#
Ever since the Farm Bills were passed, I have been inundated with requests to do an
#
One reason I took my time was that I was figuring them out myself.
#
This is a complex issue, there are many aspects to these bills and to me the big issue now
#
is not just the content of the bills but the way in which they were pushed through and
#
then the way in which our government is treating the protesting farmers.
#
I have often said that the end does not justify the means and this is an illustration of that.
#
Now I know that nuance can sometimes be looked upon as hedging or straddling the fence.
#
In these times where so much of the discourse is polarised and partisan, there is pressure
#
on everyone to think only in terms of black and white.
#
Pick a tribe and go with it, don't evaluate each issue on its own.
#
So at the risk of all sides coming down hard on me, let me just say that it's possible
#
to hold a series of parallel thoughts on an issue as complicated as this.
#
I have written about agriculture for a couple of decades, I have written about Indian politics
#
for a couple of decades, I have done many episodes on both subjects and if I have to
#
sum up what I feel about these farm bills from these two vantage points, here's what
#
One, while I have some quibbles with the content of the bills, I think they go in the right
#
They empower farmers with choice without taking anything away from them.
#
Much of the rhetoric against these bills is unfounded and I discussed some of it in this
#
However, the end doesn't justify the means.
#
The way the government pushed these bills through was disgraceful and I don't even
#
have words to describe the contemptible manner in which this government is treating the dissenting
#
Dissent is an important part of our democracy.
#
The farmers have a right to protest and the government needs to engage with them respectfully.
#
Instead, the farmers have been called terrorists and anti-nationals.
#
While the reforms may have been crafted by some fine thinkers, the government's strategy
#
towards handling these protests seems to have been formulated by the IT cell.
#
Statesmanship could have solved this problem.
#
Instead, we have thuggery of the most base kind and this question now comes to my mind.
#
What's the point of trying to save agriculture if on the way you damage our democracy?
#
Welcome to the Scene and the Unseen, our weekly podcast on economics, politics and behavioural
#
Please welcome your host, Amit Verma.
#
Welcome to the Scene and the Unseen.
#
My guest today is Ajay Shah, co-author of the brilliant book In Service of the Republic
#
on which I did a popular episode last year.
#
In fact, Ajay has been on the show a few times before and every time I speak to him, I feel
#
like my brain has expanded.
#
I invited him on this episode because I came across some of his writing on agriculture
#
and as always was blown away by his clarity of thought.
#
I've done many episodes on agriculture myself including with the farmer leader, Gunwant
#
Patil and written a lot about it as well.
#
All those episodes and essays will be linked in the show notes.
#
Now before you begin listening to our conversation, I should warn you that we only get to talking
#
about the farm bills halfway through the episode.
#
I enjoy discursive conversations especially with someone like Ajay who is such a polymath.
#
I enjoyed picking his brain on a variety of subjects and we spent a fair bit of the first
#
hour talking about how he learns new subjects, his approach to knowledge management, how
#
he's made himself into a health economist over the last few months, the crucial difference
#
between public health and healthcare, how we could have tackled this pandemic differently
#
and what we can still do moving forward, much illumination and I hope you enjoy this episode
#
but before we begin, let's take a quick commercial break.
#
So I have a unique problem.
#
This is a commercial break and this week I don't actually have a commercial for you.
#
I can't even plug the online courses I teach because they're closed for registration right
#
now and they open again in March.
#
So let me not sell anything to you but instead express my gratitude at being such a committed
#
Social media can often be unpleasant and toxic.
#
The level of discourse can be shallow and angry but whenever I interact with listeners
#
of the show, I feel like I am in a good place.
#
Like me, you just want a good conversation.
#
You're not looking at narratives that confirm your beliefs.
#
You're open to having your thinking challenged and your worldview expanded and even when
#
you disagree with me or my guest, you're not judgmental.
#
We are not evil or stupid because we hold different opinions and while a podcast may
#
seem like a one-way street, I produce content, you listen.
#
This is more than that to me.
#
I feel like I am one cog in a silent community of people who care about ideas and who acknowledge
#
So while I usually say this at the end of my show, I'll also say it now.
#
Thank you for listening.
#
Ajay, welcome to The Scene and The Unseen.
#
Thank you for having me here as always.
#
So tell me about your, you know, your last few months like when I invited you for the
#
show, you mentioned that at this moment in time, your primary hat is that of a health
#
economist, which took me a little bit by surprise or not too much by surprise because you are
#
one of those economists who always kind of goes back to first principles and sort of
#
figuring out everything from there.
#
So one would imagine that anything that you get interested in would be easy for you to
#
figure out and, you know, hack, so to speak.
#
So tell me how your last few months have been.
#
Have you been stuck at home during COVID?
#
What have you been doing?
#
I hope you haven't actually caught it at any point and intellectually, what have you been
#
What are the problems that have interested you?
#
No, I have not been got sick myself.
#
I did get an antibody test once because somebody that I was with tested positive, but no luck
#
so far in terms of getting sick.
#
About five years ago, I had started working systematically in health economics.
#
And so in some sense, by early 2020, my mind was ready for it.
#
So my colleagues and I had done many, many things in the field of health.
#
We had written an eclectic array of papers, mostly first principles, thinking of how you
#
should think about health.
#
You may have noticed that in the book that Vijay K. Elkar and I wrote, one of the four
#
chapters, which is a demo of applying this conceptual framework, was actually health.
#
So that's an illustration of how we were approaching these things.
#
And so in some sense, my mind was primed and ready for the story of COVID-19, which
#
started unfolding from December 2019 onwards, on the global consciousness, when we started
#
seeing things happen first in China and then in Italy.
#
I remember on the 6th of February, I wrote an article in the Business Standard, which
#
has the title, Dodging a Bullet?, where I'm gently trying to say, guys, there's something
#
big coming and potentially this could be pretty bad for us in India.
#
By middle February, late February, my co-authors and I were writing a policy paper on what
#
India should think about COVID-19.
#
And it was considered a very alarmist paper at the time, because it did some simple mathematics
#
of multiplying infection fatality rates observed elsewhere in the world into the number of
#
people in India that might get infected.
#
And then came the extremities of the lockdowns in late March.
#
And I felt very nervous through those months about the tension between prevention and cure,
#
that the Indian public health apparatus was really not up to it.
#
So we were doing draconian things like a lockdown, and we were just not doing the genuine public
#
health machinery, which in this case is contact tracing.
#
What you need is a sophisticated health worker who will sit with an infected person and chat
#
about what you were doing for the last one week.
#
And find out all the people that you might have exposed, and then reach out to them,
#
test them, and keep going forward.
#
We didn't have that state capacity, we never built that state capacity.
#
As usual in India, we had the technology delusion that we'll build some app and magically the
#
problems of public policy will go away.
#
And again, I thought that was not a very wise way to approach it.
#
And side by side with that, the lockdowns were imposing costs on the economy, on livelihoods,
#
on the working of the healthcare system.
#
So I was watching that whole drama unfolding.
#
And more recently, my colleagues and I have been working on trying to estimate the number
#
of excess deaths that took place in the country.
#
So I've been full of COVID-19 through all this.
#
My last and most recent work has been on vaccines.
#
And I feel reasonably uncomfortable with the state led process for vaccines.
#
Because in India, we don't have the government machinery to manage vaccination on a nationwide
#
It would be far more effective to let the self-organizing system figure it out.
#
That we're holding many private vendors, there should be import of vaccines, and we should
#
let firms and employers figure out how to get it to their employees, let private healthcare
#
And I feel we are needlessly trying to do a big centrally planned thing when we don't
#
have the state capacity to do these things.
#
So this has been the fun stuff I've been doing in the last one year.
#
Precisely one year ago on February 5th is where I started on this subject, because on
#
the 6th of February, I have an article in the BS.
#
To get a little meta, and you of course like to get meta with everything, and so do I,
#
so to get a little meta about you, you know, when you approach a subject, what is the lens
#
through which you approach it, like one lens which I have kind of started formulating for
#
myself and I start learning about something, or thinking about something is what I call
#
the back and beyond framework, which is first I go back to first principles or root causes
#
and try to understand it through that, and then I think beyond first order effects and
#
Now it strikes me that someone like you who, you know, your book in service of the republic
#
on which we did a very popular episode, has you doing exactly the same thing to public
#
policy, kind of going back to first principles and so on.
#
So is that a discipline of thinking about a subject that you apply to everything that
#
For example, if you were to cook, would you again go back to first principles and try
#
to figure things out that way?
#
And that's question number one and question number two, what do you do for information
#
Because obviously I am assuming that you are someone who reads a lot, you know, do you
#
have specific tools for knowledge management?
#
How do you kind of organize everything that you're taking in?
#
Many, many things, so one at a time.
#
In the world of public policy, my basic machinery is to have some intuition into the self-organizing
#
I think that is a single grand idea that human beings are sentient, maximizing creatures
#
and human beings will try to form solutions, will learn to work with each other and that
#
there is more coordination and collaboration muscle that meets the eye and human beings
#
don't need to be told what to do.
#
And public choice theory shows us how the telling human beings what to do very often
#
Stepping a little away from public policy as a field, oh yes, I'm a science geek, I'm
#
a researcher, I do everything as a research project.
#
So every single thing that I do in life is the business of understanding it completely,
#
going down to first principles, reading research papers.
#
So I'm blessed today that I can read research papers in almost any subject in the world.
#
That my broad knowledge today is such that I can read contemporary research articles
#
and have some plausible level of understanding of essentially any field in the world.
#
So my port of call for everything is Google Scholar.
#
So my first search on most subjects is Google Scholar.
#
I land up in Google Scholar, I start reading research papers and I can generally figure
#
out things that are going on in a very wide area of fields.
#
It could be gamma ray bursts and their impact on life on earth, or it could be Ayurvedic
#
recipes for impacting on the immune system, or of course economics, mathematics, statistics.
#
I know a fair bit about food science.
#
Then I apply my usual research recipes for innovation, which is very standard trick and
#
almost industrializable trick is to do combinatorial innovation.
#
I consider it the trivialest thing in the world.
#
I want to buy more people in the world on to it.
#
It roughly works like this, that if Kajar halwa tastes pretty good with sugar, then
#
maybe we should experiment with all the other sweeteners out there that try jaggery, try
#
maple syrup, try honey, and see which of them works better.
#
So it's just analogies, technology of rolling out many variants and picking one that works
#
So this is an almost trivial way to innovate in any field that when we were in this situation
#
in another field, we found that X approach worked reasonably well.
#
Why don't we try that here?
#
So that's where breadth is a great asset, whereas narrow technical specialists tend
#
to not be able to make those analogies of pulling in ideas from other fields.
#
Finally, my recipe for learning new fields.
#
So I said that about five years ago, I started doing health.
#
My standard recipe for starting a new field is to first play on adjacencies.
#
So I recognized five years ago that I'm not an expert on health, but I was an expert on
#
So as an example, I knew a lot about finance.
#
So natural place to go was, can we learn about health insurance?
#
The entire FSLRC technology is a great way to understand IRDA and health insurance and
#
government run health insurance programs and so on.
#
So that's a natural way to make inroads into a new field, which is take the adjacencies.
#
Similarly, a simple technology that my colleagues and I do better than most is to work with
#
data, is to statistically analyze data, is to be able to understand what's going on in
#
large complex data sets.
#
So we have been pioneers in putting big data sets to work on understanding health and we
#
managed to get many interesting innovations out of that.
#
So this is on how to approach a new field.
#
And finally, you talked about information management.
#
I think that there is only one, okay, maybe two, three non-standard things that I do.
#
The first is that my prime source of the flow of new information is RSS.
#
So good old fashioned RSS feed reader that I'm highly selective about what feeds I subscribe
#
I have about 100 feeds that I subscribe to and they are my window in the world.
#
And my second recipe is that I'm generally not looking at anything in the world of social
#
So that I try to protect myself from the noise and stay connected to the deeper things.
#
So I take journal articles, seriously, I read working papers, I read blogs, and this is
#
the way to keep sane in the modern world.
#
And you mentioned about how, you know, you got into health economics five years ago.
#
For the benefit of my listeners, what is health economics?
#
Health economics is the study of the causes and consequences of sickness and health.
#
So we'd like to understand from cradle to grave, people being born, people achieving
#
the full potentiality of height and strength as adults about experiences with sickness
#
about what determines death and the whole interaction between prevention and cure about
#
a problem like air quality that is damaging the health of people in very fundamental ways.
#
And also the whole health care process that you get sick, you try to go to a provider,
#
you try to get better and the whole incentives of how the health care industry treats each
#
of us and what generates good and bad outcomes in the behavior of health care.
#
So this is cradle to grave, understanding the causes and consequences of our health,
#
that is health economics.
#
And one of the things I've noticed about, you know, the last few months in various domains
#
is that there are many things that are normalized and you kind of take them for granted, but
#
then there is a crisis and those things come to stark attention.
#
They kind of stand out more because of the crisis while earlier they were in a sense
#
Like I just recently did an episode with an activist called Ruben Mascarenos who, you
#
know, did a Khana Chahiye campaign in Bombay where there was an explosion of hunger in
#
And one of the things that it brought into stark relief is what a large number of Indians
#
are actually living such precarious lives that just one crisis, one emergency can send
#
them toppling over the edge into something as stark as, you know, not knowing where the
#
next meal is going to come from.
#
And that's just one context which immediately comes to mind because I've just run that episode.
#
But you know, over the last few months, if you had to look at both health economics and
#
otherwise our economy, are there aspects like that which you think came to the stark attention
#
of policymakers and thinkers which they might otherwise have glossed over earlier?
#
So I think that in the balance between public health and healthcare, there has been learning
#
I think that when Kelkar and I wrote that chapter on health in the book, it was reasonably
#
theoretical, almost the entire Indian health policy establishment looked at the world from
#
the vantage point of being a doctor.
#
The doctor says, I don't care why, but you got sick and you landed in front of me and
#
I want the adequate resourcing and I want to get paid well in return for fixing you
#
So that was the worldview of health policy in India, that people get sick and we're not
#
responsible and we don't care why people get sick and we just want to put more and more
#
money into fixing up the sick people that come my way.
#
I think COVID-19 has done well in waking up the community that there is a very big distinction
#
between healthcare versus public health, between prevention and cure, and prevention is a thousand
#
times better than cure.
#
I could go on and on, one day we should sit over dinner and I would like to show you the
#
full practical economic and moral argument that there's really something profoundly
#
important in doing more on prevention, that argument is further amplified in India, given
#
the fact that the healthcare is reasonably broken.
#
So if you were in the UK and the NHS works reasonably well, even there, I would make
#
a moral and practical argument in favor of prevention and not cure.
#
It's a thousand times better to have a person not get diabetes or not get COVID-19 as opposed
#
to trying to send them into a healthcare system.
#
But in India, given that the healthcare system is pretty terrible, even for people like you
#
and me, even for the richest people in India, healthcare in India does not work well.
#
It's a really bad healthcare system.
#
Then the importance of prevention is further amplified, that really the best of all worlds
#
is one where people don't get sick.
#
So as I read the budget speech yesterday, I was actually a bit delighted that I saw
#
a lot of effort on questions that I classify as prevention.
#
The only significant funding surge in a health-related thing is on water and sanitation, which I
#
think is absolutely fantastic.
#
It's much better that people get clean drinking water and that there is better handling of
#
I see effort on building the NCDC, which is a bit like an Indian take on the US CDC, which
#
is absolutely fantastic.
#
We need to get better on how we think about communicable disease.
#
And we actually do not see significant increases in the spending on the standard machinery
#
So as I read the budget speech and some of my colleagues and collaborators worked through
#
the numbers in the budget, it did feel like there was fresh emphasis on prevention on
#
public health as opposed to healthcare.
#
And even these basic words, the distinction that in health policy, there are two rooms
#
There's prevention and there's cure, but there's public health and there is healthcare.
#
These things are not widely known in India.
#
And I feel this last one year has generated fresh thinking and questioning in the minds
#
And I think years from now, we might well call this an important year in getting our
#
heads in the right place.
#
Wow, and just to clarify for the listeners, the sort of difference between public health
#
I'll go back to an analogy that I think you had made.
#
I forget on what fora it is, maybe you were replying to someone on one of your rare visits
#
to Twitter, but it was essentially that if it comes to the problem of malaria, then you
#
think of public health as doing public fogging so that mosquitoes don't occur in the first
#
Whereas healthcare would be the doctor treating the patient who's already got malaria.
#
And your point was that, you know, taking care of the public health, just making sure
#
the mosquitoes aren't there in the first place so nobody gets malaria is the way to go, except
#
one would imagine that why is a politician incentivized to do that because, you know,
#
whatever good comes out of it is essentially unseen.
#
So it's interesting that you point out that, you know, in this budget, they are paying
#
And I guess in the case of COVID, that would mean when you talk about prevention, one is
#
of course a draconian blunt tool of a lockdown, but other similar ways of promoting public
#
health would be just making sure everybody gets a mask and all of those things, I guess,
#
The most important piece which was absent in India is contact tracing.
#
So when you test positive, a health worker should come sit with you and chat about your
#
It needs to be a sophisticated, intelligent conversation.
#
Then identify 10, 20 people that you had significant exposure with, and then go meet each of those
#
people, test each of those people, and that's how you keep the chains going.
#
That's called contact tracing.
#
And it is completely absent in India.
#
You know, that's good in theory, but it strikes me that, and I am of course a cynic of state
#
capacity, but it just strikes me that given the scale, given how fast things were spreading,
#
that there was simply no state capacity to do that anyway, you know?
#
I agree with you that we did not have that state capacity in India.
#
But if you ask me, what do you need by way of health policy, this is what you need.
#
And you know, should we spend the next 20 years figuring out how to do this?
#
Because there will be other pandemics in the future?
#
And this is not an arogya setu problem.
#
So once again, the technological solutionism got us in the exactly wrong place.
#
I feel that for many policymakers, it was convenient and comfortable to say, yeah, I've
#
covered that because we've got this arogya setu thing.
#
And this is something that's happening very often in the Indian public policy landscape,
#
that we tend to think of technology as the main solution, whereas technology is a small
#
part of complex organization problems, of complex public ad problems.
#
If you think of any private business and you think of doing a business process reengineering,
#
99% of the problem in business process reengineering is thinking about the organization, is dealing
#
with internal political battles of changing the organization structure and getting people
#
to go along with a new process design and 1% of the problem is some technology.
#
So yeah, technology is important, but it's really a tiny part of the problem.
#
And when we push a technology first approach, we tend to cut corners on the really important
#
and really difficult things in India, which is the public administration, the management,
#
the organization design, the changing the processes of government.
#
I mean, would it be the case that for whoever is in charge of doing things, a politician
#
or the bureaucrats concerned or whatever, it comes to a point of not just doing something,
#
but in a very complex landscape of being able to show that yes, we are on it, we are doing
#
And in those senses, you know, arogya setu is like a very visible thing that we are on
#
it, we are getting technology to work for us, whereas going the hard yards of building
#
that kind of intricate state capacity where you train people to actually, you know, ask
#
the right questions and begin that kind of contract racing, that seems like an enormously
#
So public choice theory shows us that every politician, every official is maximizing for
#
And if we live in a country with low standards of public discourse, and if rolling out an
#
arogya setu suffices to claim that I did a good job, then yeah, that's all that they
#
Whereas to the extent that the politicians and officials are held accountable for the
#
actual spread of COVID-19 in the country, then that could change things.
#
So you know, India has some of the highest seroprevalence rates in the world, which shows
#
that basically the disease just ran.
#
Never mind the lockdowns, never mind the arogya setu, the disease just ran free in India more
#
than essentially anywhere else in the world.
#
To the extent that the people will hold government officials and politicians accountable for
#
that environment of the spread of the disease, then it will generate incentives for the politicians
#
and the officials to behave differently.
#
My sort of brief part on that is that one, there is a very sort of complex decision making
#
landscape where pretty much no matter what you do, whether you have a lockdown or don't
#
have a lockdown or to what extent you have one, you know, the scene effects are pretty
#
bad, which is the lives that are lost or the damage done to the economy, the unseen effects,
#
which is the lives that would have been lost in the counterfactual are kind of invisible.
#
So it's like a very difficult choice to make, you're going to get hammered no matter what
#
you do and perhaps unfairly hammered if you took something close to an optimal decision.
#
And the other aspect of what I see in India today when you talk about accountability is
#
that rather than see citizens in search of holding the government accountable, which
#
is very hard, especially in such a complex scenario where not everybody or not anybody
#
perhaps can really figure out what the counterfactuals would have looked like, there is also the
#
tendency in India of picking your tribe and then just going with, you know, whatever your
#
Whatever the other tribe does is bad by default.
#
And you know, we'll talk a little bit about the farm bills later on in this episode.
#
And it seems to me that that's also happened with the farm bills in the sense that those
#
who've picked one tribe is that the Modi government can do no good.
#
And those who picked the other tribe is that, you know, it doesn't matter what the means
#
of pushing this through or whatever, the Modi government can do only good.
#
So it seems to me that a lot of, and perhaps these are the vocal minorities which appear
#
to be like this and the silent majority hasn't actually picked a tribe and is open to these
#
But you know, because of these sort of dual problems, one is just the epistemic problem
#
of figuring out whether this action was right or wrong because we cannot know the counterfactual
#
and the tribal instinct.
#
I'm not so, I mean, holding governments accountable then just sounds very nice in theory, but
#
I mean, does it really happen?
#
So our only hope in hell as a society is the idea that there will be a republic where there
#
will be checks and balances, where governments will be held accountable and then we will
#
get performance because if that breaks down, then, you know, we are toast.
#
There will be no future of any prosperity and freedom and creativity if we don't get
#
I totally agree with what you are saying that tribalism and the screaming of the electronic
#
age has replaced rational thinking and for all of us, it seems to me that this is really
#
a big aspect of what we should be up to in life, which is to step away from the screaming
#
and the mudslinging and the sheer ugliness of the electronic age and create safe spaces
#
for careful, thorough, sensible conversation.
#
I mean, it seems like an unreal ask, but it is the need of the age that this is what all
#
of us need and we need to do less screaming and less mudslinging and just be quiet and
#
be thorough and work harder, think harder.
#
The world is a complicated place and we need more knowledge, not less.
#
And you know, and I think there is a constituency for that and it's much larger than we think.
#
So in all the Twitter shouting, you don't really notice it, but I think I see some of
#
it in the people who listen to my podcast and I'm sure the people who read your writing
#
and there are people who are constantly searching for that kind of insight.
#
Now, as this is a show which takes many digressions, let's take a quick digression.
#
I just want to say that you remember when we first started recording podcasts, it took
#
me two whole podcast episodes to settle down and relax and talk to you because I was just
#
so convinced, I was making assumptions that you're looking for snappy sound bites.
#
And it took me a long time to get comfortable that no, you're not actually looking for snappy
#
sound bites and that on this podcast platform, we have an audience that is interested in
#
comfortable, reasonable, sane, quiet conversation.
#
And that's honestly, it's not that it took you time to figure that out, it took me time
#
to figure it out and took like many, many tens of episodes to sort of find this groove
#
and realize that a lot of people craved sort of nuanced conversations, but to stop patting
#
myself on the back for a moment, I remember you mentioned the budget and I remember last
#
year when the budget came out, you, me and Vivek called it an episode and I think you
#
were in Mumbai only for a day and those were pre-COVID times when we were recording in
#
So I remember because you were in and out of Mumbai, I had the notice of a day to organize
#
a studio for our recording.
#
My regular studio was booked out and I, you know, opened, I guess the internet version
#
I just went to Google and I did search for recording studio, Mumbai and the 23rd studio
#
I called happened to have a slot available and we went to this random place, recorded,
#
paid cash, got out and you know, and I was thinking, what an amazing world that you can
#
do something like this.
#
And before this recording, you mentioned what an amazing world that we can do something
#
like this where, you know, we can remotely record with reasonably good technology and
#
from entirely kind of different places.
#
We're not really very far.
#
You're in Karjath right now, I believe, but in these COVID times, that's a universal way.
#
So let me quickly ask for, you know, your sort of one minute recap of the budget because
#
I won't actually be doing a budget special episode, but you mentioned that one aspect
#
of it that you liked is a focus on public health as opposed to healthcare in terms of
#
prevention, water, sanitation, all of those.
#
But what are your broad sort of takeaways without getting into details?
#
I'm delighted that the words privatizing PSU bank has been used for the first time in India's
#
You break through these holy cows, it has consequences.
#
So I'm delighted that that has happened.
#
I'm also delighted about removing the FDI cap in insurance.
#
I am not that excited about the extent to which these things are really the choke point
#
in India's journey today, but they have come to become symbols of something and it's good
#
So in these respects, I was really happy at what I saw in the budget.
#
I'm reasonably worried about what we are seeing on financial economic policy.
#
We're seeing a whole bunch of 1970s and 1980s thinking they want to set up a development
#
finance institution, they want to set up a bad bank, they want to set up some government
#
organization that will be the market maker for corporate bonds.
#
This is not how it's done.
#
This is not how it will work.
#
And we have quite a financial crisis on our hands and this is not going to get fixed.
#
I was delighted at the improvements in the transparency and the truthfulness of the budget
#
statements that partly last year and partly this year, they've really done it.
#
They have cleaned out the reporting.
#
So for years and years, there was all kinds of obfuscation, bordering on prevarication
#
that was happening in the financial statements being released by the government.
#
This year, it feels like we are done.
#
They've put everything on the table and it is being recorded and reported truthfully.
#
Some people are jumping about the double quotes large fiscal deficit.
#
No, it's not a large fiscal deficit.
#
It's just being reported.
#
All that's changed is the reporting.
#
It was lurking in a subclinical way for many years and we were just not talking about it
#
as honestly and openly.
#
So I felt some things are in a good direction, some things are not.
#
And the really, really big question, the trillion dollar question is, what will it take to change
#
the investment climate in India to get the private sector back to buoyancy and optimism?
#
And I think that turns on some of these central planning problems and rule of law problems
#
and I did not see a whole lot of that in the budget speech.
#
So tell me another thing to continue down this digressive path that we look to the government
#
We look to the budget to see what has been done, what has not been done and are we moving
#
But the thing is that in many of these cases, politicians don't have deep knowledge of all
#
of this and very often even bureaucrats are generalists and kind of don't.
#
So there is in the background a community of experts and elite influencers and economists
#
and so on who work for years to kind of make things happen behind the scenes till something
#
that they've been talking about, you know, 20 years ago finally comes into some bail
#
or becomes a reform somewhere.
#
And it's kind of like a very silent effort.
#
There's not much self-interest involved because these are not like industry lobbies lobbying
#
for a particular measure that will help them.
#
Instead it's just an economist who doesn't directly benefit saying, hey, this is what
#
And a lot of that kind of happens behind the scenes and you have yourself, you know, as
#
part of the finance ministry and NIPFP and all of that sort of been a part of this group
#
of influencers trying to push change through and all of that.
#
So one is kind of tell me a little bit about this process, about, you know, what are your
#
incentives at play or the incentives of all of these people who try to bring about change
#
in this manner and how does the process flow and how do you get people to listen to you?
#
So there is a very well-defined process flow in every field.
#
You start at facts, you start at statistics.
#
So the first puzzle in every field is that we in India need to establish some mechanisms
#
of gathering data and systematizing the capture of data.
#
So that year after year appears some good quality facts, micro data sets are being created.
#
Then step two, you need a research community that will work on this data and that research
#
community needs to be deeply rooted in India.
#
So there is one problem of trying to get some papers through into journals abroad versus
#
there's a different problem of trying to look at India, understand problems and contribute
#
to knowledge here in India.
#
So the extent to which many academics have become published and perish looking at journals
#
abroad and the extent to which we seem to award prestige in return to journals abroad
#
is a bit of an impediment and we need to find ways to create a deeply grounded local community,
#
a domestic community that is here that has an intuition into what are the questions and
#
that chips away writing a literature on what is going on so that maybe we have a scientific
#
and an analytical understanding and 20 human beings who embody that knowledge.
#
The 20 human beings is as important as the 50 papers and blog articles that make up that
#
Then the next step is a creative process of inventing policy proposals.
#
So there's a creative act of thinking that Article 301 of the Constitution opens up possibilities
#
for a national market in agriculture and that it is possible for the union, for the parliament
#
to legislate on this space.
#
This kind of creative thinking needs to take place and there need to be some people who
#
will engage in this kind of creative thinking.
#
For example, what I just said to you about contact tracing.
#
It is a creative act of looking around this landscape and understanding that arogya setu
#
is not an answer and that there is a complex public administration problem of how do you
#
build contact tracing and there is a real problem in this creative step because the
#
academic journals do not publish such articles.
#
So there is zero career incentive for anybody to do this kind of creativity, to invent these
#
They come out as working papers and blog articles and they don't go into normal academic keeping
#
score and getting jobs and getting promotions and so on.
#
So that's a creative stage of inventing, competing diverse policy proposals and of course many
#
policy proposals tend to bubble out of the country itself.
#
So industrialists and associations and various people, individuals, a person writing an opinion
#
piece in a newspaper, everybody dreams and comes up with creative proposals that why
#
don't we solve this problem in X fashion.
#
Then comes a great process of public debate where there are different rival solutions
#
and they need to fight it out in the public domain trying to persuade more people that
#
you know this is the right idea and that is not the right idea.
#
And in this one of the more harmful things in India has been the extent to which incumbent
#
government organizations have a disproportionate say in chilling this debate.
#
So generally if you are a reporter covering a beat, then you rely on access to the existing
#
power structure and then it becomes impossible to write articles that question that power
#
So you get a whole bunch of newspaper stories that are supportive of the status quo.
#
There's a very strong status quo bias in the conventional media system where it's difficult
#
to express views that suggest that there's something going wrong with the mainstream
#
So we get a whole lot of praise in India, we get self praise that X agency has done
#
You know 90% of the coverage that you get is that X agency has done a great job.
#
You don't actually get a good deal of critical thinking.
#
There is a severe under supply of criticism that we're not doing enough in terms of fostering
#
that safety, that vibrant environment of criticism.
#
Then the story turns to decision processes inside government.
#
In my years in the ministry of finance, 2001 to 2005, it was an extremely intellectual
#
environment where there would be these kinds of debates all the time where various papers
#
and newspaper articles and opinion pieces and seminars and conferences would keep bubbling
#
these debates and there would be a conversation going on in the ministry of finance all the
#
time that should we be doing X or should we be doing Y.
#
Similarly, there used to be a very simple accountability system.
#
I have worked with three different finance ministers.
#
I joined the minister of finance when Yash Mancina was the minister.
#
I stayed with Yash Mancina, I stayed with Pichai Dambaram and I left in 2005.
#
All the three ministers would take an opinion piece from a newspaper which is criticizing
#
the government and send it down to the concerned officer and say, please speak.
#
The guy handling that portfolio would have to come back to the minister and justify himself
#
or herself against the criticism that has come out in the newspaper.
#
I thought that was absolutely fantastic.
#
It was a way of bringing that external discourse inside the organization.
#
Similarly, I remember Vijay Kelkar used to have a discipline in that period that he would
#
read about 20 opinion pieces in the newspapers every morning and he would pick two and for
#
two of those pieces, he would pick up the phone and talk to the author.
#
So Kelkar knows everybody.
#
So Kelkar would pick up the phone and talk to the authors and just go further.
#
What were you thinking?
#
What is your thinking on this adjacent problem and get a deeper sense?
#
So for him, it was a very good investment that he would wake up in the morning, read
#
all the opinion pieces of all the newspapers, follow up for one hour with two phone calls.
#
And that's the way you keep the mind buzzing.
#
It's important to listen to other people and particularly the people that don't agree,
#
particularly the people that are criticizing the establishment, that are criticizing the
#
And then in many important moments, the way the Indian public policy process works is
#
that there is an expert committee.
#
So it is easy to derive the expert committee process and there is a lot of rubbish in the
#
expert committee process.
#
But as Ishar Alovalia used to say, nothing ever got done by putting it in an expert committee
#
report, but nothing ever got done without it being in 10 expert committee reports.
#
So the expert committee process is a way of sifting through the landscape and keeping
#
out the really kooky nonsensical stuff and bringing about a judgment about what is the
#
range of plausible alternatives of pretty much defining the overturned window, which
#
then goes as the raw material to the real decision makers who are the politicians and
#
And then some decisions get made and then some laws have to be drafted.
#
That's a real weak link in India.
#
There is a very, very small number of people in India who have the expertise on how to
#
Almost all law students in India don't know how to draft laws and many, many laws get
#
drafted reasonably badly.
#
And finally, after a law is drafted, you need to create the public administration, the state
#
capacity, the organizations that will enforce these laws in a reasonably effective way so
#
that it doesn't just collapse into some authoritarian oppression where some officials hold arbitrary
#
power over individuals.
#
So this is the pipeline.
#
Data, research, creative policy proposals, public debate, government internal discussions,
#
government committee process, government decisions, drafting of laws, building organizations that
#
are the state capacity that enforce laws.
#
This is the stylized track that we have to walk upon.
#
A field works well when all these pieces work reasonably well.
#
So in the 90s and the 2000s, we made progress in finance in India because there was a community
#
of about 50 to 100 people who were the self-appointed owners of financial economic policy in India.
#
And they were all over this process.
#
So all the pieces of this pipeline were nurtured and built and stocked.
#
And that is how we got a bunch of things done in that period.
#
And a field which does not have this kind of community and which has appalling weaknesses
#
in any one or two elements of the pipeline is a field where we flounder and fail.
#
And it strikes me, you mentioned how something that is kooky and nonsensical will not get
#
through the expert committee process.
#
And I immediately thought of demonetization, which of course obviously went through no
#
expert committee process.
#
Otherwise, it would never have survived.
#
And equally, it seems to me that the farm bills do seem to have come out of that kind
#
of long process because these ideas have been put forward and debated and discussed for
#
In fact, these very proposals have been on the manifestos of different political parties
#
like the Congress and the Yama Army Party at different points in time.
#
So would it then be correct to say that these reforms just happen to have bubbled to the
#
surface now and actually taken concrete shape, but they've been more than a couple of decades
#
In my opinion, the thoroughness of the upstream process that, so first, just so that everybody
#
is clear where I stand.
#
Fundamentally, I agree with the three farm bills.
#
I have only small modifications that I would suggest to the farm bill.
#
So just to put my biases on the table that I think that they are on the right track,
#
90%, 95%, they're on the right track.
#
In my opinion, the process that led up to them was not sufficiently thorough.
#
And there was an element of surprise and pushback that came because not enough had been done
#
in terms of the public debate and the committee process and 200 seminars and conferences all
#
over the country talking about these things, a draft law being out in public domain for
#
several years, things like that.
#
So I feel that the thoroughness of the process also helps in terms of the politics because
#
then there are no real surprises.
#
You kind of know this is coming.
#
It's been there for a long time.
#
Several committee reports work on it.
#
Each committee report triggers 100 events where there are seminars, conferences, podcasts,
#
episodes, and so on, on every single important government committee report.
#
And that's a part of how we get used to the idea.
#
So I said the government committee process shapes the overton window and the surprise
#
should happen in a government committee report, not in the doing because that's the point
#
at which it's not as painful for a person that something comes out of the blue.
#
So I think government committees are the right soft place that here's a new idea which has
#
been considered kooky all these years and we are now legitimizing it.
#
We are mainstreaming it.
#
It's in the government committee process.
#
So I have seen and I have written many documents which are inside the government file process
#
and it is almost mandatory for the file process to say inside the file that here's a problem.
#
You need to demonstrate that it's a problem.
#
Then you say we've had these six committees which have written on this in the past.
#
Then you put a quotation, quotation, quotation, quotation from six different government committees.
#
So you say like, look, we worked this to death.
#
That we've gone through the normal, thorough, systematic, hardworking government committee
#
process and there is a fair consensus between these diverse committees on what it is that
#
And so now we're ready to take the next step that it is time to draft a law.
#
It is time to enact this law.
#
So that catechism is the machinery of how a green sheet file ought to work.
#
And the fact that it was out there in several committee reports, ideally a draft law was
#
out there, helps to introduce the idea to everybody and reduce the surprise.
#
And in my opinion, in the case of the three farm bills, which I agree with substantively,
#
not enough was done in terms of these early stages of the pipeline.
#
I think we've been cutting corners on the discussion and debate parts of the policy
#
The discussion and debate parts are partly valuable because discussion and debate improves
#
They're also valuable in a political sense in that they sensitize the broader community
#
And we're going to take a short break after which we'll just get down to the subject of
#
agriculture and the reforms that you would like to see happen and these farm bills and
#
our historical problems and all of that.
#
But before we go to the break, sort of a quick question on the earlier subject of healthcare
#
and the pandemic, that when you look at the government's approach towards the pandemic
#
in India, and right now it's not over, we still have to get a lot of the vaccination
#
done and all of those things to happen.
#
What do you think are the faults in the framework through which the government approaches this?
#
One obvious fault that seems to me is to have this sort of central planning conceit of the
#
government will roll the vaccine out and private participation is not really required.
#
We'll control everything.
#
Whereas I think what instinctively strikes me is more reasonable is that yes, the government
#
should put all its effort in spreading everything out, but at the same time, allow the private
#
sector also to make it available, have multiple pipelines going.
#
So, you know, if somebody wants to pay a premium for it and sort of all that, that option should
#
be kind of open to them.
#
So that seems to me to be one kind of point of dogma, which is getting in the way, but
#
broadly speaking, what are the top level two or three changes in attitude that you would
#
So the first I've already mentioned, which is prevention versus cure.
#
I feel it is a moral imperative and it is the same rational thing to do to really put
#
a high focus on prevention.
#
And when you pause to think about what shapes prevention, it's a fundamental fact that most
#
of it is not the work of doctors, is not the work of Ministry of Health.
#
So as an example, the giant health crises of India are owing to air quality, owing to
#
water and sanitation, owing to road safety.
#
These kinds of things are sitting outside our Ministry of Health.
#
Consider a problem like natural disasters.
#
We in India are building an urban environment, which is extremely unsafe and is ready for
#
floods and earthquakes to generate devastating consequences for the health and the lives
#
So you need to go after disaster risk resilience, which is not seen as a Ministry of Health
#
Consider the food system, that how to increase the nutritive quality of food, how to reduce
#
the role of wheat and rice in our diet.
#
This is food system transformation.
#
And again, it is not inside the Ministry of Health.
#
So conceptually, I feel that if you take prevention seriously, then there is a cross-cutting health
#
agenda that influences many, many elements of government.
#
It is a Ministry of Environment and Agriculture that will impact on air quality.
#
It is a Ministry of Agriculture that will reshape the food system.
#
It is the Ministry of Roads that will build better road safety.
#
It is the water and the sanitation crew that will improve the water system.
#
It is a whole complicated problem about urban planning and the built environment that will
#
generate disaster risk resilience and so on.
#
So it seems to me that we need a new kind of collaboration muscle where we are able
#
to bring an across the government approach to putting health policy into the working
#
of many, many ministries.
#
And to continue on where we were a moment ago, as you know, I work in many, many fields,
#
but I have been reasonably worried about the quality and the capabilities of the health
#
policy community in India.
#
We really don't have a community that is commensurate with the problems of health policy.
#
So it's not entirely accidental that health policy is one of the weakest areas in India
#
in terms of what the Indian state is doing.
#
And it has to do with the kind of capabilities of this community.
#
It also has to do with the domination of doctors.
#
So just because a person is a great doctor and is definitely my go-to person when I get
#
tuberculosis, that doesn't mean that this person is the right person to think about
#
health policy, to think about public health.
#
This is a different capability altogether.
#
And we have just not succeeded in laying the foundations of those 50 key people of the
#
right data sets of the researchers.
#
So on the research side, we don't get much useful health in terms of the research papers
#
that are written because partly a lot of the economists are pursuing the overseas development
#
economics journals who are really fundamentally cut off from India, public administration,
#
I mean, there is a game of publishing in those journals that is rather lacking in its ability
#
to eliminate the problems of public policy in India where the rubber hits the road.
#
And it seems to me to be a sort of a problem of like you need a community of problem solvers,
#
which would include economists.
#
But then you look at the incentives for economists.
#
For many of these, it is to become part of this whole circus of publishing in journals
#
abroad and rising up the academic ladder there and so on and so forth.
#
And you know, what can kind of change that?
#
Because what we don't really see so much of is economists here really aspiring to be public
#
intellectuals and hoping to make change.
#
What are the incentives for those who ignore that particular sort of path and choose to
#
sort of make a change here?
#
Like you came back to India at one point and you kind of gave up that path and you came
#
We'll of course discuss this in a past episode, but briefly, you know, is that something that
#
worries you that too many people who could make a difference drift away because their
#
incentives are different and therefore there is a lack of intellectual capacity working
#
There is a real incentives problem.
#
So health policy is currently designed by doctors and it is health care focused and
#
it tends to think that there is a government and the government is like one big PSU.
#
They own a lot of hospitals and they want to run those hospitals and there's really
#
very little health policy going beyond that.
#
Governments tend to think that the health is the job of the Ministry of Health.
#
So you know, we're stuck because a Ministry of Health tends to be doctor dominated.
#
You may have heard me often say that one of the least effective pathways to thinking about
#
public policy in India is to ask an IIT engineer how to solve the problem.
#
Well, in similar fashion, one of the least effective ways to find solutions in health
#
policy is to ask a doctor how to make progress on health policy.
#
And one pathway to change things would have been intellectual leadership at the level
#
of a Ministry of Finance and a Prime Minister who are able to see things in a more intellectual
#
way and look at the world in a different way compared to how a Ministry of Health sees
#
Another element of the change will be philanthropy and philanthropic capital.
#
In my opinion, so far, the impact and usefulness of philanthropy in India has been limited
#
partly because most philanthropy tends to think about running programs and not thinking
#
So people get satisfied when they give lunches to 1000 kids, but not in getting research
#
done and getting the landscape of ideas to change.
#
So I think that there's a very basic kind of philanthropy that tends to rule the roost,
#
It makes you feel good.
#
But frankly, it is one upon 1000 of the impact that can be obtained by changing the landscape
#
of ideas and by changing the way we think about these things.
#
Another problem is that a lot of philanthropists build organizations and the employees of those
#
organizations crave government engagement.
#
They are judged by their ability to influence public policy on a day-to-day basis in the
#
extent to which they are friends with joint secretaries and secretaries of government.
#
And in the extreme, many of philanthropy in India is an extended arm of the Indian state
#
because the Indian state gets a very large say on how the philanthropic capital is being
#
deployed and allocated.
#
And in my opinion, that's a shame because it could be done so much better.
#
In fact, in the last episode I did with Ruben Mascarenos, he was talking about how when
#
they reached out to companies for the CSR funds, they were told by companies that they
#
had all been told to give the CSR funds to the PMKS fund, which of course is an astronomical
#
back hole, which is a bit of a pity, but you know, lots to unpack here and maybe one day
#
we can do a separate episode on all of this because it seems really fascinating.
#
But for the moment, let's take a quick commercial break and then we can start talking about
#
On the seen and the unseen, I often speak about positive sum games.
#
Well, if you want to be surrounded by beauty and you love fine art, I have a win-win proposition
#
Head on over to IndianColors.com.
#
IndianColors licenses images of fine art from some of the best contemporary artists in India
#
and adapts them to objects of everyday use like tote bags, pouches and home decor items.
#
You get to surround yourself with the finest modern Indian art at affordable prices and
#
artists get royalties for every product you buy.
#
The IndianColors new range is in and includes elegant yet comfortable dresses for women
#
and casual shirts for men with standout motifs by artists such as Tanmoy Samanta, Manisha
#
Girabaswari, Shruti Nelson, Pradeep Mishra and Jaideep Mehrotra.
#
Stay home but dress smart.
#
And if you're missing your friends in these lockdown days, worry not.
#
You can show them your thinking of them by buying gifts for them from Indian Colors.
#
Corporate gifting is also available.
#
So head on over to IndianColors.com.
#
There's colors with an OU and make art a part of your life.
#
And hey, for a 15% discount, use the code Unseen.
#
That's right, Unseen for 15% off at IndianColors.com.
#
Welcome back to the Seen in the Unseen.
#
I'm chatting with Ajay Shah about Indian agriculture and now, you know, I've had various episodes
#
in the past where we've spoken about all of these aspects of Indian agriculture which
#
are broken, how there are no markets and inputs are produced, how there's a monopsony of who
#
they can sell to which hurts both farmers and consumers, all the land use restrictions
#
like there's no exit from agriculture because you can't sell agricultural land for non-agricultural
#
purposes so on and so forth.
#
You know, I've had episodes on why there are no futures markets and you know, how because
#
there is no corporatization, there's no chance for scale, farmers are forced to be entrepreneurs
#
besides their core competency of farming which is really unfair.
#
It's just an entire kind of litany of things.
#
Now, in your recent writing including articles that I'll link from the show notes, you've
#
kind of narrowed down a few basic areas in which, you know, you think that we can reform
#
immediately and the farmers tackle one of them but not all of them.
#
So kind of take me through your thinking of this from, you know, starting again at the
#
meta level from the first principles of what is wrong and then how those can be fixed and
#
what the benefit to us will be.
#
So it's very useful to think about the decisions that are made in the path to the production
#
Okay, so economics is about decisions and so the first question we should ask is what
#
are the decisions and there are actually exactly three decisions that are made in the field
#
The first decision is what to sow, okay.
#
So you have some land and do you put wheat or do you put rice or do you put potatoes
#
So that's the first decision, so it's a very important decision and we need to think about
#
how that decision happens.
#
The second decision is how much money to spend on putting inputs into the period in which
#
So how much money do you put for fertilizers, for high yielding varieties and so on, purchase
#
And the third decision is that of storage, that some economic agents in the country choose
#
It could be that the farmer has some kacha storage right there where he has harvested
#
the crop or it could be a more professional environment where somebody else buys goods
#
on the spot market, puts them in a warehouse and carries them into a future date.
#
Okay, so that's how we transport agricultural goods through time.
#
We put them into storage.
#
These are the three fundamental decisions that are made.
#
What to sow, how much to put as inputs and what to store, when to store.
#
So we should think of all the factors that influence and shape these decisions.
#
How can you create a good environment where rational thinking individuals make better
#
decisions on what to sow?
#
How can you create a better environment where inputs are chosen in a rational way that generates
#
the correct outcomes and how can you produce more rational decisions about storage?
#
This is a nice x-ray that helps you to understand what is going wrong in agriculture.
#
So everything that is going wrong in agriculture is about state-induced distortions in these
#
That the government is messing with the decision of what to sow, is messing with the inputs
#
decision, is messing with the storage decision and these three classes of difficulties are
#
coming together and generating a bad life for the agriculturists of India.
#
That's a useful, simple way to think about the whole thing.
#
So you know, let's for example, talk about the decision of what to sow.
#
Now typically what happens is if you look at a marketplace where there is demand and
#
what is and there is supply, how would an agriculturalist decide what to sow?
#
He would do it on the basis of prices, like the best way for you to get information about
#
what do people need, what do people value is to look at the prices and say that, okay,
#
from the prices it appears that there is a shortage in this particular thing in commodity
#
x and therefore I will sow more of commodity x and fulfill that.
#
And obviously this also leads to what Paul Samuelson called the cobweb effect, which
#
But broadly this is how prices would determine and this is how prices determine everything
#
Like, you know, my entire housing society feeds itself every morning, not because some
#
central planner sits there and all his wisdom decides what each person will want, but because
#
you know, we have our routines of what we buy and all of that and they affect the prices
#
every day and similarly producers produce according to that and all of that.
#
One doesn't, I think, really need to describe the price system in that way.
#
Now the distortion comes in when the government says that, look, I'll give you, for example,
#
like I'll give you an MSP for, you know, produce Y and at which point in time that distorts
#
a signal that is coming from the marketplace because now the farmer is incentivized to
#
make produce Y because he's got a guaranteed MSP income at the end of it and therefore
#
ignore produce X, which is what the people might also want and where this can get particularly
#
sort of pernicious is when, for example, Punjab's involvement with rice.
#
Number one, there is, of course, you know, they have these MSP incentives to make rice
#
Number two, you know, rice is a water intensive product.
#
Punjab is slightly on the arid side.
#
They should not be making rice to begin with, but they do that because you introduced another
#
distortion by giving them free electricity to farmers and therefore they can, you know,
#
dig bore wells and draw out plenty of groundwater to grow rice with, which leads to a water
#
problem and I've also had episodes on the water problems that this leads to.
#
So you have all of these different distortions and one of the unintended consequences or
#
unseen effects of all of this, of Punjabi farmers growing rice is the air pollution
#
in Delhi, for example, because then they burn the stubble and the winds carry it to Delhi
#
and the air pollution there is exacerbated and you're like, how do we even solve this
#
And as you pointed out earlier, air quality is a public health issue.
#
So is it then the case that one of the fundamental distortions which really messes all of this
#
up is sort of MSPs, which are, by the way, not the subject of the farm bills, you know,
#
in spite of what so many people seem to think the farm bills.
#
I don't think mention MSPs at all.
#
But you know, is this a fundamental sort of distortion when it comes to that first question
#
you raised or what to sow?
#
MSP is indeed a fundamental distortion.
#
The impact of MSP upon the economy is smaller than meets the eye, because for a large number
#
of crops at a large number of locations in India, the administrative machinery for implementing
#
So actually, the damage that MSP is doing to India is smaller than meets the eye.
#
So for many people, MSP looms large, it's actually not as big a problem as it is made
#
As you correctly said, there is not a hint of MSP in these farm bills.
#
And we'll come to that when we come talk more about the problem of national market.
#
Equally important in the price question, in my opinion, is the problem of the futures
#
markets, that when in June, I'm making a decision on what to do with my curve land, I need to
#
make decisions based on my expectations about what the price will be in October.
#
And there is no clarity on what the price will be in October.
#
And the solution basically is, once again, to use prices as the information system, that
#
the price in October is visible in the futures market.
#
Some people may choose to actually lock in a sale price using a futures market.
#
But that's just a tiny tip of the iceberg, 99% of the people just benefit, get a positive
#
externality because they're able to see the price on the futures market, it gives you
#
the best available estimate.
#
It's not a guarantee unless you choose to lock in.
#
So it is available as a guarantee if you choose to lock in.
#
If you choose to not lock in, it's not a guarantee, but it's the best available estimator for
#
what will be prevailing conditions in October.
#
So putting together supply, demand, global conditions, everything, the futures price
#
is what people can use as an information system to make better decisions about what to sell.
#
And one of the many things that the Indian state does is to damage the ability to get
#
to a sensible commodity futures market.
#
So demystify this for me, and of course, I agree with you, but most people listening
#
to this will be like, futures market sounds like something that is very sophisticated,
#
which investors with computers and Bloomberg terminals will sit down and look at.
#
And I've done an episode where I've kind of demystified this ages ago.
#
I think it was a short 15 minute episode with Kartik Shashidhar.
#
But sort of demystify this for me, how does it help the practical farmer on the ground?
#
Like let's say I'm a farmer and I'm deciding what to sow, and I'm making my decisions
#
for the next season, ki yeh banana hai, itna invest karna hai.
#
How do futures markets help me in those practical terms?
#
So what is the spot market?
#
There is a market where people are buying and selling cotton for delivery just now.
#
So on the spot, I'll pay you money, you'll give me the cotton.
#
What is the futures market?
#
It's where you and I agree on a transaction today, but the money and the cotton will be
#
exchanged six months out.
#
Nothing else is different.
#
It is exactly the same as doing a transaction.
#
So we lock in on the price and quantity, but the actual transaction will be consummated
#
Six months from now, you'll give me the money and I'll give you the cotton.
#
So there is a price that is visible in that market because there are many, many people
#
And that brings me to the decision of what to sow.
#
Imagine that there's a person who's making a decision about whether I should be sowing
#
toor dal or I should be sowing cotton.
#
So I'm standing in June and I'm making the decision about what to sow.
#
And I make my calculations that I will spend so much money on fertilizer and so much money
#
on buying the seeds and so on.
#
And what will be my prospective revenue when the goods come out?
#
The answer is I just glance at the futures price, that's all.
#
All over the world, farmers do that.
#
It's not an unreasonable ask that instead of taking today's spot price of cotton, take
#
the spot price on the date at which your harvest will be out and you will be selling into the
#
It's a very simple and reasonable ask.
#
And case two, you may decide that I'm so risk-averse that I want to remove the risk that I have
#
about the future price.
#
Go to the futures market, sell your goods there.
#
So you've got a locked in price.
#
So these are the choices.
#
At case one, you just look at the price and you say, look, the price will fluctuate.
#
But standing today, this is my best estimator.
#
Case two, you say, no, you know, I'm totally risk-averse.
#
I don't want to take any chances.
#
I want to sell my goods today at that locked in price.
#
It's called the futures market.
#
So this is the magic of the futures market.
#
And it is really a very, very important element of any healthy agricultural system.
#
No, and it does sound magical to me because, you know, if there's a spot market, I can
#
I know what the price is today.
#
I have no way of figuring out what the price will be six months from now, whereas the futures
#
market will give the agriculturalist that level of comfort that, okay, I can plan now.
#
So it is almost like an MSP, except that it is not given by the government, there is no
#
element of coercion and it is also not giving him a wrong signal like a government MSP would
#
Instead, it is a market which is determining future prices.
#
And therefore, those signals are sort of that much more accurate.
#
So why are they not allowed?
#
Is it because of this sort of ideological?
#
No, they are allowed, but it's a part of the broader failure on financial markets in India
#
that there is a whole array of restrictions which has damaged the ability of these markets
#
So the markets are actually minuscule and the price discovery is not so great.
#
And it doesn't work in the way that it is intended to work.
#
And another sort of point that you've made is that, you know, right now there are no
#
Farmers are, of course, forced to also be entrepreneurs, they want stability and it
#
seems to them that the handout of an MSP is, you know, some kind of stability.
#
They have some basis on which to plan.
#
But as you've pointed out that international trade is a much better source of that because
#
if your minimum price is going to be the market price that the world is offering, then that
#
is a better MSP than an MSP that the government can offer.
#
You know, it gives you the same sense of security.
#
It gives you a much broader market and therefore better prices for your goods.
#
And obviously you will only be selling things there when there is a glut of supply here.
#
So instead of things getting wasted, you actually have a kind of market for it there.
#
So what is the sort of thinking on this?
#
Because what one gets to hear from the policy landscape, if like me, you are just a casual
#
observer and you just peruse the papers once in a while and once in a while you'll see
#
some news about, oh, you know, onion exports have been banned now and onion exports are
#
back and it seems to me extremely unpredictable and chaotic and even moody.
#
If one may use that term for the state where there's no predictability, you know, farmers
#
can't plan for an export policy and look ahead and so according to that and equally, you
#
know, people who might buy our stuff from abroad can't also make long term plans because
#
everything is so arbit.
#
So in the thinking about international trade, yes, international trade is a tremendous source
#
of stability that when there is a harvest in India, which is a glut, you want to put
#
things on ships and planes and send them out.
#
When there's a shortage in India, we want to be able to readily import things from abroad.
#
In this one very important thing to remember is that we should not think about the word
#
India will import wheat or India will import cotton because then that tends to equate it
#
Actually, all that we need is for the government to get out of the way.
#
Then private people will do everything.
#
So then private people have all the right incentives that private people will be watching
#
the price in Singapore or in Dubai and will buy in Singapore, sell in India, buy in India,
#
sell in Singapore, figure out that, you know, I could actually put tomatoes into planes
#
and ship them out to Dubai and that I'm able to generate a good profit.
#
So a large number of practical decisions made by one individual firm, one individual trader
#
at a time is the right vision that we should be having.
#
We should not think of the word India because it completely messes with our brain.
#
So we start thinking that India will demand 10 million tons of wheat and the world market
#
So first of all, there is no, there should not be an India, a single national body.
#
There should be large numbers of individual decisions and many, many, many decisions will
#
Some people will choose to hold inventory in India.
#
Some people will look at the futures market, they will say, Hey, I think there's a big
#
increase in the price of wheat that's going to happen in the next few months.
#
Let me import wheat right now and let me store it in India so that I'm ready to sell into
#
the Indian market day by day, week by week.
#
As the price unfolds, there are big industrial buyers like ITC, which makes atta or Britannia,
#
which makes bread and biscuits.
#
They will constantly have that intelligence of sourcing wheat all over the world, making
#
rational decisions about when to store, how much to store, and these hundreds of equilibrating
#
decisions will bring about more stability in the Indian market.
#
So we should think of the international market as a giant buffer, which protects the Indian
#
market from fluctuations that either consumers or producers get affected because of the crazy
#
volatility of Indian prices and the solution to that is to have a very open environment
#
on international trade.
#
One of the pieces which you sent me, which I enjoyed reading is, you know, has a headline
#
and agricultural trade powerhouse, which I'll link from the show notes.
#
And there you make the very interesting point that as a headline says that we can be an
#
agricultural trade powerhouse and typically I think a lot of Indians, when they think
#
about the economy, think about how, you know, we are doing well in services now almost by
#
default that happened post-liberalization wasn't regulated, but we missed the bus when
#
it came to labor intensive manufacture, where because we have so much cheap labor, we could
#
actually like China and maybe in the later day like Vietnam and so on, and like Bangladesh
#
is also doing so well in it, and we missed that bus completely and maybe we'll never
#
catch it because of automation.
#
But people often don't think about agriculture as a big source of economic growth.
#
And you point out at one point and I'll quote from your piece quote, what many of us have
#
not noticed is that a labor intensive industry agriculture now yields greater exports than
#
automobiles or garments plus textiles, stop quote.
#
And you also talk about how, you know, our self-image at one point in time used to be
#
hey, we're a country with a high population and food scarcity.
#
That's completely changed.
#
We can actually be an agricultural trade superpower of the world.
#
And that with me, because it just seems to me to be a win-win from every possible angle.
#
It could reform our agricultural sector, it could give our farmers security and access
#
And it would also be great for national pride, we could be feeding the world.
#
So there is an old strain of export pessimism in India, okay.
#
So it is the insecurity of people in India that we think that we are clueless and we
#
will not be able to compete in world markets.
#
And over and over, this has been proved wrong in one field after another.
#
Manmohan Singh's PhD thesis in 1964 was one of the first intellectual products that questioned
#
export pessimism and made the argument that we are rational economic agents like everywhere
#
And it's a matter of making prices work correctly and notably not having central bank manipulation
#
And then we will get the ability to export just like anybody else.
#
So in this retreat away from export pessimism into a more optimistic frame of mind, today
#
in India, we see people like us feeling confident that we can do some modern things, that we
#
can do software, we can do some business process outsourcing, we can make automobile components
#
Okay, that kind of confidence has seeped into India.
#
But what my article was hoping to point out is that actually there is a wonderful miracle
#
that is going on, which is agricultural exports from India.
#
Okay, so in the 10 years leading up to 2016-17, we had huge growth rates of agricultural export.
#
And if you pause to think why actually the logic comes through very nicely.
#
So one element is that given the Indian weather, land is viable around the year.
#
So there is good sunlight around the year and there is no difficulty at any time of
#
the year, you can be doing agriculture.
#
So the effective landmass available in India is very large.
#
And the second idea is that a lot of modern high value agriculture is actually quite labor
#
It's difficult to mechanize making cotton, it's difficult to mechanize making tomatoes,
#
it's difficult to mechanize flowers and herbs and so on.
#
So there are things that are more industrializable like wheat, where frankly what you want is
#
a one kilometer by one kilometer farm and you want these gigantic machines which will
#
So that is a very capital intensive form of agriculture.
#
And the moment I say capital intensive and labor intensive, I wish to appeal to trade
#
theory, that that's what trade theory is all about, that you want to do capital intensive
#
agriculture in a place like Canada, where people have farms that are multiple square
#
kilometers and millions of dollars of farm equipment and with very little labor, they
#
So wheat is really not our thing.
#
We don't have a competitive advantage in doing wheat, where we have a competitive advantage
#
is in doing fruits, in doing vegetables, in doing animal husbandry and milk and so on.
#
So there is so much that can be done out of India, where we can utilize the fact that
#
actually we have a large labor force.
#
And so put all these pieces together, get to producing agricultural goods, put them
#
on planes, put them on ships, get them out to the world.
#
This is not just a hypothesis.
#
This is the reality, as my article points out, we have had very high dollar values and
#
growth rates in this field.
#
And this is something that India can do.
#
So we should not be so pessimistic.
#
But then once again, it requires that we've got to get out of all these distortions.
#
The entrepreneurial genius of Punjab and Haryana should be devoted to supplying tulips to Amsterdam
#
and vegetables to Tokyo.
#
Instead of that, we've got the lowest value product of the whole world, namely wheat and
#
rice being done in Punjab and Haryana.
#
And that is the failure of policy.
#
That's extremely well put.
#
And what you also kind of point out is that you talk about the four themes of internationalism
#
in the context of agriculture.
#
And one, of course, what you just pointed out is specialization, that these are wheat
#
and rice is not what we should be making in such quantities.
#
And like you pointed out, farmers of Punjab supplying vegetables to Tokyo is quite a
#
But yeah, everybody will find the niche that is most profitable for themselves.
#
What you also point out, your second theme is on the political economy, where you write,
#
quote, the domestic policy process can degenerate into a dysfunctional political economy where
#
special interest groups dominate.
#
Integrating into the global economy helps create a new dynamic.
#
It becomes easier to form coalitions in India across many different special interest groups
#
aligned around success in exporting, stop quote.
#
So sort of elaborate on this a little bit for me, like what does the current landscape
#
look like in terms of agricultural policy and interest groups and how would that change
#
if the incentives of all farmers suddenly change, if you know that international trade
#
is encouraged and that there won't be arbitrary bans on X or Y, how does the landscape change
#
This is an old idea from Jagdish Bhagwati and Kruger, D. N. Srinivasan who observed
#
that when you get to exporting, it aligns domestic political economy in a more sensible
#
So in an inward looking economy, in a more self-reliant economy, in a more import substitution
#
economy, you tend to have a zero sum game of local constituencies fighting with each
#
other to grab a bigger share of the pie.
#
Whereas when you are outward oriented, when you're thinking that we have powerful lobbies
#
in the country that are trying to make more money by exporting, then the behavior of those
#
lobbies is to scream at the policy makers, trying to resolve the bottlenecks that hold
#
And that creates a more positive kind of political economy conflict.
#
So applied into the field of agriculture, there are more internationalized commodities
#
in India, where frankly there is international trade and there's better integration with
#
And there has been more sanity in those areas as compared to the more inward oriented areas
#
where we fundamentally switch off the world economy and then you get the worst of the
#
Indian political economy.
#
And what you also pointed out is that at one point in that article, you write about how
#
another facet of internationalism is sustained engagement, where you write, quote, many have
#
commented on how India is seen as an unreliable seller owing to periodic bans on export.
#
The problem runs much deeper than this.
#
Exporting is not a simple matter.
#
It requires developing complex organizational capital and business relationships.
#
And later you write, our instinct of bans and unbans are born of the age of food insecurity.
#
India's population is not able to consume the food that India grows.
#
So at the policy level, if there is this sort of fundamental thinking that there is a suspicion
#
of exports perhaps, or there is a sense that so many people in India are hungry, why should
#
we allow exports, we should solve that first.
#
You know, onion prices are so high, why should we allow the export of onions, which will
#
make onion prices higher, which are entirely sort of wrong diagnosis of cause and effect,
#
But you know, that kind of policy thinking is still entrenched or do you find that it
#
is, is there hope of change happening there?
#
And also are, are farmers actually agitating for that kind of change?
#
This thinking is very entrenched.
#
What I have written is unusual.
#
There are a few economists who are thinking in these ways.
#
For me personally, it was Kirit Parikh who first opened my eyes to the possibilities
#
of international trade and agriculture.
#
For me also, when I used to have this schizophrenic idea that international trade is great for
#
everything but agriculture is special.
#
And it was Kirit Parikh who helped me to see that no, all the standard knowledge and understanding
#
of gains from trade, of international trade, of specialization applies equally in the field
#
of agriculture and there are very big gains to be had by going down that route.
#
Jaswant Singh had a very nice phrase, he used to call it the psychology of scarcity.
#
That he used to say that India has become big in some ways and we've not yet lost the
#
shackles of the mind where we think that there is scarcity.
#
And I think that there's a certain growing up that needs to take place in our mind.
#
I would also like to coldly make a distinction between hunger and agriculture.
#
So there is a poverty problem in India, there's no question that there is a poverty problem
#
And for an analogy, I will say, consider the United States, there is a poverty problem
#
Okay, there are many people in the United States who go hungry, but the fact that there
#
is hunger in the United States does not in any way impinge on agriculture policy in the
#
There are two separate problems.
#
So yeah, we should do more to solve poverty problems.
#
There are many, many elements of how we can do things that will change poverty.
#
Most notably, can we grow GDP, can we expand the overall pie so that humble, low-skilled
#
jobs in India generate higher and higher wages?
#
There is a great discussion to be had around poverty.
#
But for a moment, let me stick to the counterpoint of consider a country like the UK.
#
There is a poverty problem in the UK, there are people in the UK going hungry.
#
But that doesn't mean that you have to choke exports of food from the UK to the European
#
They're two separate things.
#
We don't need to mix them up.
#
We should understand these are private decisions, these are private markets.
#
So if I make bananas, I should have the ability to produce bananas with the best focus and
#
technology that I am able to bring to it and develop supply chains through which I am able
#
to sell bananas into the highest priced outlet that I can somewhere in the world.
#
And that is the best thing that can happen to my income.
#
And the fact that there is an Indian buyer of bananas does not generate reasons to damage
#
So if you just think of the interests of every single farm producer, can we create conditions
#
under which they get the best possible realization and when they do specialization and they change
#
the cropping patterns, most notably away from wheat and rice into other things, they will
#
actually get to higher value things.
#
So it's in the interests of the farmers to do this.
#
And it's a bit of a mystery to me why this has gone wrong.
#
And while I'm on this subject, I also want to emphasize there are such giant opportunities
#
So this is a vast country where there can be so much co-production of dairy.
#
So I think India has got a great thing going where the agricultural residue of every farm
#
is used to keep six cows.
#
And we've got these sourcing networks where firms like Amul firms like Britannia run the
#
entire machinery going deep into rural India where they are sourcing milk.
#
And this can easily turn into value added things in the future, whether it is SMP skim
#
milk powder or it is cheese or whatever.
#
There is such large opportunities to dominate the world market in these things which are
#
And I'd again like to sort of underscore the almost counterintuitive point that the hunger
#
problems that you see in India are not because of inadequate agricultural production, because
#
you know, the statistic that I gave out in my last episode and that I wrote about at
#
one point is that in India, 3000 children die of starvation every single day.
#
That you know, more than one in four kids below a certain age is malnourished.
#
There is clearly a hunger and food problem, but it's got nothing to do with agricultural
#
It's got something to do with poverty.
#
How you solve the problem of poverty is like you said, if the whole pie goes larger and
#
And part of the puzzle of that is solving the problem of agriculture.
#
And if agriculture grows massively, then you know, so will incomes at the bottom of the
#
And also labor intensity.
#
So if you are in Punjab growing wheat, then you will mechanize it and there will be less
#
employment for poor people.
#
Whereas if you're in Punjab and you're growing tulips, then you will have to hire more people
#
because growing tulips is labor intensive.
#
So we've done the exactly wrong thing that we have by having barriers to trade.
#
We are doing capital intensive things of the kind that should just not be done in India.
#
We've seen this movie before in every other part of the country, but that same movie is
#
playing out in agriculture that by opening up to international trade, we will get a reallocation
#
towards more labor intensity.
#
And so the landowner in India will hire more poor people to do agricultural work and thereby
#
we will elevate the poverty problem.
#
That's a profound point.
#
Let's you know, moving on from international trade.
#
Now let's talk about trade within India, which is one of the things that the farm bills attempt
#
Tell me a little bit about what the sort of problems here were.
#
We in India built a grid of restrictions against the movement of agricultural commodities within
#
And there are broadly two or three groups of interferences.
#
So the first and most famous interference is the APMC.
#
So this is a 1950s idea.
#
I have heard that it was pushed by the World Bank into many countries, including India.
#
And the idea is that the government will create a monopoly spot market.
#
So there is the mandi that's created where buying and selling shall be done.
#
And the coercive power of the state is used so that you use state power to penalize anybody
#
doing a transaction that is not at the mandi.
#
So we've created this artificial monopoly called the mandi.
#
And then sure enough, there's a bunch of people who exert disproportionate power at the mandi
#
and give very poor realizations to the farmers.
#
So this is one class of barriers which interferes with domestic trade.
#
This is the micro restriction.
#
Then we have many, many barriers which interfere with the movement of goods between states.
#
These range from outright bans to what are called technical barriers in the field of
#
So if you want to carry a truck of cotton from Maharashtra to Karnataka, the Maharashtra
#
government makes it difficult because somehow the Maharashtra government has an idea that
#
we want to double quotes reserve this cotton for mills in Maharashtra.
#
And I think this is a deeply, deeply pernicious idea.
#
The whole point of being the Republic of India is that we should have free movement of all
#
economic activities across the country.
#
People should move, goods should move, and so on.
#
But there are many, many restrictions that hamper the movement of goods across the country.
#
Either they're explicit bans or they're all kinds of softer restrictions which bottom
#
line generate interference into freedom of trade.
#
We see that quite vividly, for example, when we look at the divergence of prices between
#
So the price of a product in Pune versus the price of a product in Bhopal should be essentially
#
the same within a ban which reflects the cost of transportation between Pune and Bhopal.
#
Other than that, there should be no differences.
#
In fact, we see fairly large differences all across the country.
#
And this is because there are these restrictions on the movement of goods.
#
So this is the whole domestic trade agenda, where partly we've created these little monopolies
#
called the APMCs, which interfere with the ability of somebody else to come in and talk
#
to a farmer and offer a better price.
#
So why are we interfering in the economic freedom of the farmer is something that beats
#
me that I would even be okay if somebody said, here, we'll build an APMC for you.
#
And it's your choice that we use public money to build an APMC.
#
So we've got some physical facility and some handling of agricultural goods and some wayscales
#
And it's your choice that if you live X kilometers away from this, it might be convenient for
#
How did we cross the line to using coercion is something that beats me that in what universe
#
are you better off coercing a farmer, saying that if you dare to do a transaction at any
#
place other than the APMC, then the coercive power of the state will be used to inflict
#
punishment upon you and upon your counterparty.
#
That to me is really something that is unethical, that how could anybody countenance this kind
#
So these are the two elements of the domestic trade agenda, free movement of goods all across
#
the country and the APMCs.
#
So I can't resist an opportunity to do some share of shairi on the show.
#
So just to talk about APMCs, which I had an episode with the former leader, Gunwant Patil,
#
a couple of years back, and he told me about this great share which Sharad Joshi, the great
#
farmer leader, used to sort of, and this is something that a farmer is saying to a consumer,
#
and I'll explain the context of this after I go through this, and it runs this way.
#
To quickly translate for non-Hindi listeners, it translates this way, I die my friend and
#
I sell my produce cheap and die, you pay so much that you die too.
#
And the whole idea is that because of the APMC, the farmer is selling too cheap and
#
the consumer is buying too expensive because the APMC is a monopsony.
#
The only person who can buy from the farmer, a government mandated monopsony, you're not
#
allowed to sell anywhere else.
#
So therefore what happens is they can set whatever price they want.
#
Like at one point, I remember a report which spoke about how farmers would sell tomatoes
#
to the APMC at two rupees a kg and consumers would buy them for 20 rupees.
#
So you have the APMC taking 18 rupees, farmers are getting paid two bucks, consumers are
#
What you could instead have had is that if you had a competition of middlemen and you
#
could sell to whoever you wanted, the competition of middlemen would ensure a situation where
#
for example, the farmer instead of two rupees could sell his tomatoes for 10 bucks and the
#
consumer could buy them for 12 bucks.
#
Consumer benefits by eight rupees, consumer benefits by eight rupees, enormous benefit
#
and we don't have that.
#
And as far as, you know, I can make out from this farm bills, they haven't even done away
#
They've said the APMC is there as an option, but now you're allowed to sell anywhere else
#
Is that a correct understanding?
#
So this is a key point that for all practical purposes, there may be many parts in India
#
where a farmer is really stuck and you have no choice but to go to the friendly neighborhood
#
APMC, which has land, which has facilities where state power was used many years ago
#
in the establishment of the APMC.
#
Once that is done, I would be the one complaining about competition policy.
#
I'd be saying that a few blocks at the APMC have market power and we need to go do something
#
The only thing that we're fighting about right now is don't make it illegal for somebody
#
else to deal with the farmer directly.
#
It's such a basic conception of economic freedom.
#
Yeah, and also, you know, one criticism that has come about, you know, this particular
#
reform allowing the farmer to sell to anyone instead of forcing him to sell to one person.
#
And one of the criticisms is that, oh, this is corporatization, corporates will take over.
#
There'll be an Ambani and Adani monopoly, which seems to me to be a bizarre criticism.
#
First of all, all these interactions between the farmers and whoever he or she is negotiating
#
with, these are all voluntary interactions and the farmer still has a choice of going
#
to the APMC and selling at the MSP and so on.
#
And it's just that you've expanded their choice.
#
You've not taken anything away.
#
And the other aspect of looking at it is that after the liberalization of 91 in which area
#
which was liberalized, did you see a corporate monopoly squeezing the poor guy instead?
#
What you had was it was great for consumers.
#
It was great for producers.
#
It was great for suppliers.
#
It was just fantastic all the way around.
#
So I don't know where this criticism comes from and where you go from here to there.
#
So if some Ambani, Adani organizations actually reached out to some farmers and made bids
#
to them saying, I'll buy your tomatoes at four rupees, I would say, hey, how wonderful
#
as compared to going to an APMC and selling the tomatoes at two rupees.
#
Nobody's forcing anybody to do anything.
#
It's just removing the Indian state from coercing farmers and anybody else that they might
#
bear contract with saying that this is illegal, that is something that is phenomenally bad
#
and that is something that is sought to be eliminated.
#
And do these farm bills also do something about the second aspect of it, which, you
#
know, interstate trading and trading anywhere else you want, you know, accessing prices
#
Do they also do something with regard to that?
#
It's a beginning on those things.
#
So I see a long agenda on domestic trade that it will not get solved overnight.
#
So as an example, I talked about APMC.
#
OK, the fact is in most regions of India, the APMC is the only game in town.
#
So realistically, the APMC is going to be an important part of this landscape for a
#
And we need to do many, many things.
#
So I think of domestic trade as an agenda, as a journey where we will have to fix many
#
But you know, you've got to start somewhere.
#
And you've pointed to Article 301 elsewhere, where in one of your pieces you wrote, quote,
#
a key idea lies in utilizing Article 301 of the Constitution of India, which states that
#
trade and commerce throughout India shall be free.
#
And therefore, it seems to me to my delight that all these restrictions which have existed
#
on trade and commerce in the past are therefore unconstitutional.
#
Well, so let me locate this precisely in the present debates also.
#
So there is a lot of debate around agriculture as a state subject.
#
And you know my views well.
#
I am a great admirer of the federal and decentralized nature of the Republic of India.
#
And I'm always looking for policy pathways in which we can deepen that decentralization,
#
send more power and more functions down to state governments and city governments, because
#
that's really the best way to organize this country.
#
This country is too vast to be ruled by any one union government or one New Delhi.
#
So I'm very sympathetic to the decentralization agenda.
#
However, there is also an element in the Constitution and one that legitimately belongs, which is
#
on problems of interstate commerce.
#
In India, that is Article 301.
#
For example, in the United States, we would all tend to know that in the Constitution
#
there is this issue about barriers to interstate commerce, that it is not OK to introduce barriers
#
to interstate commerce either through federal law or through state law.
#
So there is a union government role in interfering with and disrupting barriers to interstate
#
And that is the legitimate domain of the union government.
#
And these laws that have had restrictions have in the past got approval of the president
#
of India because that was required as they would have otherwise infringed on Article
#
So I just want to say that the laws that are sought to be changed by these three farm bills
#
had gone through the same Constitution of India, had gone through approval of the president
#
of India and of the union, because this is the domain of the union.
#
And today, the parliament is legislating in what is legitimately the province of the
#
So I do not think that there is anything being done that is wrong.
#
And if you will put a link to the paper, my colleagues and I wrote this paper in 2015
#
and 2016, well before these bills were done.
#
And two of my four co-authors, Shubho Roy and Aniruddh Berman are lawyers and have enormous
#
specialized technical expertise on these questions.
#
And we feel quite clear that this is the domain, this is the legitimate domain of the parliament
#
in forming legislation.
#
Let's talk about the farm bills now.
#
And it's very complicated and nuanced.
#
And I want to talk about it in a number of different dimensions, some of which we will
#
know less about than others.
#
But nevertheless, one that you would know about quite thoroughly is the content of it.
#
You know, that's a sort of first of four areas that I would like to address.
#
So when it comes to the content of the farm bills, is there anything there that is problematic
#
or short-sighted or goes in the wrong direction, or would you say that it all broadly goes
#
in the right direction?
#
Earlier, you said you're 90% in agreement with- It all broadly goes in the right direction.
#
It all broadly goes in the right direction.
#
My other sort of criticism of this is the process, because the one area where I find
#
myself quite aghast is the way that it was pushed through parliament, the way that, you
#
know, dissent is not engaged with, that anyone who protests is by default painted as anti-national
#
and just a vituperative tone of the response to criticism seems to me to be extremely anti-democratic.
#
And at some level, I guess, there's a federalism argument also that in many of these areas,
#
let the states make up their own mind.
#
What is your sense of the process of this?
#
Is there something that the government could have done differently?
#
Is there a fundamental tendency within the government to think in a particular way, which
#
has led to, you know, the bills being carried out like this?
#
Because what it seems to me is that an essential component of liberalism now understand that
#
these bills, in the sense that we understand liberalism in terms of increasing individual
#
freedom and reducing state coercion, that the content of the bills is fairly liberal,
#
but the end doesn't always justify the means.
#
And it seems to me that there is something deeply flawed with the means.
#
What are your thoughts on that?
#
So I wish to say three things on this subject.
#
The first is where we were a moment ago, that there needs to be much more of a public policy
#
And this is true, not just of agriculture, it is true of all fields.
#
In my opinion, we in India are in a declining phase of the intellectualism and the public
#
debate and discourse surrounding a lot of fields.
#
We don't have much of a public sphere.
#
And these bills emerge pristine from some government person who drafts the bills.
#
So I think that that's not a healthy way to proceed, partly from an intellectual point
#
of view, that debate and discussion always improves work.
#
Nobody is smart enough to figure out these things.
#
We each of us, that if I was the policymaker, I would be the beneficiary from a vibrant
#
process of public discussion and debate.
#
As I have been involved in many, many episodes in the past, that the process of discussion,
#
the process of debate, of putting something up in 100 seminars and conferences, chips
#
away at the ideas and refines ideas and makes ideas better.
#
So you get something that's a better quality product out of the process of debate and discourse.
#
And you end up politically sensitizing the broader community that, you know, this kind
#
of stuff is in the pipeline.
#
So I think that's very important.
#
Otherwise, you suddenly spring surprises on people.
#
And needlessly, that creates more of a sudden allergic response.
#
This is the first point I'd like to make.
#
The second point is also an economics point.
#
And now I want to step back a little from these bills to go after the bigger problem
#
And here I'm reporting the thought process that I picked up in recent weeks through conversations
#
This is really Kelkar's idea.
#
So I have been part of the conversations and I agree with the thought.
#
So Kelkar has been thinking that there is a weird equilibrium that Punjab and Haryana
#
particularly are locked into, which is a combination of everything that you described, that there
#
is free electricity, barriers to international trade, MSP, there's a whole machinery of
#
farmers in Punjab who are locked into wheat and rice and who don't know any other way.
#
And we must recognize the culpability, the complicity of the Indian state in doing this.
#
And if you wish to make moral arguments, then after the 60s, 64-65 and 65-66, two consecutive
#
droughts and see Subrahmanyam and the Green Revolution and all the amazing things that
#
were done in that period by policymakers, you could almost make the claim that look,
#
it is Punjab and Haryana that protected the rest of India, that rescued the rest of India,
#
that bailed out India in a time of high population growth by producing those surges of agricultural
#
output that was so desperately required in India of that age.
#
Otherwise we would be down to PL480 charity from the United States to eat.
#
So that was a different time and at that time, maybe it made sense to orchestrate this electricity
#
and MSP and high yielding varieties and subsidized fertilizer to just get Punjab and Haryana
#
to become the agricultural heartland of India and they fed the entire country.
#
Now there is a problem in abruptly yanking that.
#
So if you abruptly yank that, then it's not fair because it's a big disruption that's
#
placed upon everybody in Punjab and Haryana.
#
If you change one piece at a time, it's actually complicated because these are general equilibrium
#
There's no guarantee that if you fix one restraint at a time, that you will actually get gains
#
in return for each one step at a time.
#
That's a weird thing that happens with general equilibrium reasoning that if you remove the
#
fertilizer subsidy and the electricity subsidy and the NREGS and the MSP and the domestic
#
trade restrictions and the international trade restrictions and the malfunction of the futures
#
markets, if you remove all these together, then I have no doubt that in two, three years,
#
the system will find a new equilibrium where every farmer will be better off.
#
In fact, along the way, when you go one step at a time, there's no guarantee that things
#
become better for the affected people.
#
So you really need to see this as a part of a fuller strategy that we are going to move
#
towards a market-oriented, internationalized agriculture, we're going to do it in these
#
10 steps over 10 years.
#
And Kelkar argues that this is a bit like a structural adjustment program that the IMF
#
and the World Bank put together for a country which has a horrendously messed up collection
#
So if you want to fix all those policies, imagine that for 10 years, we are putting
#
in public money to do direct cash transfers to individuals in Punjab and Haryana where
#
that money tapers away over a 10-year period and bit by bit over a five-year period, we
#
are removing all these barriers.
#
And through that way, we have managed an entire transition to coming up to a new system.
#
So where we are going wrong today is that we've removed one piece and we don't have
#
a game plan for the full thing.
#
And the game plan for the full thing needs to bring the worldview of a structural adjustment
#
program rather than just saying that, sorry, screw you, we're just going to do all this.
#
And that's not a very good way to do things in a democracy.
#
And my last point is exactly where you left off that politics is the art of negotiation.
#
Politics is the process of bringing people together and finding deals and finding contracts,
#
finding middle roads that make sense.
#
And surely, there should have been ways to bring people to the table and negotiate in
#
good faith and find better outcomes, particularly when the hand of cards is so good.
#
These three bills are so good, they are only a step in the correct direction.
#
It's a failure of negotiation that it turned into so much anger and so much unhappiness
#
and so much partisan tribalism.
#
Yeah, it's a massive failure of negotiation and of politics.
#
Two aspects of this which I want to kind of explore in a theoretical sense where these
#
specific bills are only an illustration.
#
One is a political ramification of big changes.
#
So let's say you need to, there are 10 changes you need to make together and then you know
#
everybody will be better off.
#
But the problem is that it's not visible to everyone that they will be better off and
#
they'd rather, you know, take the bird in hand than think about to win the bush right
#
now, especially those who are beneficiaries of the current system, whether they are, you
#
know, benefiting from the APMC monopsony or whatever.
#
So then what happens is that anytime you try something like this, if the short term losers,
#
even if they're winners in the long term, if the short term losers are going to kind
#
of protest, then does that become a roadblock for any kind of significant reform?
#
Because no matter what you do, somebody will feel that they're losing out in the short
#
And in the partisan tribal atmosphere of our modern times, the entire opposition, whoever
#
it is at that point in time, will rally around that particular aggrieved party and it then
#
becomes difficult to move forward at all.
#
Is there then a danger of policy paralysis because of politics?
#
So I think that it was Pratap Bhanumaita who said that when the ordinary consensual negotiation
#
approach to politics, where there is a constant conversation that is kept alive, when that
#
breaks down, then you're down to screaming in the streets as the only way out.
#
So I feel that there's a deeper problem that we've got to rebuild the quiet comfort of
#
people in the treasury benches talking to people in the opposition benches.
#
Kelkar always says that a political party should go into opposition, but it should never
#
That opposition party should always have influence, they should always have a role, they should
#
And the art of doing democratic politics in a liberal democracy is to carry people along.
#
So this is something that we need to learn a lot more of what Vajpayee used to call coalition
#
Why India worked well in coalitions led by people like Vajpayee or Gujral or P. V. Narasimha
#
Rao was that coalition dharma, bring many people together, talk, negotiate, talk, negotiate.
#
I think that there's a certain Indian middle class thing where we have started craving
#
for a strong leader and somebody that will just decisively go do things.
#
And I think that is fundamentally incompatible with the reasonable narration of what liberal
#
democracy is all about.
#
Also strikes me like, for example, when GST was announced on GST, of course, was in theory
#
something that would really help the economy and reduce a lot of the friction and it was
#
great, but it was so badly implemented that it caused a lot of damage and continues to
#
cause damage to this day, much of which I see around me with all my friends who are
#
entrepreneurs and have factories or had factories because it's been so damaging.
#
And the thought that struck me during that time is that even if you're moving from say
#
one bad equilibrium to another better equilibrium, there is a transaction cost to that movement
#
itself, that in that movement there can be so many unintended consequences and so many
#
things going wrong because of all kinds of reasons, because of factors outside your control,
#
unknown, unknown state capacity and so on, that in the end you don't necessarily end
#
up with either something that is better or with something that justifies the shift in
#
Is this something that you think about while making policy?
#
Because like the point that you pointed out is that you can't in something in a machinery
#
where so many things are broken, there's no point piecemeal changing a couple of things
#
here or three, four things here.
#
You have to overhaul the entire thing.
#
So how does one think about that?
#
And you know, it seems to me so daunting that just the daunting nature of what could happen
#
is enough to make a politician or a bureaucrat say that, hey, let me just make incremental
#
differences to the status quo and try nothing drastic.
#
So as somebody who was in the founding team of the GST in India, it is indeed really troubling
#
and humbling to see how things didn't quite work out like one would have anticipated.
#
And I have no ready solution to how to play that GST kind of episode better.
#
We just lost institutional memory.
#
There was a whole bunch of people who knew about the GST and then finally, when the negotiations
#
were being done first with Pranam Mukherjee and then with Jaitley, the basic knowledge
#
And so what was negotiated and what came out and what got implemented just seems to bear
#
no resemblance to the early conception of what a GST is all about.
#
So I think it was a failure of a policy community.
#
And that takes you back to a deeper question, a bit like what I'm saying about the problems
#
of a health policy community in similar fashion, we just did not have enough of a public finance
#
policy community that would be able to think deeply about the GST and stay on the ball
#
and stay on message on the subject of GST for 20 years, which is the kind of time horizon
#
that is required to do that.
#
That said, it's actually much easier in the field of agriculture because the agenda in
#
agriculture is a much simpler agenda, what is sometimes called first generation reforms,
#
which is just get the state out of the way.
#
Those are much easier reforms to execute.
#
So when all that has to be done is to have a stroke of the pen where there is a law which
#
removes the barrier against a foreign company having FDI and insurance, that's a very easy
#
It's not a complicated reform.
#
When associated with that, you need to do large scale improvements in insurance law
#
and the working and the capability of IRDA so that these powerful, capable, hungry global
#
insurance companies will not create a consumer protection disaster in Indian insurance.
#
That's more difficult because that's like a second generation reforms agenda of building
#
state capacity in insurance regulation.
#
In the case of agriculture, almost all of it is just get out of the way.
#
Do not interfere in international trade.
#
Do not interfere in domestic trade.
#
In the case of the futures markets, yes, we do unfortunately need to develop state capacity
#
at SEBI and that's indeed a difficult problem.
#
So we'll have to learn how to become a financial markets regulator in an organization like
#
That is a complicated problem.
#
Similarly, in warehousing, all that the government has to do is don't interfere when people hold
#
goods in warehouses, this essential commodities act that I'll put you in jail if you have
#
inventory of certain things, you need to get out of the way.
#
So a large part of the agenda is just get out of the way.
#
For that reason, implementation constraints will not be a big problem other than commodity
#
futures where we need to do the FSLRC agenda to get SEBI up to capabilities of stepping
#
away from central planning and achieving high rule of law.
#
That is indeed unfinished business in terms of what is happening at SEBI.
#
But for the bulk of the agriculture landscape, it's just first generation reforms, freedom,
#
That's all that's required to be done.
#
It's not difficult to implement.
#
And what do you think of the way out of this current imbroglio?
#
Like the BJP messed up the politics of this completely, which is a little bit of a surprise
#
because they're normally not that bad at politics, but clearly they didn't foresee this coming
#
and they messed it up completely.
#
Now what's the way out of this?
#
Because on the one hand, you have these deep partisan entrenched positions where the government
#
is saying that these farmers are anti-nationals, which to me is like just beyond the pale.
#
And you know, at the same time, that's sort of deepened the resolve of the farmers also.
#
And there's a lot of rhetoric and misinformation on all sides.
#
What is a reasonable way out and is there a reasonable way out?
#
So I find it heartbreaking that the bills that I consider so aligned with the interests
#
of farmers are turning into an angry farmers movement.
#
The only word I want to use is heartbreaking.
#
That, you know, how could we come to someplace that is so wrong?
#
And I think that we've got to go back to basics in terms of the healing.
#
That we've got to rediscover humanity in each other.
#
We've got to learn to talk across the aisle.
#
We've got to grow collaboration muscles, we've got to grow coordination muscle, we've got
#
to grow negotiation muscle, and come back into these things in a more quiet environment
#
where the temperature is dialed down and people are able to talk to each other in good faith.
#
Because we should see that these bills are not the beginning and the end of agricultural
#
There's so much else that's waiting to be done.
#
And our ability to do a complex 20-year re-engineering through which India becomes an agricultural
#
trade powerhouse and we generate giant gains in production and incomes of farmers.
#
That whole process stands to get disrupted if the temperature becomes so high.
#
So it seems to me that the need of the hour is really to be like Gandhiji after a horrible
#
episode like Noah Kali where you try to bring people together and you say that being good
#
to each other is even more important than doing the right things at an intellectual
#
What does that mean in concrete terms?
#
Does it mean the Modi government going to the farmers and saying that, okay, relax,
#
And what are the demands of the farmers that they are not agreeing to?
#
For example, now I haven't studied this in detail, so I'll ask you that the farmers apparently
#
wanted a guarantee within the bill that the MSPs would continue.
#
Now in the short term, I don't really see the harm of this because as long as you allow
#
trade elsewhere, the MSPs have been there forever.
#
They're going to continue to be there if these bills don't pass.
#
So let them be there for a while till they are unnecessary, which markets would surely
#
ensure or is my understanding of it flawed?
#
I think that when you get temperatures that are this high, there's something deeper that's
#
When you and I are engaged in a screaming match, it's not the words that we say to
#
There's something else that's going on.
#
It's a deeper estrangement.
#
We have lost confidence in each other.
#
We've lost the presumption of good faith.
#
So I actually don't think that there is a need of a discussion around whether you should
#
enshrine MSPs in the bills or not.
#
What is needed is 100 episodes where people from both sides will break bread with each
#
other and be kind to each other and be good to each other and learn to trust each other.
#
It's a process of conversation.
#
It's a process of emotionally building bridges and not trying to stake out a power claim
#
That is the path to building the republic and living with each other in a liberal democracy.
#
So as an old saying goes, democracy is the art of living with each other without coming
#
And we have come to blows in this.
#
And in my mind, that is abhorrent.
#
It's more important to be civil and be kind to each other than to get economic reforms
#
And I buy that point that it's not about this compromise or that compromise.
#
It's about the general approach that you take towards each other.
#
But there it seems that those bridges have kind of been burnt.
#
I mean, it seems to me, doesn't it?
#
And the solution is then to go back to basics and rebuild those bridges.
#
So again, let's look at the emotional climate around the storming of the Golden Temple and
#
then the murder of Indira Gandhi and then a pogrom against Sikhs in Delhi.
#
And then think of the next 10, 20 years, there was a process of building bridges.
#
We have crawled back from that precipice all the way to the point where Manmohan Singh
#
became finance minister and Monte Kaluwalia was finance secretary and then Manmohan Singh
#
became prime minister and we healed those wounds.
#
So these things can be done, but it's got to be done at a hundred levels in the political
#
system and as human beings with each other, because that is the only way to go forward.
#
Country cannot survive with this level of anger simmering inside.
#
So thinking aloud, it seems to me that a good way to proceed would possibly be for the government
#
to say something like, okay, we'll keep these bills in abeyance for some time, we'll bring
#
you to the table, let's talk it out, let's trash it out and until you are okay with it,
#
we won't reintroduce those bills.
#
Is that a good beginning step and is it even remotely realistic given the sort of, you
#
know, how it's almost become a prestige ki baat as it were?
#
So I have no judgment on how this story will unfold, but if I had to offer my two bits
#
of wisdom, this is what I would say, that what we need is a lot of people hugging each
#
You know, suddenly from talking of concrete economic first principles and sort of incentives
#
and this and that, we come down to almost, now you're sounding like a new age guru, right?
#
So thank you so much for coming on the show.
#
It's again been enlightening and you've given me and possibly our listeners lots to think
#
about and I hope to have you back on the show soon at some point, maybe to talk about healthcare,
#
who knows and maybe to describe how the process of hugging came to be and what were the incentives
#
that led to mass hugs erupting around the country, though somehow I don't think we'll
#
get to that episode too soon.
#
If you enjoyed listening to this episode, head on over to the show notes where I have
#
provided enough resources for you to enter a rabbit hole.
#
All my views on the subject, Ajay's views on the subject, the episodes I've done with
#
experts in the past and so on.
#
You can follow Ajay on Twitter at Ajay underscore Shah.
#
You can follow me at Amit Verma, A-M-I-T-V-A-R-M-A and you can browse past episodes of The Scene
#
and the Unseen at www.sceneunseen.in Thank you for listening.
#
Did you enjoy this episode of The Scene and the Unseen?
#
If so, would you like to support the production of the show?
#
You can go over to www.sceneunseen.in slash support and contribute any amount you like
#
to keep this podcast alive and kicking.
