NDA has failed on reforms, says Amartya Sen

However, the NDA government had done more than the UPA government in removing ineffective subsidies. There was more to be done.'

Nobel laureate Amartya Sen has said that the NDA government had been slow to move on key reforms and even failed to deliver on the reforms it had promised, thus hampering the successful functioning of a market economy.

Professor Sen said the reforms were essential for continued fast growth and development. However, Professor Sen told The Hindu in an interview that the NDA government had done more than the UPA government in removing ineffective subsidies. There was more to be done, he added.

Professor Sen also argued that, at a time when around half of India doesn’t have access to schools, focusing on the controversial Free Basics programme by Facebook is a mistake. Excerpts:

Where do you think the discipline of economics is headed? Do you see it going in a direction you approve of?

I think there are many changes taking place and a number of them one must approve of. There are a number of changes linking theory with empirical observations, that’s a positive thing. There is much greater interest in not seeing analytical mathematical economics as a separate discipline from normal non-mathematical reasoning because we have to put them together. I am in favour of all of them. There is always an amount of what I would describe as hi-tech circus, where you do trapeze jumping, in any subject and that is true of economics also.

But I think the important thing to recognise is that there are many lessons from traditional economics which have not been sufficIently well absorbed in policy making, for example, in India. And I will put my focus on that because there are lesson that traditional mainstream economic reasoning offers which we have not made good use of, and even though we need the subject itself to evolve -- that is certainly needed -- but even without that there are many understandings that are very important for thinking about the future of an economy which are not getting the kind of attention they ought to get.

What would the lessons be for India?

The three big lessons that economics offers have not been fully appreciated. One is the lesson that you need a successful market economy for continued fast growth and development. That is being absorbed but even now I have to say that the Modi government has been too slow with the reforms and has not carried out the reforms they promised they will.

Secondly, while the market economy does well for industries and agriculture, by and large, with a few exceptions, it does not do well for education and healthcare. There you need the government to come in in a big way, a point that was made by Adam Smith in 1776. And that has been neglected and not much has happened on that. The UPA government was an under-performer and the Modi government is even more of a disaster.

The third point is the issue of asymmetric information: the fact that quite often the buyers don’t know what the seller is selling. This is a very important part in the understanding of any market economy, and which is why the idea that you could privatise healthcare at a basic level without first providing public health is something that has not been possible in any country in the world and it will not be possible in India.

India is the only country which is trying to get universally educated and universal healthcare through the private sector. Japan, US, Europe, China, Vietnam, Cuba, Hong Kong, Singapore, whether they are politically right or politically left, they all saw the importance of the state in making education and healthcare widely spread and universal.

So you don’t think that this excessive reliance on empiricism is getting in the way of theoretical economics?

You can make a fetish of empiricism and you can make a fetish of pure theory. But I think the main thing is to recognise that economics is ultimately an empirical subject and the theory is about the empirical reality in the world, which is about how the world functions but also about how the world ought to function, what are the demands of good policy. And these you might think are not matters of discussion but they are because we have certain views on them, we have certain ways of judging whether an economy is doing well or not and we could on the basis of reasoning arrive at some agreement as to whether the economy is doing well or not doing well, if you are open to reasoning.

I think those things require both empirical data and scrutiny as well as a very close examination of the information we have on one side as well as understanding and critical acceptability of the theories that allow us to interpret the data and also take a view on what could in fact be done for making the shape of the economy better.

Do you still think that the Keynesian approach to economics is still relevant today?

Well, it’s relevant to many countries in the world, if by Keynesian you mean general theory. I think the insights of Keynesian economics were badly neglected in Europe and also somewhat neglected in the Republican-dominated Congress, but not ignored by the Federal Reserve system.

But Europe neglected it very much indeed by just going in for balancing budgets at a time when it just made no sense. People forget that when they get into a situation that the ratio of public debt to national income rose as far high as 70 per cent under Gordon Brown, but they forget it was 220 per cent when the National Health Service was started. So I think they are making a shibboleth out of a kind of concocted number. A ratio of A to B is a mistake and that is one of the lessons Keynes taught us.

Now, we (India) may have made many mistakes, but neither the UPA government nor the present policies under Raghuram Rajan could be accused of ignoring these facts. I think the insights have been fairly well absorbed in India.

We’re nearing on two years of the Modi government. At the end of the first year you had said that Modi’s idea of development was more on the corporate and institutional side than on individual development…

I’m not sure I quite said that. I thought that the idea that development is only a matter of successful planning of financial investment rather than building up the capability of human beings through education, healthcare and social security, I was grumbling about that. Now, that wasn’t only at the end of the first year, it was also at the beginning of the first year. That was their policy and it still is. Education and healthcare were badly neglected by the previous UPA government and it is even more badly neglected by the Modi government now.

So that feeling has been reinforced now?

Yes, reinforced in that I see no reason to revise that judgement.

Schemes like Skill India, Jan Dhan Yojana and the various insurance schemes which are linked to making the lives of the individuals better, how would you rate those?

The basic thing that ails the Indian people is lack of education, lack of healthcare and lack of social security. And no matter how extraordinarily innovative-sounding, and I say innovative-sounding rather than innovative, these new schemes may be, of this kind of insurance or that kind of insurance, it is not going to take away from the fact that with an unhealthy, uneducated labour force, it is very difficult to generate income from them and very difficult for solidly-shared development growth at a high level to continue.

The government has carried out Direct Benefits Transfers in LPG subsidies and in MGNREGA wages. Do you think that is a system that works and should it be extended to the rest of the PDS?

Well, the LPG subsidy removal is something I have been recommending again and again in my last book, that you should remove all LPG subsidies. They haven’t done that yet. They ought to do all of it. There is still subsidised electricity, where parts of India don’t even have a power connection, but those who have it get it at a subsidised price, which I don’t think is a very good idea. These have to be changed.

But the Modi government under Jaitley has done more in removing these subsidies than the UPA government did.

MGNREGA is a much more complicated story and they were very critical of it before but they seem to have embraced it now.

But the direct transfer of subsidies to bank accounts, is that sustainable and workable?

Well, it has some positive things and some negative things. For example, if there is a gender bias. If you send the subsidy to the family, then the people more likely to benefit are the boys rather than the girls. And if you did it with a more on-kind transfer, that’s unlikely to happen.

So there are positive and negative elements in it. I can see why it is attractive and I also see what the limitations of that are.

What do you think about the government’s Odd-Even rule?

(laughs) My thoughts are not great on that.

And what do you think about Facebook’s Free Basics?

You know, in a country where half the population doesn’t have a school to go to, to concentrate on the internet is a bit of a mistake.

Keywords: Amartya Sen, NDA government, Narendra Modi, subsidies, economic reforms, LPG subsidy removal, Free Basics

Source: The Hindu, 8-01-2015