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We don't ask real questions, are obsessed with quotas: Abhijit V Banerjee

Anup Roy/ 10 Jan 19 | 10:30 AM

Abhijit V Banerjee, Ford Foundation International Professor of Economics at Massachusetts Institute of Technology

Behavioural economist professor Abhijit V Banerjee sees quota and loan waivers as something politicians use to bypass pressing economic questions and to escape the wrath of farmers. Banerjee, Ford Foundation International Professor of Economics at Massachusetts Institute of Technology (MIT) and co-founder of J-PAL, discusses a number of issues in a freewheeling chat with Anup Roy, including the quick appointment of Reserve Bank of India (RBI) Governor Shaktikanta Das. Edited excerpts:

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You disapproved of RBI governor’s appointment. Do you see it has hit the institution here?

Yes. There was no reason to have appointed him within 24 hours. It looks like they had planned the whole thing. You talk to people and they say that of course RBI is now going to transfer Rs 3 trillion reserves because they have no independence left. And that’s very costly for the RBI. This process suggests that he (Das) has to be the government’s man. If they had spent one week thinking about it, there could have been a benefit of doubt

But the Prime Minister has said that Patel desired to resign long back...  

He may have, but there has to be a committee process to select the RBI governor. That committee process is unlikely to be properly conducted within 24 hours.

What’s your opinion about the reservation politics?

The bad thing about reservation policies is this obsession of fighting for quotas. Our political system is always playing this game of quota… What we should be doing is not aspiring to be in the quota, but asking the government what have you done to increase jobs outside the government sector? Rather than government jobs, our interests should be asking how do we make the economy grow faster, how do we create more jobs, housing for all, how to improve infra and environment...

Why do you think we don’t demand these instead?

Because people think by getting a government job we would not have to work hard anymore. Government jobs overpay, in the bottom positions at least, if not at the higher levels. It is too lucrative. For example, our government teachers get paid much more relative to GDP then people in the developed nations.

What’s your opinion about farm debt waivers?

There is a lot of anger in agriculture, and loan waiver is a quick solution. Our policies are partly responsible for this anger. I am not saying that farmers should not be compensated. Is this a good way to compensate? No, it’s not. It is very unfair because if I didn’t take a loan, and used up my savings, I would not have got the waiver.

Why do you think our politicians prefer quick fixes?

One of the worst job designs in our country is that of a politician. He has to spend money to win elections. But has no legitimate source of funding. If we have to fix corruption, we have to start thinking how can these guys do their jobs without taking money from any crook.

What do you propose then? Legalising campaign funding?

Absolutely. We can argue that should there be 0.2 per cent of GDP set aside for running election. So that when an honest guy wants to run election, he can do so. Many countries have campaign finance, but has criteria who can avail those.

There is a great debate about relative and absolute poverty. Is a poor, a poor, or it depends?

Both absolute and relative poverty is important. Let’s take the example of US and India. The poor in the US have much higher level of education, and their demands are different than the poor in India. If somebody in India is making Rs 15,000 a month, he would be well below the US poverty line. But the same person in a village in India has an okay standard of living.

In India, migration to urban areas is a challenge, how do you see the situation when other centres are not coming up fast enough?

The cities are in terrible shape. There are not many industries in the east. So, these states work as feeder states to other states that have industries. The cities in the west, however, are not designed to accommodate those populations. These migrants have no place to live, and, therefore, migrate for short term. This doesn’t make high-skill labourers because under these conditions it is hard to learn anything. And that’s why we have slow urbanisation. To be fair, our villages have become livable over the past 20 years. Earning has improved hugely, our poverty numbers have gone down year after year since the last 20 years.

What is your opinion about the US-China trade war, and is that going to snowball into something major for the global economy?

I don’t think it has a huge consequence for either of these economies, may be more for China. These are very large economies and very large economies trade very little. Small economies trade a lot.

Isn’t China dependent on exports?

Just look at the numbers. The exports plus imports as the gross domestic product (GDP) of China is less than that of India. China has a bigger GDP obviously, but most of China’s economy is driven by Chinese customers buying from Chinese firms.

Isn’t the spillover of the trade war affecting emerging markets?

The general view is that the world economy is slowing. China has slowed a little. The US will slowdown next year. Whenever the world goes into a slower growth phase, there is a move to the dollar. It would be a terrible thing if small economies start engaging in trade wars. Unless the economies assume that they need to do something and they try to defend the currency and they raise the interest rates, I think they should ride it out. I don’t think this (war) is catastrophic for the global economy. What is catastrophic is that WTO is powerless and anybody can do anything. That’s what Donald Trump has done to the world. He has undermined WTO.

Recently World Bank President Jim Yong Kim resigned to join the private sector. Isn’t that surprising?

It could be that he was tired of the job, or it could be that dealing with the Trump administration is not pleasant. 

The US is the biggest shareholder of the World Bank, and it has never been shy to use its powers. Kim clearly wanted the job for the second term. Two years in the job, him leaving without medical ground, shows he is clearly saying I don’t want the job.

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