The slowdown is a short-term blip, says this well-known economist in contrast to the many gloom and doom predictions
Myth-buster par excellence, contrarian and reformist, and irrepressible optimist — Arvind Panagariya is a bit of all three. On a bright summer afternoon, he cuts through the gloom of Lutyens’ Delhi: the slowdown is temporary, reform is irreversible. India’s long-term destiny is unchanged, he tells Mihir S Sharma.
Why Chinese, I ask him, as we sit down at China Kitchen at Delhi’s Hyatt. After all, he now holds a chair named for his colleague Jagdish Bhagwati at their common university, Columbia. Why would a man a short subway ride away from the delights of New York’s Chinatown come to Delhi to eat Chinese? “I sort of enjoy the Indian Chinese somehow,” he says. I panic mildly; as China Kitchen prides itself on its “authenticity”, he might not like what he gets.
I start off combative. I had just read a volume, published by Oxford, that he had co-edited with Jagdish Bhagwati (India’s Reforms: How They Produced Inclusive Growth, 2012). In their introduction, one assertion stands out. The main defence of the growth impact of post-1991 reforms against those like Dani Rodrik and Arvind Subramanian, who say growth accelerated in the 1980s. Panagariya and Bhagwati say India “has decisively shifted to 8-9 per cent growth on a long-sustained path”. In 2012, could he still believe that?
“I still believe that,” he says firmly, “all the fundamentals are all in place.” In fact, even if the world economy only grows at two per cent, “we are only three per cent of the global economy. For us there is enough to exploit”. This is a short-term blip, he says, rooted in excessively tight monetary policy for quite a bit – he mentions the 13 consecutive rate increases from the Reserve Bank of India – and the administrative, rather than policy, paralysis in New Delhi. “Policy paralysis has been around since 2004, when the UPA came to power. But administrative paralysis began when Jairam Ramesh took charge of the environmental clearances ... they began to get into everything.”
When the time comes to order, he asks for “anything rice-based, a small portion”. The waiter suggests something; but Panagariya disapproves of the prices: “too high,” he says. “Whatever he was showing me was too pricey ... on principle I won’t let anyone pay that much for something I eat.” Eventually, he decides on a simple tofu-and-stir fried veggies dish with steamed rice. I order, with great anticipation, the Beggar’s Chicken – chicken stuffed, wrapped in leaves, and slow roasted – which China Kitchen trumpets as its speciality, prepared with much care and attention to detail. Sorry, says the waiter, not available. Mildly deflated, I ask for Peking Duck, which the menu boasts is prepared every morning by a chef brought over from the People’s Republic. Sorry, says the waiter in an identical tone, not available. “Why not order Kung Pao Chicken? It is nice and spicy.” So much for “authentic” Chinese, I think — I clearly needn’t have worried. Let down, I order pork ribs in burnt garlic.
Panagariya remains optimistic for the longer run, he says then. In fact, he insists, in spite of the administrative paralysis, he detects reformist policy happening: “as far as policy reforms are concerned, if anything, there is a slight movement in the right direction... The trouble is that most observers seem to have suddenly discovered that reforms are not moving. But the problem has been there since 2004.”
The problem, he insists, is the inference the UPA drew from its 2004 victory that “reforms did not have a human face” — an incorrect conclusion. Even for the 2009 elections, “I have completely followed the state-level results,” he says. “I looked at the states run by the opposition parties – Bihar, Odisha, Jharkhand, Chhattisgarh – states generally run well. Out of some 80 seats, the Congress won eight or something... If the NREGA had got it for them, why did they lose these seats? We looked at it more systematically, and in virtually every state where CMs are delivering, their party gets more votes at the national level.”
Our food arrives, and as we tuck in – “this has good masala,” he says, pleased – he returns, voluntarily, to the earlier question about the slowdown. Remember, reforms are irreversible, he says, ticking things off: “tariff rates remain 10 per cent, everything we did on opening up services is still in place; savings rate, and therefore investment rate, is still 30-something per cent of GDP even in 2012; our entrepreneurs have not lost their nerve; there is plenty to catch up on.” You will see, he insists, growth will be pushed by the states furthest behind. And don’t forget, he says, “in terms of intellectual brainpower, [this government] has everybody.”
I ask for further reforms he would suggest. “Agriculture,” he says insistently. “We are far too highly protected.” He has always been a hardliner on agricultural trade, strongly opposing protective tariffs. “Even cotton,” he says, could go down. “Bangladesh is a big importer of cotton, for example.” Our apparel industry could benefit, like theirs has, from American cotton subsidies.
Another controversial claim of his is that malnutrition figures for India are exaggerated. Malnutrition and stunting data are based on a WHO “reference population” which comprises all ethnicities. If, say, there is genetic variation in height and weight of even well-nourished people between countries, malnutrition figures will be higher than they should be. Do genetics really matter? I point out that second-generation Indian-Americans are taller than their parents. Panagariya says there is insufficient evidence to show that significant differences between different ethnic stocks are wiped out. “Nutrition helps, that is well known. The question is, is the difference eliminated?” The only academic paper on the subject, he says, discovers that even among British Indians, the proportion of stunting is significant — while it is zero for the population as a whole. Height differences, he says, aren’t even being bridged by long-resident subpopulations within the US of the same income. “I have an open mind,” he insists, “but I have seen no evidence I see persuasive yet.”
We need our own reference population from the ministry of health and family welfare, he agrees. “It is a big decision. Everybody around the world is using the WHO standard. Before you actually jump to redefining the standard, you need to look at it more carefully... Scholars have to go in with an open mind, but in this particular field, I get the feeling somehow that nobody has an open mind. They get upset, they get angry ... but do you think Kerala actually has more malnourished children than Senegal? Every vital statistic on health and development you compare, Kerala is miles ahead. Except for rates of malnutrition.”
I ask him about the discourse around the subject, and food more generally. “I don’t understand Jean Dreze,” he says. “In the scholarly literature, he [with Angus Deaton of Princeton] has written a long paper in 2008 completely recognising this problem. They say there are two possibilities: a genetic difference, or that it takes generations of feeding to eliminate differences ... they admit that current populations, no matter what nutrition you give, you will not get to the WHO standard ... but there was no mention of this in his piece on the subject in Outlook magazine. Not even an acknowledgement that there are some questions here!” It has serious policy implications, he insists. “If you tell even well-off sections there is a problem with nutrition, that they are below WHO standards, then our problem of childhood obesity will grow ... It is not harmless to classify someone with adequate nutrition as malnourished.”
Is agrarian distress similarly overstated? He thinks not. Agriculture produces too small and shrinking a proportion of GDP to be employing as many people as it does, he says. “All that goes back to the fact that the non-agricultural sector has not pulled people into gainful employment ... because labour-intensive industry is not doing well.” Ninety-two per cent of apparel workers are in firms that have 49 workers or less, he says; more than 80 per cent are in firms with less than 10 workers. But the smaller firms can’t get big contracts. This is all down to unreformed labour law, he says. Another area where the government has failed since 1991, he says, is “agricultural R&D. Surely that is something the government should be doing?”
As we finish our meal – I have finished my giant plate of ribs, he has left half his tofu – he says that the most important thing he has learnt is to revise your assumptions, and to evolve as an economist. As an illustration, he talks about the first time he met Manmohan Singh, in the 1980s. Singh asked him, he says, as he did many young economists in the years leading up to 1991: “What reforms should we be doing?” They discussed lowering tariffs; Singh was doubtful to begin with, but began to see the point as the discussion continued. His own views, too, have changed since then, he adds. “You’ve got to be able to change your mind.”