World-renowned economist Kaushik Basu is Professor of Economics and Carl Marks Professor of International Studies at the Department of Economics and SC Johnson Graduate School of Management, Cornell University, Ithaca and New York. He served as the Chief Economic Adviser to the Government of India (2009-2012) and the Chief Economist of the World Bank (2012-2016). In an email interview with Frontline, Basu spoke in detail on the unemployment crisis prevalent in the country, and explored possibilities to counter it. Excerpts:
Although figures show the unemployment rate dipping to 8.2 per cent in January-March 2022 from 9.3 per cent in the corresponding period last year, in June 13 million lost their jobs (mostly in the rural sector) within just a month. What does this signify? And where are we heading from here?
That unemployment will be lower now than one year ago, when the pandemic was raging, is completely normal. We must not treat this as either good news or bad. On the other hand, the Centre for Monitoring Indian Economy (CMIE) data showing that 13 million people have lost jobs in June alone is extremely worrying and is a reflection of a larger malaise and a big policy failure.
It is important to dissect the economy with objectivity and not to place blame unfairly. India’s inflation is high but I do not think this is caused by the government. This is an international problem washing up on our shores.
On the other hand, our poor performance in terms of job creation is a policy failure of the government. It is a reflection of what happens when all policy is focussed on big businesses and corporations, and workers and farmers are left with little more than slogans. This combination of high inflation and very high unemployment is causing hardship for the commoner of a kind that India has not seen since the early 1990s.
How did we get here? It obviously did not happen overnight.
It did not happen overnight. We cannot deny that India has for long under-performed in terms of employment. But over the last five or six years there has been a rapid worsening.
The situation pertaining to youth employment is especially worrying. India’s youth unemployment rate is now just short of 25 per cent. And this has nothing to do with the COVID-19 pandemic. We were almost at this number by 2019.
This is unacceptably high unemployment, much like what we see in troubled middle-eastern [West Asian] economies like Turkey, Iran and Egypt. Most south and east Asian countries have much lower youth unemployment. Thus, Malaysia, Indonesia, Bangladesh, Vietnam… all have less than 15 per cent youth unemployment.
There are two reasons for this failure. The first is, as already mentioned, our policymaking is too focussed on big businesses. Secondly, there is too little use of scientific expertise in policy design. If policymaking is left entirely to politicians, the tendency is to spend all effort on immediate problems. They neglect the deeper underlying problems, and this does damage in the long run. If you spend all your time putting out fires, and no time and effort on science and research to create non-flammable material, you will have many more fires to fight and, in the long run, you will be worse off.
Prime Minister Narendra Modi poses for media during the launch of the “Make In India” project in New Delhi in 2014. | Photo Credit: AFP Photo/RAVEENDRAN
The government has come up with Make in India, National Skill Development Corporation, and now Agnipath, as ways to generate jobs. Why are they not generating results?
These are exactly what I meant by fire-fighting initiatives with little sign of long-run imagination. These are little patchwork efforts to respond to a big growing crisis. The India story will get undone if we are not able to take on this challenge more seriously.
For this, we have to leave big businesses alone for a while. They do not need to be continuously nurtured with government support. Big private businesses play an important role in society but they do not need direct government subsidies and aid.
The government has to pay more attention to help ordinary people—small businesses, farmers and workers. For this an important step is to improve our education system, the content of what students are learning. The creative mind is going to be crucial in the new digital age. We also have to nurture an environment where the manufacturing sector flourishes. This is important for developing and emerging economies, where wages are low and there is comparative advantage.
We can see how this can help from other Asian countries, like Vietnam and Bangladesh. Over the past two years, Bangladesh’s per capita income has exceeded India’s. This would have seemed impossible even five or six years ago. There is no magic in this. Through reforms in basic education, especially for the masses, and some reform in our labour laws and regulations, it is possible to fire up small businesses and the manufacturing sector and create more jobs and growth.
If you had been the Chief Economic Adviser to the government of India today, what would you have advised?
I would have lots of advice—on how to tax, how to promote better health care, how to control inflation. But let me not dwell on those. India’s big shortfalls are elsewhere.
So my first advice would be about the need to have space for dissent and new ideas. When I was Chief Economic Adviser, one of my magical moments happened a few weeks after I floated an idea to curb bribery and corruption. I got engulfed in controversy, with calls for me to be sacked from government. In the midst of this, feeling somewhat awkward, I called the Prime Minister. Dr [Manmohan] Singh came on the line and the first thing he told me was he had read about my idea and he disagreed with me. Then he added what will forever be stuck in my memory. He said that the fact that he disagreed with me must not be reason for me not to talk about it. The role of an adviser, he told me, is to bring ideas to the table. So even if my idea caused him trouble, that was not a reason for me to go silent.
If I were Chief Economic Adviser today, I would also talk about politics and morality. What is commonly not acknowledged but is true is that the economy relies on a host of political and moral pre-conditions. By morality I am not referring to religion, but human qualities like kindness and integrity, and the courage to stand up for principles, as we have recently seen on the part of several judges, including Justice N.V. Ramana and Justice D. Y. Chandrachud. These qualities play an important role in creating the environment in which economic growth flourishes. They create hope for the nation.
On the other hand, it saddens me to see the rise of the politics of divide and rule in India. It is a tragic commentary on our state that minorities, like Christians and Muslims, are feeling isolated and threatened. Majoritarianism of this kind can create short-term popularity but almost always ends up crashing the economy. I know I would be exceeding my brief, but if I were Chief Economic Adviser today, I would urge the political leaders to turn this around, abandon majoritarianism. It is better to lose an election than to destroy the moral foundation of a nation.
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