Terming the nationalisation of banks in the 1960’s as one of the ‘biggest economic sins’ in the history of India, chief economic advisor, Arvind Subramanian called for establishment of more banks. He was speaking at a talk organized by ‘Ideas for India’, an economics and policy portal.
Subramanian and professor Karthik Muralidharan of University of California spoke on the various economic issues and development policies at India International Centre on Monday evening.
According to him recapitalisation strategies for banks should differentiate among the banks and the sources of finances should be diversified whether they are many banks or types of banks. He also said there is a need for increasing licensing.
He proposed that there should be better bankruptcy laws and creative quasi-political exits mechanisms in banking.
Calling the path of progress a precocious developmental model of the Indian economy, Subramanian said that India is trying to grow and develop by defining its comparative advantage of under-supplied skilled labour than the majority of unskilled ones.
Usually a country’s last stage of development are meant to get capital labour technology and export labour intensive goods, yet it is striking that India has already been exporting a lot of FDI and is doing things at levels of development and income much earlier than other countries and this unique model could be a one that other countries will eventually follow”, he added.
“I strongly believe that institutional development, taxation and fiscal contract between citizens and the government is very important for accountability as the number of tax payers to voters in the economy has been four per cent for very long”, he said while explaining the precocious political model of the country.
“A major challenge for India is that it started as socialism with restricted entry to capitalism without exit. Be it fertiliser, power, banks, public-private partnership projects, civil aviation or even agriculture of rice and sugar, one cannot get out of inefficient production. Also, the export outcome has come down exponentially, yet I am hopeful that increasing demand for education, sights of good economics becoming good politics combined with competitive federalism and reforms like goods and services tax (GST) and jandhan aadhar mobile (JAM) would be agents to an endogenous change in the country”.
On being asked by Muralidharan about investments in infrastructure development, the CEA pointed out that in the latest budget there would be no constraint on spending on public investment but the concern is to spend it judiciously during the short-run.
“It is pivotal to understand ‘how to spend’ and all components of expenditure should be focused with outcomes,” he said.
He felt that “there should be one or two universities of think-tanks in every state that will do essential assessment of the quality of expenditure. If one knows the value of money or lack of value of money then it would be an important input into the first level of decision of what gets financed.”
An event attended mostly attended by students and teachers of economics, Subramanian said that the young generation does not read enough. He quoted German economist Rudi Dornbusch’s advice to American economist Paul Krugman, “just read the Financial Times every day and that will give you an idea on what to research.”
“In order to understand development you need to read economics as well as history, political theory, political science and fiction. The scope of academic work is huge “he added.
