Economy in tailspin…doing very badly, says Nobel laureate Abhijit Banerjee

NEW DELHI: Sandwiched between the World Bank and International Monetary Fund reducing India’s FY20 growth estimates was the Nobel Economics Prize for Indian-American Abhijit Banerjee — who shared the award with Esther Duflo and Michael Kremer — and the media interaction following the Nobel announcement in which Banerjee’s key observation on India’s economy was that it’s in a “tailspin” and “doing very badly”.

The government’s main focus has to be on reviving demand, the Nobel Laureate said, responding to questions on India’s economy, adding that worries about monetary balance should take a back seat.

“The Indian economy is going into a tailspin; it is the time when you don’t worry so much about monetary stability and you worry a little bit more about demand,” Banerjee said at a press conference at the Massachusetts Institute of Technology. “I think demand is a huge problem right now in the economy.”


‘Fight Over Data’
He said the country’s economy is “doing very badly” even as the government has started to recognise that there’s a problem. “There is an enormous fight going on in India about which data is right and the government has a particular view…all data that is inconvenient to it is wrong,” Banerjee said.

“But, nonetheless…I think even the government is increasingly recognising that there is a problem. So, the economy is slowing very fast. How fast, we don’t know — there is this dispute about data — but I think fast.”

Referring to the numbers put out by the National Sample Survey, which come out every 1.5 years and give estimates about the average consumption in urban and rural areas, he said, “…we see in that…between 2014-15 and 2017-18, that number (consumption figure) has slightly gone down. And that’s the first time such a thing has happened in many, many years. So, that’s a very glaring warning sign."

The government has a large deficit but right now it’s sort of at least aiming to please everybody by pretending to hold to some budgetary targets and monetary targets, Banerjee said.

He said he does not know exactly what to do. “That’s a statement not about what will work in the future but about what’s going on now-...that I’m entitled to have an opinion about,” he said.

Both the Bank and the Fund, in commentary alongside their downsized growth estimates, have said the main policy challenge for the country is to address the sources of softening private consumption as well as address problems behind weak investment sentiments.

Finance minister Nirmala Sitharaman had last week evaded a direct reply to a question on whether the government accepts there is an economic slowdown, and had said the government is giving relief to all sectors which need help.

Over the last one month, the government has announced several measures, including reduction in corporate tax rates and asking banks to organise loan disbursals. The government has said disbursals crossed Rs 80,000 crore in nine days.

Reserve Bank of India has cumulatively lowered the repo rate, or the rate at which it lends money to commercial banks, by 135 basis points since January with the latest 25 bps cut coming on October 4.

The central bank has also slashed its growth forecast for the country to 6.1% for 2019-20 from the 6.9% forecast in August, noting that the “continuing slowdown warrants intensified efforts to restore the growth momentum”.