Polarisation damaging foundations of India’s growth: Kaushik Basu

World Bank’s former chief economist Kaushik Basu on Tuesday said that even though the fundamentals of the Indian economy are strong, the rise in divisiveness and polarisation in the country is damaging the ‘foundations’ of the nation’s growth.

Basu further said India’s big challenge is unemployment and joblessness as youth unemployment in India is over 24 per cent, which is among the highest in the world.

“A nation’s growth does not depend on economic policy alone. There is mounting evidence that trust among people is a big determinant of a nation’s economic success,” he said.

“The rise in divisiveness and polarisation in Indian society is sad not just in itself but because it is damaging the foundations of the nation’s growth,” the eminent economist added.

According to Basu, India has strong fundamentals - a large entrepreneurial class, highly skilled workers, and though it has been falling over the last few years, high investment to GDP ratio.

Replying to a question on high inflation, the eminent economist said inflation that India is witnessing is a global phenomenon and it is caused by the COVID-19 pandemic and the war in Ukraine, and the supply-chain bottlenecks that arose because of these factors.

“Though the cause of inflation is beyond India, what worries me is we are not doing enough to protect the poor and the middle classes,” he noted.

Basu, a professor of economics at Cornell University, said though retail inflation surged to an eight-year high of 7.8 pc in April this year, wholesale price inflation stood at 15.08 per cent.

“We have not seen such high wholesale inflation in the last 24 years,” he said, adding that what is happening now is reminiscent of what happened in the late 1990s when the East Asian crisis spilled over into India. While pointing out that WPI inflation has been in double digits for 13 months now, Basu said this makes the situation worse as it means the current high inflation is coming on top of high inflation a year ago. “My calculation is India’s CPI inflation will cross 9 pc. We must make every effort to ensure it does not break into double digits,” Basu said.

Though the cause of inflation is beyond India, what worries me is we are not doing enough to protect the poor and the middle classes