Abstract
Kaushik Basu, the theoretical economist with remarkable contributions to development economics, and a professor of economics at Cornell University, who even held the position of Senior Vice-President and Chief Economist of World Bank, drifted away, for a few years, from the academic-research arena to the nuts and bolts of policymaking. In the year 2009, the then Prime Minister of India, Dr Manmohan Singh, appointed him as the chief economic adviser (CEA) to the Government of India (GoI). It was in this position that Basu discovered: (a) the nitty-gritty and complexity in applying the economic models to the real world phenomena and (b) the need to blend theoretical and technical knowledge with political awareness so as to achieve desired policy goals. In this book, Basu describes the art of economic policymaking through a unique perspective that strikes a balance between career bureaucrat and theoretical researcher. The author has produced a magnificent volume on the Indian economy which is comprehensive in nature, thought-provoking, problem-oriented and solution-based within the contemporary context of global complexities and competitive forces. It has contributed to the existing literature on the Indian economy differently by incorporating separate chapters of law and economics, and social and organizational development. The book is precise in nature and pragmatic, and provides policy direction on the Indian economy.
It covers a wide range of issues starting with macroeconomics and covering social smuggling potentially affecting all of us. Majority of us frequently face inflation, job insecurity, multiple forms of corruption and ill treatment by bureaucrats in our daily life. These problems have become so common because of two main reasons, namely, the casual behaviour and violation of laws, and the operation of out-dated (multiple) laws and over-bureaucratic culture. This subject of institutional failure and interconnectivity of politics or political development, governance and policy with economic development of India, has also been recently talked about in the book titled Politics Trumps Economics: The Interface of Economics and Politics in Contemporary India by Bimal Jalan and Pulapre Balakrishnan.
As far as the present book is concerned, the identified economic problems have been addressed with possible solutions in the second part of the book—The broader framework under which the author has addressed such economic problems are interdisciplinary. However, in Chapter 7 ‘The Nuts and Bolts of the Economy’, Basu focuses on precautionary steps that need to be taken into consideration while dealing with economic policies. He precisely warns policymakers, leaders and professionals in several matters related to the economic policies. Besides these, Chapter 7 discusses the extent of the viability of the existing economic theories. If someone is relying on the existing theories which have generally emerged in the social settings opposite to what we had then—what should be and what should not be—the extent of intervention of these existing theories in our policy framework is the main proposition of this chapter. For instance, under subthemes— ‘Contract & Pareto’ and ‘Finance & Development’—a methodological approach has been discussed in order to show a way to deal with the current development process in the best possible form by taking into account the free formal contract. By linking free contract with creativity, he says that formal free contract is so important that even the well-coordinated policies cannot produce efficient result (p. 121). He evaluates the sanctity of free contracts with examples and points out that free contract carry heavy price. Therefore, Basu emphasises that restriction is as important as free contract in the economy. However, restriction cannot be free from scrutiny and should not be placed freely in the hands of bureaucrats who generally forget the reality of the common people. Furthermore, Basu elaborates that free contracts are imbued in the individual behaviour, long-term established norms and culture of the society. Therefore, these factors must be taken into our reasoning while delivering space for free contracts. Thus, free contracts for better result are conditional upon scrutiny and proper human reasoning. Similarly, Drèze and Sen (2013) repeatedly emphasized on the accountability and public reasoning for the expected result from high economic growth.
Rest of the chapters in the second part of the book are on reforms and required institutional change, and their extent and propensities for an emerging economy like India. Showing his disappointment, Basu has categorically rejected the treatments of bureaucrats who have taken to common people as the subject to rule and exploit them by means of ‘harassment bribery.’ He shows his concern for individual freedom and smooth functioning of market principle. Sen (2005) with regard to individual freedom has advocated for making people capable by means of education (intellectual fitness) and health (physical fitness). On both these fronts and many other development indicators, India is found significantly failing and lagging behind, even to Bangladesh and Pakistan.
In fact, after taking a comparative historical look at the evolution of the Indian economy, one can say that at this juncture India’s economy is least resource constrained since independence. Therefore, if India is now, for instance, facing high non-performing assets (NPAs), high unemployment, and dismal basic education and bad health conditions, coincided with high GDP growth and high inflow of overseas capital, then indeed there is misappropriation of resources and flawed economic policies. For example, the Public Distribution System is maligned with corruption and inefficiency at local levels, thereby, leading to wastage of food stocks. With these concerns and issues, the author discusses agenda for reforms and proper institutional arrangements through law, and social and organizational development of the country. Basu emphasises that policy makers and leaders must focus on the management aspects of the economy and provide appropriate institutional arrangements which can ensure the development of entrepreneurial class, sources and incentives to individuals, and facilitate common people.
Suggesting rejection of multiple and out-dated laws, the author has advocated for laws based on pure economic reasoning. Such laws should rely on critical reasoning, specifically on the matter it is concerned with, so that it can ensure incentives to the individuals in the best possible way. The idea behind placing law to be operational in the society must have been built around some focal point. This focal point is derived from the game theoretic approach. The theory is based on human behaviour. Therefore, laws must be connected with human behaviour in such a way that they naturally motivate the citizens to follow them. In addition, the author has also jotted down the importance of education, cultures and social norms as prerequisites for the laws to be built around the focal point. It may be the reason that one entire chapter of the book has been devoted to highlight the importance of ‘non-economic factors’ that drive ‘economic factors’ and help in progress and development of the country. While arguing the reform agenda, Basu emphasized on higher education which he saw as an exclusive advantageous sector of the economy. He suggests opening it for global consumption as it will accrue huge benefit for the country. The calculated statistics related to revenue-expenditure on higher education for international students shows attractive revenue for the country and significant reduction in the cost for the students coming from abroad. Hence, Basu shows mutual gain by bringing reforms in this sector. In short, the book is structured neatly. The entire analysis of the Indian economy is divided into 10 chapters—India’s growth Story: Stagnation, Crisis and Take off; Inflation: The Emperor of Economic Maladies; Fiscal and Other Macroeconomic Policies for an Emerging Economy; Globalization and the Challenge of Development; Food and Poverty; The Nuts and Bolts of the Economy; Law and Economics; The Social and Organizational Foundations of Economic Development and finally the Road Ahead; with first six chapters dealing with broader economic issues including food security policies and feasible alternatives; and the last four chapters, although behavioural and non-economic, are leaving footprints on economic policies. The book covers wide readership including students of different disciplines such as economics, development studies, public policy, law and governance, education, politics and so on. It is highly useful for students of graduation courses, scholars working in different areas of the Indian economy, teachers teaching the Indian economy and policy makers, and for many others who have interest in the Indian economy and the economic policy of India.