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Among the few things I have learned in my life, one is this be selective about the things you get involved in. I'm still some way off from mastering the fine art of being dispassionate. But more and more, when I watch the outrage erupt in social media or the newest scandal on news television, I tell myself not to get involved, not to get all head up about it. My slogan to live by is a simple one. Not my circus, not my monkeys.


My power to change the world is limited. So why wait what I cannot control. Now, I would imagine that this is what many economists would think if they were actually asked to become a part of government and help run the economy, especially in India, known for its oppressive state so resistant to change and its venal, toxic politics, why get involved, stay away and pontificate from a minority view? My guest on the show today is a well-known economist who was asked six years ago to join our central government as the chief economic adviser.


He might well have refused the offer, thinking, not my circus, not my monkeys. But he did not join the circus.


Welcome to the Scene and The Unseen, our weekly podcast on economics, politics and behavioral science. Please welcome your host of. Welcome to the scene of The Unseen. My title for this episode is What a Long, Strange Trip It's Been, and I'm actually referring to two trips here. One is that of the Indian economy through 70 years, a complex monster passing through complicated times, starting small and ending troubled. The second journey is that of my guest, Arvind Subramanian, who joined Narendra Modi's government in 2014 as chief economic adviser, excited about having the chance to do work that could have an impact on the lives of millions.


He held post for four years and continues to speak out today as a public intellectual. I was delighted when he agreed to come on the show to speak about both India's journey in the last 23 years and his own in the four years he spent in government. I has been a constant critic of the government's economic policies and did not refrain from asking hard questions or even showing tremendous grace and patience. Give me forthright answers for more than three hours. I'm sure even his former boss, Arun Jaitley, never grilled him for so long.


No, seriously, this was one of those degressive conversations that I really enjoyed spending as much time on large questions as on policy and integrities do not. One thing, by the way, due to a technical glitch, there was some minor sound disturbances in the recording, which we have tried to cover up in the edit. I'm sure you'll get lost in the engrossing flow of ideas and not even notice. Before we begin our conversation, though, let's take a quick commercial break.


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Erwin, welcome to the scene in The Unseen, thanks, I bet it's great to be on the show. Before we start talking about your exciting career and various aspects of that are so interesting to me, both your time as an economist and your time working, as you know, in the government to actually bring about change. I want to talk a little bit about your sort of personal growth, because I was sort of looking at your CV and I found it very interesting in the sense that I assume that or, you know, you must've taken the typical economist path where you've kind of gone abroad and done body and all of that.


But you actually you know, you did an MBA from Harvard. And what I can see from all your public readings and speeches is that unlike the you know, most economists have this almost dry reputation and of not being interested in other things and always, you know, engrossed in numbers. But you were actually given a lecture on what economists can learn from literature. You are the only person I can think of who can quote both Keats and Keynes. So tell me a little bit about your time growing up, your formative influences and what your personal journey was like.




You know, it's always a little bit awkward to talk about oneself, of course. But let me just begin by saying that when I said it's great to be on the podcast, I should have added that it's almost now a mark of you only arrive as a public intellectual in India when you've been on our podcast. I think this is about certification. So kind of you.


So thanks for having me on the show. Yes. So in terms of, you know, growing up in a very kind of pretty conventional middle upper middle class household, my father was in the government. He was in the service and and he was a very unusual civil servant. He was posted in the most godforsaken places where everyone would try and want to be in Delhi, whatever he would be spent five years in the car in the Nagaland, Shillong Ajmera.


They traveled all over with him. And then I and of course, he was also a painter and a writer and and so, so, so growing up, the household was full of books and things. And and what I remember, of course, is that even when I was growing up, you know, this was back in the 60s, my father used to subscribe to Time, Newsweek life. All these things would physically come to the house also, you know, just almost by osmosis.


Thought that I was particularly studious sort of thing. But just by osmosis, you know, I could pick it up and, you know, I have to say that. So just to give a given example of, you know, things that we pick up, that we forget, that we picked up unconsciously. So one of my all time favorite pieces on foreign aid, which I teach in class, is by this New Yorker writer called a Philip Gourevitch.


He also has a great book on Rwanda, on the Rwanda genocide. And, you know, in the early part of the book, he describes the first foreign aid intervention, which is the only foreign aid intervention, which, you know, what happened in Nigeria and Biafra. And he has a line describing the famine that happened. And he describes those children with, you know, the victims of the famine as Stickland balloon bellied, ancient eyed. And, you know, I was just blown by that description.


But then I remember that the reason why it, you know, it evokes so much in me was because I remember these pictures in Life magazine of the Biafra crisis and the picture of the of the boy or the child actually with the distended belly and so on. So I think this is just an aside growing up. So then I finished my at about the age of 13, my elder brother, who was a voracious reader, but I was not at the age of 13 or 14.


Suddenly I realized that, wow, that's this whole world of books out there, which I'm not at all explored. So almost as a conscious act of catching up on lost time, I would ask my brother to give me a list of 10 15 books every time you would come. He was in college and I was still in school. So I started reading quite voraciously then. And then, of course, you know, finished my schooling from Chennai and went to Delhi to do an undergraduate degree in economics.


I think it was fairly unremarkable. I think I think what's great about that period was picked up almost everything from up here. So it was really a great my love of Hindustani music, you know, a love of sports, literature, reading. And all of that was intensified in, of course, growing up. You always do Carnatic music at home, but my love of Hindustani music came up. And then, of course, at that point, you either go to daily school or you go to do an MBA that deals with this kind of standard options.


And I had always wanted to, I think, join I think the government. In fact, I. I think I wanted to join the Foreign Service then. I think so. I did my MBA and in my second year I wrote the civil service exam and I failed. I mean I mean, I wasn't high enough to get either the office or the IRS. And then, of course, I guess it's a sign of the elite networks that we were part of that I got the scholarship.


I'm not sure I deserved it entirely, but I got a scholarship to go to England. So after my MBA, I worked for a brief period of three months with the Tatas. They had to start administrative service, which is like the private sector equivalent of the IRS. But then they gave me leave actually to to go abroad. And then I went to Oxford to do in fact, I went to do an insulin management studies because that's what I've done, an MBA.


But I quickly switched to economics and I think I had, again, a fairly unremarkable and I was still kind of unsure of what I wanted to do, if not completely confident that I had actually acquired. Because you see, in Oxford, unlike in American history, was completely open ended. You kind of did what you wanted. And today, for example, I mean, is a dirty secret. Almost all my academic papers are empirical because what I have not done one course of econometrics all my life in economics.


So, you know, you could do that if you went to England in those days. So I felt and then when I finished my I did get an academic job. And the truth is, I felt that mediocrity shows up so clearly in academics and feeling that I was an impostor and mediocre. I kind of ran away from academics, as it were. And then I went to work for international institutions. And then I my first job was in the Gap actually at the time that the Uruguay Round was being negotiated.


I still remember I was the guy I was a young, very lowly officer, and I was assigned to be part of the intellectual property negotiations. You know, I don't know how many of you remember the Uruguay Round. The most contentious issue for India and for many developing countries was patent protection and intellectual property. And at that stage, so while working, I did some fairly not very sophisticated empirical research showing that this trip's agreement would be harmful for countries like India.


And I even kind of roughly crudely quantified that. And I guess my only kind of moment of epiphany then was this was not even kind of a probably wouldn't have even be published in any academic journal. But I do remember when those negotiations, by the way, were really contentious. I mean, I don't know how many of you recall that it was almost touch and go. India was almost considering not signing on to it because because of the intellectual property things, because, you know, pharmaceutical prices would go up, access to medicine would come down.


So I remember and I did this what I remember of my moment of kind of kind of epiphany, but also kind of sense of wonder of what the life of a policy economist could be. You know, I was working there and one of the Indian officials one day this was, I think ninety maybe three or ninety four. I don't know what it was. He came and he was a senior person, senior civil servant in the government who used to work in the Commons.


He came and said, Arvind, I have to tell you, you know, last week or a month ago, Carla Hills, who was the US trade negotiator, very tough lady, she was called Carla Crowbarred Hills because she wanted to prise open markets and in developing countries. And so what had happened was when I wrote this, I think more articles, the commerce secretary at that point. So so this official had passed it on to the mantic and apparently and to demurrals the commerce minister, and he had passed it on to Chidambaram.


So so this person came to me and said Carla Hills came and met Mr Chidambaram to say that why are you Indians fussing over this intellectual property negotiations? It's going to be a win win for all of us. It's good for India, etc.. And then she said, look, I have a bunch of studies to show that this is the case. And apparently, I don't know. Of course, it was later confirmed. Apparently, we said to them, the minister said, well, Mr Health, I have another study which shows exactly the opposite.


And he presented her my paper. And so that was a kind of wild moment for me that no one could do a policy research and have it taken seriously by policymakers. So there was a kind of quite a. A heady moment, and I was very young then, but then after that, of course, I went to work for the IMF and, you know, again, fairly unremarkable career. But then, I mean, basically, my my kind of academic life took off in around 2000.


I think I was the for the IMF, IMF. You go around to all the countries in the world. I was the mission leader to Mauritius. And it's just such an interesting country, you know, for so many reasons, literature, history, you know, the Indian presence there. And when I was in Bruges, I actually saw a festival that you only see in Chennai, you know, a very unusual festival in Chennai, which is related to the God Kartikeya.


I saw that actually. I saw that in Bruges, you know. So it's kind of really a I mean, just to see how traditions kind of persist in distant places. So I was working on Rorschach's just fascinating country is a great Naipaul piece on issues. Of course, Joseph Conrad was an audacious you is of course, the Amitav trilogy begins and he's part of it is in Russia's. So I wrote a paper on Mauritius basically saying, how can you explain this, this miracle?


And I sent it to Danny George because then a friend in the quarter and within a kind of an hour of receiving that, he said, Alvin, I want this for my volume. And then, of course, then then I became a for about 10 years, I think I was doing hardcore economics research, but never situated in academia. I was never I was always there at the IMF so suddenly and I did a series of research papers in trouble and I did a series of research papers that I did on my own a number of research papers.


Then I moved to this think tank in Washington, the Peterson Institute for International Economics and the Center for Global Development, because, you know, my my academic research is mostly on development and global and the global economic system and all of that. So I left the IMF partly also because, you know, people think that in government you have to be restrained in your public utterances. And that was becoming true of the IMF as well, because actually when I wrote a series of papers on aid, then I wrote some pieces on Nigeria, which I think senior management management, they were having difficulty allowing it to be published.


So I left it because I wanted to write publicly much more. And then, of course, I wrote a book on China when I was in the Peterson Institute, which about the rise of China and so on. So I got a bit into China as well. And then, of course, this is probably the the most exciting three years and nine months of my life was the chief economic advisor. It was really a completely transformational experience for me in many, many ways.


You know, what you learn about politics or politicians, about the policymaking process, what you learn about oneself, you know, how you build teams. And of course, the other thing is, is how should one kind of behave as a as a public intellectual in government? And what are the dilemmas that you face, the you know, the moral dilemmas and things, you know, so many so many unusual things happen when I was in government and so many choices had to be made.


So, so, so. And then, of course, now I finished that and left a year before my second contract was about to end because I felt that I had personal reasons. But also I felt that my usefulness, effectiveness was kind of reaching the limits. And so I was working as at the Kennedy School, was teaching here. And now, of course, as of July one, I joined Ashoka University. And so look forward to probably the last phase of my career that that's a fascinating life.


You managed to summarize into so little space. Have a couple of follow up questions. And for one, I want to go a little bit back because, you know, as we were talking about your childhood and growing up and going across India, and I felt a little nostalgic because even though I am like 15 years younger than you, I'm in my mid 40s now, it strikes me that I also did a significant part of my growing up before liberalization.


I was also a privileged and my father was a civil servant. So I would imagine that, you know, just thinking of all of the people growing up in similar circumstances, you know, in those times with certain kinds of music, which you end up listening to the certain kind of books which you end up reading, you know, everything that you kind of mentioned about the magazines and just sort of thinking about myself. I've often thought that whatever upbringing did to me is that I grew into a sort of default view of the world that I had, where you take the necessity of this of state paternalism for granted that, you know, you have a certain approach to everything.


And then later on, as you. Through the years, those scales fall off your eyes now in and you see the world differently in certain ways, and obviously this journey would be different for everybody. Now, it's interesting that at a certain point, you've done your MBA, you've completed that, and then you go abroad and you spend most of your career abroad. So my first sort of question is that were there moments where you felt that you could take a step back and, you know, there were some skills that fell off and you could take a step back and something which had seemed one way to you, you know, seemed different like or would you say that there was a process like that?


Or was it a period of time where you felt that you began to look at the world differently? And if so, what was the change like? Were the thinkers who influenced you and or books that, you know, kind of changed or shape the way you looked at the world?


Yeah, I don't think it would be accurate to say that there was one point of one or two epiphanic moment, oh, my God, whatever. So it was very much, I think, a gradual process. And as you said, I think this whole you know, the state is part of your state and is part of your DNA growing up. I think the first thing, kind of the intellectual changes, you go out and you see, while all that the state has done wrong, the liberties it's taken away, the you know, the whole license control rods and, you know, you kind of refuse to take one hundred and two hundred percent tariff sets, kind of normal.


Right. And then you go abroad and see what, you know, three percent, five percent tariffs and you know, what's going on kind of thing. And of course, then you read I read the old the wonderful Barguti. They say Srinivasan literature. You know, you learn about that. And so I think that process of seeing what we were doing wrong, I think it just to gradually over time. But then, of course, I think in some ways, you know, the journey in some ways gets completed because then you say, well, but yes.


Markets, yes. Freedom, yes, liberalism. But what about all the things that the act of omission that the state is committed? You know, we know the sins of commission. Then you come back and you say, well, what about the sins of. And so I think the last 10, 15 years have been, I think, a lot about understanding and and reflecting on state and markets in India. You know, what I call the whole stigmatised capitalism.


How that come about in a way that's detrimental to both capital and state. And so I think that's been kind of the intellectual journey to some extent. And I I think in terms of intellectual influences, you know, I was reading a lot, but in the academic literature, I think that, you know, I would almost say that I learned kind of macroeconomics reading Paul Krugman writings, actually, I would actually read almost everything that he wrote early on.


He has some wonderful and just, I think just how to write clearly as an economist. I think that's been a big obsession of mine. It's not just obviously the ideas matter a lot, but actually how do you make it communicable? And both for me, Dani Rodrik and Paul Krugman were really very influential, both in content. You know, Danny's early writings on the political economy were, I think, very, very insightful for me to think about, you know, not just state and markets, but the whole you know, because remember when we used to speak about market failure.


But I think the whole question about what a state failure was a very important issue and therefore understanding political economy, what all the things going on, ideology, interests, institutions, the rich interactions between them. I think that was something that I always read about and followed kind of very, very closely. And, you know, my second question arising from that is that, you know, when I read your work, when I read your writings and your speeches and so on, I, I sense a deep sense of conviction.


Like you've very often spoken about how during your time as the chief economic adviser, you would wake up every morning excited about the day because, you know, every day was so exciting. And obviously it's exciting because you actually get a chance to sort of make a change in the world. And earlier, when you you're talking about your sort of career that, you know, you do an MBA, the civil service doesn't happen. So you go to Oxford and after that, you know, you feel academics is not the place for you and then so on and your entire career path.


And there it seemed like, OK, you're sort of going along a career path and, you know, there's a little bit of serendipity to it. So at what point do you start feeling the sense of conviction about your work that, look, my work can make a difference to the world? Like was it a time where you looked at something and said, this is a problem, I want to solve this problem? My next study is going to be about this.


You know, was that a mindset that you kind of had from the start or did it sort of. Evolve over a period of time? Yeah, I think that know, to be honest, it was never I think the sequence was always, you know, you find yourself somewhere and then you say, wow, this thing kind of like when I was in the that I was working on the intellectual property negotiations. And then I said, oh, my God, this is such a big issue involved here that I wanted to work on that.


Similarly, when I was in Mauritius again, I said, wow, what a fascinating development experience this is. And I want to. Right. So it's been it's never been consciously kind of trying to find something so much as I find myself somewhere or whatever for all kinds of historical persistance reasons. And then you said all the aid stuff that we did because I was working in the IMF, you know, in the research department. And, you know, the debate was going, you know, there's a raging debate between Bill Easterly, Jeff Sachs and others.


And then I said, you know, maybe one can contribute. So it was much more that not so much consciously seeking as, you know, just finding yourself in places. And of course, I mean, to be honest, I the things that my kind of principle guiding my research is that if the question has to be very important in terms of policy, I'm not going to do anything that doesn't have a policy impact and that it has to the contribution has to be novel and new.


So the combination of importance in terms of policy. But if I must have something new to say, otherwise, it's not worth it. Why bother? And it's so, so, so there is a kind of kind of a shock or a novelty element to the stuff that I do. And part of it, of course, is part of that is also a way of getting people's attention to important policies. Because I remember the even the the early patent work that I did, I kind of said, you know, the losses like one billion dollars or whatever.


So putting numbers onto policy questions, I think is is also something that I really, you know, that kind of really turns me on and motivates me as well. So the combination of new, important and new facts to kind of evidence to bring to bear and the difference, I guess, why I don't maybe haven't chosen this hard core academic career is because, I mean, I've been less kind of obsessed with this whole you know, you must show causation in kind of rigorous ways.


I mean, for me, the big facts are as important as anything else that should be done. And I think facts change the world. I mean, I can give you examples of that not not not my own research, but lots of other people. It's much more to the big facts that I think that have a big impact on the world and policymaking as much as any kind of sophisticated attempt at showing it. Well, this happened because of this.


That's important, but I think it's drawls.


I'd love a couple of examples of big facts that had that kind of impact.


So I think that to give you one example, Karthick was on your show a few weeks ago. You know, for me, certainly that the finding that the work on teacher absenteeism in India, I think kind of changed the way we thought about the education debate in India that, you know, you focus on or, you know, whatever, you know, you need to pour money or you need to do other things. But then suddenly this fact comes and hits you and says, while, you know, this is like, you know, we've completely forgotten about teachers not showing up.


And you know what that does. And I think that set in train a whole different way of looking at it. And I think similarly, I think that the pattern stuff that I spoke about, I think that, you know, for example, if you look around the world, the whole, you know, the work that the biggity and the school teachers have done, you're kind of documenting the rise in a particular kind of inequality of inequality. You know, you may disagree with the policy conclusions that follow, but the fact is the world is a very different place in terms of understanding the world because of knowing those facts about the world.


So I think that there are the other just to give a personal example, is that in the economic survey, we did some work on migration based on data that nobody had ever used in India, data that we had the privilege of getting access to because I was in government. This was the the railway data that we had. And my team and I reviewed some use of it. And the numbers that came out were pretty striking, much bigger than what we had believe migration within India was all about.


And of course, we presented it. I think it didn't gain a lot of traction or people didn't know that. But when the actual covid crisis happened, the migrant crisis happened, it kind of showed that that work was in some ways. Not incorrect in the quantification of the magnitude and so on, so I think kind of facts are really doing it very carefully, rigorously, but on important issues. And that's what I think is really for me, is very, very challenging and important to know even in government.


I think a of people underestimate, you know, the quality of a simple chart, because I remember very early on this was I joined late 2014, early 2015, and we were having these discussions within government on what to do, etc. And I think this is not it is not rocket science, assured Mr. Arun Jaitley. A chart of real wages decline in rural, real wages declining. And you know, I could see that he really made a real impression on him.


He took note of it. And of course, he acted on it in ways that I'm not sure even I don't know fully. But he did act on it. And I think that the of things like that, I think are really quite, quite important. In fact, in one of your interviews, you used the phrase the Dracula effect, which is to shine some light on something so that it kind of becomes obvious. And I was struck by that.


So I want to follow sort of a couple of simultaneous parts during the rest of the conversation. One is that to your readings, through your books, through your writings, rather than through your books? I've gained a lot of insights about India's economy post independence. So I want to sort of discuss that journey, the journey that the Indian economy has made from forty seven to here and sort of where we are today. And obviously zoom in on the years that you were actually in government and all of that.


And at the same time, I'm fascinated by, you know, your experiences within that beast we call the Indian state and you know your efforts to sort of bring about reform within that. And many of my listeners are not sort of trained economists that will kind of be familiar with all of this already. And so what else is that to begin with? Can you give me a sense of, you know, go back to the choices that we made or independence and maybe for two or three decades since?


And what was so unique about this experiment, like you've spoken about what you called a precocious development model. And, you know, the two significant ways in which this was so strikingly different and a unique experiment. So can you can you elaborate on that a bit? Yeah. So, you know, maybe I will jump first forward and then backward in time. And I'll come back to your question.


So I guess my first real academic piece on the Indian economy, which was also a kind of which, as you know, triggered a massive debate in India, which was this paper that Danny and I wrote on how growth took off in the 1980s, especially in 1979, even though the reforms began only in 1991. So it provoked a massive discussion because people said, no, no, no, because the took outside the camp that says, you know, you get growth through reforms.


And then even the fact that actually some people had noted that, you know, India is actually the growth takeoff happens at seventy nine, nineteen eighty one. You know, before that we had the Hindu rate of growth. You brought about three, three and a half percent. And then suddenly from nineteen seventy nine, eight onwards we brought about six percent. And so just highlighting that fact and then saying we have to try and understand this, that if you, if you accept this then how did we get this sudden?


Because the real acceleration is not between, you know, the 80s and 90s, because remember, the 90s growth is pretty much the same as the 80s growth. So how did that happen? And that was for me, a real eye opener. And that my partial explanation for what happened in the nineteen eighties kind of then allows me to kind of step back and say, come back to your question, which is that if you look at the kind of broad development choices that we made and choices to some extent is within quotes because some of it is just persistence in history and and personality.


So how much active agency there was in these choices? When you use the word choice, we cannot agency, which historically may not be completely accurate, but I think there were two or three, I would say the big development choices that we made. One is from day one, you're a democracy and not so. So if you look at this recent paper that I wrote with Robert Lumberg, which kind of brings it out even more clearly, it was first in the economics of it.


If you think about it, if you look at the successful models of economic development, there was a two big one is Western Europe and the US, which is essentially what happens is that you economic development happens over 150, 200 years and political development happens along side. So this slow economic and coterminous evolving, slow political development and that's happened over 200 to Theos successful. And so the other model is the East Asian model, which is post 19 World War Two.


You have a sudden burst of economic growth just to put some numbers. Western Europe grew at about two and a half percent per capita over two hundred years. East Asia in Japan, the Tigers, China. And now we get they call rapidly Korea. Of course, they grow rapidly over 50, 50, 60 years and kind of achieve almost the same level of income as the advanced countries.


But so there's more rapid economic development. Right. But there's a sequencing. Economic development comes first and then political development follows. So you have these two kind of broad models and India defies that. India is what it says from day one, you have democracy, so both economic development happens after the attempt is made to happen after political developments. So that's kind of a.


Remember, again, an important historical fact is that it's not that this has not happened at all. There are only four or five other countries in the world that began democracy and embarked on economic development. But these are very small countries, Costa Rica, Botswana, the Caribbean countries and so on. So there is no comparable large. So this is really striking. So therefore, what does that mean for development and something that I've come to just say? So that was one big traditional democracy first and then you embark on development.


Then of course, we had the whole commanding heights, et cetera, et cetera.


But remember that the whole import substitution, protecting domestic industry, et cetera, et cetera, that India chose what we may have done it through a much more serious extent than see Latin America did. But I think we should never forget that that choice of state led development was completely consistent with the zeitgeist of the times. You know, not just at that point. We thought the Russian model was doing very well. But I think there's a very famous scene of event.


When Khrushchev goes to the United Nations, he picks up his shoe and bangs it on the podium and says, we will bury you. And people thought he said, we're going to devastate a nuclear holocaust of the West. But actually what he meant was we economically, we will devastate you. We are mortal, is doing so well that we will show you that this is the right model. So if you look at Russia, if you look at the Great Depression, if you look at many developing countries and of course, the whole rise of the welfare state in Europe as well.


So so that choice, I think, was not at all unusual to right or wrong. We can come to that later.


But it was I think what was really distinctive about India is that we combine that with this so horrendously complicated system, which Noji famously called the light and sort of arbitrages, which there was the complexity, there was the corruption that happened, which is going to be which is probably the most devastating legacy of all of that. But what was distinctive about that was, look, and this is something that people don't grasp sufficiently when you protect you want to help the domestic entrepreneur in whatever the Bombay of the Bombay plan basically said serving, saying particularly that we do.


And so that's what the whole especially licensing it actually taxed domestic producers. So witness protection gives you is a favor granted to domestic industry licenses, a tax on domestic industry, because you say you can't produce more than so much. Every time you want to do this, you have to come in on someone so that tax on domestic production in a sense. So it was a very unusual model where there was both import substitution but a tax on domestic, basically domestic entrepreneurial activity was taxed in a way that very few countries do.


And so that was the second kind of the big distinctive thing. The third, of course, I think big choice was that. And the way I like to put it is to say that this is a country, it's a premature democracy of democracies redistribute. We know that is on top of that, there's the overlay of this hideous hierarchy that we call cost and so on. So how do you redress historical inequality? I think broadly there would have been two ways of doing it.


One is the whole opportunity now to give everyone education, etc.. But I call this we, of course, did not do that. I think those are the second original sin. But instead, what we did was we went in for these guarantees. So I called in. The opportunity was guaranteed thing. We went in for guarantees, which is the whole what we call reservation and so on, and we can talk about. So these were kind of three big choices that we made.


Now I want to link that. Why did I jump start with nineteen eighty 1990 is because in some ways what happened in the 1980s was that that tax that we imposed on domestic industry was when we kind of said, let's relax these tax, because remember we call those pro-business, not pro competition reforms because the competition only began in 1990 after the opening of the 80s. Reform was very much, you know, helping incumbents, helping domestic business by giving them better access to inputs, technology, all of that.


So in some ways, the 80s rectifier began to rectify the distinctive tax that we impose. And that's kind of partly our explanation for why. Kind of so. So if I wanted to put it provocatively, I would say that the 80s were, in fact the first decade that we actually did import substitution because, you know, we continue to protect our domestic industry, but we remove the tax on them. And so that, of course, the rest is history.


We had a crisis, et cetera, et cetera. I was sort of struck by these sort of broad strands which are happening through Indian history. And it's not only economic, but obviously the thinking and compulsives. That one, as you pointed out, is the whole command and control mindset, which, as you said, was, you know, it was the belief of the time. It was completely the rational way to go. In fact, it would have been going against the grain to not go that way.


So that's completely understandable. The second thing that really happens in the political domain, but the thinking carries through, I think, to how you should run the economy is that we don't build a new state. We take over the existing colonial apparatus, and that is essentially the state. And that, of course, as you know, is incredibly oppressive in the words of so lady. It's like a state designed to be a policeman. And that mindset somehow seems to carry through where not only do we do the sort of welfarism and the redistribution that is inevitable because we are a democracy, even though, you know, vivisected much earlier than other democracies, which became valde before they became began to redistribute, we don't have that option, but that's kind of fine.


But not only do we do that, we also constrain private capital and distrust private capital. Like no one said today, I do not talk to me of profit. It is a dirty word structured, and that mindset seems to kind of get it through. And like you, I'm inclined to excuse, you know, Nehru for some of these areas because they were very much the fashion of the time, like you said, import substitution and whatever. Like you pointed out that, you know, the industrial policy regulation was a huge issue there.


And you've also spoken elsewhere of bank nationalization being one of the original sins. In fact, there's a great quote of yours, which I found, you know, would not come from other economists, but from someone who reads a lot of literature, which is where you've pointed out good. Over time, original sins become lasting virtues. Stuccoed. And that's something I'll come back to because I think some of the original sins are not these specific policies, but a way of thinking about the world, which, you know, one can argue remains to this current day.


And those debates sort of over the you know, the 1980s, your 2004 paper with any Rodrik, the debates was universal and Panagariya and so on. It's very fascinating. But what kind of strikes me is that even these sort of reforms were first, you have the pro-business reforms of the 80s and you remove some of these restrictions and then the limited liberalisation of 91, which did not attract the markets, and so much more could have been done. But despite them being so limited, they had such a massive impact on the people, you know, they caused so much good that one can only fantasize about what the counterfactual could have been.


Yeah, so I think I mean, just to go back on a couple of points on the historical thing. Right. You know, when I try and understand why we did industrial licensing and, you know, that whole apparatus of regulating and taxing domestic industry and see, one has to try and understand that. And one of the ways I think one possible explanation is that.


That it was kind of like the Gandhian overlay on kind of policy, which is that, you know, remember in those days we had this mortal fear of big, big business people becoming too big. And therefore, you know, what'll happen to our democracy if, you know, if you have these very powerful actors. So in a sense, the only way one of them is to understand this whole industry licensing was to say that we don't want even domestic capital, we don't want them.


But that's why we had MRP and, you know, the the sticks and carrots given to remaining small and preventing smaller from becoming big. I think I see that, as, you know, the other big idea underlying the early choices. So if you go deeper than just saying, why did we tax domestic capital, I think the deeper thing is that, you know, this kind of thing we had for small, but it was cutting edge industries, you know, reservation for the small scale sector.


You know, all these laws applying coming into play when you're exceeding certain size and the whole fiscal regulatory apparatus, if you look back, was really about favoring the small and preventing the becoming big. And I would argue that, you know, that aspect actually has come to hurt us quite a lot over time, especially when we look more recently at how we've done on low skill manufacturing, which exports of low skilled manufacturing, which require really size and so on.


So I think that's one thing, one historical fact, I think, which we should keep in mind. The other is this whole premature democracy thing. I think that, as you rightly said, that the famous finding is that by definition, democracy, if you look at the work of a small group and Robinson, they always say that democracy in a sense, was a precommitment to redistribution in a way that is just a promise of redistribution, could not guarantee social democracies have to redistribute.


And of course, in addition, remember, what is distinctive about India is that do not just have the imperative of distribute redistribution on one axis of class. You also have it or obviously cost. You know, we have so you have it on the basis of region that's we have all these policies which says regions should be whatever. So so when you had this desire to redistribute what is imperative to redistribute on along not just one line, but many lines, you know, you're going to have a problem and the premature part comes in is that your capacity to do that is just completely incommensurate with that.


And kind of this speaks to your point about, you know, you inherit a state that's basically a kind of police state performing all these functions. It neither has the capacity nor the Agio. I think we should be harsh on our only things that after all, the state at that point should have said, you know, we can't do many things, but we should provide health and education to everyone, like what China did. They didn't do that.


And of course, you don't have the fiscal capacity either to deliver on redistribution or kind of raising the resources required for this. So that is why what happens is that redistribution willy nilly takes the form of messing with the price system. Because, remember, prices are the you know, if you can't today, we say, you know, redistribute either you build schools or whatever education or you have transfers, efficient transfers or whatever, but then you had neither.


And then so the only way you redistribute is through messing around with the price system and distorting everything, you know, low prices for goods, cheap imports. And so you just tamper systematically with the system. And then that's what persists over time. It exacts a huge cost toll in terms of the economy. But again, I think you can be very critical about it. But I think the criticism should be more that conditional or not either being able to or choosing to do other forms of redistribution, then you will you will be left with this.


So just to give you a modern day counterpart of this, and this is the GST, and because I was kind of privy to these discussions. So take the GST discussion, for example, right. On the what should be the rate structure for the GST. And I think this really typifies the early dilemma in some ways, except that it's seventy five years on. So we all know that one rate is the best system by definition that's it's clean, it's simple, reduces corruption.


Easy to administer, it's going to improve your tax collection efficiency, and as the IMF shows, I think after 2000, almost 80 percent of the countries that adopted the value added tax, which is the GST, went in for one rate. So in India, so we have this discussion. As you know, I wrote a report then saying we should have three rates, not one. Now, think of it this way, that I would have been completely in favour of one rate.


Right. But remember, if you go for one great, you will have to have some rates going up, right? You know, the rates for essential goods will have to have one rate by definition. Some will go up, some will come down, but some will go up and those going up will be affecting those. You know, those are generally considered by poor people. So what do you do if you have instruments to protect those? In some ways, transfers, whatever, then of course, you would say, you know, one rate.


But if you don't have those, you have a dilemma. Right. But can you just say one ready to go to hell? I mean, I think the political process will not allow that. What we've done historically, of course, is, you know, for every good we say all this is consumed by this strategy is consumed by this strategy. So you have a multiplicity of rates. Each of them is, you know, trying to meet two objectives, the efficiency objective and the kind of equity objective, but in all its messy complexity.


So what I thought the compromise was that we can't do one because state capacity is limited to do the compensation. Therefore, a compromise would be to have one rate, but applying to all goods at the lower end of a standard rate and of course, one demerit code which applies to all the luxuries and so on. So in some ways, the three rate structure that I propose, of course, in practice it now it's become a multiple, multiple rate structure.


And so it's gotten it's really it's gone back to the side of working on complexity. And actually so conceptually, therefore, a three rate was kind of a compromise between efficiency and equity because you could ignore equity completely. But historically, what we did was we would have as many rates as there are categories of people we wanted to satisfy. And so that, in a sense, was the only dilemma that, you know, you didn't have. Remember, in twenty sixteen, we at least have some mechanisms for redistribution like PB's Mondragón now more and more cash transfers.


But at that stage we had nothing so nilly the price system had to bear the brunt of that. And that's why we were so in some ways, therefore, again, what has to be careful? It's not that. I mean, obviously maintaining and sustaining a democracy are fantastic achievements. And what's happening to that now, of course, is not within my range of expertise. But to not realize that that created also some serious consequences and adverse consequences and burdens.


One could almost call it the democracy tax, as it were, the premature democracy tax, as, of course, you could see that happening. And to some extent, I think we're paying the price for that. While you were speaking, a couple of related questions popped up to mind about sort of that historic period before we come closer to present time. So I wonder what you sort of think about this one. It's always it's not always one.


In the last couple of years or more, I've been reading up on it and I've done a bunch of episodes on the history and politics of that period. It struck me that much as we think of the 50s as a time which were an era when it strikes me that only there was no division and it was kind of serendipitous that he was a man in charge. Now, it certainly seems to me to be this way, at least in the social domain.


For example, if you look at all the other leaders of the Congress from FACA to point to three later, and all of those guys were leaders with a tilt towards Hindu nationalism like, you know, a system of European Lollapalooza's. He was home minister when the idol was installed and the public was just so there. It seems that Nehru was a man who kind of stood alone. But in economics, is it necessarily the case that had not been there, for example, that in socially India would have looked very different, but economically, would it have been any different?


I mean, one of the exceptions like Raje and Mussolini and so on, who were sort of of of a different bent of mind, but one to your readings give you a sense that they were different directions that could have happened. And it was this one individual who happened to be there. And, you know, that's just how the luck played out. And the other question which is related, so I'll ask it at the same time, is that it seems to me that a lot of the economic policy of that period was determined after actual intellectual query where people were grappling with these questions in good faith.


Even if you can look back in hindsight and say this was a bad decision or this was a good decision, they were grappling with it in good faith and trying to figure it out on the basis of ideas. But what seems to me to have happened towards the end of the 1960s is that, you know, we know that a lot of interest on these left were to the bank nationalization, Sphero and so on and so forth. A lot of that left was because she had to politically position herself as being distinct from the syndicate who were her rivals in the Congress.


And it seems that at that point, the. Sort of three other imperatives that gradually come into play and consolidate. One is political imperatives and the incentives that politicians face either if they are appealing to populism or to short termism because everybody's got their eye on the next elections. Second, the natural inertia that sets into any system, particularly a large bureaucratic system like ours, and not just inertia of action, but inertia of thought and toward the interest groups which then get settled and entrenched and make it difficult to change anything.


So was that perhaps a tragic shift, which people don't remark on that? We begin with policies that we can criticize today in hindsight, but that were made in good faith with people looking ahead to actually engaging with ideas. But we move to a cynical time that ideas don't really matter. And you have these incentives from these three different directions.


Driving policy mean really terrific question. You see, I think that we forget when we look at kind of histories of nations and that there are these critical junctures in countries history when, you know, some special things can happen. You know, it could be at the time of independence, it could be a revolution. It could be a crisis. So there is something I feel if you look at historically something distinctive about certain points in time. And I think, you know, clearly for India, that distinctive period was the independent spirit, partly a result of this.


So I think, therefore, kind of two or three things come together, right? One is this moment of idealism and so on. And that's critical juncture. Second is almost intrinsic to these movements is you are going to have politicians with the temperament of, you know, let's set aside personal things and whatever may be the third aspect. What happened in those early years or so was kind of the dominance of the Congress party. So you don't have political competition.


I'm not saying that's necessarily good, but you did have this kind of because when Mrs. Gandhi comes into power, it becomes more competitive. And as I told you and others have shown, that that creates the whole dynamic that you mentioned about interests and you need money and so on. So I think a combination of these three things, you know, the critical moment, the idealism, the quality of leaders, the monopoly of the political monopoly, which kind of allows you to do certain things that might otherwise not happen.


That comes to the other point that you raise about music or Nehru. You know, I think it's undeniable that, you know, state led industrialization, you know, the emphasis on technology, the emphasis on higher education. I think that certainly comes from you read discovery of Indian things. You know what he wants to know the whole rationalism emphasis on science, because, as you know, I think somewhere in this country of India, he says, quite prescient.


I mean, quite accurately, that if you look at history, for example, around 40, 50 Mughal India as TechAmerica, Aztec Mexico, the Ottoman Empire were and of course, China were at the top of development. And that's what the great reversal happens from about fifteen hundred sixteen hundred onwards. And then you have the great of us who were hitherto rich countries become poor. And that was the point is that even then we were losing this edge in science and technology, which kind of contributed.


He was very much into that and therefore signing.


But having said that, you know, he had a really dominant role. I think we forget that one. Agriculture in agricultural income was never allowed to be taxed, not because of Nehru. You would have happily Thaxted. It's because of that deal and the whole agricultural thing. Then you also have, as I just said, the overlay of small remaining small. It's not just a natural, an obsession. I think it's also this broader obsession with so many small, which I think a partly a Gandhi legacy of village and small and so on.


And of course, also we forget that, you know, I think Nehru's instincts would have been to push land reform much more. But land reform never went anywhere because partly it was his own democratic instinct. You know, you don't want to do anything by coercion, but partly there was this broader thing. I think so therefore, why his imprint was very strong. He loved these big temples and dams and things. So all of that that the commanding heights, I think is very much him.


But there were lots of other things which perhaps were not due to him. And, you know, again, counterfactual histories is very difficult because my sense is that and I think that's an important point that we forget that I'm not sure know. The whole Giorgis strand of thinking whether that was ever dominant enough to have because at that stage, you know, people were completely unfamiliar with how a market economy in all its kind of full blown thing functions. So I think it would have been you know, I think our choices, even looking back, I think our choices would have been, you know, statism or less statism, never a full blown kind of market economy.


But I think some of the more egregious I mean, industrial licensing, I think was something that we could have really avoided. And of course, I think, you know, I'm just being unnecessarily kind of bold here. But I think had we done the education and health that the state should have done and not had industrial licensing, for example, and allowed actually domestic entrepreneurship to flourish, you know, maybe the trajectory of Indian history would have been different.


On that wistful note, let's take a quick commercial break on the scene in The Unseen, I often speak about positive some games.


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Welcome back to the scene in The Unseen.


I'm chatting with Arvind Subramanian on both the fascinating journey of India as an economy and his own fascinating journey in playing a part in shaping this economy and how we've sort of been stuck in history for the first half of the show. Let's let's kind of get closer to modern times now where you've kind of spoken about one of the transitions that India made was in sort of moving from socialism with restricted entry to capitalism without exit. And you've also spoken about the Latinization of the Indian economy.


And all this is, of course, happening, both liberalization and, you know, tell me a little bit about these currents of change that are happening within the Indian economy. You know, for the two decades leading up to 2014 when you finally arrived in India, as you see.


So I think that India's growth takes off in the 1980s. And then we have this macroeconomic crisis in 1991. Of course, partly it was because the 80s growth was also fueled by this fiscal binge that we went on. And of course, the fiscal binge we went on was partly also for the first time politics becomes remember that stage, the Congress uses Monopoly not just of the center, but also in the states. So politics becomes much more competitive. And therefore, I think we find, you know, fiscal policy becoming much more an instrument of politics, a much more intrinsic part of politics.


And we have this binge. We have imports going up, the classic running out of foreign exchange. It's what would call a first generation crisis. Essentially, you have a fixed exchange rate. The government spends too much on the foreign exchange. And lo and behold, and then, of course, we had the real opening of the Indian economy. We moved from the pro-business reforms of the 1980s to the pro market and the pro competition reforms. And, of course, you know, there are different phases what happens.


But essentially, when I look back at the Indian economy and I'm doing some work with the colleagues Chatterji on how India's trade is done. But if you look back, I think that the 90s and the 2000s leading up to about 2011, 2012, I think it was just a golden age for the Indian economy. I think that, you know, in broad terms, I've come to what happened, why it kind of ran out of steam. But I think it was a golden age.


We were obviously we opened up. We reaped a lot of the benefits of opening up the efficiency and so on. Then, of course, we had this, some would say serendipitous, whatever the discovery of the service sector, the IT sector, but.


You look at the 90s and 2000s, I'm beginning to see how across the board how well the economy performed, it was not just services, it was not just manufacturing, just across the board. So clearly we reaped benefits. And what struck me recently is that in the boom of the 2000s, you know, every economy in the world boom, but we did much better even relative to other economies. Even our exports were growing gangbusters in the 2000s. That's something that I've been really surprised by.


So so we had this incredible kind of the golden age of the Indian economy in the 90s and 2000s. Definitely some of it, of course, as we said earlier, is also catch up. You do a little bit of reform. You're so far away from the frontier. Our per capita GDP, let's say 1980 was like probably three or four percent of US per capita GDP. So, you know, there is a logic which says if you're very far behind, you will have some advantage of cheaper labor so you can grow much more rapidly and you'll be reaped.


So a combination of that, the advantage of backwardness, as it were, we were very poor then. We did these reforms and some basic ability in the economy, some skilled labor, some a modicum of state capacity, whatever allowed us to do gangbusters. And then, of course, you know, the global financial crisis happens, the world economy collapses. And really my reading is that we never really recovered from that era. So that, in a sense, was what happened.


We never really recovered from that. And of course, this is where I think a new kind of problem arises. And and the other problem that is what let me speak about what this is. Remember, we never believed in markets. We never believed in capitalism. I mean, that is always and in a sense, the license Raj kind of in some extent intensified that, you know, you could in fact, some people call it a of crony socialism, not just crony capitalism.


Some truth to that. I mean, we forget today how even some of the early entrepreneurs, I mean, really became big by manipulating the minutiae of the excitement. And, of course, I mean, you know, it's incredible, right? So it was always, always stigmatized capitalism. We forget. Then, of course, we had this brief period where he says, wow, you know, we've now got at least a modicum of capitalism, which is not based on proximity to the state or favors from the state.


And that was the rise of the services that all of the services boom. It was not just services, but saying, well, India can do a form of capitalism that is based on good governance, corporate governance, based on not getting favors from government and, you know, and can be internationally competitive. So this is kind of the brief window when we said, oh, my God, you know, Indian capitalism. And then, of course, what happens is that we have all these scandals of the 2000s.


So so the way I phrase that, you know, what we call the license caught up by us, I call that the difference, Raj, because and, you know, just to be a little bit cute about this, I said, you have a terrible Wren's terrestrial rents and subterranean rents, which is a spectrum land call, you know, so the rents. Right.


And then, of course, rents are just absolutely devastating because, you know, you say you're back to this old, kind of stigmatized sort of a crony socialism, capitalism. But really, we've not really gone past that really messy relationship between the state and capital. And, of course, as a result, both come out with their legitimacy completely undermined. And so, therefore, you know, we're back in a sense of both those scandals, in terms of political economy.


We're back to a situation where neither the state nor the thing has legitimacy. So what do you do about succumbing now to the period that I was in government for 2013 14 onwards?


I mean, I do think that a lot of the choices looking back or the other thing I forgot to mention in that sort of thing was the whole we had the infrastructure boom, but it also was financed by the public sector with all the phone, telephone banking and all that. So that is part of the charge that happened. So fast forward to 20, 14, 15. So I think a lot of the choices then would taking place against the background of this know?


Capitalism, so that constrains a lot of your choices going forward. And, of course, this is where then you come to this capitalism without exit problem and the two are related. And I'll explain that you had a question, so let me explain that.


Yeah, I just wanted to sort of sum up my understanding of this period and ask you if it broadly sounds OK to you and also end with a question. And one is that it seems to me that what happened in 91 was obviously that it was serendipitous. It was a crisis. We had no choice. And, you know, I've had show on the show before and he's spoken about how, you know, that intellectual infrastructure of reforms was actually happening from the 80s.


You know, you had would be reformers all the thinking along those lines. And there was some back in that. It wasn't just serendipitous, but what it seems to me that happened was that local crisis forced us into this bunch of changes. But then we got complacent very fast. We took the program. We took the growth for granted. We took the progress for granted. But the mindset remained the same. The state apparatus remained the same with the Indian state remained one, which doesn't do like it should do a few things well, instead of which it does a lot of things badly.


And that kind of broadly continued. So no mindset change and we take the growth for granted and don't learn the big lessons that we should learn from about unleashing private entrepreneurship and so on. And then there's this excellent book by Paul Giamatti. I wonder what you think about it called The Lost Decade, where she recounts the events, you know, after 2008 and what happened in upir to where basically because of the terrorist attacks in Bombay to them, we shifted to the home ministry.


And so Sonia Gandhi once wrote a Mukherjee in the finance ministry. He's installed it and he remains there for a long period. And his mindset is the 70s sort of socialist mindset of the Indira Gandhi era. And it is pretty disastrous because that is when, you know, you're having the phone alone scandals, you're having the retrospective taxation, and it's as if the mindset has just done a complete reverse and we start going downhill. And a pujas narrative, of course, has him being booted upstairs to the presidency.


But there's not enough time for Chidambaram back in the finance ministry to make much of a difference. And she describes that a period of the you know, when the Modi government comes into power at the first few months has been pretty hopeful. You have the bankruptcy code. You have a lot of good people in good positions like yourself and, you know, like Mr. Panagariya and whatever. So there is some hope that reform will happen. But then there are those gibes of said and then there are state elections being lost.


And, you know, like you also mentioned, the book is called Jabe. In a sense, this speaks directly to the fear of stigmatized capitalism. And what has happened in all this time is that people in India are sadly still confused by all markets and pro-business. And they still, you know, mistake capitalism for cronyism. Whether you call it crony socialism or crony capitalism doesn't really matter. But it's it's cronyism. It's not free markets. And all of this leads to the political imperatives changing and not enough reform happening there.


And we'll, of course, get to the sort of the specific economic policies of the Modi government after this. But, you know, is this something that you broadly sort of agree with? And if so or if not, will you sort of you know, how cognizant were you of this entire changing picture and the politics of the situation when when you joined?


Yeah, firstly, just going back to the point that you made about the 1990 reform, I think that there is no doubt that it was, of course, part of the crisis, but there's no doubt that there was something else going on. And I would put it something else, partly as, of course, all these would be reformers exposed to ideas outside coming in and having more more influence. But I also think that, you know, if you look back, after all, it's not just an intellectual history that in the 70s and 80s, after people said, look, look at the East Asian tigers, they're doing well.


You know what, you guys? I think that the reaction, the pushback always was. But India, where big whatever. I think a critical element of the change also was the rise of China. I think that was a country that embraced reforms, foreign direct investment, et cetera. I mean, we've come to the you know, the other part of the Chinese stories, which also which we haven't internalized, which is the early health and education thing that we talk about, but certainly with China in the 80s started booming and embracing things, I think that took the final leg out of the push back that, oh, no, no, this is not for us.


We are whatever. So so absolutely right. I think that was intellectual thing building up, but also shaped by experiences around the world and the critical. One being the rise of China Sea, now coming back to what you said about what matters, excellent book and how you read what happened. Look, I don't think we have to be a little bit careful here. I don't think anyone believes today that we should go back to, you know, 60, 70 style statism.


And I think there has been a decisive shift. I think that's wrong. I don't think there's any it's more I think that once we've transitioned from the state as owner to the state as a regulator and the state potentially as a provider of other public goods, I think that's where I think the locus of action has shifted to that. I think the problem is that all of these discussions have really been messed up by that experience of the 2000s and all that happened that you described and you described in his book as well.


And look, I think the closer we are to history, the more we try and put it down to individuals and so on in a way that I think it's something that we need to guard against. I think it's true that in the 50s we were talking about the 50s. We talk about, you know, not just now, but all the things. So so there's a natural the closer you are, the more you try and look at it in terms of individuals and even children and even that and all that I'm not saying is not true.


It's just that I think that we don't have the kind of distance to step back and say, are they kind of deeper things going wrong? And in my view, that it's not that I think we said, let's go back to statism. No, I think we decisively the sense that I think that we should be more open is there. So if you look at the early some of the early actions in the Modi government, opening up to FDI, for example, was was thing.


And this the whole exit problem that we realized that remember that you see, I think this is where I think we need to be a little bit careful about history also is that the exit problem was a signal, in a sense, by the House of Debt reports. We were seeing that that was happening. And, of course, essentially everyone played this extended pretend strategy because exit is very difficult in India. And that's why I think capitalism, that exit is a serious problem.


Now, let's kind of with so in the early period, there was definitely a sense of optimism. And let me say one thing that's a little bit I think it kind of speaks to this reduced legitimacy of the state and markets. Right. So if you were to ask me, just as an outsider, as someone who thinks a little bit about these things, because it's OK, how do you reverse this?


You know, stigmatise capitalism is not going to go away, whatever. Right. It has to be done consistently over time. And one, the only way you kind of reverse that is the state acquiring legitimacy. Right, in one sense and states saying we will be distant from capital. Now, in some ways, you could interpret the early actions of the Modi government as going exactly in that direction. Remember the complaints that happened from business that, you know, nobody sees us, etc.


, etc.. That was, I think, one way of signaling that we were going to put our distance with crony capitalism. I mean, people would say it wasn't uniform and so on. But anyway, but that's the at least the overt signal was we are going to be distant. And then on the other side, and this is where I think this, in my view, was one of the major partial achievements of the government, which I think needs to think is that and this is what I think is the distinctive brand of the new welfarism of the prime minister.


Now, remember, the old welfarism is you have to give these handouts. I mean, I'm just caricatured in your handout, PDS, MacGregor, whatever you do, the handouts. But the multibrand of the new welfarism wars, as I call it in my book, the public provision of essential private goods and services. Right. It's it's not handouts. So that's distinctive. It's not health and education. So it's not providing public goods. I mean, for reasons why I think that was the case.


But it's the public provision of private goods essential to our toilets, bank accounts, and then more recently, water and a couple of others. So essentially the logic is, if you step back, is that the state? Gains legitimacy by delivering these things effectively, so you regain the trust to be able to do the other things, and I'm going to give you example of that and use it by leveraging the new technology. And that's what this whole jam thing.


Give me just another side of the coin, a phrase that we coined in the economics. So in some sense, the combination of, look, early on, so sought to put some kind of method on that initial period, there's a sort of overhang. Right. So we cannot do. And remember this, people forget the first opportunity to reform happen on call. But the Supreme Court said, you know, you can remember that in August of twenty fourteen, before I joined government, the only opportunity to reform call was there.


The Supreme Court came down in favor, but I think the government chose not to. So that was a good start because, you know, you don't want to be nothing. But we distance ourselves from capital and we embark on this to regain the legitimacy of the state. And that's the new welfarism, the public provision of private goods and services. Then we come to. The capitalism without exit, so she has a problem very evident, becoming bigger and bigger, and in 2014, 2015, many of us pointed this out and of course, the but wanted to the bad bank, the ugly attempt to grapple with this exit problem now that the problem stigmatized capitalism and capitalism without to come together, because in order to exit right.


You have to do haircuts. You have to do these things. And superguy Sakar means that no public official, no thing is going to be in the business of doing this haircut because, you know, immediately the allegation of crony capitalism would be alleged. And so instead of a quick expedited executive led process and this is what I wrote in my piece yesterday on Mr. Jaitley as well. Therefore, it was a really a pass the buck strategy to a judicial process.


Likely the IBC had been passed and they said, let's pass the buck to the judicial process. And that's where I think the whole should books that are once again came in the way of those decisions, we could have done it quicker, faster, but it required some political courage. But then we opted for this judicial process. And, you know, what's happened on this judicial process is once again run up against all these things. But the point is that I think over the course of the government of this tenure, you know, at least the hope and the expectation was that accumulate enough legitimacy by doing these other things which are good themselves.


I mean, after all, provision of toilet, you know, nobody talked about college or college. You know, whatever is is really the way to gain the legitimacy that gives you the political space to do the other things. So my own reading is that, you know, the corporate tax cut, for example, is an example of it because discussions of this happened early on and there was no way the corporate tax cut would have happened early on because.


So would you come in and you do the corporate tax cut? You know, this is just up to but in a more legitimate way. But then again, of course, there was challenging times, crisis, corporate taxes were done. But I do think that at that stage, the kind of confidence and courage to do something that was explicitly kabuki came also because of having some accum accumulated some goodwill, some legitimacy and so on. So I think that's how I understand the process, by the way.


And so and of course, also the early hope that the government attracts a lot of FDI. The GST happened, the IBC happened this all the new welfarism.


So in some ways that was almost you could post facto intellectualize this and say, look, there was a kind of coherent thing. But then, of course, you know, things have turned out the way they have for for various reasons. You know, that's extremely insightful. And I have a couple of follow questions on that before we dive into your tenure, as you see. One question that sort of strikes me, and this is also, you know, one of the chapter titles in your excellent book of counsel, where you write about the relationship of the state to the individual.


And and I want to we sort of discuss this particular point, not with reference to your own role within the government or within this government at all, but just out of the realm of ideas where it strikes me that when you speak about the relationship between the state and the individual sort of shifting, it seems to be shifting in a sense of better directed paternalism that, you know, will do provision of these private goods will use jam, which is the agenda accounts, and on her own mobile.


And we will do all of this much more efficiently and therefore will build legitimacy. And I kind of get that. But the mindset is still a paternalistic one. It will be paternalistic in a more efficient way. And what sort of the directional shift, which, you know, I crave to see and I don't know how much of that we've seen perhaps since the government is a shift towards, you know, empowering people to help themselves. I mean, markets are a mechanism through which, you know, society soldiers want problems.


That's how I've always seen them. And yet, you know, we've gained the ease of doing business things a little bit, but it hasn't really improved. You know, I have so many friends who are who run factories and who run businesses. And of course, this is anecdotal from my experience with many of them are viscerally devastated and not now because of covid or whatever, but, you know, over the last few years. So that's kind of one question that I have a little skepticism that if I want the relationship between the state and the individual to find.


I would like it defined in terms of empowering individuals more to help themselves, which is what markets do rather than, you know, more directed paternalism. And my other question also the thought that kind of struck me as something that you articulated while you were talking about it, when you spoke about the post facto nature of, you know, giving a direction to all of this, where what you were speaking about that the state needs to improve its legitimacy.


We can't do X, Y, Z like corporate tax cuts because of stigmatized capitalism. How do we improve legitimacy? Let's provide, you know, private services better and all of that and all of that sounds very logical. But looking from the outside in, as one looks at our politics, you know, one, the leaders in charge don't seem the kind of people who would think it through in this kind of manner. The work, rather, you've had sort of half a third ad hoc mix of policy is going in different directions and catering to different incentives, most of them political.


And also the fact of the matter is that and will, you know, discuss the work that you did as CEO. And I loved your economic service, by the way, and how closely you worked with the trajectory. But it seems that a lot of the key decisions like Demonetization in which even Mr. Jaitley wasn't, you know, to instrumental or couldn't do much about it. So I'm just wondering that how much of this is sort of looking back and rationalizing the things that happened or at the time, is this something that people actually thought that, you know, you had cabinet meetings where you discussed it?


OK, we need to first increase the legitimacy as a state. So let's do X, Y, Z, and later we'll do future reforms. Was there thinking like that? And if there was, we did that then get derailed. Very, very probing and good questions. Let's come back to first the whole mindset issue of the state and the individual right. See, I think in a country like India, given this whole legacy where, you know, it's all state, state, state and, you know, the process is one of kind of the leviathan being slowly, slowly taken off the back.


And this is where I think the failure of the state to equip every Indian with the basic human capital to kind of, you know, then it's a completely unlevel playing field unless so so in some ways, if you haven't done that basic, which is for quite a bit, China did that very early on. The Chinese Communist Party did that alone. And so in that sense, that original sin having been committed, I think all these notions that, you know, the individual should be left to the market, et cetera, they become less, I think, meaningful, or at least the discussion of that has to be quantified by the fact that, you know, you haven't provided no health and education.


I mean, you know, I'm doing some research with the couple on this. I mean, if you look at stunting and hides and everything in India, you know, you think you know that or if you look at the results on on learning outcomes and so on. So if those two key ingredients are so badly under provided and also so asymmetrically provided between, you know, the vast mass and then the whole, you know, capitalism as an equal opportunity space, but people thrive, I think that discussion just becomes much more difficult.


So can I buttonhole you know, I hear this observation often from people who support statism, which I know you're not doing. But I hear this argument often and I feel it that it's a little bit self-serving. For example, in education, you don't allow private enterprise, you don't allow for profit education. So therefore, you know, we remain underserved and undereducated. And then you say that, listen, they are not getting educated. The state has to do it.


And therefore, you know, you sort of justify the role of the state by saying that it isn't going to happen other ways, but you're not allowing it to happen other ways. And it seems to me to be an unfortunate situation that can then, you know, just continue in this vicious circle.


Yeah, I think that's a I mean, that's a fair point about how much the you know, I don't know the sector well enough. You know, you have people who know much more on this. I do. But I think all I think is important to note is whether it's it's an act of omission or commission. And you're saying it's also a sin of commission, not just a sin of omission. I think the fact is that once you have individuals who are not equipped to take advantage of opportunities, it's that's what the second thing I think is that, you know, the state is regulated because remember, we can't have you know, no one thinks that a market economy, you know, almost everything should be done by the private sector, obviously.


But, you know, certain basic things like health, maybe health, education along with this, but also some. Some amount of reasonable regulation has to be there. But I think the failure in the last few years has also been that in the last decade or so is that the state as a regulator, I think, has become a very problematic thing, both the under capacity, the lack of thing and, of course, the capture on the other side from the usual thing.


So I think you've had both sets of problems and therefore, you know, so on the one hand, you say, yes, we believe in markets, we things. But the essential wherewithal, 90 percent doesn't have the wherewithal. And then post facto, you know, it's kind of you can't have a marketplace where, you know, firms can pollute, firms can be corrupt, firms can do so. I think in some ways we're kind of stuck.


Right. Neither at the ante stage and all the exposed stage. You have the thing and then we say, you know, whatever. So it really is an asset. I think there are just so many things that the state just should not be doing. I mean, you know, state and telecom as a provider. I mean, state should not be a provider of almost everything except a few core things. Right. But the state needs so eccentric, supposed to have such a weak state.


And then you have a kind of overinclusive state on all this, just as, you know, starting a business. I completely agree with you. I agree with you saw that. I saw this on Twitter. How many approvals you still need to start a small business. So it's like a triple whammy.


You know, you don't have the wherewithal, the post facto regulations thing and you have this thing. And so it's a very fair question as to why on all of these we haven't achieved either way. On the regulatory side, there was a period in the early 2000s where I feel there was some hope that we could get, you know, very effective regulation. I think the early try, for example, was actually doing quite well. And some out there to the whole regulatory state has become less.


I mean, I think even the RBI, for example, you know, you've got so many it's a wonderful and highly respected, deservedly respected institution. But all these things that have happened at Barclays, because I think partly kind of or partly it's because of public ownership, because they're the regulator has less say. But partly it's also because, you know, in the areas where the regulator has not been able to I mean, to have a series of scandals like this in the financial system.


I mean, it's not overbearing state, but it also kind of weak regulation. So so I think that when we think about before and that is why not coming to the last point on the state and the individual and we can talk about that in terms of the ideas that we were associated with when I was in government.


I do think, therefore, that, you know, a UPI, a universe, something like a universal basic income, it's kind of says, look, you know, that minimum wherewithal for you to survive, not fall into poverty, not be subject to the vicissitudes of health and education shocks, etc., You know, we provide you that wherewithal and that allows them the kind of the agenda that you have for the state to kind of get away from the overall this.


I think that's why ideas like you for me resonate a lot, because they're very valuable in themselves in terms of this whole what we want social protection to be. And that's why I remember, Jubei, something that both the right and the left like for for very different reasons. But it also allows you to kind of not burden the price system, the efficiency cost that that the price system has to bear for providing redistribution. That's what ideas like that matter.


Now, come to your questions about, you know, post facto rationalisation versus, you know, in real time. Do you actually have discussions like this that say, look, we've had stigmatised capitalism? You know, look, I mean, something that came up in your discussion with ragtop as well. I think for me, one of the fascinating things about being in government is just, you know, getting a glimpse into personalities and how, you know, personalities really and their deeper psychology, you know, can be so, so important in driving these things.


You know, nobody ever studies it. Nobody is going to write about it because there's so many kind of unknown. But I think it's. Undeniable, but I think on this thing about the fact that the provision can reclaim legitimacy, I think was actually I have no evidence whatsoever but just observing, I think one could even in real time get a sense of that, even in real time. So I will all post facto racialization. There was a I think we have to some stage credit leaders with at least some leaders with a sense of being driven by, you know, obviously they're driven by all the sort of things that politics is all about.


But also I think there are, I think, a deeper things that drive. And I think this trying to overcome stigmatized capitalism, recognizing that what is one need to accept. I think the world that there was I could get a sense of that, at least in the early years that I was there.


Before we get to the sort of your personal experiences as a which you know, I have a lot of questions on that. And I find that sort of that that whole experience we must have had very fascinating. But before another sort of question in the realm of ideas, because you mentioned the UBI and I was going to kind of come to that later, which is that and I also simultaneously want to bring up the GST in this context, which is that there are often ideas which seem to us from a purely conceptual point of view that all these are, you know, so brilliant.


This is why they make such a great difference. This is why they make sense. And all of that, like GST, for example. I was so excited to, you know, the first time I heard about a GST coming up. And like you said, people's views of the GST might be coloured because of what happened during democratisation and will come back to that as well. But, you know, I dunno, an episode of the scene in the on scene.


The Journal is the one where he pointed out, and this was before the GST was passed, and he pointed out quite recently all the things that could go wrong with the GST. And as it turns out, I think they did go wrong. When I think of the GST, I think of something now, and this is in hindsight and obviously post facto, that it's something that is a phenomenal idea. It's a necessary idea. You want to reduce the friction of so many taxes and you want something much more simplified.


But at the same time, it was perhaps foreseeable and even foreseen by others what problems would come. Many of these were unavoidable. They were part of the political economy, like the multiple rates and the exemptions and the different interest groups fighting all the way and the discretion to the lowest level tax officer, which, you know, frankly, I am at sort of that end of the economy where so many of my friends are at the receiving end of what I can only describe as tax terrorism.


And, you know, one of my friends actually is a manufacturer, runs a couple of small factories, and he keeps telling me that the GST was far worse for us and Demonetization was. So I asked him to send me some pointers of what went wrong with it. And I'll quickly read through them, talks about how compliance was much more expensive and tedious. And they now have to have additional full time employees, a consultant to make sure they're not in violation.


The confusion of the initial months, cos some actual real money loss transfers from the old system, the rules and the guidelines keep changing the rules. Confusion is kid got a biscuit or a chocolate, you know, and more tellingly, that a number of small windows that he used to work with simply shut down because they were not able to survive in the new regime. That was sort of the transaction cost of shifting from one regime to another. And the cash locked up in the system has made doing business more expensive.


And even for me, I have to file my, you know, GST every month and a fair amount of time goes through it. Now, I'm not asking you to address any of these specifically. My larger point here is that, you know, in their excellent book, in Service of the Republic of Kalkarindji, Shahd made the point that given Indian state capacity, we should have presumptive laissez faire, which is a separate point. But the larger sense is that whatever policies that we think about, we should think about in the context of what they call hammarstedt capacity is there.


But what I would think of is not just state capacity because it might be state capacity to implement a lot of this, but also what is the structure of the state like? When I look at the structure of the state with regard to taxation, it seems to me that it is by and large predatory and peristaltic that where I mean tax terrorism is a very real term. So the larger question, I'm sorry to ramble a bit, but and the reason I thought of this in the context of Uibo is that when you think about policies and even by the way, people who work on the ABC, the bankruptcy code, tell me that it is stuck in various places because state capacity hasn't kept up with it.


Obviously, overall, it's a net benefit that we have that reform in place and we have that on the books. So now my question is that when we sort of implement policies is one of the things that we should take into account not only sort of how it is intended to work, but how, given what our state is actually like and and structures are actually. Like how it will actually work, so to me, it seems that, for example, this is where a lot of gyasi went wrong and the damage and one could argue that in the long run, it'll work out fine.


But we did a lot of short term damage. And similarly with Yoovidhya, you could see that the Jubi with the way you write about it and present it and others do as well, it obviously, you know, it makes physical sense. And all your predictions where you talk about, OK, we got all these subsidies and we've got all these other things and all of that. But in the real political economy, which is dominated by so many different kinds of interests and political compulsions, many of those are not going to go.


And this will eventually you'll be able to eventually become if it comes into being a sort of very perverted populist handout, which really helps nobody and has all kinds of perverse, unseen consequences. So is this something that sort of plays a large part in how the policymaking mechanism flows through to actually considering sort of all of these things?


Again, very, very important kind of conceptual things that we should think about. But let me just say that just to make it come alive, talk about it in the context of both GST and UBI. Right. I think in the case of the GST, look, on this, I would rephrase that. The case goes shopping in a little bit more. I think you're absolutely right. I would rephrase this. As you know, in the case of tax, for example, you know, simple tax policy is 70 percent of tax administration.


I mean, if you have simple policy, administration becomes sort of the complexity just makes everything works. So in that sense, I think that there is no question that we kind of went definitely gone excessively in the direction of complexity.


But just to step to be fair to this whole process and let me just take you back to, I think, the feeling at that. Remember, I wanted to know more. That was the maximum. I still think we should have attempted that.


But I think that the way it went, part of the justification was, look, it's less complex than the previous regime. And so that is part of the. So, you know, you had like 15 excise duties. Now we only have seven. Seven. I mean, so in a sense, it was the standards kept changing. Instead of the standard being, look, going forward, what is the best way to maximize the system? This path dependence came in now.


And this is where I certainly do think that this was something that could have been avoided. The path dependence comes in because when you say, look, there are so many excesses and that's when I change, there should be no increase in the incidents at all. I mean, if that's the way your politics is going, the policy making process, then you're going to get into complexity. And I think it was that. So I do agree. I think that the conviction that simplicity is the way forward in itself and also because it helps vastly helps administration.


I think that conviction, I think, could have been much greater. And I think that has come in the way of that. And so I think I don't know the income tax system well enough. But what you said about tax terrorism or just the the tragedy. Right. The tragedy is I'm sure what you're saying is right. And I've heard the word tax terrorism and even the most ardent supporters of the government also think that this thing. But if you look at actually the tax intake, a tax to GDP ratios, I mean, it's it's not, you know, sterling by any means.


So in a sense, we kind of get the worst of all possible worlds. We get the administrative thing, which really kills entrepreneurial activity and whatever, and we don't get the fiscal benefits as well. So the notion that actually simple design and simple administration can help both, you know, is something that I think is a kind of indictment of our system for not just now, but for many, many. I mean, this is a kind of a historical thing.


But on the GST, let me say that again, there was always going to be a short term cost. I mean, nobody was under any illusion that that was not to be the case. So the question really was, was that adequate preparation to minimise that cost? And I think that's really a because, remember. After the GST was implemented, steps were taken to minimise the compliance burdens, but I think certainly much more could have been done on that.


That was I think that that was one. And then, of course, you know, GST came on top of the monetization. So, you know, some of the sort that constituency got a double whammy, right? I mean, the demonetization and the GST. And therefore, you don't I don't know how much to separate out what is the GST impact and what was said now.


But there are two design features.


Conceptually, I think that I I think on the simplicity, I think just we just kind of could have done better, no question about it.


And I think there are no real real excuses for that. I think we should have and could have done better. And also on the on the minimising the tax, we could have done better for me. The fairly difficult issues were, you know, looking back or looking forward.


We said, look, one market, one India. And I think, again, I don't have enough evidence, but to some at least some good evidence saying that, you know, at the border, the waiting times ET have come down considerably. So the virtues of having one market in India, I mean, those are huge. And I don't think looking back, I don't think we should ignore those things. So I think those benefits are huge.


We could have reaped more and that was what we really wanted. I mean, in a sense, we wanted India to be one market. It's like internal liberalisation and the benefits would be huge.


The price of that, of course, and incentives, not just the price of that was one this whole compensation that we say that regardless we will pay the state as a way of getting political buy in for this. And the second related point was that we knew that. So the compensation was a Short-Term thing that you want to get political Buy-In. But we knew that this one market would come at the cost of loss of fiscal sovereignty for the states.


Right. And what the current health crisis has shown is that, you know, states have lost a lot of fiscal sovereignty and their tax handle's, as it were, are now much less than they used to be. And the way we kind of kind of justified or talked about this S.A. is that you do the compensation, you have the trust. And, yes, there'll be loss of sovereignty, but the underlying system would be buoyant enough that you wouldn't feel that much.


It's not that you won't ever feel it, but you know what? That trade off, I think, has started looking a little bit more tricky now. But partly it's partly it's kind of endogenous to the way it's been implemented. My own view, as I said in the piece yesterday, is that had we preserve the trust between the centre and the states, I think some of these things would have been less severe. So it was Excelente, a calculation where we had a certain vision of politics and how federal politics into state politics to play out, which post facto has turned out to be a little bit different from what we anticipated.


In fact, I have a paragraph in my book on the GST where I say that my kind of nightmare scenario for the GST is that, you know, for whatever reason, trust breaks down and then individual states say, look, we disagree with the centre and we're just going to go back and do our own thing, at which point the GST would be just that. And therefore, I think the practice of politics, the practice of center state politics in India is something that's absolutely critical to ensuring that because otherwise, you know, kind of all bets are off.


And I just hope that this will get sorted out because that that's an ingredient that I think that maybe we just I kind of knew a little bit what might happen should set the stage, because remember, when the GST was done, most of the states were aligned with the center. So conceptually, one did think of what would happen when they said the state alignment would vary. But I was just hoping that, you know, politics would evolve in a certain way.


So I think these were the really kind of conceptual questions about the design of the GST, which I think I think about a lot more. And some of it, frankly, we thought that we didn't think about any of these things earlier. But I think, as I said, stuff happens or as Harold Macmillan famously said, events, dear boy events and some of these things, you know, you can't control. So that I think. On the UPI, I do think that there's a very serious risk and it is a design challenge, that if it just becomes one more scheme on top of every other scheme, whatever, and disappointed, I think it's a kind of theoretical but very deep conceptual point.


It's a point that I think I've heard Tharman Shanmugaratnam make in the context of Singapore. He says ex ante a desirable design feature of simplicity might really be the problem. Post fact and give you an illustration like that. So, for example, in labor markets, we generally have two different ways of doing things right. You can either have a minimum wage or you have what's called an ITC, which is basically like a tax credit for low income workers. I think Tuckerman's point was that it may be Excelente minimum wage is actually a less complex policy.


Don't have to out on the tax code you just announced whatever. But that very feature post facto, if you get competitive populism, for example, it's easier to raise the minimum, keep raising the minimum wage and do not say no, I'm not tackling some aspect of the ITC code. Similarly, there's a kind of risk with the UBI. It's very simple. People say, you know, or you said 80 rupees a month, we will say 150 rupees a month.


And so this is a bit, you know, but, you know, in the real world, you know, 10, you will say because of this risk, I will not contemplate Jubei at all. Or do you struggle with saying, no, I will. But let me see, what are the kind of checks I can build into this going forward? And that's what makes politics and policymaking so bloody hard, but also so important and challenging.


So let me get to another conceptual question now. But before I do, you know, what you said about stuff happens reminded me of that famous John Lennon quote, Life is what happens to you when you're busy making other plans. And I often use that, you know, at an individual level to tell my friends why I have written so few books in my life and so on and so forth. But now you've given a new context to it of the state.


And I sort of totally get and you know, one, what I have noted in your book and in your writings is that that whole political maneuvering to make the cooperative federalism happened with the center in the states work together is also miraculous. And, you know, an entire episode would not suffice to talk about that, because that's also quite phenomenal. And also it's undoubted that, you know, I remember in Sherman's book Restart, he started an anecdote about how if you have to send a truck full of goods from two cities, I forget which one, two of Madras, Bangalore, Chennai, Bangalore and Hyderabad, but from one to the other, rather than go over state borders, it's it's cheaper to send it to Paris and then have returned to the other city from the.


And that's obviously one of the things that, you know, GST would have eliminated. But my larger conceptual question is there is this that you were talking about tradeoffs and cost and benefit and so on. And this is something that I thought about at the time of demonetization when costs and benefits were touted. And I, of course, you know, brought against Demonetization from day one. I thought it was a larger assault on property rights in human history.


And it sort of seemed to me that when we talk of costs and benefits in that context, and it became stark in the context of demonetization, but I guess this is an inevitable part of public policy making anyway, that when you talk of costs and benefits, you're talking about cost to one set of people at one point in time and benefits to another set of people at another point in time. And in the case of demonetization, obviously the costs are so large for so many people and the benefits are dubious and invisible that it seems beyond question.


So let's not discuss it in the context of demonetization, but in the context of any public policy, whether it is, you know, GST or whatever. We often have to deal with tradeoffs where one set of people get costs and another set of people get benefits. And it seems to me to be a sort of a danger to watch out for what I would have called the fatal conceit almost, that you can sort of, you know, treat these people as pieces on a chessboard and you can just sort of plan out that, OK, I lose my knighthood, but I get a checkmate there.


But these are real people. These are individuals who also deserve to have their economy respected. And at the same time, these trade offs are inevitable. You can't get around them in most public policy. So is this something that you think about? And then how do you guard against the kind of arrogance that might come, for example, from being in the state and having all this power over the lives of chess pieces, as you said?


Let's talk of it outside the context of demonetization. Let me make it easier, more interesting. Let's talk about it in the context of demonetization.


Yeah. So. One of the pieces that I'm kind of proudest of having written is on the political economy of demonetization in my book. I don't want to get into controversy and talk about, you know, good or bad. Did I know did someone else knowing all of that?


To me, it was just the most fascinating experience of political economy. And let me kind of because you've thought about it, maybe you can tell me why I'm completely wrong to see. Think about think about this, about demonetization, right? It also speaks to your question about autonomy, of respecting autonomy and so on. And I don't know how, given what I've seen, I don't even know how to think about these things anymore, to point that I think everyone would have agreed with you and that there would be a lot of short term costs on a lot of people.


Right. Maybe there was some potential long term benefits, whatever, and that's how it would play out. And therefore, you know, both because there were a lot of people affected. It was quite significant and, you know, the gains were more tenuous and long term, so political economy would tell you that this would be a vastly unpopular policy. I mean, this is you know, when we think about political economy, we see that, you know, even in the context of trade policy, we say, you know, if the losers are concentrated, the gains are diffused, even though aggregate the concentrated losers are sure it was not even concentrated losers.


It was, you know, the vast majority and yet revealed preference. You know, I don't want to draw, too, but I think generally we would say that what happened in the election afterwards was certainly not a reaction against, if anything, it was maybe not a validation, but certainly relative to a prior that it should have had a huge impact. It did not have the impact or at least that. So I'm still trying to understand why that is the case.


A complete political economy puzzle. It's a little bit like in the in the US and others. Even now people are asking, you know, this, what's wrong with Kansas? Why do white, poor, white, middle class voters vote for an administration that threatens to take away the welfare benefits, provides tax cuts which are not benefiting at all? How do you explain this? People voting against their apparent self-interest? Of course, there are arguments about identity here and so on.


But I mean, you know, it's like 80, 90 percent very badly hit and the intensity you can see and yet they turn out and behave a certain way. So so how do you explain this and more and more I think about it, I think of these huge costs of democratization as a feature, not a bug in political terms. And so that's why it's like, you know, it had to be inflicted on a lot of people. And my explanation for this idea is you're not a thing.


One is that you have to feel the pain for you to be convinced that it's a kind of really important policy. It has to be widespread in its impact because otherwise, you know, the charge that it was selected because remember, the puzzle of the monetization is why did so many people have to be hit in order for these benefits? You know, if you really wanted to go after the rich, you have selective policy instruments to go after the rich.


You don't have to have to take a huge swipe at so many people in order because you can do tax raids, you can raise taxes. So you have selective insurance. But this was a conscious policy to use a bludgeon of an instrument, you know, for some politically, and it worked.


So that's the puzzle that because remember, the other thing in this was it's interesting, right, that, you know, many people said just do that. Why was the 500 rupee not all done by also the Taliban? Because after all, with the five hundred rupee note, you're more likely to hit more poor people because relative to the gains. So there was this puzzle about this. And, you know, my explanation for it is that it had to be huge because then it's like Thomas Schelling said in a strategy of conflict to show that you're doing something big, it's credible that it has to be costly.


You can't do things on the cheap. So it's like situating your nuclear shelter right in the middle of the city because you sure that that's a credible commitment. So the inflicting of the huge cost was part of that. The fact that it was uniform was to prevent against any allegation of corruption. And then, of course, maybe you tap into this notion that you want to sacrifice for a larger good. But in that sense, what is wonderful to make of it, that, you know, you say that, you know, you should respect autonomy, especially if you're infected.


But the politician says. I respected see, this is the proof. Yeah, so I kind of have some related thoughts on that. First of all, I enjoyed your chapter on the monetization and of council very much. And in fact, the whole book is fabulous. I think all my listeners should pick it up. And you raised a couple of interesting questions here, and I'll share my thoughts on that. I won't say I'm answering them, but I'll just share my thoughts.


One is, yes, a political benefit at the time blew me away because I thought they would lose every district in Europe and instead it was a landslide. Right. And my sort of couple of post facto explanations that come to mind and yours also. Excellent. And I'll process them over time. And one was, of course, the explanation of schadenfreude that the poor didn't mind because they also saw the rich suffering the other that I think that Indians have such an ingrained state of fatalism that when bad things happen to them, they don't necessarily ascribe it to the state because the state has been a constant failure over the last 20 something years, as Len Pritchett called it.


It's a flailing state. So that sense of fatalism kind of takes you through. But at some level, it doesn't matter what the explanation for this is. The point is that you're absolutely right. It was a political benefit for them. I would perhaps dispute and you would maybe have a better inside information, but I don't know how much intent there was behind this. My sense of this is that Mr. Modi genuinely thought that this will solve the problem of black money.


And because he has not bought anything from a store in the last 20 years, he probably didn't realize that 500 rupee notes are, you know, something that are an everyday use. And he must have thought it's only for storing black money on the or whatever. And my my sense was that they actually believe that it would work and it so happened to work out in a way that it politically benefited them. The other question that you raised that I don't have a convincing answer for is that while you show that it did hurt the economy, you point out that it does not seem to have hit the economy as badly as some people said it would when people spoke of a contraction of eight, nine percent and all of that.


And to be honest, I myself, you know, overestimated the damage it would do according to the data. And that is going to bring me down to a little question that. So when we know that so much of India is informal sector and a lot of the data on how the informal sector is stuff that we get by proxies, you know, how reliable is that data? And, you know, how much can we know sort of taking into account.


But that still doesn't answer sort of the core conceptual question, that even if the politicians knew that we will make them suffer and we will win votes at the end of it, it still doesn't justify causing suffering. And the that dilemma still remains that. How can how do we talk about costs and benefits at a time where the costs go to one set of people at one time and the benefits to another? Like how does one sort of resolve this, invader's one draw the line saying that no matter what the costs are, this is where we draw the line, the costs will not exceed these like can think about these.


Yeah. I'm going to take you up on you raise a number of questions. So I have them show three, three things, one on the demonetization, one on the data and then on the broader justifying this to all three on the schadenfreude thing. As I said, remember that I don't fully buy schadenfreude because you have selective insurance. If you want to make sure that you want to go after the rich, you can do it.


And I mean, why should I suffer to inflict that kind of a mystery that I think the fatalism point, it may be true, but, you know, I'm at the point is that even Milan Vaishnav and others have done something that certainly there was a period in the 2000s where we felt that, you know, there is a kind of law of Indian politics that, you know, there's anti incumbency, that, you know, whatever, you know, no matter what happens, that's not inconsistent with the fatalism argument.


But we did see for a period know good performance being validated in the polls, you know, whether it was in the issue of religion or the election. And in Odisha, you know, there was a period where so the whole fatalism thing, it may be true in some times, but it does beg the question of white alternative another other times, all intent, of course. What do I know? Who knows what the intent was.


But, you know, I think there are signs here and there that we can I think the the the five hundred rupee note, I think that there was input showing that the five hundred rupee note, there must have been input that five hundred thousand are very different in terms of things. And if you look at some timing of these things. So I think you can't I don't know, intent is finally but certainly I think there was some maybe some intent.


But certainly in terms of consequence, I think the whole thing now on the impact on the economy. I've been surprised as well, so it is certainly true that some of the impact is not picked up in the data and I think we should completely think.


But I think even allowing for that, the impact turned out to be less than we thought. And there's also a recent paper by the IMF chief economist Kitagawa, not saying that. But for me, the most surprising aspect of this, which we talked about, Josh Feldman and I talked about in that 20, 19 people about to slow down even pretty quick. I think what I think we didn't fully anticipate was the deep monetization. One angle on that.


Look, again, this is not I'm not taking any stand. Justifying or not is a much broader question, but it did lead to a de facto financialization of savings, kind of the money under the carpet coming out, which then led to the mutual funds, etc.. So so in 18, I think 17, 18, there was a period when the economy had a bit of a mini boom, as it were, partially fueled by the financialization of the savings and some of that going into lending to real estate and so on.


So this was against some kind of and not completely anticipated consequence. So in that sense, demonetization, you know, when someone does a kind of dispassionate economic analysis of this five, seven years, I think it's going to be have all of this not taking away from the fact that the costs were huge. Now you come to this. How do you justify this? Right.


You see, I think the great moral philosopher and intellectual of our time, Donald Rumsfeld once said, you know, you go to back with the army, you have war or not, the army you wish you had.


So, you know, when you talk about how do you justify this, you are Armitt, if I may say so, you are coming dangerously close to a framework that you actually told that you would disavow completely because, you know, it's not as if you can make to go metter over and say, you know, some meta entity says this is justified. This is not justified in these things by definition. These are judgments that are made through Democratic politics.


And therefore, you know, in some sense, these validations come from within from within the system, not by a planner or a moral planner. You know, that I should be completely against because you are against, you know, the the conceit of the of the regular planner.


So in that sense, so all you can do is therefore in Democratic politics, you know, the different constituencies have to have the kind of see and influence and power in Democratic politics, because finally, that's what you work with. You know, you can kind of go above a system, you know, whether it is ideas or interests. I think you have to I think I know that's the sense in which I think you should. There's a very nice piece by Shandra's about two years ago.


You know, it is this thing about who decides and for whom. And, you know, and therefore, how do you ensure that the poorest in this case, as you yourself said, a lot of poor people got affected. You know, they were suffering from some grand false consciousness marks and went and voted in a particular manner. But how do you protect them in the process? I mean, they have to be empowered. So it's basically you come back to saying, how can Democratic representative politics be much better done?


Because only then do you get these better decisions being made because you go to bed with Democratic politics, not with some, you know, better welfare system of decision making.


That's a fantastic kind of this is my credit completely, because, you know, I buy the fact that, you know, are my statement was not an absolute statement at all. Look at the costs and we should not do this. I recognize that even in doing nothing, there are costs and benefits. So you are making a choice no matter what you do, especially when you have the sort of coercive power of the state with you, which which can bring us to another question, which perhaps will leave for some other day before we go to a commercial break and then come back to talk about your time as CEO.


But the other question that then leads to is that even within the democratic system where you're juggling different interests or whatever, where do you draw the line? Where do you draw the line and say that, no, the costs are too much here. And, you know, is that something that you simply let the interest aside or is there some other campus or some other set of rules that because. It is that famous cartoon about two wolves and a lamb debating what to have for dinner, and one of them says, let's put it to the world so that there's also sort of a danger there.


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Welcome back to the scene in The Unseen, I'm starting with events of Mooneyham and finally, after two hours of digressions and talking about ideas and concepts and so on, I'm delighted that I reached the specific moment where he becomes the chief economic adviser. You mentioned you were on holiday in Machu Picchu when you got the phone call asking if you would be interested to kind of take me through the process of what your thinking was about the job. Should I take this job?


What would achieve? And also your early days in the job where you described this as, quote, the most exciting job in the world? STOCKARD Yeah.


Family that we were all in Machu Picchu taking a family holiday.


And in fact, I got an email from someone asking whether I'd be interested in the job. And, of course, you know, this is kind of the dream job for most economists who are interested in policy. And if you're interested in working on your own country and remember that, you know, the wonderful thing about India is that, you know, this notion, this concept of a technocratic policymaker either working with or in government is not new. I mean, goes back decades.


You know, even if you go back to the 60s and 50s series of economists who've worked in far with government. And so this was just. And also remember, we spoke about the would be reformers who came to government in the 70s and 80s, you know, the very lustrous people, Monte Carlo, Alicia Shankaracharya, Rakesh Mohan of a decade or so, many, many, many more. And then, of course, of course, shake Raghu, all these people.


So it really is for an economist if you care about policymaking. So so for me, it was not a difficult decision at all to accept. The only question was how sort out the you know, my family was still in the US. A son was still in the last years of school. So we had to work that out. And but so I went to India. I kind of met a few people, met Mr Jaitley there. And then, of course, you know what happened.


I thought I was about to get the job and then for two months and there was, you know, there was radio silence from the other end and of course, apparently some pushback and but finally it happened. And and of course, Mr Jaitley was also had his operation than his bariatric surgery. That's also the interregnum. And then, of course, when I came, I came with a sense of, you know, this is a dream job in terms of all the things that needed to be done and could be done.


And I was really a man on a mission with, you know, thinking about nothing else and from what needs to be done, how it needs to be done, what teams do we need to build? What are the various aspects of policy you want to get involved in? How to you know, I did spend a fair amount of my time thinking about the Indian economic service and how to build capacity for them and, you know, all of that sort.


And then, of course, the public communication part of it. Right. I mean, you know, I had this of maybe a completely misguided, deluded desire that everything that one does should be communicated in a way that kind of raises, you know, the level of discourse on these issues. And that's why, you know, when we look at the economic surveys, the point was it must be very rigorous, obviously, but it must also be it must come alive to people.


And I don't know, I guess the motto for all this, the inspiration was that there's a famous quote by John Maynard Keynes about what it takes to be an economist. You should read that quote, He must be a mathematician economist. He must be aloof, but he must be in the weeds. You know, it's like he must be everything.


And that's the sense in which that's the kind of thing I had that and it was very, very fortunate for me that I just had a dream boss who, you know, open, constructive equality, agreed with everything that I said or not sometimes completely thing. But, you know, that open communication and and giving me both the freedom and the protection actually both to do this. And that's why I said I would get involved in everything. And the other in terms of the how I think what is really critical, it's a point that you made in your piece as well.


I think that when a kind of technocrat comes into policymaking, he should be given. No, I mean, he should not he or she should not think that just because he has an expertise, therefore, that kind of exempts him. On the nitty gritty of building teams working with the people all down the hierarchy and, you know, I really did want to know, for example, when I worked on the GST, I used to work with people in undersecretary's, joint secretaries, really, because, you know, they have so much value and knowledge.


And it's not that I'm doing them a favor. They were doing me a favor because they knew.


So just this working with as many people as possible in government and to do as many things as possible. I was just driven by that and I really wanted to do all that I could.


And of course, the economic service provided a forum and being involved, I think, in some critical policies like the GST also provided. But I did overreach.


I did think that I was as any business to be involved in, because I felt that at the level of ideas you could contribute even more than, you know, there's a part where you have to get into the trenches and do these things. But like in the case scope, you should also be able to provide the big ideas around which you can have a discussion, you know, whether they're going to get implemented immediately or not. It's not up to you.


But can you provide what you know? Can you show the intellectual ecosphere with ideas then that you know, that others can reject or dismiss or accept or whatever? So that's what it was really an opportunity to do a lot of things.


I enjoyed the economic service a lot, especially the fact that, you know, you're starting each chapter with a quote from a work of literature and so on, far more readable than other such documents that I've read. And the interesting sort of thing that kind of struck me while reading your book and wondering what else you've written about it, is that I was, if I may say so, filled with admiration for the man, which is you. But ambivalence about the post, because as you've described the post, your only job, the only job of the chief economic adviser is Economic Survey.


And after that, it's sent up to the man that what can I do? And you pointed out how you went about it with a sense of humility and team building and you had been advised that don't just talk to the secretaries, talk to the joint secretaries, and you put in the time of effort. And there's another great quote from you from an interview that you did with the Chicago television from the Señores, where you say, quote, One thing the Australian avoid US economists is to try and raise a direct link between what you see and what gets done is much more complicated and subtle than that.


You feed the ecosphere of ideas and policymaking and various other forces come into play and then decisions are taken. So you point out about how, one, you're building a team that has both insiders from the Indian Economic Service as well as outside consultants, and you're making them kind of work together to you're in touch with all the joint secretaries and the bureaucrats and so on. Three or so happens that you have a very good relationship with the minister, who's your boss, and all of these things are working.


But what struck me while reading all this was that finally you've you know, you build these relationships and therefore you've had whatever impact you have, some of which might even be diffused and hard to define precisely. But isn't this something that should be a little more systemic, built into the role of the position itself, rather than just say that or give the job of the CEO to do, you know, the economic survey every year? And after that, it's all, you know, it's all up in the air.


So it's something that I have thought about. Right. But can I draw the analogy with kind of institutions and politics, right. In all these things that are kind of formal rules, you know, setting of objectives, you know, even monitoring outcomes, whatever you have of the whole system of formal things. But then so much of what we know about outcomes are determined by individuals and the informal network of relations that you build. So the question is that I just feel that if that's true more broadly, it's why should it not be true of any significant force in government like that of the CEO?


So I think that I think we have this slightly exaggerated importance in informal structures and formal rules and not enough attention we pay.


I mean, that's not to say that maybe you shouldn't define a few more things, for example, and maybe there is scope for that. But you don't have to have a different boss or, you know, had my temperament been a little bit different, regardless of what the formal rules were, or the outcomes would have been very different. So I just feel that there should be both a set of formal set of rules, but a lot more gets you know, it's like politics as well.


You know, the politicians will do well and politicians don't do well know by dint of their personality. And so why would that be any different here? So while that's not a thing to not have some kind of structure, I mean, I think there is enough structure to kind of give the opportunity to the incumbent to kind of play a helpful role, both inside and outside government.


And, you know, many of us have an impression of the state, which comes especially for people of my generation, from watching Yassmin, Australia's prime minister, where, you know, Parkinson's law, that the only thing a bureaucrat wants to do is expand their budgets or their power or whatever. And but, of course, in years, ministerial caricature bureaucrat is deliberately obfuscatory. Well, whatever I've heard from people who work within the system in India is that bureaucrats of an incredibly smart, well-informed, well-meaning, they want to do the right thing.


And yet it seems sometimes that the system is so creaky and things happen so kind of at a snail's pace. So know even with the best intentions. I'm very fascinated to know about sort of your experience in the belly of the beast.


I would say that I went in and I have come out with an enormous admiration for all the most of the colleagues that I've worked with right down the hierarchy, from secretaries to to the lowliest. Whatever I say, only the hierarchy is not in any pejorative sense at all. There are people at the lower end who have so much to contribute as well. And I think my default mode was people were helpful, people were constructive. People were, you know, wanting to be nice and good.


But yet it is that, you know, the some turns out to be a little bit this is what you were I think implying is with the some does turn out to be a little bit different than the parts. But I mean, that being said, I think that I would not succumb to any kind of cynicism or negativity about the quality of staff and the quality of state capacity within government. I mean, they're just exceptional. People across the sphere know you will get, you know, in any any institution you will get your people on the left tail of the distribution is not.


But you certainly don't get more of that in the Indian government. And I would say on the right till you get a lot of exceptional people on the right deal that you can that you can work with. So, so so that's why I think that as certainly as kind of personal advice or whatever to work in government is kind of still the, you know, a high calling. It's a worthwhile calling. And I would urge and that's why I do believe strongly that all the technocratic services like the Indian Economic Service and so on, I think, you know, we must invest a lot in improving the capacity, the training and so on, because I think ultimately it matters a lot.


Ultimately, just stepping back a little bit of a myth. You know, I think there was a view of the world and I think it's a legitimate view that, you know, what the state needed to do was not to do certain things. But I think we've come round to The View. Well, that's very, very important. I think the state also has to do a lot of good things. And I think this kind of and I certainly saw myself, my office, the Indian economic service, other parts of government as very much part of state capacity.


And, you know, when the for example, the economic surveys were reasonably well read and international. So I felt that, you know, this was really an effort to show that Indian state capacity could deliver at international levels of efficiency and standards and sometimes maybe even more, and that it's doable and that we have the ability to do that. It's not because we don't have the talent or we don't have whatever, or we have this image of the kind of bad bureaucratic state.


I think that the Indian state certainly allows opportunities for people to to to express themselves and contribute as much. So I would not at all succumb to any kind of cynicism or negativity on that score. And it's not just through my being. I mean, to be true. How many technocrats have done such good work in Indian government? I think that's really it. But it is true. I mean, all that being said, a lot is going to show.


So partially answering your question, then why does the out not be different?


I mean. Certainly the usual what is the ecosphere of ideas in politics, political compulsions, interest and so on? You know, obviously they're going to have a final say in what gets done. So I think that but the input on the part of the technocrats can be as good as as needs to be. And I don't think the system will step back in any systematic way.


That's what I've heard from all my friends in policy, that there is no shortage of intellectual capacity, that even in terms of mindsets, of gradually change, which is why it's constantly kind of baffled me that for so many years and so many of the different areas, like agriculture, for example, or education or whatever, we know what the solutions are. You know, journalists have been writing about it for 20, 30 years. It's it's part of the ecosystem, the ecosphere of ideas, as you say, and yet nothing seems to get done, which was a mystery to me.


And I guess one part of the mystery could be just politics. Like it has always seemed to me that, you know, politics becomes a fatal flaw when you want to carry reform out because the incentives of politicians, you know, deviate in two significant ways. One is the short termism that they need to win elections all the time and therefore they want to do something which will show results immediately and 10, 15 years down the line and which is attributable to them.


And secondly, in the sense that populist ideas sell that a lot of the ideas, the more complex ideas of economics make spontaneous order and the positive some nature of voluntary interaction. They're deeply unintuitive. People don't get it. Well, people very easily get the, you know, ideas of welfarism and handouts and things which sort of coincide with our intuition of the world as a Zero-Sum game, which, of course, it's not. So how was it for you to then sort of work with politicians within the system?


And did you when you were selling reform to them, did you have to add a layer of it, not just a layer of what is economic benefit, but what is a political benefit? Absolutely.


See, I think that, look, fundamentally, I think mean, one way of putting it would be to say that if you did not believe that good economics was good politics. Right. We should just give up on our right. But the only thing is that you quantify that or you at least reconcile yourself to the fact that, you know, the horizons over which that might happen might not be one election, but, you know, whatever. But but even within that, I think the people I certainly did not subscribe to the views that you give the technical thing and you don't let the politics take over.


No, I know a lot of my discussions with the senior politicians would be to say why good economics is good politics.


And, you know, sometimes as again, I think the Kingscote that, you know, you have to be behave like a grubby politician. You know, you have to be in the trenches. You have to use all the arguments that you can.


You know, for example, in the case of the of the GST, for example, you know, I would say that we need lower rates because, you know, you're a party that believes in low taxes and lower inflation. So, you know, harnessing those kinds of arguments to make your case, I think are critical. So I think that.


But but if fundamentally good economics is not reported, although there is over a sufficiently long period of time, and of course, it's it's a difficult thing. But I do want to come back to one one. So when we talk about the summit, the part of what you said in the supply of capacity, but the outcome depends upon the demands of the demand side, which is politics, and to so choose. I think I don't know whether this came up in your talk on education.


So it was very rewarding or very heartening in a certain period in Indian politics when you felt that and routine and incumbency gave way to electoral politics, being rewarded by good or bad performance is rewarded good and penalized. Throwback performance accuser. I think one of the biggest, biggest take the field of education, for example. You know, it was the original sin.


We didn't do a basic education, but she was a kind of a puzzle of Indian politics that I kind of still grapple with is if you have a lot of poor, uneducated kids, why does Democratic politics not make the provision of that and electorally rewarding exercise? So that's kind of the demand side that we may say no simplicity in the GST. But finally, a clean democratic politics do so in the case of education, you see and remember, because it's a state subject or whatever, this is a question that over 70 years, why was it not the case that some state government somewhere in time?


You know, because, you know, it's not that there are 10 percent of the population is uneducated, you know, massive amount. So you would think one. But second, the puzzle gets compounded because in the post liberalisation era, when the private returns to education went up so much, you know, why didn't people get even more things saying, look, you know, associates, a private good are my kids will get better jobs, get higher salaries, because this why didn't that also?


I think so.


So is that part of the puzzle is in some sense inadequate or missing? Then you will always flounder in terms of, you know, the kind of almost the frustration that you feel that how come outcomes are so disappointing relative to this? I know. I think that's kind of fundamental in Democratic politics. And that's why, you know, I'm not a partisan. I have no party affiliation or anything. But it did seem to be the case that, you know, the Amami party in its first term state its electoral fortunes on health and on the provision of health and education.


That was made it a really interesting thing because they were saying, look, crudely speaking, you know, vote for us because we provide your kids health and education. So is that you know, and that's true, not just education, but in other places as well. So if you're in the system of democratic politics, you always have to wonder or take account of the fact that if there's a gap between outcomes and capacity, that is that black box of democratic politics, which I think is going to invariably affect the outcome.


And so, you know, cracking that in some sense is going to be more as important as just having smart people in government, smart technocrats in government.


No, no. That's very insightful what you just said. But the two halves of what you just said seem to be at cross purposes because, you know, I agree with you that good economics should be sold as good politics for it to get through. But it doesn't seem to me to be the case that good economics is good politics because, you know, demonetization was good politics. And I don't think it was good economics. But even apart from that, I mean, I think it is evident that of good economics was good politics.


And given that politics is a game of supply and demand, you know, we would all be doing well. All policies would be good because, you know, politics would see to that. But that seems to be to be the same. And I wonder if you have any candidate answers for the question that you pose that, you know, given that we are so uneducated and people want it and all of that. Still, the state hasn't been able to, you know, fix a problem which would seem to go, you know, which is a very powerful and evocative rhetorical question, because obviously it's a great moral failing of the Indian state that we have failed so miserably in this.


But what us sort of your candidate answers for that? Why is it the case that, you know, the supply hasn't caught up with the demand in terms of outcomes?


I mean, you would have to get into, you know, what are the feelings of Indian Democratic politics more more broadly?


And I think that, you know, certainly the fact that, you know, the points that you said are not unimportant.


So I think. One point that you made, I think, is really a very important and I think it's worth emphasizing, it's it's not so much the short term thing, but related, you know, in politics, you know, attribution and getting credit for what you do is like absolutely fundamental to Democratic politics. And I think that when you think about why did this government choose the public provision of private goods and services, that's part of the answer.


You know, if you produce if you say I produce more growth, then the the link between the outcome and who was responsible for that outcome gets attenuated, as it were. But when you provide the toilets, when you provide this or all of that, for example, I think that sort of thing with you know, with things like health and education, certainly education, the fact that it's not because remember, so so the attribution thing. But you raise there are two dimensions to it in India.


One is what we just spoke about. You know, who gets the second thing is that that gets mixed in with federalism. So, for example, you know, if someone at the center wants to do something that was the prerogative of the states and cannot get credit for that, it's going to be under provided. So, you know, schooling and health are provided by state governments. And therefore, you want to not emphasize that because, you know, if you just give more resources and God forbid it actually succeeds, someone else is getting the credit for that and you don't.


And that and that's why you see, for example, the health schemes that were started, work schemes that for which the attribution could be for the person at the center of providing this. So I think it's so for me, that was a new learning experience. You know, we know good economics. We know the short-termism. But how do you satisfy this? And that's intrinsic to politics. You know, do you get elected? But in a sense.


But remember that in a sense, that should also take away your cynicism, because you know that if a politician is craving attribution, then, you know, that's it matters to you know, he knows that it matters to the voters for him to want attribution in the first place. And therefore, it should kind of say, well, how can I do things that, you know, that can not only be done, but for which attribution can be appropriated, as it were, so that it also makes good politics for good politics.


So these are I mean, I think this attribution thing is just so I mean, that's also why, you know, when leaders kind of want to do schemes, they want to be associated with them and not with anyone else. So it has a downside and it has. But it can potentially be harnessed. But it's just something that you cannot ignore about Democratic politics that. So if it were the case that I guess if it was the case that somehow you could show within five years that your child, you know, because of what I did, got actually got a better job and more and more and more earning power problems that can't happen, that there is so so there is a problem.


You know, attribution cannot be if there are things that have long gestation legs, you have to contend with that as well. So it just makes policymaking more difficult. But again, not shouldn't fall prey to giving up or cynicism.


But that's what that's what I would strongly feel.


That issue of attribution is a fantastic nuance.


But it also strikes me that, you know, in some cases, for example, let's take agriculture, right?


If I was going to come back, I was going to come to agriculture, by the way. Go ahead, but go ahead.


Yeah, no, it is often the case that the demand would be for a policy that is bad economics and not for something that is good economics. For example, the farmer may not want the removal of mouthpiece or fertilizer subsidies, but may instead want to farm loan waiver. And often a farm loan waiver is a necessary anesthetic. So I'm not disputing that. But the really the core structural reforms like removing the MSP, removing fertilizer subsidies or whatever subsidy, for example, which makes Panjab grow so much less when it has no business growing rice, for example, those can never happen because those cannot be sold politically.


And that seems to me to be a clear instance of where, you know, economics and politics run counter to each party.


But let me actually push back a little bit. Right. So look, the world over, you know, once you give an entitlement, taking away an entitlement, this is it's a universal law of politics that, you know, it's called the third rail or whatever, you know, something. So I would not say therefore, ignore the fact that you can't take away subsidies is bad politics. Right. So the challenge, therefore, for policymakers and politicians is, in fact, you know, so just to give a concrete example, you certainly cannot take away fertilizer subsidies on its own in India.


Right. But look at the two successes that have happened. Right. And so this tells you that the options are and one is that supposing you tied the taking away of the subsidy to a universal basic income. So you you linked to reforms in a way that you don't take away an entitlement. You just replace it with a better, more efficient entitlement. So that's a way forward for thinking about policy making in creative ways. The other thing, of course, is that remember how the petroleum subsidy was eliminated and it's just very small but very frequent changes over time.


So that is kind of the behavioral economics insight where you you you you say you don't want to impose huge costs. Suddenly the costs are spread out over time. And then you can you know, in that case, even without replacing it, you were able to eliminate the subsidy. So I think there are lots of ways like that. So so I think the other kind of behavioral economics thing is that the whole give it up scheme early on, for example.


Right. Is a kind of way of, you know, can you kind of use name and shame kind of things to say. It's like the way I would implement a Utegate. I had this kind of fascinating discussion with the Telangana chief minister, KCR on his you know, he was the original scheme, the right to do scheme that was kind of in some ways India's first, you know, kind of kind of I mean, it would be a universal basic income kind of scheme.


Not quite, but sort of. And in talking with him about the politics of that is actually fascinating. So if you think about it, that my preferred thing is not a universal basic income, but a quasi universal basic income, i.e., don't give it to everyone, give it to everyone but someone a few at the top, because, you know, you can make it more affordable, you can make it less costly. And also the notion that, you know, you know, the big businessmen don't deserve a ten thousand rupee check, it's kind of level and also maybe more easier to implement.


But here's where ideas like, you know, don't make it, don't make the taking away mandatory, but kind of make it voluntary, for example. So there are lots of ideas like that which can make a reasonable policy, making good policy feasible and not say no one in the world can take away an entitlement and say, you know, this is a social. I think, again, it's the task of policymakers and technocrats to kind of internalize this when they talk about policy making.


Looking back on your time as chief economic adviser, what would you look at as your biggest success? Maybe not a specific policy, but just a process you put in place or whatever. What frustrated you the most? And most interestingly, is this something that you've changed your mind on, you know, during the course of becoming the CEO? Right.


That's a great question.


See, I think that, you know, in terms of any one you know, any one thing I think would be difficult to say, because, you know, I guess what I would want a kind of people to take away is that, you know, fundamentally what we spoke about, that there are things that are doable, you know, across the board. It's not any one thing, but that better advice for policy making, better analysis, better communication.


So a whole more training, building capacity, working with youngsters. You know, a lot of things, I think. So it's more we should have more ambition about state capacity in some ways. I think that's what I would hope. Maybe there'll be people who say it shows exactly the opposite.


You know, there'll be people who say that as well on you know, I certainly I write in my book that I think the fertilizer subsidy is, you know, I worked really hard on that and, you know, nothing really happened.


And that for me was was. Kind of a big disappointment, which, of course, there were other aspects. I mean, the way the kind of GST turned out relative to the original conception, I think that also was left me a little bit. But I think hopefully these are not irretrievable mistakes. I think I hope they can be rectified. The last question about, you know, I mean, I have changed my mind on the specific aspects of, you know, even the whole GST, what we spoke about, you know, the tradeoff between efficiency and the loss of fiscal sovereignty.


I I think I have learned that, you know, maybe the trade off is much more complicated than we originally thought. I think that I think we didn't go into this. But the whole kind of measurement issue, which, you know, I think is is is also something that I feel maybe we could have done more on.


And, you know, although I did try to do it in government, that's something that but I fundamentally come away more feeling that, you know. A kind of optimism and hopefulness that these are opportunities for doing rather than the more kind of pessimistic, cynical view that you know of, that actually this experience shows, you know, in some ways my ex ante going into government, as I said, was that, you know, and I thought that actually it would be much more difficult, you know, ability to do things would be much less.


But I come away actually having changed my perception of this. And I certainly feel that these are all opportunities for where one should be more optimistic, proactive, and have the belief that things can be done well and done well and rather than the other. So there is a change in my accented view, but ex-post. I come away thinking that in that sense, ex-post, I feel, you know, not I have not changed that much about looking back that you can do a lot.


And so let's see. I think that's what I kind of come with no particular regrets particularize. I think they will be. But those are. But fundamentally, I think, of course, with the caveat of always the caveat that I don't want this. The caveat always is that all of this is subject to the broader configuration of personalities and politics. Know, I don't want to by any means discount that. So that's kind of I mean, that's a card that you don't control so that that you just work with it.


I must confess here that, you know, I had expected it over this time. You would have become less hopeful. But it turns out that they're actually more hopeful, which, you know, should give all of us hope as well, that maybe there is scope for change in the system of picking up a lot of your time. So I'll come to my penultimate question now before I go to my final question, which is an intimate question is that and I want this to be a question that before it happened in March or in favor of whenever if you were to take stock of the Indian economy, as things are today and sort of describe what is wrong with it and what the big dangers are and, you know, what are the things that we should be worried about?


What would you like? What one subject that we haven't spoken on at all or during this what you've written so much on is the financial system, the credit crisis. You know, I was part of this reading group which was active last year, which was run by Odisho. And he brought your friend Josh Feldman to it a couple of times. And Josh used to be, you know, you scare everyone by talking about how the credit crisis was such a concern within the Indian system and was just affecting every other part of the Indian economy and how disastrous it was.


And I get the same sense when I read the things that you have written that I think that, you know, people who are not familiar with policy and know, you know, the actual particulars don't really understand how bad things really are. So is that your main concern about the Indian economy? Like how would you sum up, though, that the things that worry you?


You know, again, here I want to give the answer at two levels. Right. One is that, you know, even the paper, the joshin I wrote in twenty nineteen when we said the economy was in ICU covid. Right. And remember, at that stage we said that the twin balance sheet problem had become the full balance sheet problem because, you know and by the way, I have to give two people entire credit for alerting me to how important one is.


Josh, of course, from day one has been telling me it's important. Then, of course, the work of Asheesh, I think, has been very, very influential in thinking about the empirical basis for that view. But in late twenty nineteen, we said that the twin balance sheet problem had become the full balance sheet problem. And in recent pieces we've written, our view is that now, rather than identifying balance sheets which have a problem, it's probably easier to identify those that don't have a problem because almost every balance sheet is is shocked in India because I think a kind of so I think that's problem number one.


But there's a kind of deeper question here, and I think I want to raise this in the last minute, is that, you know, why is it that policymakers have not taken this seriously in India?


Because that's the deeper question all of us can keep saying, but it's not resonating with the kind of intensity that that it should. And I have to kind of tentative solutions for hypotheses for that one is that, you know, it's the nature of these things that when you have big disruptive changes like crises. You have more of a policy response when you have a kind of slow bleed kind of situation, which is what this whole financial crisis has been about, because remember, we identified the twin balance sheet in twenty fourteen.


I think that, you know, that the slow bleed is by definition not conducive to you say a tattletale, OK, not five percent, three, four percent or maybe five and a half, but whatever. And that lack of debt, by the way, and this is abstracting from the usual political interest, commercial interests, you know, crony capitalism, all of that is there. But I want to get to something. Why don't policymakers respond?


And I think my second hypothesis for this is that, look, it's you know, that India has never had the only major crisis it has had are all macroeconomic and whatever. Six to six. We had the food crisis, you know, basically the four F's, food, fuel, forex, fiscal, these have been the source of crisis. And usually they have been fairly disruptive and sudden and things. And people have responded to whether it's sixty six or ninety one or two thousand thirteen or now, no big things happen.


You want to respond nineteen seventy nine eighty as well. Um, this is like a slow bleed, not stop it. But we've had no experience of this in the past, so we have not been kind of, you know, socially kind of inoculated to this kind of we don't it's a bit like why did the West not react as quickly to covid as East Asia? I mean, remember, as Nietzsche said, that which doesn't kill you, makes you stronger.


You know, East Asia was hit by pandemics, you know, serious enough, but which didn't kill kill them. So they had this social immunity. Western Europe never saw a pandemic so strong. So in that sense, we've never had a history of financial crises which have exacted a huge toll. It is exacting a huge toll, but it's gradual and it's unprecedented. So I think that's part of the reason why the whole policymaking, Josh and I have struggled with this, that, you know, he kept saying, boss, it's a diagnosis problem and that diagnosis is elusive.


It doesn't really resonate with people. You've never had it before. What is the financial crisis? I know we'll recapitalize the banks or credit comtel. I think Angel will get a bit more growth. So this is like a slow bleed and unprecedented with no kind of social inoculation. And that's kind of explains part of the reason why I think so. So it's a kind of a little bit more conceptual kind of stepping back answer to yes, we have a massive problem in the financial system, both covid.


Of course, it's gotten much, much worse and. We have this deeper things, and then, of course, you have that extra layer that, you know, if in a system, you know, the transparency of the reality is kind of obscured and hidden and things again and again and again, that is another thing that adds to the broader problem of kind of data transparency that I've written about in the context of the GDP and things that I think is kind of like a much deeper system.


I don't know what else can I just say about this in the book, but this is kind of very kind of deep, I think. And, you know, unless we can track that as well. And by the way, it's true for the GDP, it's true for the financial system. It's true for the fiscal numbers, the unemployment numbers, for the consumption numbers. You know, we've got the situation where kind of kind of basic kind of the basic ingredients for integrity and accountability, I know are kind of eluding us in that sense.


And that is kind of very worrying as well. And that pertains, of course, also. So. So, so in a sense of answer, I try to answer your questions at three levels, right? Yes. Tweeners become four. But the deeper reason why we haven't responded, maybe even a better reason for that, is that the basic transparency, the ingredients for transparency, I mean, it could be both supply and it could be all.


Of course, these are things that, you know, we don't have that they know you get the data that you want to in some ways. So I think there's some of that as well. But that's kind of my view on on this these kind of bigger issues as well, that that's very enlightening.


This episode suddenly became much darker and it's going to get even darker with my last question. So we landed there because if I go beyond that, we'll be in zombie apocalypse territory. But my last question is, is that we are now, you know, in the middle of this global pandemic. And I don't even know if I should say, Miguel, because we don't know how long this is going to go on. I hope this is not just kind of the beginning.


And obviously this is like to everything that was going wrong, this is a force multiplier. It's just a disaster is probably set us back many years. So sort of looking into the future, let me say that we are in 2020. If you look at 2030, you know, what's your best case scenario and what's your worst case scenario for India? Keeping all this in mind and maybe I should it's unfair of me to make it part of the question because it'll, you know, get into the territory of what the philosopher you like to call Donald Rumsfeld calls unknown unknowns.


So just sort of living covid out of it and assuming that, you know, a vaccine comes along soon and it doesn't get too much worse, assuming that if you look ahead to 2030, what would you say is the best case scenario? In the worst case scenario? What gives you hope and what gives you despair, rather, to, you know, to frame it differently?


See, when I look back on the last two decades, it's kind of slightly a longer view on the future. But look at the past. You know, the truth is that, you know, we've had one decade of, you know, weak performance basically since about twenty eleven. I think we've had weak performance. And maybe that's what is the message of, you know, Pooja Maraz book on the lost decade. Right. And certainly my own looking at the numbers and what happened, it seems like kind of the so it's been longer.


The the underperformance and the weakening has been much longer than than maybe to add to that a little bit, pessimism is that I mean, you could also make the case that while the weakening has been a decade old, you know, new active positive reforms are basically stopped in the early 2000s. Know, that's one view. That's also, I think, the view of some people, even Raghu, I think has that view. I would kind of dispute that.


I think at least conceptually, you know, the GST was a major reform. And of course, I think the public provision of private goods is something I think the bankruptcy did conceptually allow us to address this problem of decades, decades old problem of capitalism without exit. But given that they're also faltering, you could say we have had one decade of underperformance and two decades of, you know, not enough policy reforms and an end of state capacity has not really been strengthened.


So the bad case scenario is that this is not a three or four year old problem is actually a decade old problem. And therefore, this kind of continues going forward. And of course, now the starting point is much worse because covid has really kind of short. All balance sheets and the world looks completely different. Now, how do you kind of, you know, try and extract some glimmer of hope from this? I guess the glimmer of hope, actually, potentially.


What could be the glimmer of hope? I'm not saying that's what will happen. You know, this thing has to be rescued from bye bye politics in India. This is Democratic politics that if you believe that, you know, if you believe that actually our politics is getting again, once again decoupled from economic performance, which is what some of the indicators are saying, that's going to add to the sense of of of things. But I think the way to extract something is to say, look, even for this government, it's kind of much more confident, right?


It has more political capital and it also has built up some credentials on this legitimacy, this provision of public goods or whatever, that that there is a sense in which the new welfarism has worked. I think that agenda needs to be completed for all of this, not to jam infrastructure, et cetera, UBI, whatever that thing has to be completed. But in principle, you have the political capital to actually do the things that need to be done, whether it's IBC or reforms or growth or whatever or all these things.


So I think that will be one kind of possibility that the conditions are there, but the mindset and the diagnosis has to be right.


And then you move for the other. Of course, I think the always the perennial glimmer of hope about India is that, you know, it's not one country. It's a you know, it's a country of 27 quasi sovereigns or whatever. And then you think that, you know, some of the positive change, even if it doesn't happen at the center, will actually there will be pockets where, you know, good things will be done. Maybe maybe people will see what AAP has done on health and education.


And, you know, the kind of competitive federalism by way of ideas kind of spreads in that way as well. So potentially good news is that, you know, we have different governments in different parts of the country between now and, you know, and they embark on the post covid. I mean, all of them are in that trouble, but also covid, they say, look, you know, for example, public health, all of us need to be more like Kerala.


You know, we learnt lessons for that education. We can take lessons from this. So I think attracting investment, whatever, you know. So I think federalism competitive in India always is.


It is hope. In the old days, we used to say about India, it has the wheels of a bullock cart and the brakes of a Rolls-Royce as a kind of feudal system that always only did incremental things. But I think that there's no reason why you could also not have new ideas coming from different parts of the country. And that kind of drives and does change, at least in part, which then spreads elsewhere. So, you know, so that would be my trying to pick up some glimmer of hope in what are obviously very, very challenging times.


But it's not just I mean, I think for me, the the real kind of looking back, in fact, post my scholarship, you know, you look back and say it's been one decade of performance and then another decade maybe of inadequate reforms. And and maybe we need to think about it in those terms, even when thinking about what needs to be done and whether things can happen going forward.


And maybe one day we have the will go for the Big Apple cart and fall right into the river. I've been so enlightened and inspired to have this conversation. Thank you so much for your time and your insights.


I mean, it's been great to be on the show. A wonderful questions. And, you know, it's a hallmark of of a you know, a conversation, you know, in terms of how much I've had to think and how many new thoughts have been provoked by your question. So thank you very much.


Thank you. If you enjoyed listening to this episode, do hop on over to your nearest bookstore online, offline, and check out the three books written by Irwin, especially his latest book, Off Comes The Challenges of the Modi Economy. You can follow him on Twitter at Arvind Subramanian. That's without the end at the end of Superman. One word you can follow me at my and maybe you can browse past episodes of the scene in the Unseen, Unseen, Unseen, and thank you for listening.


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