As the popular opinion and thinking improves it will begin to have positive effect on policies, says Kaushik Basu, the outgoing chief economic advisor, tells Gautam Chikermane in Part 4 of an interview.
Gautam Chikermane: Let's now move to the more exciting parts of political economy --- the role of politics. Is the politics of India getting in the way of economics?
Kaushik Basu: Politics does get in the way of economics in the same way that gravity gets in the way of flying. It is a part of life and we have to accept it.
Gautam Chikermane: Is it more accentuated today in India?
Kaushik Basu: Yes it is. Till India's vibrant democracy settles down --- we are still a young democracy finding our feet --- popular opinions will have a huge restraining effect on what kind of policy is possible. As the popular opinion and thinking improves it will begin to have positive effect on policies. And here we all have collective responsibility --- the media, ordinary citizens, schools, colleges, everyone. We need to have people thinking more clearly and less emotively on matters of economic policy.
Gautam Chikermane: What does that mean?
Kaushik Basu: I mean, it cannot be that you look at a policy, think of your immediate interest, give no further thought to the future and begin to campaign on one side. If you do that in a democracy, politicians will respond and give you what you ask for. And a lot of the time what you are wanting, as your immediate demand, will do more harm than good in the long run. That is happening in India. There is a chorus of demand that picks up, which is based on very little thought. It's a democracy, so the politician sees where the demand is and what he needs to do to become more popular with the electorate. The ultimate director of policy in a democracy is the electorate. So, enriching the thinking of the electorate is crucial. I do worry that in India we are not doing enough on this front and this is having an adverse effect on how we design policies.
Gautam Chikermane: If that were indeed the case, then FDI in retail, which is very good for farmers --- and farmers know it --- should have sailed through. Why is being blocked?
Kaushik Basu: When this was first proposed, almost a year ago, farm opinion had not been mobilised enough. So, if you look at the immediate reaction, the general opinion was against it. Again, it was knee-jerk reaction. Opening up FDI would mean international MNCs will come in. And you can see the flaw in human thinking. People would ask me, do you think multinational companies are coming to help India? To me, that's not even a question to ask. Of course, they are not coming to help us, they are coming here for their own profits. And many people, as soon as they see X making a profit, they feel everybody else will lose out. We don't realise that in the economic world there are many non-zero sum games. One person's profit can be another person's profit as well.
Gautam Chikermane: Certainly, allowing MNCs a free run is bad policy.
Kaushik Basu: Of course, you have to have regulations and competition law in place. If an MNC becomes a monopoly, consumers will not gain from their entry in the market. But India is sophisticated enough today to be able to handle MNCs so that they earn profits and our workers, farmers and consumers also benefit.
Gautam Chikermane: In this case, not only is the farmer a huge vote bank --- won't call it a lobby because the lobby is only of a small number of large farmers and a small number of middlemen --- consumers are a large vote bank as well. And politicians are saying goodbye farmers, goodbye consumers and hello middlemen, hello large farmers. Isn't this a contradiction?
Kaushik Basu: I see no contradiction. When this was first brought up, consumer opinion was MNCs will come in and we will be hurt, farmer's opinion was not vocal enough. Now I am getting letters from farmers, impatient for this policy. From the experience of China and Indonesia, we know that consumers and farmers can be better off by this. Middlemen will feel the pressures in the beginning but the retail sector is likely to grow so much that in the end even they will be better off.
Gautam Chikermane: Are our politicians listening to these voices?
Kaushik Basu: I expect change on this particular front. I feel opinion is changing. I see farmers are actually writing in and expressing their view on this. I hope political opinion will change but I should warn you that I'm not very good at political forecasting.
Gautam Chikermane: The constant example that is cited is Walmart and its employment conditions, its contractors. But are we going to decide India's FDI in retail policy based on Walmart?
Kaushik Basu: Some concern on this is exactly right. We need to have effective antitrust laws and zoning laws in place. Left completely to themselves, MNCs will become monopolies. You need regulations to put curbs on that. So, when you are letting in Walmart, you should try to bring Carrefour and Tesco to create competition. We also need to build zoning laws within the cities such that small suppliers have lots of space, so they can compete. You can't give these MNCs totally free reign --- this is very important to stress. But we had made a sophisticated plan on how to keep them competitive. Even though an MNC will come for its own profit, it can be used to generate welfare for the people. A fast-flowing river's intention is not to give you electricity but simply to get to the sea. But if you build a dam intelligently, it can convert that the river's movement into electricity from which we all can benefit.