Indian-born economist Jagdish Bhagwati — who is positioning himself to advise Narendra Modi if the BJP leader becomes India’s next Prime Minister — would urge him to allow more foreign investment and trade to spur slow growth and curtail government spending.
Addressing his potential role in a Modi government for the first time, Bhagwati, known as the most famous living economist never to win a Nobel prize, said he saw himself on an external council advising the PM.
“I’d be glad to chair something like that, and I think that’s what they might do,” Bhagwati said, adding, “To enhance growth, he will need to promise that India will open more to trade and FDI (foreign direct investment).”
This stance could put Bhagwati at odds with more protectionist factions in the BJP and its allies. He expected Modi to move decisively to attract foreign investment, and that he would eventually implement a policy opposed by his party - to allow foreign retailers like Wal-Mart and Tesco free access to Indian markets.
“He will do it, but he can’t do it right away, because you can’t go against your party. It’s impossible, he is not a stupid man,” he said, adding that Modi’s room for manoeuvre would depend on the size of a potential victory.
In a possible sign of the influence of Bhagwati’s brand of free-market thinking, he said his pro-growth protégé Arvind Panagariya was a strong candidate for the more hands-on role of chief economist to the PM, if Modi is elected. He added that people close to Modi had approached him to ask about Panagariya’s suitability for the role.
Bhagwati’s most urgent policy prescription, however, is to slow government spending, which he blames for high inflation. “At the beginning he (Modi) has got to say ‘look, we’re going to bring inflation under control’ ... There is no escape from turning off the spigot.”
“This time I have a much greater sense of excitement. This time I know that these ideas that correspond to mine are to be implemented, as they have been implemented over the years in Gujarat,” said Bhagwati, born to a Gujarati family in British India.
Bhagwati expected Modi to keep RBI governor Raghuram Rajan, whose hawkish use of monetary policy to target stubbornly high inflation has led some in the BJP to call for his ouster.
Bhagwati said that his close friend, current PM Manmohan Singh, had failed to put his ideas into practice - something he expected to change if Modi wins.
However, a BJP spokeswoman said she was not aware of any plans to invite Bhagwati and Panagariya to advise.