Indian-American Abhijit Banerjee, Esther Duflo and Michael Kremer jointly won the 2019 Nobel Economics Prize "for their experimental approach to alleviating global poverty".
The Royal Swedish Academy of Sciences said the research conducted by the three economists had shown how the problem of poverty could be tackled by breaking it down into smaller and more precise questions in areas such as education and healthcare, making problems easier to tackle.
ALSO READ: Farmers are paying for India's inflation target, says Nobel prize winner economist Abhijit Banerjee
Banerjee, 58, was educated at the University of Calcutta, Jawaharlal Nehru University and Harvard University, where he received his Ph.D in 1988. He is currently the Ford Foundation International Professor of Economics at the Massachusetts Institute of Technology.
On January 9, 2019, Banerjee attended the EXIM Bank Commencement Day Lecture where he shared his views with CNBC-TV18 on India's agrarian crisis and global growth concerns. Here are the edited excerpts:
What surprised you in spite of all those five problems that you explained India is growing at 7 percent? Do you think we can manage that for some time now or before we hit the Brazilian wall?
I think so. I don’t know why I think so because I don’t think anybody actually knows – we are kind of an uncharted space because we have given all the problems that people are happy to point out, but this problem has been with us for a long time and we have been growing. So I don’t know that we know. Let me say one thing that maybe calibrates this a bit which is that if you look at China at hour per capita income, it was growing as twice as fast. So China grows slower than us now but in 2004 to 2008 when it was roughly like us, it was growing at 12-14 percent a year. So I don’t know – we are not maximising necessarily where we could be.
Just to complete the growth argument, how would you look at 2019? There seems to be a handshake on trade between the US and China. Does that mean that 2019, the global economy will not be as bad, the World Bank has just forecasted that it may be a shade slower in 2019?
To be honest I think that in terms of the bigger worries is China slowdown and a US slowdown than the trade policy dispute. Neither of these economies are massive traders. They don’t trade as a fraction of GDP, they trade less than us. So, this will create some unhappiness but for the domestic the real force of change is China slowing down for reasons for which don’t have that much to do with the - I mean it was slowing down before Trump and it will continue to slow down a little bit and that I think is a bigger concern for the global economies. So these are some of the biggest drivers of the global economy.
That puts yet another obstacle perhaps for India in 2019. We could have of course political change as well, which could slowdown things during elections usually, people take time to take capex decision so we could have a natural slowdown even if consumption picks up because of the expenditure involved. That brings me to the election itself and the amount of poll packages that are being thrown around. You spoke about agrarian slowdown and the fact that we are depressing prices of farm products to achieve inflation targeting - I want to bring up the general question of inflation targeting itself and I am not very sure whether the hike in interest rates, which was used to bring down inflation actually hurt farmers at all. Is it related? Is inflation targeting creating the problem?
I am not sure, I cannot say for sure but I think the bigger impact is simply the price policies. We don’t have free trade in agriculture. We ban exports, willy-nilly exports are banned whenever we feel like prices -- we want prices to be lower, we ban exports and we actually imported dal in 2016 when we had a surplus of dal.
Were any of these polices taken because of an inflation-targeting regime or absolute carelessness and lack of planning?
It is a good question. I don’t know the answer. My guess is that the idea of keeping agriculture food prices down was key to these decisions. Whether this was thought through and is going to give us 4 percent inflation or not I don’t know. I think keeping price stability in for the consumer has been a primary goal of the policy we have towards agriculture.
On that issue, have we studied enough the connection between demonetisation and the collapse of farm prices? Are we pinning the blame for the disaster in farms on the wrong institution?
We have looked at the farm price and you do see an impact immediately, you see it in the next quarter, you see mandi prices going down. I think that it’s clear that that’s what happened.
You mean between demonetisation and farm prices?
If you look at what’s right after demonetisation, places that are closer to – the RBI has money centres, so places closer to money centres get more cash and they seem to have higher prices. So I do think that there is evidence. I think there is a bunch of people who look in different ways and there is evidence that demonetisation hurt.
So when we do policies which hurts specific groups predictably like, for example, importing when there is a large amount available, we need to compensate there. If you do not compensate then they are going to be angry and my point wasn’t at all that we should abundant the experiment but if we are going to be in this world where we are going to impose large cost on people then we need to also find ways to compensate them.
Can you hold for a little more on the connection between demonetisation and the problem that we have seen in crops? What is the research done? I think this doesn’t tell you anything about what happened in 2018 when we had even a lot of distress. This is just basically the end of 2016 and the beginning of 2017. When you see it then you do not see it afterwards. So it goes away pretty fast. So it cannot explain the farm distress for the next year?
If you see 2017 kharif season, distress cannot be explained by demonetisation. So I do not think its demonetisation that’s driving. One year later the cash is back and we know that the cash came back pretty fast. The mandis were back operating at normal prices. The effect is there but it goes away pretty fast. So I do not think that is what is going on.
Do you think that a farm surplus is also because there is a limit up to which agriculture can go on. In India for instance I think agriculture is growing at about 3 percent per annum and now population growth has dipped to about 1 percent or 0.9 percent per annum. So, you would hit saturation limits, are we not recognising that problem, is that also a middle income problem?
Productivity in agriculture is extremely low. I do not think there is any place where we are hitting any constraints and we are seeing lots of exit from agriculture. Do you see people who say they are farmers? We look at what fraction of income comes from agriculture? It is 20 percent. So people have understood. You are getting a lot of reverse tendency, people are letting their land to bigger farmers. So we need to create a regulatory structure within which people are able to give their land to whoever is the best user which we do not have. Right now nobody really can give their land on a five-year lease.
A legislative constraint then?
Yes or for sure we need some way of doing that which both protects the interests of the small farmers and lets the land market work better. Land market does not really work, so, land does not get reallocated to the best use. I think our productivity could grow a lot if we did that and where little bits of that happens, like Gujarat under Narendra Modi, there was very fast growth in agriculture and globally fast growth in agriculture. So we can have 7 percent growth in agriculture, it is not impossible.
We are not just meeting in a time of competitive trade barriers; we are also meeting at a time of competitive poll promises which is almost looking like a race to the bottom at this point in time. Do you think this is heading towards a fiscal disaster?
No. I think it’s heading towards what we have always done which is we are going to have a cycle and we had this before; we had loan waivers.
Isn’t it a new high? Not just loan waivers, I mean the competitive promises. It’s not yet been announced but the buzz is very loud that there will be a universal basic income. We are not talking of farm packages of Rs 20,000-30,000 crore anymore. We are talking about Rs 2 lakh crore to Rs 4 lakh crore. Hence my question that is this a new high in fiscal disaster? In principle we also make much bigger commitments in other programmes and then we find ways to not implement them. It is explicit agenda which is that we say its universal then we will not give it to people. I am betting on the fact that they will manage to not deliver and that’s how they have done every programme. If you want to restrict National Rural Employment Guarantee Act (NREGA) spending, you just do not approve of funding and it doesn’t happen. I think it’s on all of this idea that you will have zero balance accounts and everything will be automatic then somehow gets undermined.