#
We sometimes think of the economy as something removed from the real world.
#
There's numbers and graphs and tables and data, all things for policy wonks to look
#
at or rich people with advisors.
#
But what does it have to do with our daily life?
#
One of the common themes on my show is that economics has human consequences.
#
Bad economic policy in a country like India can affect the lives of millions of people.
#
One reason I often say that some of Indira Gandhi's economic policies or Narendra Modi's
#
demonetization were crimes on humanity.
#
They hurt the poor the most.
#
The thing is, bad policy is often couched in good intentions and the bad outcomes they
#
result in are often delayed and the causation is often not obvious.
#
We need to talk more about economics so that people don't get fooled by lofty narrative
#
and can figure out when they are being had.
#
That's one reason I started the scene and the unseen.
#
The title of the show is inspired by Frederick Basia's famous essay, That Which Is Seen and
#
That Which Is Not Seen.
#
I thought I'd examine the seen intentions and unseen outcomes of public policy.
#
Of course, the show has evolved to be much, much more than that.
#
I now do deep dive conversations that aim to examine not just economics, but also politics,
#
society and even the human condition.
#
That said, economics is, at the end of the day, the study of human behavior under conditions
#
And so here I am doing something I do every few months, taking stock of the Indian economy.
#
Welcome to the seen and the unseen, our weekly podcast on economics, politics and behavioral
#
Please welcome your host, Amit Varma.
#
Welcome to the seen and the unseen.
#
My guest today is a formidable economist, Ela Patnaik.
#
If there's one economic commentator whose body of work reveals a journey of the Indian
#
economy in the last 30 years, it's Ela.
#
A child of Marxist parents, Ela studied at JNU in the 1980s, but was encouraged by her
#
parents to think through the world for herself.
#
She went to do a PhD in England in the early 90s.
#
And just as India changed with liberalization, Ela swept aside the received dogmas of her
#
Indian education and discovered the wonders of an open economy.
#
She talks a fair bit about this fascinating journey in our conversation today.
#
And also of how for so many years she swam against the tide, both in economic policy
#
making and in the public discourse.
#
Ela is a professor at the National Institute of Public Finance and Policy, NIPFP, and has
#
worked at many senior levels in Indian policy making, including as a principal economic
#
advisor to the government of India.
#
A mutual friend described her as an economist who brought macroeconomic thinking to India.
#
And she was one of the driving forces behind the RBI's inflation targeting.
#
If that sounds boring, it isn't.
#
Ela has also enlightened millions of people with her columns and her work on television
#
and is now a bona fide econ superstar on YouTube.
#
She does a bunch of shows for the print, including one called Elanomics.
#
I'll link it from the show notes.
#
We not only discuss the road that she has traveled here, but also India's hesitant journey,
#
especially when it comes to economic reforms, where most of our governments since 1991 have
#
failed us, including this one.
#
There isn't a simple narrative that explains this, and what has gone wrong is not the fault
#
The Indian economy has been going down, down, down for over a decade now, when Pranab Mukherjee
#
took over at the Finance Ministry and set us on the road to ruin.
#
A road that Narendra Modi's government seemed to gleefully embrace.
#
But as the decade leading up to 2020 was bad, the year since then has been worse because
#
Nila and I take it step by step, discussing our broad journey after 1991, zooming into
#
the last 10 years, and then zooming in further to the impact of COVID and looking ahead.
#
Like so many of my episodes, by the way, this feels like the latest installment in an ongoing
#
conversation on the seen and the unseen.
#
I've linked earlier episodes in the economy in the show notes as also important episodes
#
with Pooja Mehra, Ajay Shah and Kartik Moolitharan.
#
Do you remember the argument Kartik and I had in our healthcare episode, episode 225
#
about the high taxes on petrol?
#
I feel they're horrendous, Kartik disagrees, and I got a chance to ask Ela for her views
#
Guess whose side she came down on, bloat, bloat.
#
Anyway, time now for the conversation, but before we begin, let's take a quick commercial
#
Have you always wanted to be a writer, but never quite gotten down to it?
#
Well, I'd love to help you.
#
Over the last year, I've enjoyed teaching my online course, the art of clear writing,
#
and an online community has now sprung up of all my past students.
#
We have workshops, a newsletter to showcase the work of students, and vibrant community
#
interaction that offers much stimulation and even some comfort in these difficult times.
#
In the course itself, through four webinars spread over four weekends, I share all I know
#
about the craft and practice of clear writing.
#
There are many exercises, much interaction, and a lovely and lively community at the end
#
The course costs rupees 10,000 plus GST or about $150, and the June classes begin on
#
So if you're interested, head on over to register at indiaankar.com slash clear writing.
#
That's indiaankar.com slash clear writing.
#
Being a good writer doesn't require God given talent, just the willingness to work hard
#
and a clear idea of what you need to do to refine your skills.
#
Ela, welcome to The Scene in the Unseen.
#
And in fact, that very question, how are you, you know, takes on kind of so much significance
#
in these times, because every day there is sort of some harrowing news from somewhere
#
How have the last few months been for you?
#
Hunker down staying at home or work from home.
#
We've just been fortunate that nobody very, very close has been ill or we've not lost
#
somebody as in the immediate family, though, you know, these are difficult times every
#
day we lose friends and family members in the extended family.
#
But now for the last few days, it's been a little bit better.
#
So tell me about your early life.
#
Like I'm guessing you're a 70s and 80s kid.
#
You know, you're just a little older than me.
#
You went to college in the 1980s, Hindu College, then JNU, all of that.
#
Tell me about what those years were like growing up.
#
Like what kind of kid were you?
#
What drew you towards the sort of things that you studied?
#
And in general, what were the influences around you?
#
Because one of the things I've realized while talking to guests who grew up around that
#
time or are of that age is that, you know, young people today have all the influences
#
of the world open to them.
#
You know, the whole world is at their fingertips through the Internet and whatever.
#
But back in the day, growing up in the 70s, 80s, even 90s, we got, you know, little driplets
#
of influences from here and there.
#
So whatever got through to us was, you know, likely to play a big part in shaping us.
#
Give me a sense of that landscape of your growing up in the, you know, when you did.
#
So my parents were both professors at JNU.
#
And that is a, at least at that time, even more so was a place where there was always
#
a lot of intellectual debate.
#
There's always debate about issues, what's happening in the world.
#
And, you know, I was a science student till class 12.
#
And I thought I would do science because I'd got the NTS and, you know, it was like, wow,
#
at that time, it was very, a big achievement at that time, certainly.
#
So I was planning all the way to maybe take the JEE or something, and then changed my
#
mind because the kind of debates that we would have at home and with, you know, various,
#
so my mothers and fathers, students and colleagues would always be dropping in.
#
And, you know, there was always a lively debate.
#
And I think that's what attracted me to economics that, you know, this is something I want to
#
understand more deeply.
#
And then instead of taking the JEE, I went and joined, I just applied for economics actually,
#
So tell me a bit about your parents, tell me a bit about the kind of debates you had
#
There would be debates about what were the reasons for whatever was happening on the
#
And usually it would be traced back to economics.
#
And my parents were both Marxists.
#
You know, JNU was, there was a lot of Marxism in JNU at that time.
#
So my parents were like everybody else in JNU, quite leftist.
#
And they would trace almost everything that happened in history.
#
My mother was a professor of philosophy and my father of African studies, African politics.
#
So everything would get traced back to economics.
#
And I mean, that's basically Marxism, that it is the economy is the base and the rest
#
So it would go back to that.
#
I mean, I didn't, you know, perhaps stick to many of those kind of beliefs, which I
#
think were far more rigid than they should have been.
#
But in terms of trying to understand the world, that was my beginning.
#
That was the place from where I started.
#
And I guess initially there must have then been an attraction to Marxism itself, because
#
I think the attraction to all big ideas is that, hey, this explains the world so well.
#
And that's why you were attracted to it.
#
But there is a trap there that then you can try to explain everything through that.
#
So what was that attraction like and how did you kind of get past it?
#
Like when did you begin to get past it and rebel as it were against your parents' beliefs?
#
Only after I was, only after I finished my masters.
#
So while I was in college, while I was at university, anyway, you know, you think of
#
the influences at that time, the friends you have, everybody around you and at home.
#
So those were very, very, I should say, dominant influences, both because of social circles
#
as well as the general atmosphere.
#
So I did my masters at the Centre for Economic Studies and Planning, where, you know, we
#
had Prabhat Patnaik, Kutsa Patnaik, now later Jayati Ghosh was my MPhil advisor.
#
But towards the end of my masters and beginning of my MPhil, which I did my MPhil in JNU,
#
so that time I started questioning too many things.
#
So I think I'm not a person who can belong to any political party because what that requires
#
is agreeing with 100% of everything they say.
#
So regardless of which the party is, every party member is expected to carry forward
#
So that really didn't suit me, I questioned too many things.
#
So I think that's when it became clear that, no, this is not where my future lies.
#
In fact, what you just said about, you know, that need for purity, we see it more and more
#
in social media these days, where, you know, you have different echo chambers forming and
#
stringent enforcements of, you know, purity.
#
And like I always say that, you know, whenever I go on Twitter or whatever, and you see labels
#
thrown about like socialist or libertarian or this or that, and I think all labels are
#
fundamentally toxic because all labels are limiting in a particular sense.
#
And it's almost as if like 90% of the time those labels are used on social media.
#
It's as if you're trying to put someone in a category of us or the other.
#
And that just makes the whole discourse very toxic.
#
But to kind of get back to, you know, your sort of intellectual evolution during those
#
times, were there any sort of aha moments during that phase, like, of course, there
#
are these little pinpricks of questionings when you're saying, wait a minute, you're
#
saying this and this doesn't seem quite right, it's surely more nuanced.
#
But were there sort of any aha moments when you look at things differently?
#
Any books that kind of influenced you that way?
#
So I remember one moment, which was when, you know, some of the there was some meeting
#
going on and some of the leftist leading, leftist leaders were opposing infrastructure
#
development in Delhi, saying, oh, you're building these big roads and highways and there are
#
And, you know, I stood up from wherever I was, I was very, maybe 19, 18, 19 or something.
#
And I stood up and said, no, no, we need the roads.
#
I stood up from the audience and this person was on stage and I said, no, we need the roads.
#
We, you know, that's how GDP will grow.
#
You are not going to remove poverty without GDP growth.
#
So you have to have infrastructure.
#
And everybody was stunned because, you know, that was not something that people said at
#
So this is in the early 80s.
#
And it was almost as if anything Western is bad, any modernization, any infrastructure
#
development, which is, you know, these big flyovers, why are you spending money on flyovers?
#
I don't remember too many other incidents, but that was one that like kind of hit me
#
that, no, no, no, this is completely wrong.
#
This is not what it should be.
#
And it also speaks to like a fundamental mindset that we've kind of had and we still in many
#
ways have, which is a very intuitive mindset of seeing the world as a zero-sum place, right?
#
That if you're spending on roads, you know, you should be spending the poor instead as
#
if there is a fixed pie.
#
And of course that whole zero-sum mindset plays into everything.
#
It plays into when you talk about redistribution vis-a-vis growth, it plays into practically
#
And in some cases it needs to, because the government does have a limited sum of money
#
and there are opportunity costs and all of that, of course, is there.
#
But as far as the economy is concerned, it's dangerous to think of it that way.
#
Now what I've often seen, like when I kind of grew up in the 80s, you know, I kind of
#
imbibed all the typical conventional wisdom, which involved this kind of zero-sum thinking
#
And it's natural to do that, one, because of course the environment around me was that
#
kind of proto-socialist environment and meant my, you know, my dad was an IAS officer and
#
it was just natural to believe in the power of the state and not think of the fatal conceit
#
But a lot of the truths about the world are deeply counterintuitive.
#
That things are not zero-sum, that the economy is a positive something, that there is something
#
called spontaneous order, that sometimes you, you know, the government can achieve things
#
not by trying to control it from the top down, but by just enabling society to solve its
#
But these are very counterintuitive.
#
So over a period of time when, you know, what was that kind of process like when you try
#
to figure this stuff out?
#
Were there particular books, were there thinkers who influenced you?
#
Take me through a little bit of that intellectual evolution that you must have gone through.
#
And I guess some of it would be academics, but some of it would also be outside academics,
#
just looking at things around you as it were.
#
One in terms of being in JNU and with people here, I felt very uncomfortable when I was
#
I mean, being told what to say is something else.
#
But I'd been fortunate that my mother was a PhD in philosophy and a professor of philosophy.
#
And I had been taught to question, question, question, question, question from the day
#
I was born, I was taught to question.
#
And so I became quite uncomfortable when I was told to accept things because I was being
#
And so that was one, you know, in terms of the environment, that was the one thing that
#
I rebelled against and I find myself very uncomfortable in situations when people tell
#
But I think the second was going from my PhD to a completely different system.
#
So I went to the UK for my PhD.
#
I got this Commonwealth Nehru Centenary Fellowship, which after JNU, which was a big, big change.
#
So the things that one learned, the things one saw, my PhD advisor, everything helped
#
in making me think very, very differently.
#
So I should say I came back a very different person in my mind.
#
I came back different, thought differently, completely.
#
And how did your parents react to that?
#
The fact that, you know, you're no longer the obedient little Marxist girl, but you've
#
No, they were okay with it.
#
I mean, the way that, you know, the fundamental principle was that you have to think for yourself,
#
So, you know, for the others, it might be different.
#
But for my parents, it was that you have to think for yourself.
#
And no matter what you think, whether you agree or you disagree, the most important
#
thing is that you think for yourself and not say or do things that you're told to do.
#
In fact, my father, right from my childhood, discouraged me to join the bureaucracy.
#
So he said, no, this is not something for you because, you know, you question too much.
#
I was perhaps the only one in my master's class who did not take the UPSC exam because
#
at that time there weren't many jobs around.
#
So almost everybody was taking these competitive exams.
#
But you know, my father was no, you have to think for yourself and this is not something
#
you can do if you are part of a bureaucracy, which I understand very well.
#
So yes, they were fine with it.
#
It strikes me that every good economist is not just shaped by the study of economics,
#
but also whatever other influences they're kind of exposed to.
#
And on the one hand, you have like your mom is a professor of philosophy, you're questioning
#
things like you said, too, I would imagine that, you know, because we had these political
#
discussions at home and so on and so forth, they would also have been a very keen focus
#
in your mind on the intersection of economics in the real world.
#
It's not just something that you're studying.
#
It's something that actually affects lives, like in that early example of, you know, fighting
#
So you know, if you were to then look at that, what are the different kinds of things that
#
shape the economist you are apart from the economics, like part of it would, I'm guessing,
#
be the politics was a reading that went into it.
#
You know, give me a sort of a fuller sense of yourself, if I may ask.
#
One of the most important things, apart from, you know, reading books and things which naturally
#
you can imagine, you know, being in a house surrounded by books, one did that.
#
But I think one of the very important things was this daily reading of newspapers from
#
And I think many people don't perhaps do that.
#
And so maybe they're not so connected with the world and with the country.
#
But if you're doing that every day, and if you're sitting around, you know, the dinner
#
table talking about what happened and why it happened, and you're doing that at breakfast,
#
you're doing that at dinner.
#
So you do that day after day, I think that really makes a difference to who you are and
#
So if, you know, you kind of get into that, that I don't just want to interpret the world,
#
I want to change it, but not necessarily by a communist revolution.
#
But it just goes in so deep that when you see problems, so you know, when you grow up,
#
you want to, like for me, I've always worked on last 20 years, 25 years.
#
My entire working life as an economist has been working on real problems that are there
#
in the economy and not on something, you know, abstract or something very far away.
#
So it's been working on those problems and then trying to work towards solutions wherever
#
one could find those and working towards that.
#
And I think that's the influence really.
#
And were the newspapers, you read English newspapers?
#
So let me ask you a question, not quite related to economics, but it's come up on my show
#
before and it came up recently, like one of my friends recently posted on Twitter where
#
he kind of lamented that we are such a divided nation today.
#
And I don't remember us being so divided in the 80s and the 90s.
#
And you know, and my point there was that, no, we were always divided.
#
We were just in a bubble and the bubble wasn't divided, but we were in a bubble where we
#
didn't kind of see the rest of the country.
#
And I've had guests on the show before, like Akshay Mukul, who wrote the book on the Geeta
#
Press and the political scientist, Rahul Verma.
#
And one of the interesting points I got while talking to them was that growing up, they
#
read newspapers in Hindi and, you know, other guests have read newspapers in their languages.
#
And their contention was that because they were not just reading, you know, English newspapers,
#
they could see outside the elite bubble.
#
They got a sense of what the other India as it were, was also like to them.
#
In fact, this upsurge of Hindutva is not an aberration, but you know, it was always there.
#
It was always kind of coming up.
#
And I don't want to ask you about the politics in particular, but the thing is, even I grew
#
up in a similar elite bubble to yours, I'm guessing, where you're just reading everything
#
in English and you're mixing with a certain kind of people and all of that.
#
And at what point does one sort of get awareness of that bubble and be able to actually see
#
outside, like not in a sense of intellectually knowing that, yeah, you know, there are, you
#
know, there's a world out there that is different, but, you know, actually in terms of getting
#
I think I was fortunate because my parents being communists, they would be people who
#
would be coming straight from villages, so they were not like, they were not leaders,
#
they were not active, but just, you know, the fact that they were genuine professors,
#
people would come to them, meet them.
#
Many of my father's students would, you know, couldn't speak a word of English, would be
#
straight from a village.
#
We also had a, there was a reservation system in JNU, so that encouraged, they used to give
#
points for coming from a backward region, from a lower income category, and the rest.
#
And that would encourage a lot of people to come.
#
So I think that I was fortunate that I wasn't, I mean, of course, English newspapers were
#
something that, you know, you read what you get at home.
#
We used to get, I think, one Hindi Jan Satta or something, Hindi paper on Sundays.
#
But you know, you and I didn't have a choice.
#
We were born into the family we were born in, and we read the papers that our parents bought.
#
But you know, I was fortunate in that sense that there was a mix of people, and a lot
#
of them not elite, coming from backgrounds, which, and my mother particularly used to,
#
you know, encourage them to come home to her students when they came from backgrounds where
#
they had huge gaps also in their learning.
#
So they would be sitting and, you know, working with her and studying.
#
So I was fortunate not to, you know, be in a complete bubble and to be able to interact
#
with people from all over the country and from different backgrounds.
#
And how did your conception of yourself during these years kind of evolve?
#
Like for a lot of people, certainly for me, it's very shaky early on, it takes many years
#
to get to somewhere where you can kind of begin to think of yourself as, oh, these are
#
the things I want to do, and this is a place I want to occupy in the world and all of that.
#
And yet it seems just looking at your bare biographical details where you do your BA
#
in economics from Hindu and then your MA and your MPhil from JNU, and then you go to the
#
University of Surrey and you do your PhD, and then you come back here.
#
And just looking at the bare bones of that, it seems that, okay, you kind of got it figured
#
out that you want to learn economics the best you can, and then you want to kind of work
#
within India and try to actually make a difference in the real world.
#
Was it always kind of like that or did your conception of self evolve?
#
Like at what point did it firm up and what is that conception of self in a sense?
#
Well, to begin with, what is that conception?
#
It is that I try to do what I can, I try to understand what I can.
#
And as I said, one has been, I guess, brought up in a way that it's almost as if every problem
#
is one's own responsibility.
#
So if you see a problem, you don't ignore it, you study it, you understand it, and you
#
see if there is a way out.
#
And in economic policy, there are so many problems.
#
And particularly, when one is coming from a background where, as a country, when we
#
are coming from a background where we had almost stopped people from doing anything,
#
there were so many restrictions, then it's a great place to study economics and understand
#
what's going on, because you see where the restrictions are removed, what happens and
#
when they are not, then what happens.
#
And then it's also if you are in that space where, so I always wanted to write and I started
#
writing right after my PhD and once I started working on the Indian economy.
#
So you are in a place where you can study it and at least the least one can do is write
#
about those issues and help everybody understand your point of view.
#
So I'm not in the bureaucracy or a politician who can actually be the ones who decide that
#
change happens, but it happens because of ideas, because one writes and people listen
#
and read and if one is able to speak in a language that is simple and convey what one
#
thinks then people get convinced and then that's what makes life meaningful.
#
And how important is that role as a public intellectual, in the sense that you are an
#
economist at the same time you are someone who has worked with the government at different
#
times as an advisor and so on and so forth, at the same time you've written politically,
#
you've done forays into audiovisual, for example, you had policy with Patnaik, your show for
#
DTV more than a decade ago and now you do Elonomics and the other stuff that you do
#
Like a lot of people will write a lot because it kind of helps them in their thinking process
#
that as they write they learn more about a subject and it's something they want to do.
#
But another way of looking at it is that look if I want to make a difference, that difference
#
also comes from getting these ideas out there in the discourse.
#
And one of the issues with this, I'm guessing for you, would have been that the discourse
#
In a sense, some of the things that you say at different points in time and certainly
#
I would imagine it would be the case in the 90s are just not out there, right?
#
So what has this process been for you?
#
Like do you see it as part of your duty almost to do this stuff, to have this public facing
#
So I get a stomach ache if I don't say what I am thinking, if I don't write.
#
So I've always been writing, I used to have a column in the Business Standard and the
#
Indian Express and apart from the TV show and the print column that I'm doing now.
#
So it's almost, it's a part of me.
#
I mean, now I've done it for so long, I started writing my columns in 99.
#
So it's just been too many years for me to even think of myself as separate from that.
#
It was very painful during when I was in government, I was told not to write, I had to stop writing.
#
So for a year and a half, of course, they kept me so busy that it didn't hurt too much
#
and some of the things I was doing was what I had been writing about.
#
So it didn't hurt that much.
#
But yeah, it's very difficult to be somebody who doesn't, isn't thinking, isn't worrying,
#
isn't talking, isn't trying to convince, isn't trying to help other people to understand.
#
So it's very much completely a part of me.
#
I mean, I am just fortunate that I am in a situation where I have the freedom to do so,
#
but I'm able to do so, but I have the time and the luxury because, you know, many jobs
#
don't even give you the time to do that.
#
So fortunately, you know, we are able to do that.
#
So it's a good place to be in.
#
And for people who care about ideas, I guess, especially people who engage deeply with policy
#
like you do, I guess there is a sort of a dual imperative, which for many people is
#
an either or where on the one hand, when you look at the political marketplace, what you're
#
saying is that I want to be able to influence the decision makers to make the right decisions.
#
But on the other hand, you're looking at the demand end of the political marketplace and
#
saying that I want to get my ideas out in the public domain, where, you know, they can
#
hopefully change the discourse and then the change at the top can happen later.
#
And you're someone who's kind of been trying to do this simultaneously.
#
And I would just imagine thinking aloud that this then almost creates two contradictory
#
pressures that when you're working with policymakers and when you're working with government, you
#
have to moderate your ideas.
#
You have to talk about incremental steps, go one step at a time.
#
But when you're trying to get your ideas out into the public domain, there is perhaps the
#
urge to kind of just lay it all out as it is, because, you know, why that urge to moderation?
#
Why not move that overton window, as it were?
#
So is this something that you've thought about or is it that you've managed to reconcile
#
Yes, so usually I end up saying things many years before the world is ready to hear them.
#
So you know, things like inflation targeting, which I started writing about in 2006, and
#
then finally it happened in 2016.
#
And there are many such examples, you know, talking about business cycles, macro stabilization,
#
many, many, most of my work.
#
So you know, when nobody listens and it's okay, you get a bit disappointed, you get,
#
but that's life, you know.
#
And if you obsess on it and you go on for some time and then you realize, okay, nobody
#
So you step back and you say, okay, let me write about something that people talk about.
#
But then every once in a while you get an opportunity, you know, there's a peg and you
#
get an opportunity and you write about some of the things that are generous to you.
#
But you know, there's not that much of a contradiction and conflict that I feel because most of the
#
time one is able to interpret and understand things because of an understanding of the
#
And then you write and talk about those.
#
So when let's say there is a capital control that is imposed, which is completely arbitrary
#
and which you know is going to hurt, you know, these things keep happening.
#
So in a sense, policymakers are constantly for the last 20 years, giving me opportunities
#
week after week to be able to say something.
#
So which come out of that broader understanding.
#
So there's not that much of a conflict.
#
It gives me, you know, little things give me opportunities to put my ideas across.
#
So when you came back to India after doing your PhD, what was your thinking?
#
What was the kind of work that you wanted to do?
#
Because one would imagine that for many people, a natural progression then is to just become
#
an academic outside somewhere and kind of chill and live a charmed life and do papers
#
But you actually came back.
#
So what was your thinking?
#
What did you want to do?
#
Were you were you kind of clear about the path ahead?
#
And is that more or less a part that you've taken?
#
Pretty much, pretty much.
#
So I wanted not to be teaching because when I was teaching before I left, I was teaching
#
at Stephens and it was, you know, it was a heavy workload and one didn't really get
#
And I wanted to do research after my PhD and not teach because, you know, there they may
#
still be an environment where you get a lot of time off, but here at least, you know,
#
So I wanted to work for a think tank and I joined in CAER, National Council of Applied
#
Economic Research, and I got to work on the Indian economy, which for me was just what
#
My PhD had been on a closed economy model because when I had left India and all the
#
experience one had was closed economy, so I'd gone in 91 for my PhD and by 96, it was
#
So though my PhD was on a closed economy model, it was an endogenous growth model.
#
But I had been teaching there in Surrey and then learned open economy macro while teaching
#
because that's what macro teaching there was.
#
It was all open economy.
#
So here when I came back, I think it was just the perfect thing for me that, you know, nobody
#
else was particularly studying open economy macro for India in 96, the economy had barely
#
Very few people had actually even been trained in open economy macro.
#
Some macro itself had gone out of fashion.
#
So things had been okay in the rest of the world for a while and when Indians went to
#
do PhDs abroad, they did development economics.
#
So it was a complete virgin territory, you know, one could do open economy macro, understand
#
the Indian economy through the perspective of open economy macro because the economy
#
was opening up and almost all the problems that were arising.
#
So I had two projects at NCR, one was on business cycles and the other was on exchange rates
#
So I was very fortunate to get these two to start working on because this is all three.
#
I mean, this is really where all the knowledge of everything that I had studied in open economy
#
macro could be applied.
#
So I was very fortunate that, you know, I was stood up.
#
I understood the impossible Trinity, which many people here still hadn't even started
#
And I was able to apply those and study, you know, the Indian economy from a new perspective.
#
So tell me a bit more about this impossible Trinity.
#
See, when you're in closed economy, what does a closed economy mean?
#
You trade, but you don't have capital account openness.
#
You don't allow capital flows.
#
What are capital flows?
#
Cross border flows of money for sale or purchase of assets.
#
Okay, so you don't allow those, you allow trade.
#
That's the current account.
#
Your current account is open.
#
Then what you can do is that you can hike your interest rates as much as you like.
#
And money may come in, money could have come in if it had been an open economy.
#
But because you're closed, nothing happens.
#
You can fix the exchange rate.
#
You can fix your interest rate.
#
So you can have both, not that the economy had too many business cycles, they just had
#
monsoon cycles before 91.
#
But if you needed to hike interest rates for any reason or lower interest rates for any
#
reason, you don't have to worry about the effect that that will have on exchange rates.
#
But now if the economy becomes open, then capital can flow in.
#
Let's say if interest rates go up in India and capital flows in, then that's going to
#
appreciate your exchange rate.
#
If capital flows out, that is going to weaken your currency.
#
Now the impossible trinity says that these are the three corners of the trinity, an open
#
capital account, monetary policy independence, that is you determine what your interest rate
#
is going to be, and exchange rate policy.
#
So you cannot have all three at the same time.
#
If you close the capital account, then yes, you can have the other two.
#
But once the capital account opens, then you can't have those two.
#
And among sort of economic policy makers in the country, you would imagine that they've
#
been used to decades of thinking about the economy in a particular way, which is that
#
hold command and control, closed economy, blah, blah, blah.
#
Now through circumstances or whatever, you know, the balance of payments crisis and blah,
#
blah, we've actually opened it up and, you know, a few people have made some reforms.
#
But does the mindset shift over time?
#
Like one of the things that I think about is that, yes, 91 is seminal in the sense that
#
we opened so much up, but at the same time, you know, it's, it's very partial in terms
#
of what we could have done.
#
And also what I can't put my finger on is that is there a mindset shift at all?
#
Because after that initial impetus, it seems to me that inertia sets in again and further
#
reforms, you know, sort of slow down.
#
So in just in terms of the mindset, both within the government and within economists who are
#
working here, what is, you know, how are they adapting, you know, how are they noticing?
#
Like you pointed out that how it's a delightful time to study economics because it's almost
#
like these experiments where you had a control and then the control gets removed and you
#
can see exactly what the consequences and there are so many insights because there are
#
so many things changing.
#
But you know, you're a young person who is forming at that moment in time.
#
I would imagine that everyone who is a major economic commentator at the time or is in
#
government there in their forties and fifties settled ways of thinking.
#
Is that an issue when you are in this landscape looking around studying these things that
#
really no one on India is studying?
#
Because like you said, they're doing development economics and you know, hunger and nutrition
#
and redistribution and all that.
#
You know, are you someone who kind of stands apart?
#
Yeah, very lonely, I would say very difficult and very lonely.
#
So if I give you a concrete example, when we opened up in 91 after opening up the current
#
account in about 93, 94, we started opening the capital account and we started getting
#
a lot of FII investment and that meant that the rupee started appreciating and RBI started
#
buying dollars, they just bought dollars, unstabilized, I mean, they just bought dollars.
#
So the money supply in the economy increased and they started getting inflation.
#
So by mid 96 or so, we started getting a lot of inflationary pressures.
#
But the mindset was that this has nothing to do with opening up or should we allow exchange
#
Should we not try to fix the exchange rate?
#
You know, the exchange rate stayed at 31.36 for 16 months after we made it flexible.
#
So we said now the exchange rate is no longer administered and we are moving to a floating
#
Manish float, but it stayed at 31.36.
#
Now in those 16 months, RBI was busy buying up dollars and because they have understood
#
so little, they were not sterilizing them.
#
So back to back, in other words, in our audience who are not used to the word sterilized intervention
#
by the central bank, it basically means that you buy foreign currency.
#
And so in your monetary base, you're adding to your monetary base by buying foreign currency
#
because for every rupee you buy, you've issued, sorry, for every dollar you buy, you've issued
#
If you sterilize it, which means that if you're worrying about the impact it's going to have
#
on the monetary base, then you sell government bonds and you pull that money back so that
#
you don't let liquidity in the economy increase.
#
You know, it were early days, they also had no experience, so they did un-stabilized intervention
#
and there was just very little understanding of what was going on.
#
And then they started talking about that we are building reserves, okay, that we're doing
#
this because we are building reserves.
#
It sounded very good to everybody in government, why?
#
Because they'd been in this 91 crisis where, you know, that story, I'm sure everybody has
#
heard it a thousand times, but the story that India mortgaged a plane full of gold and we
#
went with a begging bowl when we didn't have even 15 days worth of imports left, that story
#
would be told again and again.
#
And it would be said that, oh, so we are just, you know, we want to be safe, so we are buying
#
People would justify holding those reserves by saying, oh, there is this end month rule,
#
end month of import cover, there's this guidotti rule that we should be holding so much of
#
reserves or we, you know, there's so much hot money and so we should be holding reserves
#
But essentially what was happening was that they were buying reserves to manipulate the
#
rupee, they were just buying dollars because we are getting too much of an inflow of dollars
#
and this kind of continued for a while.
#
And it was not that there was any great understanding of what is reserve adequacy and how much reserves
#
So if one said that, look, this is an embarrassment of riches, I mean, I remember the phrase because
#
I had a business standard column and, you know, the editor had very nicely found this
#
nice, you know, that the titles are given by the page editor.
#
So it was the embarrassment of riches.
#
And you know, when one tried to say that, look, you don't need these, you're holding
#
I remember this came up in a Nimrana conference, my first Nimrana conference, where I said,
#
look, this is becoming like Food Corporation of India, you know, you're just buying up
#
something because it's there and then you won't be able to get rid of it.
#
You try selling your reserves like you try to sell your wheat and your prices will drop.
#
So what we are doing is not thought through policy, but, you know, of course, people became
#
very unhappy, particularly the RBI.
#
So Dr. Rakesh Mohan used to be my boss at NCAER.
#
He was the director general.
#
And so I knew him very well.
#
And so he would tell me that, oh, you know, every Wednesday, we read what Hazira said
#
now, they were not happy.
#
Because the RBI is going to come calling and they're going to.
#
What was the pushback like in those days?
#
Like what were the other big battles?
#
One of course is this, as you pointed out with the RBI regarding inflation and so on.
#
But what were your through the years, what were your other kind of, you know, big battles
#
like in terms of mindset and did that mindset ever begin to change?
#
There are many more people today who agree on many of these issues.
#
So among the other battles, one, for example, has been a later one, but one has been the
#
debt management office that we needed bond market.
#
India needs a bond market.
#
I mean, I thought that's something that everybody would very easily agree with, that I'm saying
#
I'm not saying we need a corporate bond market.
#
Now, to me, it seems obvious that if the government bond market and the corporate bond market
#
are two different markets, you don't have liquidity, you don't have the players.
#
But you'll see a lot of people talk about a corporate bond market.
#
But when it comes to having a bond market, then because, you know, there's this issue
#
of RBI is the regulator in the government bond market.
#
So there's a lot of pushback.
#
RBI is not just the regulator, they own the depository, they own the exchange and, you
#
know, they are themselves trading on that market and they are issuing securities for
#
So there is a lot of pushback on some of these.
#
And I think a lot of that pushback is because of the fact that people don't like to see
#
They're kind of stuck in the inertia and their ways of thinking.
#
I'm trying to, you know, one question I've kind of had, and I know it's complicated.
#
What has been our direction since 91 since today?
#
And obviously, there's not one answer to that, and even within the question, I mean it in
#
Like, what is there a directionality when we can talk about mindsets?
#
And this would involve like mindsets in government, this would involve mindsets, you know, in
#
the general discourse outside.
#
Because one of the things that seems to me is that, okay, we made some reforms, which
#
we had to in 91, and those happened.
#
And after that, everything was sporadic.
#
There were moments where there were impulses towards reform where individuals kind of tried
#
But in general, inertia set in again, and our default thinking has remained that the
#
thinking that the state has to have control of everything.
#
And you've kind of straddled this entire landscape, right, both as someone who's been in policy,
#
studying economics, and as a public intellectual of sorts.
#
So you know, what has that movement been like?
#
Has it been one step forward, one step backward?
#
I think it's been a very difficult journey for reforms.
#
So if I'm a reform set out on a journey, then I'm not gathering too much moss, there aren't
#
too many people who are moving with me.
#
Again, you know, I think there are tough forces, there are vested interests.
#
So that is what holds back.
#
So it's not so much that people don't understand.
#
I think that there are vested interests, and then people pull back on reforms.
#
So I mean, giving you this example that I was just giving about the bond market.
#
So what we were trying to do for a long time, for a very long time, I mean, RBI had also
#
proposed a government was trying for a very long time is to set up an independent debt
#
So that that would, you know, that usually when we look around, then countries have done
#
Most countries, not every country, but most countries have done that.
#
And that really helps in building your bond market.
#
And you know, so if you look, I'm just giving you this example, because I'm more familiar
#
with the reforms in the financial sector than in any other space.
#
Finance Minister and Jet Li, even he tabled the bill in parliament, there's so much pushback.
#
And then, because politicians also have, I guess, limited capital, political capital,
#
that they don't want to use it on something that is not going to give them immediate returns,
#
the bill was withdrawn.
#
And you know, after years of pushing this, finally having it tabled in parliament, and
#
then, you know, when the budget was to be this is the 2015 budget, when the budget was
#
to be voted upon that day, the finance minister rolled it back.
#
And this was a reform that the country needed that the country still needs.
#
But you know, it's not on the table anymore.
#
Many things don't even come to the table.
#
At least this was a bill that had been tabled, but many things don't come to the table.
#
There are others like the FRDI bill, the Financial Resolution and Deposit Insurance bill that
#
went to standing committee.
#
There was a lot of pushback from, you know, public sector banks who said, oh, this means
#
that all these banks will be taken over and all kinds of rumours were floated about the
#
bill in clause, about the amount of deposit insurance, all kinds of things which were
#
But that led to the bill being withdrawn.
#
So pushbacks happen, I think, not just because of the mindset.
#
Of course, I completely agree with you, as I was saying that there is a mindset issue
#
But that mindset is actually used, used in the sense of taken made you, you know, misused
#
by those who have vested interests and they managed to push back.
#
And that's why I think a lot of things don't happen.
#
Many things have been stuck at very early stages for years, but they don't go through.
#
So I have a couple of bigger questions I want to get to from here.
#
And the first one has a smaller question before it, in fact, which is sort of the definition
#
of reforms, like if we are to define reforms, it seems to me that most reforms would go
#
in one fundamental direction, which is that our state has been too top heavy.
#
It's been too oppressive, and many reforms are just getting out of the way, letting society
#
solve its own problems, letting markets work and all of that.
#
And a lot of the 91 reforms were exactly about this.
#
Now, this leads me to the first of my questions, which is that if one of the things that reforms
#
are supposed to do is reduce the power of the state and, you know, empower common people,
#
then given that the state is supposed to make these reforms, doesn't it make reforms in
#
a sense impossible that there is always going to be pushback?
#
And unless you have, say, a transformative moment of crisis like 1991, that reforms are
#
just going to be very unusual because they go against all incentives of anyone in a position
#
I mean, of course, a mindset issue is one issue that, you know, most of them will believe
#
by conviction that this is the right way that the state should control everything.
#
But even if that were not the case, you know, when is the state ever going to give up power?
#
So is that something that you kind of think about?
#
But you know, I think that sometimes what happens is that the politician can see five
#
years ahead, whereas the bureaucrat is seeing maybe the next six months until his retirement
#
and he's being risk averse and not doing anything.
#
But the politician can see a little bit further ahead.
#
He does have to win elections again and, you know, parties can see not just five years
#
ahead, but even further because they have to grow and stay.
#
So I'm not saying that they all understand what is to be done.
#
There is often lack of understanding and, you know, expertise and in-depth knowledge.
#
But if there are things that need to be done, which they feel that people will not oppose,
#
then those do get pushed through.
#
Now the farm bills, OK?
#
Now that was, I mean, we talk about the 91 reforms.
#
But if you think about what were the reforms, they were just industry and trade.
#
You left agriculture out.
#
You left the bulk of the financial sector out, OK?
#
So when you start doing farm bills or the reforms to liberalize financial, sorry, agricultural
#
markets, which would have been done in 91, when you try to do them now, you saw the push
#
back and I think that that will reduce the ability of any government to go further.
#
But it is not that nothing was tried and it would not have given immediate benefits.
#
It would have liberalized agricultural markets in a manner that they should have been liberalized.
#
So you know, I think while people say that being a democracy means that you don't do
#
reform because you do populist things and you only look at the short term.
#
But I think that sometimes you do reforms because you are also answerable to the people
#
who you're going to go back to five years later.
#
So you want to have something to show to the people.
#
And if there is not much opposition, then you would do those.
#
But I also disagree with the part of it.
#
Like you spoke about, you know, the bureaucrats having a six month window and the politicians
#
having a longer term view.
#
But I think one of the things that gets in the way of reforms also is that politicians
#
have relatively short election cycles in terms of the next election is not always just five
#
There are always elections happening somewhere or the other.
#
So if you're thinking at the national level, you're thinking, oh, Bengal elections is
#
next or UP elections is next year.
#
So you are kind of short termist and also your, you know, your bound is how people perceive
#
For example, a farm loan waiver, which almost became the rigor for every party to promise
#
before every polls, a farm loan waiver, which is, you know, just a short term anesthetic
#
will always have more takers than deeper structural solutions to whatever the problem may be.
#
And also parties may kind of bind themselves into a corner with, say, the kind of nationalistic
#
rhetoric that we see from this party sometimes where you talk of Atma Nirbharta and so on.
#
And those can also lead to bad economics.
#
In fact, good politics can often lead to bad economics.
#
I'd done an episode with Pooja Mehra on her book, The Lost Decade.
#
And she'd pointed out that how, you know, some of the impetus behind why Modi abandoned
#
reforms came after he was accused of being Sudbuatki Sarkar.
#
And then he went all populist and, you know, reform just stalled.
#
And then the disastrous demonetization also came about his perception of what would play
#
well with the common people.
#
And maybe he was right because it did play well, even though it was, of course, a horrendous
#
And what we see here, like I did an episode with our mutual friend Ajay Shah on the farm
#
bills where we kind of discussed about how the economic thrust of it is was great.
#
But you know, the ruling party completely messed up the politics of it and didn't go
#
about it the way that it should have.
#
And here also we see an example of where, you know, even like if you're trying to push
#
through a measure which you know will be good in the long run, but in the short run might
#
hurt people with vested interests or might hurt people in other ways.
#
They are, of course, going to fight back.
#
And our politics is so polarized that then that can paralyze all movement, as seems to
#
have happened in the case of the farm bills.
#
So this relationship between politics and economics, how do you see it?
#
Because it seems to me to be more an adversarial one than otherwise that good politics will
#
generally make for bad economics and vice versa.
#
Because of course, the incentive of the politician is to provide good governance.
#
But number one, that governance is more something that he or she wants to be visible in the
#
And they are more keen on narratives rather than actual governance on the ground, as we've
#
So if I look back at the NDA 1 versus say the UPA 1 and 2, then what you're saying
#
would imply that it doesn't matter.
#
You know, there would have been no difference in the economic policies or the previous Congress
#
But when I actually look at what kind of reforms were done in NDA 1, they were much more than
#
what was done in the previous five years or the later five years.
#
And bringing the private sector in for infrastructure because there were shortages of capital, liberalizing
#
capital account, allowing Indian companies to go abroad, which ultimately they became
#
bigger multinationals brought in technology.
#
Many, many, many, there's a large number of pension reforms, okay.
#
So going from a defined benefit to a defined contribution system and a list of many things.
#
Now many of those things were fundamentally a belief in markets, a belief in the private
#
sector, which we did not see in the Congress regimes.
#
So my sense is that it does matter.
#
Of course, all parties have to win elections, of course, all parties have their own machine
#
need to take care of, individuals to take care of, whatever, whatever, and so on.
#
But if there are opportunities, then we do see some not going towards markets.
#
So instead, when UPA comes back, when you see mandrega, you see a lot of welfare programs.
#
I mean, the state pretty much moves towards bankruptcy in that space where before growing
#
rich, you have started doing a lot of redistribution, which then of course means that you have less
#
money for, you know, the roads that I was fighting about when you were 19, so I don't
#
think that it matters that the party has a certain thinking and so there are tactics
#
and then there are things which, okay, if we get an opportunity, let's do this.
#
It's a deeper reform and it is a reform that actually is a pro-market reform.
#
And I'm not denying that politicians or bureaucrats want to have power.
#
That's how the system till today.
#
It's not that we don't have state intervention today, we have huge amounts of state intervention
#
I'm just saying that maybe, you know, you're a little younger, so you're not seeing this
#
in these five-year chunks.
#
But if you, sorry, if you look at NDA 1 and I look back and I see there's quite a lot
#
that was done, which was pro-market reforms, which was economic reforms.
#
So I have a couple of follow-up questions and one of them actually, you know, you stated
#
it as buttressing my point, but I think it actually in a way it might buttress my point,
#
which is that you spoke about the reforms NDA 1 did and I agree that I think, you know,
#
some of the stuff that it did was terrific, but first of all, would you agree that the
#
benefits of that actually showed up in the figures of the UPA, like people will today
#
say that, oh, in the 10 years of the UPA, we grew this much and, you know, and I go
#
nuts trying to say that, hey, this was because of the reforms Vajpayee put into place.
#
And then that would seem to state that if Vajpayee in retrospect was to, you know, sit
#
there, he would say that, look, I can do these, but I might lose the elections and then the
#
next guy will take all the credit.
#
So why should I think so far ahead?
#
So that's, that's kind of the first of my follow-ups.
#
Yeah, that's a very good question.
#
You see, so look at when NDA 1 lost, it was mainly attributed to the India Shining campaign
#
that it was because, you know, the better off were doing better than they had been.
#
That is what should not have been said.
#
And that is what lost the elections and that the benefits of course showed up later.
#
But I'm talking about a more deeper, shall I say, trait or character that you might do
#
or not do something because of winning or losing elections.
#
But on the other hand, if you had no constraints, what would you do?
#
So if you had no constraints, would you be bringing in more and more welfare programs?
#
Large ones, you know, and not ones that are interest subvention, where the government
#
is putting this much money and, you know, getting leverage out of it.
#
Not those, but, you know, very large welfare programs, which the state has little capacity
#
to actually even handle, or would you be trying to do?
#
In fact, if I look back at the Atma Nirbhar package, a lot of those things were, many
#
of those, including the farm bills, more prominently than anything else, the farm bills, were things
#
that should have been done earlier, which were pro-market reforms.
#
So what is it that you would do if you had been completely unconstrained?
#
And what I'm saying is simply this, that different political parties do have different characters,
#
do have different ideologies, would do different things if they were completely unconstrained.
#
Then, of course, the constraint of elections comes in when the NDA would not run another
#
India Shining program, wouldn't do many of those things, would back off when you say
#
so would the government.
#
But if there was unconstrained maximization, then would they, you know, do things differently
#
from what, say, the Congress would do?
#
And I think that parties, at least in our two big parties, from what I feel looking
#
back is that they do differently, they do things, they pick different battles.
#
And even though both are constrained, but to the extent, at least the PDMA bill was
#
I mean, I'm not sure how much of this sort of fundamental thinking, as you seem to imply,
#
we saw in Modi's first term, you know, where I think a lot of the, I mean, I wouldn't even
#
call demonetization a misstep.
#
It was just a massive blunder and the thinking behind it was completely wrong.
#
And a lot of what seems to have happened in those five years seems to be more the whims
#
and fancies of certain individuals rather than any kind of directed thinking.
#
But leaving that aside, you know, the second question I had from what you sort of said
#
earlier is again a kind of a mindset question, which is again, you know, talking about the
#
growth versus welfare slash redistribution paradigm.
#
And I don't even want to use the word welfare because it implies, you know, welfare is a
#
You want people's welfare.
#
But what we call welfare in economics doesn't always lead to good outcomes.
#
You know, it just speaks to good intentions and we, you know, make the error of often
#
judging policies by intentions and not outcomes.
#
But the truth again, there is that again, I think to me is sort of shows a difference
#
between a positive some mindset and a zero sum mindset where the redistribution mindset
#
is that some people are rich, some are poor.
#
We got to do something about the poor.
#
But the point is, if overall your country is poor, that's not going to achieve anything.
#
Whereas a growth mindset is that, you know, let's grow.
#
Everybody grows together.
#
Maybe inequality grows as well.
#
But both the rich and the poorer will get a little richer.
#
At least you're solving the problem of poverty.
#
I mean, one of the things that I find is that most people think inequality and poverty are
#
exactly the same thing.
#
And if you're thinking in terms of growth, it doesn't seem to me that that is the case.
#
It seems to me that, you know, for example, through the nineties, I would say that India
#
lifted hundreds of millions of people out of poverty and inequality grew.
#
And I don't see that inequality as a bad thing.
#
I think a fundamental problem is poverty.
#
And it's really well, the nations that having solved the problem of poverty can then look
#
at inequality and say that, OK, let's redistribute and all that.
#
You know, even the Nordic states really became welfare states after they reached a certain
#
level of wealth and they could actually afford to redistribute.
#
And I'm not sure that we can really afford to redistribute too much.
#
So just in terms of mindsets, have you seen this changing or would you say that certain
#
parties like the Congress, for example, have this zero sum mindset?
#
And also, when you think about how it plays in politics, redistributive politics will
#
always play better because you seem compassionate that will bestow all this largest on the people.
#
It seems compassionate.
#
It plays better in political terms.
#
But a lot of these pro-poor policies, as we have seen through the decades, actually harm
#
And honestly, you know, even in the last few years, I haven't really seen.
#
You know, I agree that the Vajpayee government was refreshing in many ways, but I haven't
#
seen that in the Modi government at all.
#
I mean, they've also been quite well-farist.
#
In fact, that could be one reason they did well in the 2019 elections, because Modi actually
#
managed to implement some of the well-farism in the heartland and so on.
#
My understanding of what Modi tried to do was to get more to the people out of the same
#
money that the Congress was spending.
#
So if you beam it directly into their accounts, which is something that Montek used to be
#
wanting to do towards, you know, Montek and Nandan, they were making plans and those are
#
the things that they were wanting to do.
#
And in fact, UIDAI was set up as a structure that would allow them to do that.
#
NIPFP had done a study for the then Planning Commission, where we had worked out on how
#
ghost beneficiaries and duplicates would be reduced by Aadhaar, and therefore all programs
#
of the government should actually be done through Aadhaar, and there should be direct
#
So, you know, when we study Latin American countries and we study direct benefit transfers,
#
cash transfers, instead of the kind of stuff that we used to have, then we used to say
#
that that is better economics.
#
You're spending the money.
#
Now that way, Modi got more bang for the buck, because when something goes straight into
#
a Jandhan account, Aadhaar-linked Jandhan account, instead of, you know, it being leaked,
#
what did Rajiv Gandhi say?
#
I think Rajiv Gandhi said that something like 85% of, there's 85% leakage.
#
So if you give 100 rupees to a guy, by the time it reaches him, there's 15 rupees left.
#
Absolutely, absolutely.
#
So when you are in a system where there are a lot of middlemen, and the middlemen would,
#
I guess, I, so not something I know, but I guess over the years have allegiance to the
#
Congress, because, you know, that's the old elite, that the old political elite.
#
And now you, there's no point in your feeding those middlemen, right?
#
Because they're not yours.
#
And secondly, you'll get more bang for the buck, you know, when the 100 rupees reaches
#
your voter directly, in a manner which, I mean, all Latin American economists, and many
#
of us who, till it started happening here, were lauding cash transfers, were saying that
#
that's the right thing to do.
#
And it is an approach that, just let's assume for a moment, you know, put the economic reforms,
#
pro-market economic reforms, as we understand it, to one side for the moment.
#
Let's just try to assume that it was a UPA 3, okay, which went with, I'm not saying that
#
Modi was UPA 3, so please, you know, I'm not, I'm only saying that, let's just assume that
#
we take it as a continuation of the plans that were made by Montek and Nandan for the
#
Planning Commission, which was the cost-benefit analysis study that I did, okay, at an IPFP
#
for the Planning Commission, that this is what should be done, and that this is how
#
you'll reduce the leakages, both for ghost beneficiaries and for duplicates, and you
#
will reduce leakages that go to the middlemen.
#
And then, let's say they had implemented that.
#
I think all of us would have been saying that's very good.
#
What happened, in my opinion, was that we had very high expectations of NDA 1 sort of
#
reforms from NDA 2, and instead of, and maybe in the meantime, the party had understood
#
that doing the NDA 1 reforms doesn't get them votes, so maybe they could slip in a reform
#
here and there because they're not opposed to those reforms, but they could not be showing
#
them as their big, that was not, you know, the big thing that they did.
#
In fact, if the big thing that they do is to stop leakages and directly reach people,
#
then, you know, I think it's a very, very clever, very, very smart, very smart political
#
move, and I think that's perhaps part of what won the 2019 election.
#
So to sort of paraphrase what you're saying, you're saying that, yeah, okay, there's a
#
trade-off between growth and redistribution, we should have pro-growth policies, but given
#
the political reality that those are much harder to do, and much harder to pull off
#
given political constraints, maybe it makes sense that if you have to do a certain amount
#
of redistribution, do the damn thing well, just be much more efficient, and therefore
#
something like this, which is cutting off leakage from your leakage of 85%, as it were,
#
maybe more, maybe less in specific instances, is something that is going to pay you kind
#
of great political dividends, so why not do that, and maybe other reforms can happen,
#
Plus economically, plus economically, economically, as I was repeating, that when you study the
#
impact of leakages on the fisc, and you look at whether, you know, you want to keep on
#
letting that money slip through without having an impact on poverty, then it makes economic
#
sense to do direct cash transfers.
#
And if you spend the first two years doing this, whatever, Jam, Aadhaar, Trinity, whatever
#
they call it, Jan Dhan Aadhaar Mobile, right, Jam, yeah, Jan Dhan Aadhaar Mobile.
#
So if you spend time building the whole infrastructure, so I was in the ministry at that time, I
#
was in the ministry of finance, you know, so as far as I was concerned, they did all
#
the macroeconomic stabilization things with fiscal policy and inflation targeting, and
#
some limited reforms that I had been talking about.
#
But on the other hand, this was a big focus of the government, that we just get the money
#
That's not bad economic policy, that if you were doing redistribution badly, and you start
#
doing it properly, let's say that's your focus, not your focus is not to do agricultural bills
#
in on the first day, you did that in India too.
#
I think that was a smart thing to do.
#
I think that makes sense, not just politically, not just politically, it save your fiscal
#
Otherwise, you know, you think of the corruption, the leakages, the rent seeking, but we have,
#
we can just spend all everything possible.
#
So you were like a principal economic advisor in 2014 and 2015.
#
Now it's interesting that, you know, if I remember correctly, at that time, you sided
#
with Raghuram Rajan when he spoke about inflation targeting and all that and Piyush Goel was
#
So what's that experience like, like one of the things that, you know, Pooja Mera wrote
#
about in her book, The Lost Decade was that there was a certain continuity that when Arun
#
Modi came in as FM, he carried forward some of the thinking of the later months of Chidambaram.
#
At that time, there was some unity there and then everything kind of fell apart as it went
#
What was, you know, I know that there will of course be things that you cannot speak
#
about or, you know, can't reveal, but apart from that, what was that experience like of
#
working within the government?
#
Was there a sense that there is one direction that we are going in?
#
Were you taken seriously?
#
I mean, you did one of the economic surveys.
#
Certainly on inflation targeting, I mean, this was work that I had done when I was part
#
of the research team of FSLRC, the Financial Sector Legislative Reforms Commission.
#
This was work where I had a chapter in the book that was released by Prime Minister Modi
#
when he was just elected, I mean, within the first few days.
#
And this was something that I'd been working on for quite a while.
#
And then when it came to, you know, for working on first the Monetary Policy Framework Agreement
#
that was run in 2015, and finance secretary knew the, you know, the DEA secretary was
#
Rajiv Mehraishi, who first it was Mr. Mayaram, who I worked with, and he was also continuing
#
those that agenda forward.
#
And then Mr. Mehraishi came and he put, you know, the accelerator was pressed very hard.
#
And a lot of this work got done at that time.
#
So by March 2016, the inflation targeting, the bill was actually, the RBI Act was amended,
#
and the objective of monetary policy was changed.
#
So this was a period that was, I should say, exhilarating.
#
You say this was a period which was exhilarating, why did the period end?
#
Well, I moved back to NIPFP, and Mr. Mehraishi moved on, he became the Home Secretary.
#
And then I think the way things went, it was also Arvind then joined as CEO.
#
So earlier, he was not chief economic advisor.
#
And then they started, Arvind was focusing on infrastructure, public sector, public investment
#
There was focus on doing NIIF funds for investment, basically, the focus shifted to how can we
#
increase public investment away from, you know, when you do financial sector reforms,
#
the returns come a decade later, a decade later, yeah, a decade later.
#
So I think part of what happened was that, yes, we've done some of this, and this will
#
take years to play out, but now we better get back to the task on hand, which is try
#
So the focus shifted a bit.
#
So what we'll do now is we'll take a quick commercial break.
#
And when we come back, we'll talk more about the economy as it is now and how it has been
#
in the last few years and how it has been post COVID and how it's all going to play
#
But before that, a quick commercial break.
#
Long before I was a podcaster, I was a writer.
#
In fact, chances are that many of you first heard of me because of my blog India Uncut,
#
which was active between 2003 and 2009 and became somewhat popular at the time.
#
I love the freedom the form gave me, and I feel I was shaped by it in many ways.
#
I exercise my writing muscle every day and was forced to think about many different things
#
because I wrote about many different things.
#
Well, that phase in my life ended for various reasons, and now it is time to revive it.
#
Actually now I'm doing it through a newsletter.
#
I have started the India Uncut newsletter at indiancut.substack.com, where I will write
#
regularly about whatever catches my fancy.
#
I'll write about some of the themes I cover in this podcast and about much else.
#
So please do head on over to indiancut.substack.com and subscribe.
#
Once you sign up, each new installment that I write will land up in your email inbox.
#
You don't need to go anywhere.
#
So subscribe now for free.
#
The India Uncut newsletter at indiancut.substack.com.
#
Welcome back to The Scene on the Unseen.
#
I'm chatting with Ela Patnaik about the Indian economy as it is today, but I'll continue
#
with kind of general questions for a while because this is sort of a question that has
#
a bearing on everything.
#
And it's a question about data.
#
Like as an economist, you need raw material to work with.
#
And in India, famously, the quality of data is incredibly iffy.
#
So much of India is actually in the informal sector, for example, like I remember sort
#
of interrogating Arvind Subramaniam on this when he was on my show about the impact of
#
And my point is that so much of the data is just not there because it would have hurt
#
the informal sector the most.
#
And even a lot of the data which is there, like the GDP, for example, which is like sort
#
of a marker in the public eyes for how the economy is doing.
#
But number one, the methodology keeps changing and is somewhat opaque.
#
And number two, any metric that exists can be gamed.
#
I had done an episode with Rajeshwari Sengupta on the GDP as well.
#
And it's historically been a metric that can be gamed, has been gamed.
#
One doesn't know how much it truly reflects either progress or the opposite of it.
#
So what's your approach towards data in the sense that, you know, since the mid 90s, you
#
had to work in this environment where you know your data is iffy.
#
So do you figure out proxy ways of getting data?
#
Do you do different kinds of Jogar for your analysis?
#
What's your approach towards that and how much of a hindrance is it?
#
So I started working on business cycles, which means trying to track the economy in 96.
#
You know, that was one of my first projects.
#
And it was a project for the RBI at NCAR where we were trying to look at how can we measure
#
the economy as it is today?
#
How can we measure the economy looking forward as well?
#
And GDP is not even adequate for that.
#
So one issue that you're talking about is the quality of the GDP data, but the second
#
is that it comes later.
#
So you know what happened if you know a bit about what happened earlier, but you don't
#
know what is happening now.
#
So what we did was to, well, we had 105 monthly series that were available.
#
So you know, you think about price series, imports, exports, money supply, IIP.
#
Then now we've added more lately, I continue to, you know, do the same thing because tracking
#
the economy is something that's of deep interest to me.
#
So now we've added data from sales and profits of firms.
#
So there's a prowess database where they put together firm performance, so annual reports
#
So we don't just look at only GDP, we look at a number of indicators.
#
There is actually a well-established literature on this, where starting from Michelin burns
#
in at NBER in the US in the 40s, there is an attempt by economists to catch what is happening
#
today, to catch it not just through GDP, but to understand it through a number of other
#
We have also been trying to build a coincident indicator series and a leading indicator series
#
to see how they behave.
#
Now very often, you know, we see things a little before they happen because we are looking
#
at these various indicators.
#
Of course, we are constrained by not being able to see everything because, you know,
#
we don't capture the informal sector.
#
But you know, we don't capture the informal sector from the production side.
#
But if you think about it, then people in the informal sector also live, consume, buy
#
So, you know, GDP is measured not in just one way, but in three different ways.
#
And we do capture some of it.
#
Can you give me any example that comes to mind of when looking at data in all these
#
very granular, unconventional, nuanced ways, might have given you insight about something
#
that is happening or something that is going to happen which you would otherwise have missed?
#
Like, were there any aha moments in all these years of studying the data which kind of made
#
you see something a little better?
#
Well, I think it's more a question of timeliness that one is able to see that, you know, if
#
it imports, first of all, it's not very unconventional, by the way, as I said, it's been done since
#
So, you know, you start looking at import data, we even make an index of our leading
#
But if you look at import data, it reflects what is coming later.
#
So you kind of catch on a little sooner.
#
So it's a question of time, not so much of being, you know, knowing more or less about
#
So you get to know a little bit sooner when you track other series which are more frequent.
#
Like I was looking at the export data.
#
So weekly, in the first week of May, this May, exports are showing an increase of 80%
#
And last year, there was a lockdown, of course.
#
So there's a base effect as well.
#
But at least it's showing 80%.
#
It's showing a positive high growth because the world economy has started picking up.
#
So then it helps you understand better of where you're going and you just get a bit
#
So the way I want to talk about the economy is maybe the last few years and then come
#
But an immediate question, which is kind of sparked by the beginning of this pandemic,
#
because I just want to understand how an economist thinks about specific problems.
#
So now let's say that in March last year, if an economist working with government, and
#
I'm specifying working with government in this hypothetical instance, because I don't
#
just want to think of how economists sitting on the outside whose views may have no bearing
#
on the world, how they think.
#
But if you're working with government, if you're advising government, then how would
#
one begin to calibrate a policy move like a lockdown?
#
Like you've of course characterized it as lives versus livelihoods, which of course
#
And you could also say in a sense as lives versus lives, because in the long run, there
#
will be the impact of a lockdown.
#
This kind of policy measure seems to me to really be a terrible Hobson's choice in the
#
sense that whatever you do, the bad effects of it are seen and the good effects are unseen.
#
So if you call a lockdown, you will, for example, see the impact on migrant labor on the economy.
#
You'll see all of that.
#
What you will not see is the opportunity costs the lives that you've saved and vice
#
If you don't call a lockdown, you'll see the lives of people who die.
#
But what you won't see is that the economy is still functioning.
#
Now whenever one makes a decision like this, and unfortunately with the Indian state because
#
of state capacity, there are only these very blunt tools.
#
You either do a lockdown or you don't.
#
And you know, given that that is the case, how would an economist think about this?
#
Like what is the data you'd look at?
#
What would you do to establish some kind of understanding of what the probabilities might
#
And of course, a political calculus and all that is something completely separate.
#
But just to sort of understand how an economist thinks, what are the tools you're bringing
#
I would think about what is the kind of shock that this is.
#
So in the first lockdown, it was a supply side shock because we said, okay, shut down
#
and companies had to shut down.
#
It wasn't so much a demand side shock.
#
I mean, of course, to some extent, you could call it a demand side shock, but it was a
#
temporary demand side shock.
#
That is people could not go to the shops.
#
And so they were not buying products.
#
But suppose it had lasted, because there's so much uncertainty that one doesn't know
#
whether it was going, how long it was going to last.
#
But suppose it had last, the lockdown and the pandemic had lasted one month.
#
And let's say that my understanding from not economics, but epidemiology and whatever
#
the doctors were telling us, was that it was going to last for one month.
#
Then I would try to understand, okay, if one month later, I allow people to get back to
#
work, then it will almost be, you know, the demand would not be hit.
#
It would mainly be the supply got affected.
#
Yes, there would be some people whose balance sheets would hurt, but, you know, we can go
#
Now, if I turn to today, and suppose, so again, data is very limited.
#
One would look at consumer sentiment.
#
One looks at imports in terms of activity, one looks at exports, so, you know, looking
#
at what is happening here, household expenditure, household, you know, unemployment data that
#
one gets, Manrega data, because Manrega is a good indicator of people having gone back
#
to villages and what they are doing now.
#
Putting all of this together, one would try to understand, has there been a year long
#
deep impact on people's incomes?
#
And if so, then are we going to see a deeper demand effect than we saw in the first case?
#
And that would help me to suppose, and suppose, of course, somebody said that this would continue
#
Then one would try to think of what are the policies.
#
These are not easy choices, as you very, very correctly said, whatever happens, you're going
#
to be blamed for doing the wrong thing.
#
But, you know, then one would try to understand, okay, what does one require to give a demand
#
Initially, if you notice, I mean, somebody must have figured this out.
#
But there wasn't much of a demand stimulus given, because it was a supply side issue.
#
So when the package came, it had, you know, food and so on.
#
But other than that, it was reforms.
#
In some other countries, they continued to, they gave wages.
#
So I guess, you know, this is, these are the tools I would use.
#
This is how I would think about it.
#
And how does one, like, for example, another policy debate that I've seen playing out in
#
the United States, for example, is that when do we open schools?
#
How long do we shut schools?
#
You know, Anup Malani, in an episode with Milan Vaishnav on his podcast, the Grand
#
Tamasha, Milan's podcast writers, had made the point that, you know, that if you shut
#
schools for a year, for example, in a hypothetical situation, the loss to the economy in the
#
future is also immense, because human capital is getting affected.
#
And you simply don't know that just mentally how the kids will be and how everything will
#
There are so many kinds of imponderables.
#
And at some level, when it comes to things like this, it seems to me that, you know,
#
the costs go somewhere, the benefits go somewhere else.
#
How can you even do a cost to benefit analysis?
#
In many ways, it seems like apples and oranges.
#
And the very act of attempting to do an analysis would also come down to, say, putting a price
#
Do economists who often get a rap for being heartless?
#
Do they, like, implicitly, are you having to put a price on lives?
#
Like, if I was to tell you that the lockdown will save 100 lives but cost so many 100 crores,
#
you would probably say, let's not have a lockdown.
#
But if I tell you it will save 100,000 lives and, you know, the calculus changes.
#
How does one, you know, come to grips with all of this?
#
I'm not sure that economists do this very differently from the rest of you, the rest
#
And if they do, if they do, they're pretending to do it, because nobody can put a cost to
#
You might have your measures, you might develop them because you want to be able to pay somebody
#
in case of an accident.
#
But you know, that's a bit of a practical thing.
#
But if you do it prior to the event, then I don't think anybody, economist or not, has
#
the courage to say these young girls, daughters of so-and-so, can go die.
#
Nobody has the courage to do that.
#
And nobody, when we don't think like that, we can't think like that.
#
So I'm not sure that, you know, this is something that anybody actually does.
#
Even though, yes, you know, there might be academic papers and debates saying that, you
#
know, it's okay to lose a thousand lives and, you know, not spend money.
#
But you know, at least I've always been saying, initially, spend what you have to on the RT-PCR
#
Let it be 1% of GDP and whoever spends it, whether it's state governments, central governments,
#
companies, schools, institutions, whoever spends it.
#
And today that spend what you need to on vaccination, you know, bring all the energy you have, bring
#
all the money you have.
#
I mean, you save a life.
#
You can always earn more later, do something, not do something, live frugally, whatever
#
But, you know, once you've lost a life, it doesn't come back.
#
And you know, this is a pandemic.
#
It's a once in, I don't know, we've never been in this situation before of making these
#
And I don't think anybody has the tools or is in a place to actually make these choices.
#
This thing, I think, comes down to the question of when you decide whether to do a national
#
lockdown or not to do a national lockdown, okay, that's what this will come down to.
#
Then the question to ask would not be whether you were making the decision between saving
#
lives and not saving lives.
#
But it would really be that could a local lockdown save lives as well compared to a
#
Because a national lockdown absolutely does lead to a lot of misery and loss of livelihoods.
#
But does it actually save more lives?
#
Does it, you know, so if somebody's ill in some other state, but like in Delhi, if we
#
have started recovering and positivity rate has gone down and the number of infections
#
has gone down, then maybe a week or two down the line, if we decide to open up, even if
#
cases somewhere else are rising, then is it not more rational to do so?
#
So I think that's the choice.
#
Okay, so you know, when you said at the start of your answer that you think economists are
#
just the same as normal people, what you went on to say was that none of us will want to
#
place a value on a life.
#
But I thought you meant the opposite.
#
So I was a little surprised because I think implicitly everyone is placing a value on
#
our life, like even even my own, for example, like every time I cross the road, I know there
#
is a very, very small probability that, you know, something will run me over.
#
But I choose to make that choice because the sort of utility of crossing the road is worth
#
more to me than whatever that very tiny percentage is.
#
And this, of course, you know, every time I go out on a drive, for example, I'm making
#
the same kind of calculus.
#
In a sense, I'm placing a certain value on my life.
#
And I think economists would also implicitly at least have to do that, even if they can't
#
put a number to it because it is so icky.
#
And as human beings, we want to think every life is priceless.
#
But you know, in a thought experiment where a lockdown is going to cost, say, a thousand
#
crores, but is going to save just one life, you know, and you would say that the loss
#
of that thousand crores, the economy will actually cost many more lives somewhere down
#
And you don't actually know that.
#
So somewhere there is a number at which you say this is a threshold we have to call a
#
But, you know, when it comes to things like giving indemnity, if the state has to say
#
that, OK, if something goes wrong, we'll pay for it, while if, you know, people don't
#
get the vaccine, oh, I will not give the vaccine, but I'll save it, you know, whatever, ten
#
But, you know, ten crore people will die if that's the kind of choice, then it's an open
#
So, you know, of course, I mean, I'm just saying that as economists, one is not doing
#
I mean, you are you are placing a value on your life.
#
No, no, I in this present circumstance, I mean, frankly, I think we're both in agreement
#
that we should just spend whatever to, you know, save lives, because, you know, you'll
#
spend a thousand crores, but in the long run, save way more.
#
And also, indemnity, I guess you're referring to the whole Pfizer thing.
#
And I guess you agree with me that we should just give indemnity.
#
Every other country has given them indemnity.
#
Just bring them in, just get that, make the damn vaccine available.
#
Just feel that every day we are losing people and, you know, they won't come back.
#
Whereas if we put some money down, then we can always earn more money or even if we don't
#
I mean, we can live a bit more frugally.
#
So I think this should be a top of the agenda.
#
But I mean, that's another discussion.
#
Let's kind of get back to the economy.
#
Now, let's kind of zoom in and talk about, say, the trajectory of the last few years.
#
I'd done an episode with Pooja Mehra on a book, The Lost Decade, where the trajectory
#
that she shaped for me was that, look, our economy suddenly started doing much worse
#
at around the time Pranab Mukherjee took over as finance minister because there were the
#
terrorist attacks in Bombay.
#
So you know, Shivraj Patil was home minister, did a lousy job.
#
They shifted Chidambaram there, therefore Pranab took over finance, made a complete mess of
#
it, started going downhill with a credit crisis, kind of got exacerbated.
#
Then there was a whole atmosphere of retrospective taxation and what that did for the investment
#
There was just a bunch of things which listeners can go listen to that episode and all that.
#
And then when Modi came, they were, you know, Chidambaram took over after Pranab was elevated
#
to the presidency for a while, but he was there for too short a time.
#
And then Modi took over.
#
And then politics came in the way.
#
The moment the suit bootki sarkar, jibes came, reforms went out of the window and demon happened,
#
the incredibly botched GST happened and so on.
#
And it's just been downhill.
#
And then Covid hit and everything's just been downhill for the last 10 years.
#
Would you broadly agree with this narrative and you've been much, much closer to the action.
#
So what is your sense of it?
#
I mean, I'm sure there's a lot of nuance you can add to this.
#
So I think 2011 or so is the period when I started seeing investment going down, private
#
I mean, really what has taken the economy up and down is cycles in private investment.
#
So 2011 is the period when it starts going down.
#
And I agree with most of what Pooja has said and what you're telling me.
#
But just to add to the story, in my opinion, the story began earlier.
#
The story began from 2004 to 2007.
#
Because that was the time when there was a lot of capital coming in.
#
RBI was buying up dollars, pushing liquidity into the system.
#
You know, we all look at it from our perspective, so I look at it from the perspective of monetary
#
And there was a time when credit was growing at about, in 2007, at about 40% per annum.
#
Very high growth of credit.
#
And banks were lending merrily, not being as prudent as they might have been if you
#
didn't have this huge liquidity sloshing around in the system.
#
And then came the 2007-2008 Lehman episode.
#
In fact, things start going bad even towards the end, right at the end of 2007.
#
But of course, Lehman was the turning point.
#
And after that, you had a sudden contraction in the economy and a decline in demand.
#
A lot of the loans that had been given by the banking system were already in trouble.
#
Most infrastructure companies, there had been a lot of emphasis on infrastructure.
#
And you know, really, banks are not well suited to lend to infrastructure companies because
#
there is a maturity mismatch.
#
The capacity of banks to assess those loans, to hold on to those loans for 30 years, to
#
resist political influence and not to give loans, especially public sector banks, you
#
know, and with the regulator who would pretty much was turning a blind eye to the loans
#
So I can say that, you know, some I've done some rough analysis, but roughly a third of
#
the loans went bad because just bad business decisions.
#
People had been over optimistic.
#
And a third, of course, were frauds and cheats who ran away.
#
And the others got into trouble because of what used to be famously called then policy
#
paralysis, that you stepped out, you thought you'd get an environment clearance, you know,
#
and somehow in the system, environment clearances were supposed to be gotten by the private
#
contractor who was doing the project.
#
It wasn't that the government within the government got those clearances.
#
They thought, oh, he let him bribe his way through.
#
So a third, roughly a third went bad because of those.
#
Now this was a situation in, say, 2010-11 when on top of this, you add retrospective
#
taxes and a badly managed Ministry of Finance.
#
I was doing this NIPFBDA program that we've been doing and it's a badly managed Ministry
#
of Finance under Pranab Bokhaji, honestly.
#
So put that all together and you see that from 2011 onwards, investment starts declining.
#
There's a little bit of a blip in 2015.
#
So I expect that when Modi becomes Prime Minister, people start thinking that things will get
#
some of those problems will get solved.
#
But then that also, you know, goes away in about 2016 or so, even before demonetization.
#
So demonetization doesn't actually have a great visible impact.
#
So I was one of the, you know, very outspoken opponents of demonetization.
#
But when I look back, I didn't see as much of an effect as I thought there might be.
#
But you know, be that as it may, investment didn't pick up again.
#
And we are, you know, I don't know where we will go in terms of, because the pandemic
#
is, I guess, the last straw in this, because the more the uncertainty, investment always
#
does badly under uncertainty.
#
So if it didn't pick up from 2011 onwards, then this is not a time when I would think
#
it's going to pick up very fast, things will take time to work out.
#
So that's the backstory I would add to Pooja's story.
#
How much of a factor in investments picking up is the quantitative easing, for example,
#
which happens out there, which happens in the US, for example, the easy money coming
#
in, so to say, because there is some of that happening right now after this pandemic, and
#
some of it will find its way into India.
#
In fact, some of it is why the stock market has done much better than you would expect
#
it to in these economic circumstances.
#
So are certain aspects of how our economy does independent of our economy itself?
#
Yeah, absolutely, they are.
#
But I think it's also about what is our policy response.
#
So episodes such as the taper tantrum.
#
So in 2013, when Ben Bernanke was expected to, you know, when he spoke and people thought
#
that the Fed is going to start tightening right away, then money started flowing out
#
India's response was that we want to defend the rupee.
#
And to try to defend the rupee, you know, we had Chitambaram and finance secretary and
#
everybody just coming on TV every day, hiking up interest rates.
#
This was a big mistake.
#
I mean, the rupee kept slipping.
#
They couldn't stop that.
#
But they tightened monetary policy so much that I mean, that's one thing that's really
#
Because rates didn't go back down for a very long time.
#
And so they didn't reverse almost for a year, they didn't reverse all the measures that
#
they had taken in the rupee defense of 2013 after the taper tantrum.
#
And so let's just look forward now.
#
See, US is arguably overheating because they've given a large fiscal stimulus and a large
#
And if they are overheating and if they start seeing inflation and the Fed starts tightening,
#
then we could easily have again this risk on risk off situation where money goes out
#
The question would be what is going to be the policy response of the government and
#
the RBI if they start trying to defend the rupee if this happens.
#
So if it doesn't happen, fine, if this happens and they start trying to defend the rupee
#
and for that they tighten liquidity, raise interest rates like they did in 2013, then
#
whatever little chance we have of somehow getting up and trying to walk, we lose that
#
So the policy response to a very large extent will determine the impact of what happens
#
So a couple of questions.
#
One is that it's kind of amusing to me how somehow in the popular narrative, where the
#
rupee was got tied up with nationalism, that if the rupee was strong, we would be proud
#
and if the rupee was weak, we would be, you know, how much of that is kind of a barrier
#
and then if the if the popular sentiment becomes like this and definitely a lot of Modi's campaigning
#
pre 2014 was look what is happening to the rupee and of course, forget what happened
#
to it after he took over.
#
How much of this then involves the actual policy response like does it even matter like
#
shouldn't the rupee be wherever it is and we should simply not bother about it.
#
That's what I would imagine.
#
What's what's your take on that?
#
So if you look back, it's a very interesting story that in the early 2000s, there was this
#
huge attempt to prevent rupee appreciation.
#
You wanted a weak rupee and why was that?
#
Because the dominant lobby was the exporter lobby.
#
The exporters were all the time, you know, whatever their federations are, whoever the
#
exporters are, their industry lobbies, somehow they always convince economists of to say
#
But there was a lot of this don't let the rupee get strong, CEO opened up capital flows.
#
Now capital is coming in, pushing the rupee up, making us uncompetitive, try to prevent
#
And then RBI went on this major thing of trying to buy up rupees, preventing an appreciation
#
and then sometime in January 2004, they ran out of government bonds to sterilize their
#
intervention because they were doing fully sterilized intervention because this was the
#
Remember, they hadn't done that in 96.
#
So now, why did the situation change?
#
In my opinion, the situation changed because once you allowed borrowing, foreign borrowing,
#
dollar denominated borrowing, then the people who were borrowing in dollars had a lot of
#
So they don't want a weak rupee and in terms of the political influence and the cacophony,
#
everything, the need for a strong rupee became more important than the need for a weak rupee.
#
The exporters had wanted a weak rupee, whereas the firms who have dollar denominated borrowings
#
on their balance sheets, they want a strong rupee.
#
So I don't think it's that much of nationalism, of course, somebody might say this or that.
#
But I think eventually, at least what I see getting translated into policy and pressure
#
for a certain kind of policy is how is industry getting impacted by the movement of the rupee
#
because there's a lot of exposure and that exposure, foreign currency exposure, which
#
means that firms will get hit when the rupee moves.
#
And this exposure is there because RBI is constantly intervening to try to prevent rupee,
#
they call it volatility, let me call it flexibility, as you've just called it.
#
They try to prevent the rupee from moving around too much.
#
So when they try to prevent it, people think, aha, I can take, now they'll take care.
#
So the rupee won't weaken too much or the rupee won't strengthen too much.
#
So you get a lot of foreign currency exposure.
#
This is part of the reason why you always have some sort of a pressure on RBI to do
#
something or the other.
#
And what's your recommended response to these kinds of pressures because
#
Exactly as yours was, stay out of it.
#
Just stay out of it, let it go wherever.
#
And people will hedge their risks then.
#
Today, it's a moral hazard problem, are not hedging their risk because they come back
#
and scream at you, don't let the rupee this, don't let the rupee that, intervene, intervene,
#
or this has happened and then the RBI steps in and intervenes.
#
Whereas if you allow it to be volatile, to be flexible, people will hedge and you won't
#
get that kind of exposure, currency exposure.
#
So one of your core causes and before we get to the COVID economy and all of that, one
#
of your core causes through all this time and something that you're known for and that
#
mutual friends speak very highly of is your work on inflation targeting.
#
So I'd like to kind of try and ask you to demystify it a bit.
#
So first of all, I'll quickly kind of sum up what the role that monetary policy plays
#
And you can correct me if I'm being too simplistic or if I mess up somewhere.
#
But basically what happens is that the RBI controls, your central bank controls a flow
#
of money into the economy so they can lower interest rates, which would mean that there
#
is effectively a greater flow of money into the economy and if the money supply goes up,
#
but everything else remains the same, the prices of everything will rise.
#
It's a supply and demand thing.
#
And it's the opposite thing that if they tighten it, then, you know, there is less money out
#
there and therefore the price of everything might even go down or it'll affect the rate
#
And the reason for the political impetus for loosening interest rates would be that, you
#
know, in the short term you get, you know, more money out there, there's more buoyancy,
#
It makes the economy kind of look better.
#
So that is kind of one of the pressures that you sort of have to balance.
#
Now, you know, one is this summation broadly correct in its necessarily simplistic way
#
and to what then is inflation targeting like, is there an ideal rate of inflation that we
#
What is the role of a central bank here?
#
Can you then demystify all of this that why did this become such an important thing?
#
So let's say that we have an economy that tries to target the exchange rate.
#
It doesn't care about inflation.
#
It targets the exchange rate.
#
It wants a stable rupee.
#
And as a consequence, we do what we did, let's say what Bimal Jalan did in the Asian crisis
#
that when there was pressure on the rupee to depreciate, he hiked up interest rates
#
by 200 basis point 16th of January, 1999 on one single day.
#
Similarly, we do what we did during the period of the Tipper tantrum that we thought the
#
rupee is weak or will weaken.
#
So we hiked short term rates, tightened liquidity.
#
What we're doing then is that let's assume that at that time, which is true in this case,
#
but let's assume at that time, the economy is not doing very well.
#
Then what you end up doing is making it worse because the economy was already weak.
#
And because of that, perhaps, you know, you got this pressure on the rupee.
#
Now, we were repeatedly seeing episodes of that happen, that, you know, the economy needed
#
So your business cycle conditions were such that we needed an accommodative or loose monetary
#
But what happened instead was that because you were trying to defend the rupee, you went
#
What that does is actually makes your policy pro cyclical.
#
You were already going down and it makes you go down further.
#
Because there's less spending and so on.
#
Because of what you described just now that when interest rates are higher.
#
So you've hiked rates to defend the rupee, right?
#
But when rates are higher, people borrow less, people spend less, you know.
#
So that's why rates get raised when inflation goes up or when, as we just talked about,
#
the US economy overheating.
#
So when it is overheating, the Fed may raise interest rates.
#
So when there's too much demand in the economy, you try to bring it down.
#
So we were seeing a lot of that happen.
#
So in the Indian context, why did inflation targeting make sense and why did the government
#
It's not because, you know, some of us write about things, we write about many things.
#
But why it made sense was that repeatedly there were these episodes when you were doing
#
something which was actually bad for the wider economy as a whole.
#
So wildlife might have given you rupee stabilization.
#
So that was the choice.
#
The third choice, which would have been to close the capital account, we don't have that
#
So we are such a global economy and anyway, even if we try to close some accounts, money
#
finds a way to move around.
#
So we don't want to go there.
#
So sometimes they do try to impose some capital controls, gold, this, that and the other.
#
That tendency is very much there.
#
But as you said earlier, the mindset of trying to control is very much there.
#
But let's just say that we put that aside because that's not going to solve your problem.
#
So then you have a choice between these two things.
#
Between trying to stabilize the currency, which could be pro-cyclical, if your economy
#
is on a decline and your hiking rates, you're just doing the wrong thing.
#
And the other is that you respond to the business cycle conditions in the economy.
#
So while we say inflation targeting, but actually inflation doesn't happen on some island on
#
Inflation is happening when there is excess demand in the economy.
#
And that is happening when the economy is on upswing.
#
So what you're really trying to do is to stabilize the business cycle.
#
You're trying to do counter cyclical monetary policy.
#
That's the essence of why inflation targeting made sense.
#
So now a further question, because from the term, it would seem that there is an optimal
#
rate of inflation you have to maintain.
#
So is there an optimal rate of inflation and why is it optimal?
#
And how does one arrive at it?
#
And so on, broader question.
#
So I think Raghu was the governor at that time, and this one was chosen as 2% above
#
the inflation target in advanced economies.
#
So advanced economies have roughly 2%.
#
And you want a positive inflation rate because you want relative prices to be able to move
#
and you can't really have disinflation.
#
So that's painful for too many people.
#
So the advanced economies have chosen 2%.
#
Now if you kind of think, Bilasa Samuelson, that you're getting a productivity improvement
#
because you're an emerging economy.
#
So you can have an inflation, you want to choose your target, your productivity improvement
#
at a long term average rate of 2%.
#
So your currency could kind of stay where it is, roughly stable.
#
You choose an inflation rate of 2% above the inflation target of advanced economies.
#
So that's where that number came from.
#
But the second number, which is our own number, is the 2 to 6.
#
The 2 to 6 is the band around the 4% target.
#
And that's really because, one, inflation targeting was something so new and very few
#
people really understood whether you'll actually be able to get to 4% inflation by moving around
#
And second, because monetary policy transmission is very, very weak.
#
You don't have competitive, well-functioning bond markets and banks that would actually
#
So in the absence of a well-functioning monetary policy transmission, you don't want a very
#
tight target because then you would have to hike rates around, you have to jack them around
#
up and down depending on the inflation.
#
So what you want to do is get a bit of flexibility there.
#
Let's now come to the current time.
#
Before COVID struck, let's say maybe February last year, before COVID struck, if you were
#
to sort of talk about the state of the economy then, not just in a static way, but as part
#
of different trends that have been playing out, how would you then sort of sum that up?
#
Like for example, I've done episodes on the credit crisis with Arvind, Viral, various
#
And what was the state of that?
#
What was the state of our economy generally?
#
What did it look like before COVID struck?
#
Because I think it's important also to kind of think about that before we get down to
#
talking about the impact of COVID.
#
Like I'd done an episode with Vivek Kaul on the Indian economy in 2019.
#
And I remember everything we had to say was extremely bleak anyway.
#
It feels like things were just going downhill, things looked pretty bad.
#
What was your sense of it at the time?
#
I was worrying about two things.
#
I was worrying about the fact that investment had still not picked up.
#
And second, about the non-performing assets in the banking system.
#
And that basically I thought that this was a time when we should start moving towards
#
privatization of public sector banks.
#
And you know, some of the stuff I was writing was that unless we move away from this public
#
sector banking setup that we somehow seem to be stuck with, we will actually not be
#
Third, that we have not done the financial sector reforms that are needed for us to be
#
able to get back on track.
#
You know, so the kind of things that need to be done are one, a competitive banking
#
system, which for me means either you reduce your shareholdership or you give a lot of
#
private sector bank licenses.
#
So that also brings competition and you know, the Air India or sorry, or the telecom model
#
or the aviation model where you don't, you know, you don't want to privatize them for
#
whatever reason, the unions will make trouble or then give more licenses, but at least bring
#
competition into the sector.
#
So I thought that was a difficult enough agenda.
#
But I mean, that was mainly the investment credit, the shape of the banking sector were
#
You know, on a tangent, since we are reaching COVID, I came across this interesting paper
#
you wrote with Supriya Krishnan called Health and Disaster Risk Management in India, which
#
was published in February 2020 last year before the pandemic struck where you're doing various
#
things you're assessing our public health infrastructure and blah, blah, blah.
#
So to what extent, and you also talk about communicable diseases in it and so on.
#
So to what extent did like, were there any new revelations or did things play out kind
#
of the way you expected that we were nowhere close to being prepared?
#
I think even if we had been optimally prepared according to whatever we were measuring in
#
that paper, we would still have been unprepared because you know, I don't think anybody can
#
be prepared for this magnitude of so many people falling ill.
#
You know, you're not going to ever have so many doctors and so many people, so many nurses
#
and so many hospitals because otherwise they'll be unprofitable and lying vacant for decades.
#
You know, so you have some arrangements.
#
You don't have arrangements for a tenfold increase in oxygen demand.
#
You don't have arrangements for this.
#
So I mean, that was taking into a, you know, just assuming a normal, not a pandemic like
#
this, but we couldn't have been prepared.
#
At least I felt that even if we'd done everything we could, we couldn't have been prepared for
#
this kind of magnitude of the crisis, health crisis.
#
And given what we know in hindsight about how it was handled, assume that we use that
#
knowledge and we can go back in a time machine and do everything right, right?
#
So we end up with the best case scenario.
#
What do you think that would have been?
#
I mean, we would have tested more if we could have tested more, we could have, we would
#
have done local lockdowns more because we didn't understand what the full implication
#
of a national lockdown would be.
#
We would have pre-ordered vaccines when they started, when people started working on vaccines.
#
Not even when they did trial, phase one trials, but you know, we would have pre-ordered vaccines
#
and, you know, prepared hospitals so that in case that we still get the disease.
#
But you know, all this is with the benefit of hindsight.
#
I must admit that neither I nor any of the big critics that I hear talk about this were
#
writing that how much pre-ordering of vaccines have you done?
#
On the contrary, one heard people say, oh, co-vaccine is not tested, why are you allowing
#
So with the benefit of hindsight, one can say a lot of things, but if I were to be honest
#
and say that would I have figured out all this, then I don't think I would have figured
#
In fact, you know, there's this really nice quote I came across where someone said that
#
if you act optimally, then before a pandemic, it will always seem like you are doing too
#
You know, that's what it will seem like before.
#
And after a pandemic, it will always seem like you did too little.
#
It's just, you know, we are kind of in this very tough spot.
#
But looking at the pandemic as it kind of proceeded, I mean, obviously there are disasters
#
at various levels like the humanitarian disaster, and let's not even go into that.
#
But as an economist, when you're thinking of what is the economic impact of this, number
#
one, and number two, when you're thinking of what can we do to ameliorate it with whatever
#
limited resources we have, then tell me a little bit about what that kind of thinking
#
Like what kind of data gives you the fullest possible picture of this?
#
It appears to me that, you know, when the first lockdown happened, all the migrant labor
#
You don't know what the sentiment is.
#
You don't know how many of them are coming back.
#
Maybe there is some MNREG data which suddenly shows a spike and you know that all these
#
people have come back from the cities, there's no work and blah, blah.
#
But you don't know the longer term sentiment and how it's going to play out when all these
#
Number one, those what we are seeing today is that deaths are massively underreported.
#
You don't know how those deaths will affect things going forward.
#
So many things we don't know.
#
So how do you begin to make sense of what is going wrong?
#
And then how do you begin to make sense of what to do about it?
#
Looking at CMI household survey data, the surveys are still continuing, does give you
#
So they talk about, they ask you, are you looking for a job?
#
So that's labor force participation.
#
They ask you, are you employed?
#
So that's the employment rate.
#
They also ask you how many members of the family there are.
#
So if there are some missing, which were there.
#
So it's the same set of households, same set of, I think, 200,000 plus households that
#
are interviewed three times a year.
#
So you can make out because it's the same household and you're going back to the household.
#
So you can get some idea of the missing people there or you also get data on expenditure
#
that will tell you whether people are.
#
So if they're eating less or spending less, on what are they spending less?
#
So the items on which they spend have been changing.
#
And so that's something that some of us do look at.
#
And of course, things are bad.
#
I mean, the data is reflecting whatever that people have lost their jobs and many are dropping
#
out of the labor force.
#
But then that is something that one would expect.
#
So that, you know, if that answers the data question, the question on what would you do?
#
I mean, other than vaccinating and trying to do COVID appropriate behavior and not doing
#
the non-essential things that would hurt everyone, I'm not sure what else we can do.
#
I think the way out is to vaccinate, to have COVID appropriate behavior, to let people
#
come back to work when you feel that it's safe and by now people are scared enough.
#
So people who used to be, you know, I mean, out of the people who we've lost among friends
#
and family, a lot of them were refusing to take the vaccine.
#
But today their families are queuing up for vaccines.
#
So that vaccine, that hesitancy, the resistance to vaccine has gone away.
#
At least, I mean, I don't have data on that, but the demand for vaccines has increased.
#
So the gap may actually increase because as this spreads, till the supply comes back.
#
So I think that's what you can do.
#
So that at least people can come back to economic activity.
#
You have to allow them to come back and the economy will, I think, you know, people who
#
have either had COVID or had a vaccine will be able to get back to work pretty soon.
#
I mean, those who are not, you know, suffering from some of the ill effects other than that,
#
many will be, most will be able to come back to work pretty soon.
#
And in terms of economic policy at the government level, is there something special that the
#
government can do that one would not recommend that it does otherwise?
#
Like, for example, people speak about put a special stimulus out there or whatever,
#
you know, fiscal policy, monetary.
#
What is your sense of what can and should be done there?
#
Like, is there something that should be done now that would not otherwise have been necessary
#
So maybe you can cut taxes and borrow.
#
You can cut import duties that might boost your exports.
#
You can cut taxes so whoever is having to pay an 18% GST on something gets a relief.
#
And the government, I'm not saying it can borrow too much because, you know, it doesn't
#
have much fiscal space.
#
But to some extent, this is the way to provide relief rather than to try to find who all
#
I would just say cutting taxes gives everybody relief across the board.
#
You know, in fact, I saw this very interesting Elonomics episode of yours where you spoke
#
about the absurdity of cutting the personal income tax while raising GST.
#
And you're like, whatever, you know, it doesn't, it's not kind of remotely coherent.
#
And of course, the idea of cutting taxes is you leave the money in the hands of the people,
#
you know, which leads me to sort of this interesting question about how so and this is again a
#
sort of a mindset question where so many people in government will often behave as if one
#
of the aims or one of the metrics of a healthy economy is how much your tax collections have
#
And I'm not sure there's such a great metric because, you know, that tells you something
#
about the health of the state and the state is of course a predatory state.
#
So do you really want it to be healthy?
#
You know, while your focus should be on the health of society.
#
So is this something that you have thoughts on?
#
Sometimes I wonder when I look at bureaucrats, I wonder that is the way to increase the tax
#
GDP ratio done through reducing the denominator, they don't care, they don't care, they don't
#
care that you impose taxes that are actually going to reduce investment.
#
So you do some retrospective tax, right?
#
You'll get some X crore rupees, but you end up reducing investment.
#
You end up reducing GDP and that's how your, you know, tax to GDP ratio may look better.
#
But I mean, I'm kidding, I'm, you know, this is the, I mean, basically they don't care.
#
I think what's happened is that the tax administration is in charge of tax policy.
#
So on a more serious note, that separation is essential because tax admin is the job
#
of tax administration is given what we have, we have to, you know, collect taxes without
#
too much cost and there has to be improved compliance and so on.
#
But the role of tax policy is to make taxes such that we improve output, we improve productivity,
#
we don't put, you know, deadweight loss on the economy, we don't put extra burden on
#
the economy because we don't have much tax policy thinking outside of tax administration.
#
I think that the way tax policy gets made in India, it's blind to the impact on GDP.
#
We started this conversation talking about, you know, retrospective taxes, your interview
#
with Pooja and how that actually turned the economy around.
#
We're 10 years later, maybe a little more than 10 years later, we are still suffering
#
the impact of trying to collect just this much of more of taxes.
#
So I have very strong views on that, but that's kind of like you said is completely nuts
#
that the tax administration people should have so much influence on tax policy because
#
obviously they'll want more money to spend, who kind of wouldn't and bring you into another
#
issue you've written about, you know, a couple of episodes ago, I had Kartik Muralidharan
#
on my show, The Economist and we were talking healthcare policy, but one of the digressions
#
we took was the petrol taxes and I said the high petrol taxes are a bad thing because
#
they affect the common person, inflationary effect, blah, blah, blah.
#
And he was defending it from a public finance point of view, saying that if the government
#
collects taxes, that's how I would like them to collect it.
#
What's your view on this?
#
So I'm very conflicted.
#
On the one hand, I think, you know, it's a carbon tax.
#
It reduces your consumption of, you know, carbon fuels.
#
And so in one sense, I think that, you know, I should not be saying anything.
#
But on the other hand, I feel that in the period when oil prices were declining, the
#
FISC became too dependent on these taxes.
#
And you know, today you are paying so much more taxes than the actual fuel, it hurts.
#
And today, the FISC cannot do away with these taxes because they've become too dependent
#
And in that perspective, as you know, an economist, I would say that I don't think this is good
#
public finance when you are too dependent on any one kind of tax on this, apart from
#
everything that you have said.
#
So but you know, because it's a carbon tax, I'm a little conflicted.
#
If this was on gold, I might say something else.
#
And just to kind of give perspective to those listeners, you know, after 2014, Modi got
#
this massive bonanza when oil prices, global oil prices went down, and he could have chosen
#
to let petrol prices in India come down.
#
And that benefit would have been passed on to people, not just people who drive cars,
#
by the way, but petrol prices affect everything, everything would have become cheaper.
#
But instead, they just raise the taxes.
#
So it seemed to the common person that okay, petrol prices haven't really gone up.
#
But we would, you know, the tax became a larger percentage of that.
#
And now the taxes only go up, they don't go down.
#
So that's something to think about a link to an article you wrote on this.
#
So to be honest, when I asked you, I did know that you would kind of come out on my side
#
I will send that link to Karthik.
#
So a final big question before we end up by talking about the covid scenario also.
#
You know, when we kind of look at the Indian economy, like whenever I talk about problems
#
in India, whether it's in agriculture, in whatever, within that bigger problem, there
#
is a subset that is even worse, which is the role of women in it.
#
There was an episode with Namita Bhandare on women's participation in the labor force,
#
where she pointed out that it's actually gone down over the last sort of decade and a half
#
that there are less women in percentage terms working today than was the case.
#
And even before covid, you would expect the opposite to be the case because the economy
#
Why are less women working?
#
And it also seems to me that there's a massive loss there.
#
The fact that, of course, I mean, some of it is cultural issues that, you know, we have
#
this very misogynistic backward view of women that a woman's place is in the kitchen and
#
And some of those are cultural issues.
#
But there is a massive loss in terms of, you know, just productivity, human capital, all
#
The fact that half our people are almost, you know, treated differently and, you know,
#
given this kind of inferior status and therefore inferior opportunities.
#
So what is your sense of that?
#
Like, is there any way to kind of quantify, say, whether it's the unpaid labor of women
#
or quantify the opportunity cost?
#
That what if, you know, women were getting the same kind of opportunities?
#
And also, when you look at the general drift, what is the tendency?
#
Is there reason to hope in this in this regard?
#
So I think one of the big factors is the economy, that when employment doesn't grow fast enough,
#
then within a family, it is the male who takes up a job rather than the female.
#
So if one of them is going to be able to go out and work, then who goes out to work?
#
So she does the childcare, she does the homework, and the male goes out to work.
#
So the aggregate rate of growth of jobs, if that slows down, it is going to, in my opinion,
#
it also impacts how many women go out to work.
#
The second thing that has been happening here, so there have, you know, this is an issue
#
that has been studied by quite a few people.
#
The second thing that seems to be happening here is that as the family income goes up
#
because the male earns more, then the woman actually stays at home because she's able
#
to give her children childcare, which she cannot afford if the male earns less.
#
And this is a paradoxical situation where it's not very easy to say what would you want?
#
Do you want him to earn less?
#
You want him to earn more and her to be able to go out.
#
But are there good facilities for childcare?
#
So you know, you find that women usually are the ones who would say they would stay back,
#
even though they could have got a job.
#
The first is clearly a bad, the second is a paradoxical one.
#
And I think the third is that women migrate.
#
So when married women migrate a lot.
#
So when you look at migration data, a lot of migration is happening because the woman
#
goes and goes to the village where her husband and his family live.
#
And there it is not very easy for her to find a job.
#
I mean, you don't have these thriving labour markets.
#
Of course, then also they try for some of them get jobs.
#
I'm not saying it's zero, but both society, you know, society is very conservative.
#
A young bride in a village is not expected to come and start working if they can afford
#
to have her stay at home and look after her kids.
#
So it's both cultural, it is the economy, and then of course, it is skill development
#
that if the man starts earning more, then and he becomes more skilled, even if she's
#
also skilled, if they both get a skill.
#
But if the household income allows her to look after the children, then she does that.
#
I think it's a very complex issue.
#
It's not an easy one for us to solve looking ahead.
#
Yeah, I've done this episode with Chinmay Thumbay on his great book, India Moving about
#
Migration in and outside India.
#
And one of the great TIL moments for me there was when he said that the largest cause of
#
internal migration within the country is just women getting married and going to their husbands
#
home, which is something to my shame, I had never even thought about it in those terms,
#
but suddenly it just becomes so stark.
#
And, and Namita had of course also mentioned that this happens that as the men start earning
#
more the women kind of drop out because they can actually afford to stay at home.
#
And I would therefore imagine that when the men start earning so much more that the women
#
don't have to drop out that they can also work and find satisfaction elsewhere that
#
maybe then that rate goes up.
#
So is it then like a kind of a reverse bell curve there in terms of women's participation?
#
Do you think is there any data from anywhere in the world which gives us a clue?
#
So I don't particularly do women's studies.
#
I am a macro economist.
#
I don't know whether there's data elsewhere in the world, but I think we'll be a long
#
I mean, there will be sections of society which will start moving, but how that affects
#
It might be that we see lower reduced labor force participation of women for a long time.
#
And you know, particularly given the schools and the way they are given the childcare facilities,
#
It's very hard for a woman to leave her children anywhere, you know, and go off for a whole
#
I mean, maybe work from home helps.
#
Maybe it's going to put double button on her, but still she'll be able to work.
#
And if she doesn't have to leave her children and go, you know, I think it's a very difficult
#
It's in fact, around the world, you see that.
#
So if you look at Switzerland, for example, I read a paper which was talking about how
#
one member of the family works, because a lot of studies are showing that when children
#
are brought up by their parents, by them, you know, mother or father, and they are spoken
#
to, they become more intelligent, they become better human beings.
#
So instead of leaving children in crèches where it's rather impersonal, as a society,
#
I think her contribution today, whether we measure it in income, whether we measure it
#
in GDP, but there is a, she's making a very big contribution when she's looking after
#
So it's, I'm not sure where we will go on this.
#
So if, you know, we jump stages and go the way some advanced economies are going, we
#
could well be saying that either parent, so, you know, is when both are getting skilled,
#
for example, that it's not necessarily that the man has to go out and work, but he could
#
be the one who could be looking after the children.
#
And speaking of jumping stages, I think the first imperative for the Indian economy would
#
be to get back to where it was before COVID kind of did what it did.
#
So I have three final questions for you.
#
And one of them is about economics, but the last two are not.
#
And so here's the economics one that, you know, just looking at where we are today,
#
looking at the fact that the second wave is still kind of going on, that is devastating
#
We don't know what the end game is.
#
We don't know if there'll be more variants or whatever.
#
When we look forward to the job that the Indian economy has to do to get back on track, you
#
know, what are the things which for you are reasons to be hopeful?
#
And what are the things which for you are reasons to despair?
#
So I'm hopeful that now that we've allowed, we're not stopping people from getting the
#
vaccine, whether it's individuals, private hospitals, companies, wherever, there will
#
be a lot of energy that will be devoted to solving this issue, we'll get better at it.
#
So I'm hoping that once one is able to get them and those negotiations will also work.
#
So I'm hoping that even if things will get a little worse now, but that they will get
#
So that certainly makes me optimistic.
#
But in terms of how soon what worries me is how soon will we be able to get back on track?
#
How soon will the companies who, you know, eventually we give them a moratorium, but
#
moratoriums can't continue forever.
#
After all, banks are paying interest to us, to those who have deposited money to deposit
#
So moratoriums will go away, people will have to pay back their loans, many loans will,
#
many companies have, you know, small businesses anyway, don't get too much.
#
But when they, whatever they have, this has been a very, very bad time for small companies.
#
So how many people will be able to get back on their feet, find work, find income, make,
#
you know, make some money, be able to sustain themselves.
#
So the penultimate question now, and I'll take you back to the young 19 year old, Ila,
#
who's standing up and saying, no, we need roads.
#
If you were to, with all this life experience and hindsight, if you were to speak to that
#
young girl for a moment and give her some advice or tell her things she may not know
#
yet, but which would be useful for her to know in advance, what would you say, what
#
advice would you give her?
#
India is a very, very complex, very, very complex nation.
#
Don't spend your initial years only studying economics, study a lot more, study more subjects,
#
study sociology, politics, history, and you'll do the same things better and make less mistakes.
#
So do you wish you'd done all of those things?
#
And now the final question, it's kind of a meme on the show that my guests have to recommend
#
books which have either sort of changed the way they look at the world or influence them
#
greatly or even something they've read recently and they want to share with everyone.
#
These don't necessarily have to be books on your subject or economics or whatever, but
#
just what are the most memorable books for you which have had an impact on you or that
#
you would want to share just out of the sheer joy of reading them?
#
So Seeing Like a State would be something that I'd like to share.
#
There are books that I've read over the years that the books in themselves were not like
#
very, very brilliant, but putting them all, they add up to a whole worldview, you know,
#
so whether you read Milton Friedman or whether you read what PJ Rourke, however you pronounce
#
So you know, they all helped in helping me think.
#
Of course, the most recent book by Kelkar and Shah is our latest favorite.
#
So I mean that I'll still guess that's the latest.
#
Ela, thank you so much for your time and your insights.
#
I really appreciate that.
#
Take care Amit, bye bye.
#
If you enjoyed listening to this episode, check out the show notes, lots of rabbit holes
#
for you to dive into, including links to Ela's work and previous episodes I've done on the
#
You can follow Ela on Twitter at Ela Patnaik, one word.
#
You can follow me at Amit Verma, A-M-I-T-V-A-R-M-A.
#
You can browse past episodes of The Seen and the Unseen at www.seenunseen.in.
#
Thank you for listening.
#
Did you enjoy this episode of The Seen and the Unseen?
#
If so, would you like to support the production of the show?
#
You can go over to www.seenunseen.in slash support and contribute any amount you like
#
to keep this podcast alive and kicking.
