“Capital is going abroad to escape
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.