The "how to" advisor

One of India's most intelligent economists has the chance to redefine the role and relevance of the office of the Chief Economic Advisor, and influence the political economy.

"Let us assume, as is quite reasonable, that (i) every city dweller prefers his city to be clean rather than dirty, and (ii) one person throwing litter on the streets does not make a clean city dirty. It is easy to see that each individual, acting atomistically, would prefer to throw litter on the street rather than go through the trouble of looking for a garbage bin to dispose of it. It being rational for each individual to litter the streets, all citizens-if they were rational-would do so. The city would be a dirty one and—given (i)— everybody would be worse off.

I find this story convincing and therefore believe, though it sounds facetious, that the dirtiness of a city is a reflection of the rationality of its inhabitants. This also shows how much we can gain from a little bit of irrationality. Actually there are two ways of solving this problem. One is to impose fines for dirtying the streets; the other is to inculcate in human beings suitable values. The first solution works by changing what is rational to the individual. The second works by making people accept a little bit of irrationality. It is true that the second would take much longer to implement, but it is ethically more attractive and ought to be the ultimate objective."

An excerpt from Kaushik Basu's 1983 paper in the Economic and Political Weekly titled "Why we do not try to walk off without paying after a taxi ride."

In the 27 years since he wrote this paper, Basu's pursuit to go to the depth of a problem, elucidate it and offer a well thought-out solution hasn't diminished one bit. In fact, it has only sharpened given the journey he has travelled from teaching at the Delhi School of Economics to Cornell University via a host of top European and American universities. So when Basu moved into Room No. 39A at North Block on December 8 as the finance ministry's 14th Chief Economic Advisor, there was a mix of delight and doubt among people who knew him.

Doubt, because, unlike most of his predecessors, Basu had no experience of working with the government. Delight, because perhaps it is his polite and persuasive assertion that the economic administration of the country needs most right now. For a most recent sample of his polite assertiveness look no further than the dissent note he wrote as member of the Yashpal committee on Advice on Renovation and Rejuvenation of Higher Education in India in June 2009.

Kaushik Basu

  • AGE: 58
  • WHAT HE IS: Chief Economic Advisor to the Finance Minister
  • WILL RETURN TO: Be Chairman, Department of Economics, Cornell University, after two years
  • HAS TAUGHT AT: London School of Economics, Delhi School of Economics, Princeton University, Harvard University, MIT
  • WAS HONOURED WITH: Padma Bhushan in 2008
  • HAS AUTHORED: Or co-authored 26 books and 153 papers ranging from A Marketing Scheme for Making Money off Innocent People (forthcoming) to Is Product Boycott a Good Idea for Controlling Child Labor (2008) and On the Goals of Development (2001). And essays ranging from The Connaught Place Dilemma (1982) to Globalisation and Babool Gum (2004).
  • ALSO LIKES: Art, and to pen plays, write columns in leading newspapers and magazines.
A self-professed "academic with common sense" who would not forsake reality for the world of economic theory, Basu feels that the nature of advice in the government has to change from just ‘what is the right thing to do' to ‘how to do what is right to do'. "Advice on how to implement is sort of ‘meta advice'. So, the point is not what is the right fiscal policy. But how to implement the right fiscal policy, given that there are vested interests in the government, industry and labour," says Basu. By making this much-needed shift to good-and-implementable advice, Basu can attempt to end a long held dichotomy about India: The country has had a surfeit of good economists and bad economic policies.

Ashok Desai, a former consultant to the Finance Ministry, describes Basu as "an ideal Congress economist". That's quite apt, for Basu is neither an admirer of the doctrinaire Left or the hawkish Right. "Two things that made me decide to take up the job of CEA is India's new growth dynamism and the fact that in the last four years or so we have become serious about distribution," says Basu. A right wing economist may think this is akin to wanting to have your cake and eating it too, but Basu truly believes that the country is now poised to achieve a growth that is high (9 per cent plus) and fair. "One reason for joining the government now is that India is at a juncture where it can become a dynamite, and if it does, people may get the causality wrong and think that it became so because I joined (the government)," he quips.

He was one of the very few to have predicted in the mid 1990s that the Indian economy would turn around. The game changers for him were bank nationalisations by Indira Gandhi and liberalisation by Manmohan Singh in the early '90s. But three developments since then make him confident that India's change is real: A magical transformation in the country's savings and investment rate from 24 per cent till 1997-98 to 38 per cent of GDP now. Basu expect this rate to range between 34 and 42 per cent in future.

He also sees the emergence of a new corporate culture. Basu first heard of the growing global respect for Indian companies from Lee Kuan Yew in Singapore. "Sure the companies are interested in profit, but it's heartening to see a larger sense of purpose, at least in the top companies," he says. "It should spread to the rest." A third factor of optimism is the fact that a section of the Indian Left is becoming more accepting of an increased role of the market in the economy.

So, what's the challenge? The bureaucracy, for one. But Basu makes a clear distinction between the system and the people. "The quality of people here (at least in the finance ministry) and the level of professionalism is absolutely remarkable. Though the government functioning is slow and has lots of issues, but it is not for the lack of talent," he observes. He compares the situation with a "good driver stuck in a bad traffic jam". And one of his objectives during this two-year term as CEA is to help cut down bureaucratic cost and corruption. He knows it is a rather ridiculous objective to set for oneself when so many attempts to reform the system have failed, but he is determined to give it a try.

Basu plans to use the reach of his office in "planting seeds" in a bunch of minds in government that have got serious about "dynamising" India. One example of such an initiative is the unique identification project (UID) handled by former Infosys Technologies CEO Nandan Nilekani. Mind you, it's not the size of Indian bureaucracy that's the problem, according to him. (Bureaucracies in the US and China are bigger.) The problem in India is with the speed of decision making. There are somewhat less daunting but equally important tasks for Basu that are more immediate. For instance, preparing the annual Economic Survey—which is CEA's key responsibility.

Watch out for some new ideas in this year's Survey that will be presented on February 25. But, for a substantial makeover and even a crackling new document, wait till February 2011. By that time Basu would have spent more than half of his tenure in a system that can, in the words of a former bureaucrat, test the patience of a saint and the endurance of a camel. But Basu seems ready. After all, he once described himself as an economist with a "trained incapacity to give in easily".