“Cap­i­tal is go­ing abroad to es­cape

India Today - - THE BIG STORY -

The phleg­matic Kaushik Basu has the un­en­vi­able task of shep­herd­ing eco­nomic pol­icy for the Govern­ment as its chief eco­nomic ad­viser at a time when a com­bi­na­tion of global and lo­cal fac­tors is rapidly de­cel­er­at­ing the pace of the econ­omy. On leave from Cor­nell Univer­sity, where he is Pro­fes­sor of Eco­nomics and the C. Marks Pro­fes­sor of In­ter­na­tional Stud­ies, the 59-year-old is con­cerned about cor­rup­tion and the slow speed of eco­nomic re­form. In a con­ver­sa­tion with

SANDEEP BAMZAI, he says he found work­ing in the Govern­ment cum­ber­some at first, but ad­justed to it over time. His term comes to an end on Jan­uary 31, 2012, but it ap­pears he will ex­tend his ten­ure to work on this Bud­get. Ex­cerpts.

Q. The eco­nomic environment is de­press­ing. Ris­ing in­ter­est rates, in­fla­tion and a spike in crude prices is hurt­ing growth. Are you wor­ried?

A. In­fla­tion and ris­ing in­ter­est rates have had some im­pact on growth. But these are all short-run ef­fects. In­dia’s medium-to-long-term prospects re­main ro­bust. This is not just a state­ment of fancy but borne out by un­der­ly­ing sta­tis­tics per­tain­ing to the sav­ings rate, ex­port per­for­mance and im­prove­ment in the For­eign Di­rect In­vest­ment sce­nario. I am very pleased that the RBI has sig­nalled the pos­si­ble end of the cy­cle of in­ter­est tight­en­ing. The lat­est RBI pol­icy an­nounce­ment should help re­vive con­fi­dence.

Q. Are you con­cerned about the flight of cap­i­tal due to loss of con­fi­dence in the eco­nomic sys­tem? More and more In­dian com­pa­nies are in­vest­ing over­seas be­cause they be­lieve that the cli­mate there is bet­ter.

A. The fact that In­dian cap­i­tal is go­ing abroad is not a mat­ter of con­cern. In­dia has re­mark­able en­tre­pre­neur­ial tal­ent. It is only nat­u­ral that this will travel to dif­fer­ent lands. What is wor­ry­ing is when this cap­i­tal goes out not in search of spe­cial in­puts but to es­cape bu­reau­cratic hur­dles. We don’t have any for­mal sta­tis­tics to know if this is hap­pen­ing but we must cut down on bu­reau­cratic and ad­min­is­tra­tive costs. These are high in In­dia. Whether or not they cause cap­i­tal flight, we know they do sti­fle cre­ativ­ity.

Q. The mood and environment at home is un­sure, lack­lus­tre and de­mor­al­is­ing. The spec­tre of cor­rup­tion and the 2G scam is over­pow­er­ing…

A. The mood is down in­deed—that is pal­pa­ble. But we can­not put it all down to cor­rup­tion. Cor­rup­tion is wide­spread and dread­ful but we do not know that it has got worse. What is cer­tain is that we are more aware of it nowa­days and refuse to suf­fer qui­etly. That, to me, is a sign of hope. We must use this mo­ment to fight cor­rup­tion.

Q. Eco­nomic pol­icy re­forms have been few and far be­tween. Are you un­happy with the pace?

A. Yes, this is some­thing I am un­happy about. There are

Peo­ple hes­i­tate to sign a doc­u­ment, even if

‘‘ it is clean to the best of one’s knowl­edge, to ward off charges of cor­rup­tion.

im­por­tant re­forms, such as the pro­posed Goods and Ser­vices Tax, which we know will give a large boost to growth, but they seem to be dy­ing on the vine.

Q. Is the bureau­cracy as paral­ysed as the po­lit­i­cal class due to this over­hang of cor­rup­tion?

A. When there are charges of cor­rup­tion all around, there is a nat­u­ral ten­dency on the part of the bureau­cracy to de­fer tak­ing the fi­nal de­ci­sion. Peo­ple hes­i­tate to put a sig­na­ture on a doc­u­ment, even if it is clean to the best of one’s knowl­edge, in or­der to ward off charges of cor­rup­tion.

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