Budget 2008-09: Whither Indian Economists?

Almost a month has passed since the Budget was announced. The media has stopped discussing loan waivers. Economists are done with their write ups on the same as well. I guess it is no more glamorous or more pressing matters might have cropped up. This post discusses some of the concerns relating to the loan waiver which had been voiced by the media and my concern for economics in general and economists (associated with policy making) in particular.

P. Sainath says that “The UPA government’s waiver is no solution to even the immediate crisis let alone long-term agrarian problems. Nothing in this budget will raise farm incomes.

Satish Nandgaonkar writes in The Telegraph that the loan waiver was unjust because “the waiver helps only if the loan has been taken from a government-backed institution, but most farmers in Vidarbha borrow from moneylenders at the start of the sowing season to buy seeds.” Didn’t the economists behind the budget know this?

The economist from Harvard, P. Chidambaram said that “loan waiver will strengthen banking.” I had thought that the loan waiver was targeted at the farmers in India! But then, the FM talks about growth quite a lot and how it is the only fast remedy to poverty. I wonder what growth he refers to!

Gurcharan Das thinks that the loan waiver is immoral as it “wounds that moral universe. It tells the farmer not to bother to repay his next loan, because, who knows, another party will be in power and it too will cancel his debts. What message does this send to the honest village woman who struggles every week to repay her micro-loan?” He has brought in the ‘moral’ angle to the loan waiver. It is interesting because, the government frames laws and establishes morality which is then modified by the civil society. The concern should be whether the loan waiver achieves its objectives or not.

Mutiny.in does not question the FM’s ‘economic sense’ and goes on to say that “but, burdened no doubt by political considerations, the Finance Minister has made this unabashedly populist announcement.” Populist-in what sense?

India cancels small farmers’ debt” says the BBC. It also has a picture of a representative small farmer. I wonder whether the objective of the waiver was to help the small farmers at all. The rationale behind the waiver is debatable. It has not fooled the public therefore it won’t help in the elections. It has done nothing to resurrect the farmers in distress.

According to Business Standard, the present budget is evidence for politics winning over economics. The author(s) have not studied anything but neo classical economics. Their notion of politics and economics as distinct disciplines is quite scary. This is where Classical Political Economy aids. They do not view economics as an independent arena. For them, it is very much a part of politics, society, etc.

India Today describes the budget as “Bad politics bad economics”. According to me, this is the best description of the budget.

The Indian Government consults famous economists who have been trained abroad and in India and also has talks with various eminent economists. Have they suggested ‘wrong’ policies? Or is that the Government decided not to accept their policies? To make such ‘loan waivers’, one does not need an academician.

Economists like Keynes, Smith, Ricardo, etc wrote ‘economics’ books not for fame or money but to help their respective economies. They studied economics to rectify the problems that existed then. Though a lot of research papers and articles are being published by Indian Economists, none of them seem to help the people of India. What are economists doing these days?

7 thoughts on “Budget 2008-09: Whither Indian Economists?”

  1. The problem does not lies with the economists in my opinion, the source lies; firstly, in the political arena & secondly, in the nature of the regime. One need not be an economist to understand what ails India and Mr. Manmohan Singh knows what should be done and what not. But, the decision making has been very poor. Reason is that UPA has failed to emerge as a political union, despite being in power for 4 years. This is evident by the fact that there has been no common rally of all the allied parties of UPA, anywhere in India in last 4 years. There are internal discords, conflicting interests which makes it quite likely that the parties in UPA will contest election individually. So, everyone is rushing to get the largest piece of the cake & Congress is the fore-runner in this race.

    India needs massive reforms on agricultural front. Instead of the waiver in the budget, efforts should have been made to abolish usury & that too in the initial budgets of UPA. Marketing reforms are required first and foremost. But, I think expecting government (be it of any party) to bring such reforms on its own is a pipe dream. The nature of the Indian state (the Neo-liberal regime and the nature of the ruling class) will never allow the government to bring agricultural reforms. The stock market will crash the very day government announces such policy & mainstream newspapers will make an outcry showing gloomy faces of brokers on the front page, as if the gambling in stock market is the most productive activity of India. Working on the operatives of foreign capital and the industry, a weak government will roll back the announcement. And since we have had only weak governments and weak leaders for past many years, the only option with any party in power is to resort to eyewash. So, UPA is heading the same way as NDA. It has started believing the media hype and has allowed the hype to obstruct the signals from the masses. Well, they should know that history repeats itself, first time as a tragedy and second time as a farce.

  2. [I guess it is no more glamorous or more pressing matters might have cropped up.]

    Why is it so that an issue becomes less ‘glamorous’ if it doesn’t pop ups now and then in the media? Why the media is a yardstick for measuring the glamorousness or otherwise of an issue?

    [P. Sainath says that “The UPA government’s waiver is no solution to even the immediate crisis let alone long-term agrarian problems. Nothing in this budget will raise farm incomes.”]

    What I feel is that the much acclaimed Rural Affairs Editor,The Hindu, makes an outright rejection of this initiative by the Govt. But that very newspaper(March 1 editorial) claims that INCOME TRANSFER PROGRAMME IS JUSTIFIED FROM THE STANDPOINT OF EQUITY. Yes, I agree—“no solution to even the immediate crisis”—but it’s a relief to the immediate crisis faced by farmers. This budget benefits an estimated 4 crore farmers .By June 2008, they will again get eligible for the institutional credit. (see The Hindu Ed Mar 3)MS Swaminathan,MP & Chairman MSS Research Foundation, hailed this budget in toto. Investments in irrigation,post harvest technolgy,market and communication can alone improve the long term situation.

    [loan waiver was unjust because “the waiver helps only if the loan has been taken from a government-backed institution]

    Reason being: It is hard to verify the authencity of loan documents if the loan has been availed from private moneylenders i.e. mostly from friends or relatives or the moneylenders wit draconian interest rates. Though it has been suggested to the high ranking officials in the Ministry to workout a solution to amend this anomaly. A committee spearheaded by local panchayat leaders along wit farmersand moneylenders can sort out this problem with apt fairness.

    [P. Chidambaram said that “loan waiver will strengthen banking.”]

    He says so wit regard to huge amount of NPAs building up overtime in the financial statements of banks.Writing off NPAs will prevent the B/S of Banks from becoming bottom heavy. In turn more funds can be earmarked. Strengthening banking in turn strenghthens the farmers !

    [It has done nothing to resurrect the farmers in distress.]
    I disagree. Something(Rs.60,000 isnt something) is always better than nothing !

    [The rationale behind the waiver is debatable]
    Rationale is Simple !You don’t dig a well when the house is on fire. The Govt had to promptly respond to the SOS call of farmers. Though the ‘prompt’ action took some time.

    [FM talks about growth quite a lot and how it is the only fast remedy to poverty. I wonder what growth he refers to!]
    All political gimmick….One day I heard in a News Channel that some school students(I think all were below Grade 10) took out a rally in the Capital demanding 2 digit growth rate frm FM..their slogan ran like this “WE WANT 10%”….Once upon a timepeople used to talk about WE WANT ROTI, KAPDA & MAKAAN. Nowu see the “growth” in thinking level made by little school students.!!! I didn’t knew what a GDP meant during my school days!!

    [Populist-in what sense?]
    In no other country the Budget session gets as much attention as in our country. Its moreor less like a FESTIVAL. At a time some 25-30 channels aired the Budget session on their respective channels. Next day some 30 regional,local and national level dailies were flooded with the booget related news. FM is now on a tour to attend business conferences,talks at biz news channels,meetings,presentations at b-schools and to seminars in far flung countries blowing his own trumpet and making it sure that like his “Dream Budget” this too goes down in the history as “Populist Budget”. Now this makes sense !

    [What are economists doing these days?]
    The more visible Economist (CEO of UPA) is surely working hard!He is on his way to be inscribed in the history as the one, after Pt. Nehru, after initiating major reforms then in 1991 as FM and now as PM -has striked a chord wit all economists in the making like u(i guess so) and me. Infact a perfect blend of Politics and Economics. Other invisible hands of Economists are toiling day in day out…as said “not for fame or money but to help their respective economies.”…

    [According to Business Standard, the present budget is evidence for politics winning over economics.]
    The very purpose of a discipline would be achieved if it succeeds in winning the smiles of people.

    [Have they suggested ‘wrong’ policies? Or is that the Government decided not to accept their policies? To make such ‘loan waivers’, one does not need an academician.]
    Not ‘wrong policies’, I think.Case of round peg in a square hole.The rough edges(definition of farmlands and distinction btwn small and marginal farmers and private borrowings) needs to be smoothened up before the final implementation.

    “one does not need an academician”. Then who else?

    #Moral Hazard: But think of the suicides that would have hav rendered many families in a hopeless situation had this ‘timely’ step hadn’t been taken by the Govt. I agree that this ‘populist budget’ should hav been presented a couple of years back.

    [India Today describes the budget as “Bad politics bad economics”. According to me, this is the best description of the budget.]
    “There is nothing GOOD or BAD in this world.Our thinking makes it so.”—Someone else proclaimed so.
    It is the “good” academician in the writer that voiced such a description of the budget.
    But the budget was meant for some other more distressed lots..and their description may be contrary.

  3. [P. Chidambaram said that “loan waiver will strengthen banking.”]

    The veracity of “NPA” comment is under revision.

  4. @ Alex,

    Yes, it is surprising that the loan waivers issue has stopped appearing in the financial and general press, more so because on the budget day only the announcement for loan waivers was made; but wait when happens when the banks actually wipe of assets from their balance sheets!
    I think the loan waivers would help only the relatively well off farmers. This is because loans are sanctioned against the borrower’s assets; and since around 70-75% of the country’s farmers are marginal, it’s very likely that they do not borrow from formal sources. This is why I feel the waiver would help those farmers who have the ABILITY to pay off their debts.

    Unfortunately, “indigenous” policy making is something that our policy makers have evaded for long. That’s one of the drawbacks of being educated and influenced by Western literature. I wondered why at the UG level (at least in DU), Dornbusch and Mankiw are prescribed readings…no doubt they are great books, but somehow not “fit” for the Indian scenario (for instance, the importance they give to monetary policy as a policy making tool…)

    @ ashish
    I don’t think its fair on the part of economists to simply stick to policy formulation, and not consider the implementation aspect. After all, whats the point of formulating a policy if you don’t consider the practical difficulties in implementing it? Of course, our political system is highly corrupt and there’s a serious misalignment of interests between the political class and the people, but then, no brownie points to policy makers for drawing up policies in an utopian world!

    Abolish usury? Nah!! I don’t quite buy that…there’s a demand for money, and there’s a supply for it…so it’s best to have a market determined “price” for that money.

  5. P. Sainath says that “The UPA government’s waiver is no solution to even the immediate crisis let alone long-term agrarian problems

    He is correct.I was wrong in my earlier analysis.[In the light of post-Budget 2008 incidents :-( ]

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