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Goodbye Arvind Panagariya, Hello Amartya Sen?

It might finally be time to consider an inclusive economic model.

22/08/2017 8:25 AM IST | Updated 22/08/2017 8:26 AM IST
Hindustan Times via Getty Images

Professor Arvind Panagariya's abrupt resignation as vice-chairman of NITI Aayog—ostensibly an intellectual think-tank on matters of economic policy and a brainchild of Prime Minister Narendra Modi—went largely ignored by the hordes of government-chums in the mainstream media. It should not have been. Although it did not have the dramatic crescendo effect of former RBI Governor Raghuram Rajan's tumultuous exit in 2016, Panagariya's sudden departure raised more than flabbergasted eyebrows. It signalled the complete abandonment of the obsessive, singular growth model that had earlier pleased free-market analysts and sundry columnists, and which Modi himself with adroit disingenuousness marketed during the run-up to the 2014 elections. The cookie has crumbled into an ignominious heap. Panagariya returns to the revered Columbia University, perhaps both chastened and enlightened of the severe limitations of a sterile capitalistic model in a country grappling with extreme poverty (22% below poverty-line) and unrestrained crony capitalism. For Modi, it was a public admission of sorts that his socially skewed and economically lopsided "Gujarat model" was turning out to be a cataclysmic disaster for India. In short, Panagariya's extraordinarily muted bye-bye was not an ordinary happenstance. It was lacerating.

Panagariya returns to Columbia University, perhaps both chastened and enlightened of the severe limitations of a sterile capitalistic model in a country grappling with extreme poverty and unrestrained crony capitalism.

In India, economic growth has not led to income redistribution, but an enhanced concentration of public resources and economic wealth in the hands of well-connected suited-booted Big Kahunas. Principally, the growth model has a compelling argument—let booming economic activity increase national output, which concomitantly results in higher budgetary revenues on account of tax collections. The latter can then be allocated for social welfare and public expenditure, thus ameliorating living standards for those at the bottom of the pyramid. Among other things, Panagariya and his illustrious colleague Professor Jagdish Bhagwati probably underestimated the systemic corruption that is deeply embedded in the complex labyrinth of the political-bureaucratic-business-media nexus. The much-touted trickle-down effect barely happens, as large corporations employ their gravy trains to usurp government contracts; in effect, they appropriate public assets for private consumption. The huge bottom-line is then magnanimously distributed as high dividend payouts (they are the largest shareholders and thus get a double bonus). And since most are ideologically agnostic and fund political parties across the entire spectrum, they stealthily dictate policy prescriptions. A deadly conspiratorial silence ensues. Political parties risk a five-yearly unceremonious purge, but Big Business balloons. They are the stationary bandits. They rule.

Modi's government, always adept at manipulating headlines, was quick to reconfigure India's GDP index. From a modest recovery underway after two years of relative inertia under the UPA, the Modi Sarkar indulged in shocking statistical tomfoolery by inflating India's GDP, which suddenly looked irradiant at 7.5%. But in fooling India, the BJP have fooled themselves. Thus, India has the bizarre dichotomy of being the world's supposedly fastest growing economy (truth is on the UPA Index India's GDP since 2014 has stagnated between 4.5-5%) while also being the country where children die due to negligence in government hospitals, train accidents are shockingly routine, child malnutrition is on the rise and record numbers of farmers are committing suicide. Then, of course, there are issues such as credit offtake hitting a record low, comatose private investment, and alarming levels of joblessness. The 9pm hashtag is asymmetrical with real facts. The middle class stands hopelessly punctured. Headline-grabbing political rhetoric has a limited shelf-life. We have been taken for a jolly good ride. The fact that the RBI has still not disclosed full data on the demonetisation stunt has crushed India's frangible credibility in international markets. Transparency is buried deep, opaqueness gets the red carpet.

Modi survives on "UPA doles" like MNREGA, Aadhaar, Direct Benefits Transfer, GST, food security etc. His one original decision, demonetisation, has shredded India's informal sector, negatively impacting GDP growth.

As French economist Thomas Piketty correctly pointed out, unfettered globalisation founded on free capital flows, fresh markets, portable technology and cost competitiveness has accentuated income inequalities. For heaven's sake, even Panagariya would have been aware that many of his Columbia post-grads cited rising economic differences among the social classes as a serious concern at the ultimate El Dorado of the super-rich, Davos. Occupy Wall Street was a manifestation of anger against the specious belief that celestial capitalism based on free markets was a silver bullet for worldwide woes. Far from it. The global financial meltdown of 2008 told us of how the sleek sophisticated super-rich had intentionally misled the hoi-polloi. Far from being the universal panacea that right-wing economists touted with monotonous regularity, globalisation has opened up a Pandora's Box. There are obviously intrinsic advantages of greater multilateral trade, open societies encouraging cultural pluralism, unshackled foreign funds flow, and resource/technology transfers, but each country needs to take a calibrated, considered position on the liberalisation graph and its progressive internalisation in its economic universe. Modi deliberately jumped the gun, because India Inc and the stock-markets would go cuckoo over his unambiguous preference for capital. The pink papers blushed red. Modi romped home.

Travelling in Leh, Ladakh last week one could see the numerous MNREGA projects interspersed across the rural interiors and under-construction roads, the same that Modi with condescending dismissiveness mocked in Parliament. UPA's subsidy was jeered as povertarian economics and yet it is Modi himself who actually sold loan waivers to Uttar Pradesh farmers during elections earlier this year. Modi survives on "UPA doles" like MNREGA, Aadhaar, Direct Benefits Transfer, GST, food security etc. His one original decision, demonetisation, has shredded India's informal sector, negatively impacting GDP growth.

Panagariya and Bhagwati were clearly blindsided by Modi's dazzling snake-oil salesman pitch. They should have done better... a certain distinguished Nobel laureate is having the last laugh.

That India lifted 140 million out of poverty during 2004-12 and averaged 7.8% GDP growth over 10 years has to be India's most extraordinary period of economic efflorescence post-Independence. The Congress-UPA's inability to make political capital of an extraordinary achievement cost it the 2014 elections. Panagariya and Bhagwati were clearly blindsided by Modi's dazzling snake-oil salesman pitch. They should have done better. Even America, after all, has rejected the puritanical growth model.

Either way, a certain distinguished Nobel laureate is having the last laugh. He always maintained that India needs an inclusive economic model. He is from Harvard.

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