So the larger question, I'm sorry if I've rambled a bit, but and the reason I thought
#
of this in the context of UBI is that when you think about policies, and even by the
#
way people who worked on the IBC, the Bankruptcy Court, tell me that it is stuck in various
#
places because state capacity hasn't kept up with it, though obviously overall it's
#
a net benefit that we have that reform in place and we have that on the books.
#
So now my question is that when we sort of implement policies, is one of the things that
#
we should take into account, not only sort of how it is intended to work, but how given
#
what our state is actually like and our structures are actually like, how it will actually work.
#
So to me, it seems that, for example, this is where a lot of GST went wrong and did damage
#
and one could argue that, okay, in the long run, it will work out fine, but it did a lot
#
And similarly with UBI, I could say that, you know, the UBI with the way you write about
#
it and present it and others do as well, it obviously, you know, it makes fiscal sense
#
in all your projections where you talk about, okay, we'll cut all these subsidies and we'll
#
cut all these hazard things and all of that.
#
But in the real-time political economy, which is dominated by so many different kinds of
#
interests and political compulsions, many of those are not going to go.
#
And this will eventually, the UBI will also eventually become, if it comes into being,
#
a sort of very perverted populist handout, which really helps nobody and has all kinds
#
of perverse unseen consequences.
#
So is this something that sort of plays a large part in how the policy-making mechanism
#
flows that you're actually considering sort of all of these things?
#
See, again, very, very important kind of conceptual things that we should think about.
#
But let me just say, just to make it come alive, talk about it in the context of both
#
I think in the case of the GST, look, on this, I would rephrase the Kailash Shah thing in
#
a little bit more, I think that they're absolutely right.
#
I would rephrase this as, in the case of tax, for example, simple tax policy is 70% of tax
#
I mean, if you have simple policy, administration becomes, so the complexity just makes everything
#
So in that sense, I think that there is no question that we kind of went, definitely
#
have gone excessively in the direction of complexity.
#
But just to step, to be fair to this whole process, and let me just take you back to,
#
I think the feeling at that, so remember, I wanted three, no more, you know, that was
#
the maximum, I still think we should have attempted that.
#
But I think that the way it went, part of the justification was, look, it's less complex
#
than the previous regime.
#
And so that was part of the, so, you know, you had like 15 excise duties, now we only
#
You know, seven is, I mean, so in a sense, it was, the standards kept changing.
#
Instead of the standard being, look, going forward, what is the best way to maximise
#
the system, you know, this path dependence came in.
#
Now, and this is where I certainly do think that this was something that could have been
#
The path dependence comes in because, one, you say, look, there are so many excises and
#
vats, when I change, there should be no increase in the incidence at all.
#
I mean, if that's the way, you know, your politics is going to, you know, the policymaking
#
process is going to run, then you're going to get into complexity.
#
And I think it was that, so I do agree, I think that the conviction that simplicity
#
is the way forward in itself, and also because it helps, you know, vastly helps administration,
#
I think that conviction, I think, could have been much greater.
#
And I think that has come in the way of that.
#
And so, I think, I don't know the income tax system well enough, but remember what you
#
said about tax terrorism, just the tragedy, right, the tragedy is, you know, I'm sure
#
what you're saying is right, and I've heard the word tax terrorism, and even the most
#
ardent supporters of the government also think that this thing, but if you look at actually
#
the tax intake attacks to GDP ratios, I mean, it's not, you know, sterling by any means.
#
So in a sense, we kind of get the worst of all possible worlds, we get the administrative
#
thing which really chills entrepreneurial activity and whatever, and we don't get the
#
fiscal benefits as well.
#
So the notion that actually simple design and simple administration can help both, you
#
know, is something that I think is a kind of indictment of our system, you know, for
#
not just now, but for many, many, I mean, this is a kind of a historical thing.
#
But on the GST, let me say that, you know, again, there was always going to be a short-term
#
I mean, nobody was under any illusion that that was not to be the case.
#
So the question really was, you know, was there adequate preparation to minimize that
#
You know, because remember, after the GST was implemented, steps were taken to minimize
#
the compliance burdens, but I think certainly much more could have been done on that.
#
So there was, I think that that was one.
#
And then, of course, you know, GST came on top of demonetization.
#
So, you know, some of the, you know, so that constituency got a double whammy, right?
#
I mean, the demonetization and the GST, and therefore, you know, I don't know how much
#
to separate out what is the pure GST impact and what was that now.
#
But there are two design features conceptually.
#
I think that I so I think on the simplicity, I think just it we just kind of could have
#
And I think there are no real real excuses for that.
#
I think we should have and could have done better.
#
And also on the on the minimizing the tax, we could have done better for me that really
#
difficult issues were, you know, looking back or looking forward, we said, look, one market,
#
And I think, again, I don't have enough evidence, but there's some at least some good evidence
#
saying that, you know, at the border, the waiting times, et cetera, have come down considerably.
#
So the virtues of having one market in India, I mean, those were huge.
#
And I don't think, you know, looking back, I don't think we should, you know, ignore
#
So so I think those benefits were huge.
#
We could have reaped more.
#
And that was what we really wanted.
#
I mean, in a sense, we wanted India to be one market.
#
It's like, you know, internal liberalization and the benefits would be huge.
#
The price of that, of course, remember the and ex ante, it's not post factor.
#
The price of that was one, this whole compensation that we say that regardless, we will pay the
#
states as a way of getting political buy in for this.
#
And the second related point was that we knew that so the compensation was a short term
#
You want to get political buy in.
#
But we knew that this one market would come at the cost of loss of fiscal sovereignty
#
And what the covid has the crisis has shown is that, you know, states have lost a lot
#
of fiscal sovereignty and their tax handles, as it were, are now much less than they used
#
And the way we kind of justified or thought about this ex ante is that you do the compensation,
#
you have the trust and, you know, yes, there'll be loss of sovereignty.
#
But the underlying system would be buoyant enough that you wouldn't feel that much.
#
It's not that you won't ever feel it, but, you know, but that trade off, I think, has
#
started looking a little bit more tricky now.
#
But it's see, remember, partly it's it's kind of endogenous to the way it's been implemented.
#
My own view, as I said in the piece yesterday, is that, you know, had we preserved the trust
#
between the center and the states, I think some of these things would have been less
#
So it was ex ante a calculation where we had a certain vision of politics and how federal
#
politics, center state politics to play out, which post facto has turned out to be a little
#
bit different from what we anticipated.
#
In fact, I have a paragraph in my book on the GST where I say that my kind of nightmare
#
scenario for the GST is that, you know, for whatever reason, trust breaks down and then
#
individual states say, look, you know, we disagree with the center and we're just going
#
to go back and do our own thing, at which point the GST would be just dead.
#
And therefore, I think, you know, the practice of politics, the practice of center state
#
politics in India is something that's absolutely critical to ensuring that because otherwise,
#
you know, kind of all bets are off.
#
And, you know, I just hope that this will get sorted out because that's an ingredient
#
that I think that maybe we just, I kind of knew a little bit, you know, what might happen
#
should center state, because remember when the GST was done, you know, most of the states
#
were aligned with the center, you know.
#
So conceptually, one did think of what would happen, you know, when the center state alignment
#
would vary, but I was just hoping that, you know, politics would evolve in a certain way.
#
So I think these were the, you know, really kind of conceptual questions about the design
#
of the GST, which I think, you know, I think about a lot more.
#
And some of it, frankly, we didn't, it's not that we didn't think about any of these
#
things earlier, but I think, you know, as they say, stuff happens, or as Harold McMillan
#
famously said, events, dear boy, events, you know, so that's, and some of these things,
#
you know, you can't just can't control.
#
So that I think on the UPI, I do think that there's a very serious, you know, risk.
#
And it is a design challenge that, you know, if it just becomes one more scheme on top
#
of every other scheme, whatever.
#
And this is a point that I think it's a kind of theoretical, but very deep conceptual point.
#
It's a point that I think I've heard Tharman Shanmugaratnam make in the context of Singapore.
#
He says, you know, ex ante a desirable design feature of simplicity might really be the
#
problem post-facto, and given illustration, right, that, so for example, in labour markets,
#
we generally have two different ways of doing things, right?
#
You can either have a minimum wage, or you have, you know, what's called an EITC, which
#
is basically like a tax credit for low income workers.
#
I think Tharman's point was that it may be ex ante minimum wage is actually a less complex
#
policy, you don't have to mess around the tax code, you just announce whatever, but
#
that very feature post-facto, if you get competitive populism, for example, it's easier to raise
#
the minimum, keep raising the minimum wage, then do you not say, you know, I'm tackling
#
some aspect of the EITC code, similarly, there's a there's a kind of risk with the UBI.
#
People say, you know, oh, you said 80 rupees a month, we will say 150 rupees a month.
#
And so this is a, but you know, but, you know, in the real world, you know, can you therefore
#
say, because of this risk, I will not contemplate UBI at all, or do you struggle with saying,
#
no, I will, but let me see what are the kind of checks I can build into this going forward.
#
And that's what makes, you know, politics and policymaking, you know, so bloody hard,
#
but also so important and challenging.
#
So let me get to another conceptual question now, but before I do, you know, what you said
#
about stuff happens reminded me of that famous John Lennon quote, life is what happens to
#
you when you're busy making other plans.
#
And I often use that, you know, at an sort of individual level to tell my friends why
#
I have, you know, written so few books in my life and so on and so forth.
#
But now you've given a new context to it of the state.
#
And I sort of totally get, and you know, one, what I have noted in your book and in your
#
writings is that that whole political maneuvering to make, you know, the cooperative federalism
#
happened where the center and the states work together is also miraculous.
#
And you know, an entire episode would not suffice to talk about that because that's
#
And also it's undoubted that, you know, I remember in Mihir Sharma's book, Restart,
#
he had an anecdote about how if you have to send a truck full of goods from two cities,
#
I forget which one, two of Madras, Bangalore, Chennai, Bangalore and Hyderabad, but from
#
one to the other, rather than go over state borders, it's cheaper to send it to Paris
#
and then have it sent to the other city from there.
#
And that's obviously one of the things that, you know, GST would have eliminated.
#
But my larger conceptual question is there, is that you were talking about trade-offs
#
and cost and benefit and so on.
#
And this is something that I thought about at the time of demonetization when costs and
#
And I, of course, you know, wrote against demonetization from day one.
#
I thought it was a largest assault on property rights in human history.
#
And it sort of seemed to me that when we talk of costs and benefits in that context, and
#
it became stark in the context of demonetization, but I guess this is an inevitable part of
#
public policy making anywhere, that when you talk of costs and benefits, you are talking
#
about costs to one set of people at one point in time and benefits to another set of people
#
at another point in time.
#
And in the case of demonetization, obviously, you know, the cost is so large to so many
#
people and the benefits are, you know, dubious and invisible that it seems beyond question.
#
So let's not discuss it in the context of demonetization, but in the context of any
#
public policy, whether it is, you know, GST or whatever, we often have to deal with tradeoffs
#
where one set of people get costs and another set of people get benefits.
#
And it seems to me to be sort of a danger to watch out for what Hayek would have called
#
the fatal conceit almost, that you can sort of, you know, treat these people as pieces
#
on a chess board and you can just sort of plan out that, okay, I lose my knight here,
#
but I get a checkmate there.
#
But these are real people, these are individuals who also deserve to have their autonomy respected.
#
And at the same time, these tradeoffs are inevitable.
#
You can't get around them in most public policy.
#
So is this something that you think about and then how do you guard against the kind
#
of arrogance that might come, for example, from being in the state and having all these
#
power over the lives of chess pieces as it were?
#
So, you know, you said, let's talk of it, you know, outside the context of demonetization.
#
Let me make it easier, more interesting, say, let me talk.
#
Let's talk about it in the context of demonetization.
#
So one of the pieces that I'm, you know, kind of proudest of having written is on the political
#
economy of demonetization in my book, you know, here, I don't want to get into controversy
#
and talk about, you know, good, bad, did I know, did someone else know, you know, all
#
But to me, it was just the most fascinating experience of political economy.
#
And let me, you know, kind of, you know, because you've thought about it.
#
Maybe you can, you know, tell me why I'm completely wrong to see.
#
Think about think about this, about demonetization, right?
#
It also speaks to your question about autonomy of respecting autonomy and so on.
#
And I don't even know how to, you know, given what I've seen, I don't even know how to think
#
about these things anymore.
#
So I think everyone would have agreed with you and, you know, that there would be a lot
#
of short term costs on a lot of people, right?
#
Maybe there was some, you know, potential long term benefits, whatever.
#
And you know, that's how it would play out.
#
And therefore, you know, both because there were a lot of people affected.
#
It was quite, you know, significant.
#
And, you know, the gains were more tenuous and long term.
#
So political economy would tell you that this would be a vastly unpopular policy.
#
I mean, this is, you know, when we think about, you know, political economy, we say that,
#
you know, even in the context of trade policy, we say, you know, if the losers are concentrated,
#
the gainers are diffused, even though aggregated, maybe greater the concentrated losers, I think,
#
sure, it was not even concentrated losers.
#
It was, you know, the vast majority and yet revealed preference, you know, I don't want
#
to draw to, but I think generally we would say that what happened in the U.P. election
#
afterwards was certainly not a reaction against.
#
If anything, it was maybe not a validation, but certainly relative to our prior that it
#
should have had a huge impact.
#
It did not have that impact.
#
So at least that, so I'm trying to still trying to understand why that is the case.
#
You know, it's a complete political economy puzzle.
#
It's a little bit like, you know, in the in the U.S. and others, even now, people are
#
asking, you know, this what's wrong with Kansas?
#
Why do, you know, white for white middle class voters vote for an administration that, you
#
know, threatens to take away the welfare benefits, provides tax cuts, which are not benefiting
#
How do you explain this, you know, people voting against their apparent self-interest?
#
Of course, there are arguments about identity here and so on.
#
But I mean, you know, it's like 80, 90 percent very badly hit, you know, and the intensity
#
you can see and yet they turn out and, you know, behave a certain way.
#
So how do you explain this?
#
And more and more I think about it, I think of these huge costs of demonetization as a
#
feature, not a bug in political terms.
#
And so that's why this autumn.
#
So it's like, you know, it had to be, you know, a cost inflicted on a lot of people.
#
And my explanation for this in ideas here, not a thing.
#
One is that, you know, you have to feel the pain for you to be convinced that it's a kind
#
of, you know, really important policy.
#
It has to be widespread in its impact because otherwise, you know, the charge that it was
#
selected because remember, the puzzle of demonetization is why did so many people have to be hit in
#
order for these benefits?
#
You know, if you really wanted to, you know, go after the rich, you have selective policy
#
instruments to go after the rich.
#
You don't have to take a huge swipe at so many people in order because you can do tax
#
rates, you can, you know, you raise taxes.
#
So you have selective instruments.
#
But this was a conscious policy to use a bludgeon of an instrument, you know, for some political
#
So that's the puzzle that because remember, the other thing in this was it's interesting
#
right that, you know, many people said just to the why was the five hundred rupee note
#
all done by also the thousand because after all, with the five hundred rupee note, you're
#
more likely to hit more poor people because, you know, relative to the gains.
#
So there was this puzzle about this.
#
And you know, my explanation for it is that, you know, it had to be huge because then it's
#
like Thomas Schelling said, you know, in a strategy of conflict to show that you're doing
#
something big, it's credible that it has to be costly.
#
You can't do things on the cheap.
#
So it's like situating your nuclear shelter right in the middle of the city because you
#
show that, you know, that's a credible commitment.
#
So the inflicting of the huge cost was part of that.
#
The fact that it is uniform was to prevent against any allegation of corruption.
#
And then, of course, maybe you tap into this notion that you want to sacrifice for a larger
#
But in that sense, what is one, therefore, to make of it that, you know, you say that,
#
you know, you should respect autonomy, especially if you're inflicting.
#
But the politician says, I have respected see, this is the proof.
#
So I kind of have some related thoughts on that.
#
First of all, I enjoyed your chapter on demonetization and off council very much.
#
And in fact, the whole book is fabulous.
#
I think all my listeners should pick it up.
#
And you raised a couple of interesting questions there and I'll share my thoughts on that.
#
I won't say I'm answering them, but I'll just share my thoughts.
#
One is, yes, the political benefit at the time blew me away because I thought they would
#
lose every district in UP and instead it was a landslide, right?
#
And my sort of couple of post facto explanations that come to mind and yours are also excellent
#
and I'll process them over time.
#
And one was, of course, the explanation of Schadenfreude that the poor didn't mind because
#
they also saw that it's suffering.
#
The other is that I think that Indians have such an ingrained state of fatalism that when
#
bad things happen to them, they don't necessarily ascribe it to the state because the state
#
has been a constant failure over the last 70 something years, as Landpich had called
#
So that sense of fatalism kind of takes you through.
#
But at some level, it doesn't matter what the explanation for this is.
#
The point is that you're absolutely right.
#
It was a political benefit for them.
#
I would perhaps dispute and you would maybe have more better insider information, but
#
I don't know how much intent there was behind this.
#
My sense of this is that Mr. Modi genuinely thought that this will solve the problem of
#
And because he has not bought anything from a store in the last 20 years, he probably
#
didn't realize that 500 rupee notes are something that are in everyday use.
#
And he must have thought it's only for storing black money under beds or whatever.
#
And my sense was that they actually believed that it would work.
#
And it so happened to work out in a way that it politically benefited them.
#
The other question that you raised that I don't have a convincing answer for is that
#
while you showed that it did hit the economy, you point out that it does not seem to have
#
hit the economy as badly as some people said it would when people spoke of a contraction
#
of eight, nine percent and all of that.
#
And to be honest, I myself overestimated the damage it would do according to the data.
#
And that is going to bring me down to a later question that when we know that so much of
#
India is informal sector and a lot of the data on how the informal sector is stuff that
#
we get by proxies, how reliable is that data and how much can we sort of taken into account?
#
But that still doesn't answer sort of the core conceptual question that even if the
#
politicians knew that we will make them suffer and we will win votes at the end of it, it
#
still doesn't justify causing suffering.
#
And that dilemma still remains that how can how do we talk about costs and benefits at
#
a time where the costs go to one set of people at one time and the benefits to another?
#
Like how does one sort of resolve this and where does one draw the line saying that no
#
matter what the costs are, this is where we draw the line.
#
The costs will not exceed these like can one think about these?
#
So again, I mean, I'm going to first take you up on you've raised a number of questions.
#
So three things, one on the demonetization, one on the data and then on the broader justifying
#
All three on the Shaden Freud thing.
#
As I said, remember that I don't fully buy the Shaden Freud because you have selective
#
instruments if you want to make a show that you want to go after the rich, you can do
#
I mean, why should I suffer to inflict, you know, that's kind of a mystery that I think
#
the fatalism point, you know, it may be true, but, you know, the point is that, you know,
#
even Millen, Vaishnav and others have done something that certainly there was a period
#
in the 2000s where we felt that, you know, there is a kind of law of Indian politics
#
that, you know, there's anti-incumbency that, you know, whatever, you know, no matter what
#
happens, that's not inconsistent with the fatalism argument.
#
But we did see for a period, you know, good performance being, you know, validated in
#
the polls, you know, you know, you know, whether it was in Madhya Pradesh, Shivraj Chauhan or
#
the reelection in Odisha, you know, there was a period where so the whole fatalism thing,
#
it may be true in some times, but it does beg the question of why it's also not true
#
On intent, of course, what do I know, who knows what intent was, but, you know, I think
#
there are signs here and there that we can pick up.
#
I think the 500 rupee note, I think that there was input showing that, you know, the 500
#
rupee note, there must have been input that, you know, 500,000 are very different in terms
#
And if you look at some timing of these things, so I think you can't, you know, I don't know
#
intent is finally, but certainly, you know, I think there was some maybe some intent,
#
but certainly in terms of consequence, I think the whole thing now on the impact on the economy,
#
I've been surprised as well.
#
So it is certainly true that some of the impact is not picked up in the data.
#
And I think we should completely think.
#
But I think even allowing for that, you know, the impact turned out to be less than we thought.
#
And, you know, there's also a recent paper by, you know, the IMF chief economist, Geeta
#
Gopinath, saying that, but for me, the most surprising aspect of this, which, you know,
#
we wrote about, you know, Josh Feldman and I wrote about in that 2019 paper about the
#
slowdown, even pre-COVID.
#
I think what I think we didn't fully anticipate was, remember, de-monetization, one angle
#
Look, again, this is not, I'm not taking any stand justifying or not, this is a much
#
broader question, but it did lead to a de facto financialization of savings, you know, kind
#
of the money under the carpet coming out, which then led to, you know, the mutual funds,
#
So in 18, you know, I think 17, 18, there was a period when the economy had a bit of
#
a mini boom, as it were, partially fueled by the financialization of the savings and
#
some of that going into lending to real estate and so on.
#
So this was against some kind of not completely anticipated consequence.
#
So in that sense, de-monetization, you know, when someone does a kind of dispassionate
#
economic analysis of this, you know, five, seven years, I think it's going to be, you
#
know, whatever all this, not taking away from the fact that the costs were huge.
#
Now, you come to this, you know, how do you justify this, right?
#
You see, I think, you know, the great moral philosopher and intellectual of our time,
#
Donald Rumsfeld once said, you know, you go to back with the, you know, army you have
#
war with or not the army you wish you had.
#
So, you know, when you talk about, you know, how do you justify this?
#
You are, Amit, if I may say so, you are coming dangerously close to a framework that you
#
actually don't, that you would disavow completely because, you know, it's not as if, you know,
#
you can do meta, go meta over and say, you know, some meta entity says this is justified,
#
You know, in these things, by definition, these are judgments that are made through
#
And therefore, you know, in some sense, these validations come from within this, from within
#
the system, not by, you know, a planner or a moral planner, you know, that Amit should
#
be completely against because he's against, you know, the conceit of the regular planner.
#
So, in that sense, so all you can do is therefore, you know, in democratic politics, you know,
#
the different, you know, constituencies have to have the kind of, you know, say and influence
#
and power in democratic politics, because finally, that's what you work with, you know,
#
you can't kind of go above a system, you know, whether it is ideas or interests, I think
#
you have to, I think, you know, that's the sense in which I think you should read, there's
#
a very nice piece by Jean Drez about two years ago, you know, it is this thing about who
#
decides and for whom and, you know, and therefore, you know, how do you ensure that the poorest,
#
in this case, as you yourself said, a lot of poor people got affected, you know, you
#
know, they were suffering from some grand false consciousness of Marx and, you know,
#
went and voted in a particular manner.
#
But how do you protect them in the process?
#
I mean, they have to be empowered, you know, so it's basically you come back to saying,
#
how can democratic representative politics be much better done?
#
Because only then do you get these better decisions being made, because you go to bat
#
with democratic politics, not with some, you know, meta welfare system of decision making.
#
So that's a fantastic kind of addresses my query completely, because, you know, I buy
#
the fact that, you know, we are my statement was not an absolutist statement that Oh, look
#
at the costs and we should not do this.
#
I recognize that even in doing nothing, there are costs and benefits.
#
So you are making a choice, no matter what you do, especially when you have the sort
#
of coercive power of the state with you, which which can bring us to another question, which
#
perhaps we'll leave for some other day before we go to a commercial break and then come
#
back to talk about your time as a CEO.
#
But the other question that it then leads to is that even within a democratic system
#
where you're juggling different interests or whatever, where do you draw the line?
#
Where do you draw the line and say that no, the costs are too much here?
#
And, you know, is that something that you simply let interest aside?
#
Or is there some other compass or some other set of rules that can guide that?
#
Because you know, there is that famous cartoon about two wolves and a lamb debating what
#
And one of them says, let's put it to the vote.
#
So that there's also sort of a danger there.
#
Let's take a quick commercial break.
#
We shall leave India for just a moment and visit Machu Picchu.
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If you enjoy listening to the scene on the unseen, you can play a part in keeping the
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The scene on the unseen has been a labor of love for me.
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And hopefully yours as well.
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Keep this thing going scene unseen dot i n slash support.
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Welcome back to the scene on the unseen.
#
I'm chatting with Arvind Subramaniam.
#
And finally, after two hours of digressions and talking about ideas and concepts and so
#
on, I'm delighted that I've reached the specific moment where he becomes a chief economic advisor.
#
You mentioned you were on holiday in Machu Picchu when you got the phone call asking
#
if you'd be interested.
#
So kind of take me through the process of what your thinking was about the job.
#
Should I take this job?
#
And also your early days in the job where you described this as quote, the most exciting
#
Yeah, you know, family that we were all in Machu Picchu taking a family holiday.
#
And in fact, I got an email from, you know, someone asking whether I'd be interested in
#
And of course, you know, this is kind of the dream job for, you know, most economists who
#
are interested in policy and if you're interested in working on your own country.
#
And remember that, you know, the wonderful thing about India is that, you know, this
#
notion, this concept of a technocratic policymaker, you know, either working with or in government
#
I mean, it goes back, you know, decades, you know, even if you go back to the 60s and 50s
#
series of, you know, economists who've worked in for with government.
#
And so this was just and also remember, you know, we spoke about the would would be reformers
#
who came to government in the in the 70s and 80s.
#
You know, we know the, you know, very illustrious people, you know, Monte Calvalia, Shankar
#
Acharya, Rakesh Mohan, you know, Vijay Kelkar, you know, so many.
#
And I should name many, many more.
#
And then, of course, you know, Kaushik Raghu, all these people.
#
So it really is, you know, for an economist, you know, if you care about policymaking.
#
So, so for me, it was not a difficult decision at all to accept.
#
I mean, the only question was how you'd sort out the, you know, my family was still in
#
the US, son was still, you know, in the last years of school.
#
So, you know, we had to work that out.
#
And but so I went to India.
#
I kind of met a few people, met Mr. Jaitley there.
#
And then, of course, you know, what happened, I thought I was about to get the job.
#
And then for two months there was, you know, there was radio silence from the other end.
#
And of course, you know, apparently some pushback.
#
But finally, you know, it happened.
#
And of course, Mr. Jaitley also had his operation, then his bariatric surgery, that's also the
#
And then, of course, when I came, I came with a sense of, you know, this is a dream job
#
in terms of, you know, all the things that needed to be done and could be done.
#
And I was really a man on a mission with, you know, thinking about nothing else and
#
from, you know, what needs to be done, how it needs to be done, what teams do we need
#
to build, what are the various aspects of policy you want to get involved in, how to,
#
you know, I did spend a fair amount of my time, you know, thinking about the Indian
#
Economic Service and how to build capacity for them and, you know, all of that.
#
And then, of course, the public communication part of it, right?
#
I mean, you know, I had this, you know, maybe a completely misguided, deluded desire that,
#
you know, everything that one does should be communicated in a way that kind of raises,
#
you know, the level of discourse on these issues in India.
#
That's why, you know, when you look at the economic service, the point was, it must be
#
very rigorous, obviously, but it must also, you know, it must come alive to people.
#
And I don't know, I guess the motto for all this, the inspiration was that there's a famous
#
quote by John Maynard Keynes about what it takes to be an economist, you know, should
#
read that quote, you know, he must be, you know, mathematician, economist, he must be,
#
you know, aloof, but he must be in the weeds, you know, it's like he must be
#
And that's the sense in which that's the kind of thing I had that and, you know, it was
#
very, very fortunate for me that I just had a dream boss who, you know, open, constructive.
#
It's not that he agreed with everything that I said or not, you know, sometimes completely
#
think, but, you know, you that open communication and, you know, and giving me both the freedom
#
and the protection actually both to do this.
#
And, you know, that's why, you know, I said I would, I would get involved in everything
#
and the other in terms of the how I think what is really critical.
#
It's a point that, you know, Pratap made in your piece as well.
#
I think that when a kind of technocrat comes into policy making, he should be given no,
#
I mean, he should not, he or she should not think that just because he has an expertise
#
therefore that kind of exempts him from the nitty gritty of, you know, building teams,
#
you know, working with people all down the hierarchy.
#
And, you know, I really did want to, for example, when I worked on the GST, I used to work with
#
people, you know, undersecretaries, joint secretaries, you know, really because, you
#
know, they have so much value and knowledge and it's not that I'm doing them a favor.
#
They were, you know, doing me a favor because they knew.
#
So just this working with as many people as possible in government and to do as many things
#
I was just driven by that and I really wanted to do all that I could.
#
And of course, the economic surveys provided a forum and being involved, I think, in some
#
critical policies like the GST also provided, but I did overreach, you know, I did think
#
that I was no CEO has any business to be involved in because I felt that, you know, at the level
#
of ideas, you could contribute even more than, you know, there's a part where you have to
#
get into the trenches and do these things.
#
But like in the Keynes Court, we should also be able to provide, you know, the big ideas
#
around which you can have discussion, you know, whether they're going to get implemented
#
You know, it's not, you know, up to you, but, you know, can you provide what I would call,
#
you know, can you soak the intellectual ecosphere with ideas than that, you know, that others
#
can reject or dismiss or accept or whatever.
#
So that's what, you know, it was really an opportunity to do a lot of things.
#
I enjoyed your economic surveys a lot, especially the fact that, you know, you're starting each
#
chapter with a quote from a work of literature and so on, far more readable than, you know,
#
other such documents that I've read.
#
And the interesting sort of thing that kind of struck me while reading your book and while
#
reading what else you've written about it is that I was, if I may say so, filled with
#
admiration for the man, which is you, but ambivalence about the post, because as you've
#
described the post, your only job, the only job of the chief economic advisor is the economic
#
And after that, it's then up to the man that what can I do?
#
And you pointed out how you went about it with a sense of humility and team building
#
and you had been advised, I don't just talk to the secretaries, talk to the joint secretaries
#
and you put in that time of effort and there's another great quote from you from an interview
#
that you did with Shekhar Gupta, which I'll link from the show notes where you say, quote,
#
one thing we must try and avoid as economists is to try and trace a direct link between
#
what you say and what gets done.
#
It's much more complicated and subtle than that.
#
You feed the ecosphere of ideas and policymaking and various other forces come into play and
#
then decisions are taken.
#
So you point out about how one, you're building a team that has both insiders from the Indian
#
economic service, as well as outside consultants, and you're making them kind of work together.
#
Two, you're in touch with all the joint secretaries and the bureaucrats and so on.
#
Three, it so happens that you have a very good relationship with the minister who's
#
your boss and all of these things are working.
#
But what struck me while reading all this was that you build these relationships and
#
therefore you've had whatever impact you have.
#
Some of which might even be diffused and hard to define precisely, but isn't this something
#
that should be a little more systemic, built into the role of the position itself rather
#
than just say that, OK, the job of the CEA is to do the economic survey every year and
#
after that, it's all up in the air.
#
So it's something that I have thought about, but can I draw the analogy with institutions
#
and politics in all these things that are kind of formal rules, setting of objectives,
#
even monitoring outcomes, whatever.
#
You have the whole system of formal things, but then so much of what we know about outcomes
#
are determined by individuals and the informal network of relations that you build.
#
So the question is that I just feel that if that's true more broadly, why should it not
#
be true of any significant post in government like that of the CEA?
#
So I think that we have this slightly exaggerated importance in formal structures and formal
#
rules and not enough attention we pay.
#
I mean, that's not to say that maybe you shouldn't define a few more things, for example, and
#
maybe there is scope for that.
#
But had I had a different boss or had my temperament been a little bit different, regardless of
#
what the formal rules were, the outcomes would have been very different.
#
So I just feel that there should be both a set of formal set of rules, but a lot more
#
gets, it's like politics as well, there are politicians who do well and politicians who
#
don't do well, it's by dint of their personality and so on.
#
So why would that be any different here?
#
So while that's not a thing to not have some more kind of structure, I mean, but I think
#
there is enough structure to kind of give the opportunity to the incumbent to kind of
#
play a helpful role, both inside and outside government.
#
And you know, many of us have an impression of the state, which comes especially for people
#
of my generation from watching Yes Minister and Yes Prime Minister, where you know, Parkinson's
#
law that the only thing a bureaucrat wants to do is expand their budgets or their power
#
And but you know, of course, in Yes Minister, your caricature bureaucrat is deliberately
#
obfuscatory, while whatever I've heard from people who work within the system in India
#
is that bureaucrats are often incredibly smart, well-informed, well-meaning, they want to
#
And yet it seems sometimes that the system is so creaky and things happen so kind of
#
at snail's pace, so, you know, even with the best intentions.
#
I'm very fascinated to know about sort of your experience in the belly of this beast.
#
I would say that, you know, I went in and I have come out with an enormous admiration
#
for all the, you know, most of the, you know, colleagues that I've worked with, you know,
#
right down the hierarchy from secretaries to, to the lowliest, whatever, I say lowly
#
and only in a hierarchical, not in a, in any pejorative sense at all.
#
You know, there are people at the lower end who have so much to contribute as well.
#
And I think my default mode was people were helpful, people were constructive, people
#
were, you know, wanting to, you know, be nice and good.
#
But yet it is that, you know, the sum turns out to be a little bit, this is what you were,
#
I think, implying as well, the sum does turn out to be a little bit different, you know,
#
But, I mean, that being said, I think that I would not succumb to any kind of cynicism
#
or, you know, negativity about, you know, the quality of staff and the quality of state
#
capacity when government, I mean, they're just exceptional people, you know, across
#
And, you know, you will get your, you know, in any institution, you will get your, you
#
know, people on the left tail of the distribution, I mean, it's not a, but you certainly don't
#
get more of that, say, in the Indian government.
#
And I would say on the right tail, you get a lot of exceptional people on the right tail
#
that you can work with.
#
So, you know, so that's why I think that, you know, certainly as kind of personal advice
#
or whatever, to work in government is kind of still the, you know, a high calling.
#
It's a worthwhile calling.
#
And I would urge, and that's why I do believe strongly that, you know, all the technocratic
#
services like the Indian Economic Service and so on, I think, you know, we must invest
#
a lot in improving their capacity, their training and so on, because I think ultimately it matters
#
You see, just stepping back a little bit, you know, Amit, you know, I think there was
#
a view of the world, and I think it's a legitimate view that, you know, what the state needed
#
to do was not to do certain things, but I think we've come round to the view while that's
#
I think that, you know, the state also has to do a lot of good things, you know, and
#
I think this kind of, and I certainly saw myself, my office, the Indian Economic Service,
#
other parts of government as very much part of state capacity.
#
And you know, when, you know, the, for example, the economic surveys were, you know, reasonably
#
well read and, you know, internationally also well read, I felt that, you know, this was
#
really an effort to show that Indian state capacity could deliver at, you know, international,
#
you know, levels of, you know, efficiency and standards, and sometimes maybe even more,
#
and that it's doable, that we have the ability to do that.
#
It's not because we don't have the talent or we don't have whatever, you know, or we
#
have, you know, this image of, you know, the kind of bad bureaucratic state at all.
#
I think that the Indian state certainly allows opportunities for people to, you know, express
#
themselves and contribute as much.
#
So I would not at all succumb to any kind of cynicism or negativity on that score.
#
And it's not just true, you know, you know, my being in CA, I mean, it's been true.
#
How many technocrats have done such good work in Indian government?
#
I think that's a, it's really, but it is true.
#
I mean, all that being said, a lot is going to, so, so partially answering your question
#
of then why does the sum turn out to be different?
#
I mean, it's certainly, you know, the usual, what is the ecosphere of ideas, you know,
#
politics, political compulsions, interests, and so on, you know, obviously, they're going
#
to have a final say in what gets done.
#
So then I think that, but the input on the part of the technocrats can be as good as
#
needs to be, and I don't think the system holds that back in any systematic way.
#
That's what I've heard from all my friends in policy, that there is no shortage of intellectual
#
capacity, that even in terms of mindsets have gradually changed, which is why it's constantly
#
kind of baffled me that for so many years and so many of the different areas, like agriculture,
#
for example, or education or whatever, we know what the solutions are, we've, you know,
#
the journalists have been writing about it for 20, 30 years, it's part of the ecosystem,
#
the ecosphere of ideas, as you say, and yet nothing seems to get done, which was a mystery
#
And I guess one part of the mystery could be just politics, like it has always seemed
#
to me that, you know, politics becomes a fatal flaw when you want to carry reform out because
#
the incentives of politicians, you know, deviate in two significant ways.
#
One is the short-termism that they need to win elections all the time and therefore they
#
want to do something which will show results immediately and not 10, 15 years round the
#
line and which is attributable to them.
#
And secondly, in the sense that populist ideas sell, that a lot of the ideas, the more complex
#
ideas of economics like spontaneous order and the positive some nature of voluntary
#
interaction, they're deeply unintuitive.
#
People don't get it well, people very easily get, you know, ideas of welfarism and handouts
#
and things which sort of coincide with our intuition of the world as a zero-sum game,
#
which of course it's not.
#
So you know, how was it for you to then sort of work with politicians within the system
#
and did you, when you were selling reform to them, did you have to add a layer of it,
#
not just a layer of what is an economic benefit, but what is a political benefit?
#
Absolutely, see, I think that, look, fundamentally I think one way of putting it would be to
#
say that if you did not believe that good economics was good politics, right, we should
#
just give up on our thing, right?
#
But the only thing is that you qualify that or you at least reconcile yourself to the
#
fact that, you know, the horizons over which that might happen might not be, you know,
#
one election, but, you know, whatever.
#
But even within that, I think, you know, people, you know, I certainly did not subscribe to
#
the views that you give the technical thing and, you know, let the politics take over.
#
No, you know, lots of my discussions with, you know, with the senior politicians would
#
be to say why, you know, good economics is good politics and, you know, you know, sometimes,
#
you know, as again, I think the Keynes Court that, you know, you have to behave like a
#
grubby politician, you know, you have to be in the trenches, you have to use all the arguments
#
that you can, you know, for example, in the case of the GST, for example, you know, I
#
would, you know, say that we need low rates because, you know, you're a party that believes
#
in, you know, low taxes and, you know, lower inflation.
#
So, you know, so harnessing those kinds of arguments to make your case I think are critical.
#
So I think that, but if fundamentally good economics is not good politics over various,
#
you know, over a sufficiently long period of time, then of course it's a difficult thing.
#
But I do want to come back to one, you know, so when we talk about the sum and the parts,
#
right, what you said, you know, the supply of capacity, but the outcome depends upon
#
the demands of the demand side, which is politics and so on.
#
So here's, I think, I don't know whether this came up in your talk on education.
#
So it was very rewarding or very heartening in a certain period in Indian politics when
#
you felt that anti, routine anti-incumbency gave way to, you know, electoral politics
#
being rewarded by good or bad performance, rewarded through good and penalized through
#
But here's, I think, one of the biggest, biggest, take the field of education, for example,
#
It was the original sin, we didn't do a basic education, but just a kind of a puzzle of
#
Indian politics that I kind of still grapple with is if you have a lot of poor, uneducated
#
kids, why does democratic politics not make the provision of that an electorally, you
#
know, rewarding exercise?
#
So that's kind of the demand side that, you know, all of us, you know, we may say, you
#
know, no simplicity in the GST, but, you know, finally, at least democratic politics should
#
So in the case of education, you see, and remember, because it's a state subject or
#
at least whatever, this is a question that over 70 years, why was it not the case that
#
some state government somewhere in time, you know, because, you know, it's not that there
#
are, you know, 10% of the population is uneducated, it's like, you know, massive amounts.
#
So you would think one, but second, the puzzle gets compounded because in the post liberalization
#
era, when the private returns to education went up so much, you know, why didn't people
#
get even more things saying, look, you know, it's not a social good, it's a private good,
#
my kids will get better jobs, get higher salaries because this, why didn't that also, I think,
#
you know, so if that part of the puzzle is in some sense inadequate or missing, then
#
you will always, you know, flounder in terms of, you know, the kind of, almost the frustration
#
that you feel that how come outcomes are so disappointing relative to this, you know,
#
I think that's kind of, you know, fundamental in democratic politics.
#
And that's why, you know, I'm not a partisan, I have no party affiliation or anything, but
#
it did seem to be the case that, you know, the armed army party in its first term staked
#
its electoral fortunes on health and education, on the provision of health and education.
#
That was made it a really interesting thing because they were saying, look, crudely speaking,
#
you know, vote for us because we provide your kids health and education.
#
So if that, you know, and that's true, not just in education, but in other places as
#
well, so if you're in this system of democratic politics, you always have to, you know, wonder
#
or take account of the fact that, you know, if there's a gap between outcomes and capacity,
#
there is a, you know, that black box of democratic politics, which I think is going to invariably
#
And so, you know, cracking that in some sense is going to be more as important as just having,
#
you know, smart people in government, smart technocrats in government.
#
No, no, that's very insightful, what you just said, but the two halves of what you just
#
said seem to be at cross purposes because, you know, I agree with you that good economics
#
should be sold as good politics for it to get through, but it doesn't seem to me to
#
be the case that good economics is good politics because, you know, demonetization was good
#
politics and I don't think it was good economics, but even apart from that, I mean, I think
#
it is evident that if good economics was good politics and given that politics is a game
#
of supply and demand, you know, we would all be doing well.
#
All policies would be good because, you know, politics would see to that, but that seems
#
to be to be not be the same and I wonder if you have any candidate answers for the question
#
that you pose that, you know, given that we are so uneducated and people want it and all
#
of that still the state hasn't been able to, you know, fix the problem, which would, you
#
know, seem to, you know, which is a very powerful and evocative rhetorical question because
#
obviously it's a great moral feeling of the Indian state that we have failed so miserably
#
in this, but what are sort of your candidate answers for that?
#
Why is it the case that, you know, the supply hasn't caught up with the demand in terms
#
I mean, you would have to get into, you know, what are the feelings of Indian democratic
#
politics more broadly and I think that, you know, certainly the fact that, you know, the
#
points that you said are not unimportant, you know, so I think one point that you made,
#
I think is really very important and I think it's worth emphasizing.
#
It's not so much the short term thing, but the related, you know, in politics, you know,
#
attribution and getting credit for what you do is like, you know, absolutely fundamental
#
democratic politics and I think that's, you know, when you think about why did this government
#
choose the public provision of private goods and services, that's part of the answer.
#
You know, if you produce, you know, if you say I produce more growth, the link between,
#
you know, the outcome and who was responsible for that outcome gets, you know, attenuated
#
as it were, but when you provide the toilets, when you provide this or all of that, for
#
example, I think that actually, so the thing with, you know, with things like health and
#
education, certainly, you know, education, the fact that it's not, because remember,
#
so the attribution thing that you raise, there are two dimensions to it in India.
#
One is what we just spoke about, you know, who gets credit, the second thing is that
#
that gets mixed in with federalism.
#
So for example, you know, if someone at the centre wants to do something that was the
#
prerogative of the states and, you know, cannot get credit for that, it's going to be under
#
So, you know, schooling and health are provided by state governments and therefore, you know,
#
you want to, you know, not emphasise that because, you know, if you just give more resources
#
and God forbid it actually succeeds, you know, someone else is getting the credit for that
#
and you don't and that's why also if you see, for example, the health schemes that
#
were started were schemes that for which the attribution could be for, you know, the person
#
at the centre providing this.
#
So I think it's, so for me, that was a new learning experience, you know, we know good
#
economics, we know the short-termism, but how do you satisfy this, you know, and that's
#
intrinsic to politics, you know, you get elected, but in a sense, but remember that in a sense
#
that should also take away your cynicism because you know that if a politician is craving attribution
#
then, you know, it matters to the, you know, he knows that it matters to the voters for
#
him to want attribution in the first place and therefore, you know, it should kind of
#
say that, well, how can I do things that, you know, that can not only be done but for
#
which, you know, attribution can be, you know, appropriated as it were so that it also makes
#
So I think these are, I mean, I think this attribution thing is just so, I mean, that's
#
also why, you know, when leaders kind of want to do schemes, they want it to be associated
#
with them and, you know, and not with anyone else, you know, so it has a downside and it
#
has it, but it can potentially be harnessed, but it's just something that you cannot ignore
#
about democratic politics that, you know, so if it were the case that, you know, I guess
#
if it were the case that, you know, somehow you could show within five years that your
#
child, you know, because of what I did got actually got a better job and more earning
#
power problem is that can't happen, you know, that there is a, so there is a problem, you
#
know, attribution cannot be, you know, if there are things that have long gestation
#
lags, you have to contend with that as well.
#
So it just makes, you know, policy making more difficult, but again, not shouldn't fall
#
prey to, you know, giving up or a cynicism, but that's what, you know, that's what I would
#
You know, that issue of attribution is a fantastic nuance, but it also strikes me that, you know,
#
in some cases, for example, let's take agriculture, right?
#
I was going to come back.
#
I was going to come back to agriculture, by the way, but go ahead, but go ahead.
#
Yeah, no, it is often the case that the demand would be for a policy that is bad economics
#
and not for something that is good economics, for example, you know, the farmer may not
#
want the removal of MSPs or fertilizer subsidies, but may instead want a farm loan waiver and
#
often a farm loan waiver is a necessary anesthetic.
#
So I'm not disputing that, but the really the core structural reforms like the removing
#
the MSP or removing fertilizer subsidy or power subsidy, for example, which makes Punjab
#
grow so much rice when it has no business growing rice, for example, those can never
#
happen because those cannot be sold politically.
#
And that seems to me to be a clear instance of where, you know, economics and politics
#
run counter to each other.
#
No, but see, but let me actually a little bit push back a little bit, right?
#
So look, the world over, you know, once you give an entitlement, taking away an entitlement
#
is, you know, it's a universal law of politics that, you know, it's called the third rail
#
here, you know, whatever, you know, there are some things.
#
So I would not say therefore, you know, the fact that you can't take away subsidies is,
#
you know, bad politics, right?
#
So the challenge therefore for policymakers and politicians is in fact, you know, so just
#
to give a concrete example, you certainly cannot take away fertilizer subsidies on its
#
But look at the two successes that have happened, right?
#
And so this tells you that the options are in one is that supposing you tied the taking
#
away of the subsidy to a universal basic income.
#
So you linked two reforms in a way that you don't take away an entitlement, you just replace
#
it with a better, more efficient entitlement.
#
So that's a way forward for, you know, thinking about policymaking in creative ways.
#
The other thing, of course, is that remember how the petroleum subsidy was eliminated in
#
It's just very small, but very frequent changes over time.
#
So that, you know, it's kind of the behavioral economics insight where you say, you know,
#
you don't want to impose huge costs suddenly, the costs are spread out over time.
#
And then you can, you know, in that case, even without replacing it, you weren't able
#
to eliminate the subsidy.
#
So I think there are lots of ways like that.
#
So I think the other kind of behavioral economics thing is that the whole give it up scheme
#
early on, for example, right, is a kind of way of, you know, can you kind of use name
#
and shame kind of things to, you know, say it's like the way I would implement a universe.
#
I had this kind of fascinating discussion with the Telangana Chief, Mr. KCR, on his,
#
you know, he was the original scheme, the Raithubandhu scheme, right?
#
That was kind of in some ways India's first, you know, kind of, kind of, I mean, to be
#
a universal basic income kind of scheme, not quite, but sort of, and, you know, talking
#
with him about the politics of that is actually fascinating.
#
So if you think about it, right, my preferred thing is not a universal basic income, but
#
a quasi universal basic income.
#
I don't give it to everyone, give it to everyone, but someone, a few at the top, because, you
#
know, you can make it more affordable, you can make it less costly.
#
And also the notion that, you know, you know, you know, the big businessman doesn't don't
#
deserve a 10,000 rupee check.
#
It's kind of never right.
#
And also it may be more, more easier to implement.
#
But here's where ideas like, you know, don't make it, don't make the taking away mandatory,
#
but kind of make it voluntary, for example.
#
So there are lots of ideas like that, which can, you know, make, you know, reasonable
#
policy making, you know, good policies feasible and not say, you know, take, you know, nowhere
#
in the world can you take away an entitlement and say, you know, this is a, you know, and
#
And, you know, again, it's the task of policymakers and technocrats to kind of internalize this
#
when they talk about policy making.
#
Looking back on your time as chief economic advisor, what would you look at, you know,
#
as your biggest success, maybe not a specific policy, but just a process you put in place
#
or whatever, what frustrated you the most and most interestingly, is there something
#
that you've changed your mind on, you know, during the course of becoming the CEA?
#
That's a great question.
#
See, I think that, you know, in terms of any one, you know, any one thing, I think it'd
#
be difficult to say because, you know, I guess what, you know, I would want a kind of people
#
to take away is that, you know, fundamentally what we spoke about, that there are things
#
that are doable, you know, across the board.
#
It's not any one thing, you know, whether it's better advice for policy making, better
#
analysis, better communication, you know, so a whole more training, building capacity,
#
working with youngsters, you know, lots of things are, I think.
#
So it's more, we should have more ambition about state capacity in some ways.
#
I think that's what I would hope, you know, maybe there'll be people who say, no, it shows
#
exactly the opposite, you know, there'll be people who say that as well.
#
On, you know, I certainly, I write in my book that, you know, I think the fertilizer subsidy
#
is, you know, I worked really hard on that and, you know, nothing really happened.
#
And, you know, that for me was kind of a big disappointment, which, of course, there were
#
I mean, the way the kind of GST turned out relative to the original conception, I think
#
that also was left me, you know, a little bit, but I think hopefully these are not irretrievable
#
I think I hope they can be rectified.
#
The last question about, you know, I mean, I have changed my mind on, you know, specific
#
aspects of, you know, even the whole GST, what we spoke about, you know, the trade-off
#
between efficiency and the loss of fiscal sovereignty, I, you know, I think I have learned
#
that, you know, maybe that trade-off is much more complicated than we originally thought.
#
I think that, I think we didn't go into this, but the whole kind of measurement issue, which,
#
you know, I think is also something that I feel we, you know, maybe we could have done
#
And, you know, although, you know, I did try to do within government, that's something
#
that, but I fundamentally come away more feeling that, you know, a kind of optimism and hopefulness
#
that these are opportunities for doing rather than the more kind of pessimistic, cynical
#
view that, you know, that actually this experience shows, you know.
#
So in some ways, my ex ante going into government, as I said, was that, you know, ex ante, I
#
thought that actually it would be much more difficult, you know, ability to do things
#
would be much less, but I come away actually having changed my ex ante perception of this
#
and certainly feel that these are all opportunities for, you know, what should be more optimistic,
#
you know, proactive and have the belief that, you know, things can be done well and done
#
well and rather than the others.
#
So there is a change in my ex ante view, but ex post, I come away thinking that, you know,
#
in that sense, ex post, I feel, you know, not, I have not changed that much about looking
#
back that, you know, you can do a lot.
#
And so, let's see, I think that's what I kind of come away, you know, in particular
#
regrets, particular highs, I think there will be, but, you know, those are, but fundamentally,
#
I think, of course, with the caveat always, there's a caveat, and I don't want to, the
#
caveat always is that all of this is subject to the broader, you know, configuration of
#
personalities and politics, you know, I don't want to by any means discount that.
#
So that's kind of, I mean, that's a card that, you know, you don't control, so that you just
#
I must confess here that, you know, I'd expected that over this time, you would have become
#
less hopeful, but it turns out that you're actually more hopeful, which, you know, should
#
give all of us hope as well, that maybe there is scope for change in the system, I've taken
#
So I'll come to my penultimate question now before I go to my final question, which is
#
a penultimate question is that, and I want this to be a pre-COVID question that before
#
COVID happened in March or in February, whenever, if you were to take stock of the Indian economy
#
as things are today, and sort of describe what is wrong with it and what the big dangers
#
are and, you know, what are the things that we should be worried about?
#
Like one subject that we haven't spoken on at all during this, but you've written so
#
much on is the financial system, the credit crisis, you know, I was part of this reading
#
group which was active last year, which was run by Ajay Shah, and he brought your friend
#
Josh Feldman to it a couple of times, and Josh used to be, you know, used to scare everyone
#
by talking about how the credit crisis was such a cancer within the Indian system and
#
was just affecting every other part of the Indian economy and how disastrous it was,
#
and I get the same sense when I read the things that you have written that I think that, you
#
know, people who are not familiar with policy and, you know, the actual particulars don't
#
really understand how bad things really are.
#
So is that your main concern about the Indian economy, like how would you sum up the things
#
You know, again, here I want to give the answer at two levels, right?
#
One is that, you know, even the paper that Josh and I wrote in 2019 when we said the
#
economy was in ICU, this is pre-COVID, right?
#
And remember at that stage, we said that the twin balance sheet problem had become the
#
four balance sheet problem because, you know, and by the way, I have to give two people
#
entire credit for alerting me to how important one is, Josh, of course, who from day one
#
has been telling me it's important, and of course, the work of Ashish Gupta, I think,
#
has been very, very influential in thinking about the empirical basis for that view.
#
But you know, in late 2019, we said that the twin balance sheet problem had become the
#
four balance sheet problem, right?
#
And in recent pieces we've written, you know, our view is that now rather than, you know,
#
identifying balance sheets which have a problem, it's probably easier to identify those that
#
don't have a problem because almost every balance sheet is short in India.
#
But here's, I think, a kind of, so I think that's problem number one, right?
#
But there's a kind of deeper question here, and I think I want to, you know, raise this,
#
you know, in the last minute, is that, you know, why is it that policymakers have not
#
taken this seriously in India?
#
Because that's the deeper question, you know, all of us can keep saying, but it's not resonating
#
with the kind of intensity that it should, right?
#
And I have two kind of tentative solutions for the, hypotheses for that.
#
One is that, you know, it's in the nature of these things that when you have big disruptive
#
changes like crises, you have more of a policy response.
#
When you have a kind of slow bleed kind of situation, which is what this whole financial
#
crisis has been about, because remember, we identified the twin balance sheet in 2014,
#
I think that, you know, that the slow bleed is, by definition, not conducive to, you know,
#
you say, okay, not five percent, three, four percent, or maybe five and a half, or whatever.
#
And that lack of that, by the way, and this is abstracting from the usual, you know, political
#
interests, commercial interests, you know, crony capitalism, all of that is there.
#
But I want to get to something, why don't policymakers respond?
#
And I think my second hypothesis for this is that, look, it's, you know, that India
#
has never had, the only major crises it has had are all macroeconomic and, you know, whatever,
#
you know, 66, we had the food crisis, you know, basically the four F's, you know, food,
#
fuel, forex, fiscal, these have been the source of crisis.
#
And usually they've been fairly disruptive and sudden and things, and people have responded.
#
So whether it's 66 or, you know, 91 or, you know, 2013 or now, now big things happen,
#
you want to respond, 1979, 80 as well.
#
This is like a slow bleed, not a slow bleed, but we've had no experience of this in the
#
So we have not been kind of, you know, socially kind of inoculated to this kind of, you know,
#
we don't, it's a bit like, why did the West, you know, not react as quickly to COVID as
#
I mean, remember, as Nietzsche said, that which doesn't kill you makes you stronger.
#
You know, East Asia was hit by pandemics, you know, serious enough, but which didn't
#
So they had this social immunity, Western Europe never saw a pandemic, so it was strong.
#
So in that sense, we've never had a history of, you know, financial crises, which have
#
It is exacting a huge toll, but it's gradual and it's unprecedented.
#
So I think that's part of the reason why, you know, the whole policy making, you know,
#
Josh and I have struggled with this, that, you know, you know, say he kept saying, boss,
#
it's a diagnosis problem.
#
It's not a, you know, and that diagnosis is, you know, elusive.
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It doesn't really, you know, resonate with people who have never had it before.
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What is, you know, financial crisis?
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I know we'll recapitalize the banks or, you know, credit, we'll get a bit more growth.
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So this is like, you know, a slow bleed and unprecedented with no kind of social inoculation.
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And that's kind of explains part of the reason why I think, so it's a kind of a little bit
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more conceptual kind of stepping back answer to yes, we have a massive problem in the financial
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system post COVID, of course, it's gotten much, much worse.
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And we have this deeper things, and then of course, you have that extra layer that, you
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know, if in a system, you know, the transparency of the reality is kind of obscured and hidden
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and things again and again and again, that is another thing that adds to sort of broader
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problem of, you know, kind of data transparency that, you know, I've written about in the
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context of the GDP and things that I think is kind of like a much deeper system.
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I don't know what, you know, Vijay Kelkar and Ajay Shah say about this in their book,
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but this is kind of very kind of deep, I think, and, you know, unless we can crack that as
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And by the way, it's true for the GDP, it's true for the financial system, it's true for
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the fiscal numbers, it's true for the unemployment numbers, true for the consumption numbers,
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you know, we've got the situation where kind of basic, you know, kind of the basic ingredients
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for integrity and accountability, I know, are kind of eluding us in that sense.
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And that is kind of very worrying as well.
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And that pertains, of course, also.
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So, in a sense, I've answered, I've tried to answer your questions at three levels,
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Yes, twin has become four, but the deep reason why we haven't responded, maybe even a meta
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reason for that is that the basic, you know, transparency, the ingredients for transparency,
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you know, I mean, it could be both supply and it could be all, of course, these are
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things that, you know, we don't have, you know, you get the data that you want to in
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So I think there's some of that as well.
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But, you know, that's kind of my view on these kind of bigger issues as well.
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That's very enlightening.
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And this episode suddenly became much darker, and it's going to get even darker with my
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Because if I go beyond that, we'll be in zombie apocalypse territory.
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But my last question is, is that we are now, you know, in the middle of this covid pandemic.
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And I don't even know if I should say middle because we don't know how long this is going
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I hope this is not just kind of the beginning.
#
And obviously, this is like to everything that was going wrong.
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This is a force multiplier.
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It's just a disaster has probably set us back many years.
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So sort of looking into the future, let me say that we are in 2020.
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If you look at 2030, you know, what's your best case scenario and what's your worst case
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scenario for India, keeping all this in mind and maybe I should.
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It's unfair of me to make covid part of the question because it will, you know, get into
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the territory of what the philosopher you like to quote Donald Rumsfeld calls unknown
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So just sort of leaving covid out of it and assuming that it, you know, a vaccine comes
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along soon and it doesn't get too much worse.
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Assuming that, if you look ahead to 2030, what would you say is our best case scenario
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and our worst case scenario?
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What gives you hope and what gives you despair rather to, you know, to frame it differently?
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See, when I look back on, you know, the last two decades, it's kind of a little bit slightly
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a longer view on the future by, you know, you look at the past, you know, the truth
#
is that, you know, we've had one decade of, you know, weak performance, you know, basically
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since about 2011, I think we've had weak performance.
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And maybe that's what is the message of, you know, Pooja Mehra's book on the last decade,
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And certainly my own, you know, looking at the numbers and what happened, you know, seems
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like kind of the so it's been longer.
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The underperformance and weakening has been much longer than this.
#
Maybe to add to that little bit pessimism is that, I mean, you could also make the case
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that while the weakening has been a decade old, you know, new active positive reforms
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are basically stopped in the early 2000s, you know, that's one view.
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That's also, I think, the view of some people, even Raghu has, I think, has that view.
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I would kind of dispute that.
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I think at least conceptually, you know, the GST was a major reform, and of course, I think
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the public provision of private goods is something I think the bankruptcy did conceptually allow
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us to address this problem of, you know, decades, decades old problem of capitalism without exit.
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But given that they're also faltering, you could say we have had one decade of, you know,
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underperformance and two decades of, you know, not enough policy reforms.
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And you know, and even state capacity has not really been strengthened.
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So the bad case scenario is that, you know, this is not, you know, a three or four year
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old problem is actually a decade old problem.
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And therefore, you know, this kind of continues going forward.
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And of course, now the starting point is much worse because COVID has really kind of shot
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all balance sheets and, you know, the world looks completely different post COVID.
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Now, how do you kind of, you know, try and, you know, extract some glimmer of hope from
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I guess the glimmer of hope, you know, actually, potentially what could be the glimmer of hope,
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I'm not saying that's what will happen.
#
You know, this thing has to be rescued from by politics, you know, in India, this is democratic
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politics, that if you believe that, you know, if you believe that actually, our politics
#
is getting again, once again, decoupled from economic performance, which is what some of
#
the indicators are saying, that's going to add to the sense of thing.
#
But I think the way to extract something is to say, look, even for this government, it's
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kind of much more confident, right, it has more political capital.
#
And you know, it also has built up some credentials on this, you know, legitimacy, this provision
#
of public goods, you know, whatever, you know, that there is a sense in which the new welfare
#
ism has worked, I think that agenda needs to be completed for all of this, you know,
#
the jam infrastructure, etc., or UBI, whatever, that thing has to be completed.
#
But in principle, you have the, you know, the political capital to actually do the things
#
that, you know, need to be done, whether it's IBC, or, you know, reforms or growth or whatever
#
So I think so that would be one kind of, you know, possibility that, you know, the conditions
#
are there, but the mindset and the, you know, the diagnosis has to be right.
#
And then you move forward.
#
The other, of course, I think, the always the perennial glimmer of hope about India
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is that, you know, it's not one country, it's a, you know, there are it's a country of,
#
you know, 27 quasi sovereigns or whatever.
#
And then you think that, you know, some of the positive change, even if it doesn't happen
#
at the center, will actually there will be pockets where, you know, good things will
#
No, maybe, maybe people will see with what ARP has done on health and education.
#
And you know, you know, the kind of competitive federalism by way of ideas kind of spreads
#
So the potentially good news is that, you know, we have different governments in different
#
parts of the country, which we now, and, you know, and they embark on the post COVID, you
#
know, they're all I mean, all of them are in bad trouble.
#
But post COVID, they say, look, you know, for example, public health, all of us need
#
to be more like Kerala.
#
You know, we learned lessons for that education.
#
We can take lessons from this.
#
So I think attracting investment, whatever, you know, so I think federalism competitive
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federalism in India always is hope.
#
See in the old days, you know, we used to say about India, it has the wheels of a bullock
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cart and the brakes of a Rolls Royce as a kind of, you know, system that always only
#
did incremental things.
#
But I think that, you know, there's no reason why you could also not have new ideas coming
#
from different parts of the country.
#
And that kind of drives and motors change, at least in parts which then spreads elsewhere.
#
So, you know, so that would be my, you know, trying to, you know, pick up some glimmer
#
of hope in what are obviously very, very challenging times.
#
But it's not just, I mean, I think for me, the real kind of looking back, in fact, post
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my CAship, you know, you look back and say it's been, you know, one decade of weak performance
#
and then another decade maybe of inadequate reforms and, you know, maybe we need to think
#
about it in those, you know, terms, even when thinking about what needs to be done and whether
#
things can happen going forward.
#
And maybe one day we have the wheels of a Rolls Royce and the brakes of a bullock cart
#
and fall right into the river.
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I've been so enlightened and inspired to have this conversation.
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Thank you so much, Arvind, for your time and your insights.
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Amit, it's been great to be on the show.
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And, you know, it's a hallmark of a conversation, you know, in terms of how much, you know,
#
I've had to think and how many new thoughts have been provoked by your questions.
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So thank you very much.
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If you enjoyed listening to this episode, do hop on over to your nearest bookstore online
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or offline and check out the three books written by Arvind, especially his latest book, Off
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Council, The Challenges of the Modi-Jaitley Economy.
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You can follow Arvind on Twitter at Arvind Subraman.
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That's without the I-A-N at the end, Arvind Subraman, one word.
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You can follow me at Amit Verma, A-M-I-T-B-A-R-M-A.
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You can browse past episodes of The Scene and the Unseen at sceneunseen.in.
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Thank you for listening.
