Prof. Kaushik Basu, economics, former World Bank chief economist and former Indian government chief economic adviser, emphasized the importance of India’s democratic institution while comparing India’s economy to that of China and Russia’s in a lecture on Monday.
“India made a very early commitment to freedom of speech, openness, democracy, fearful of what had happened in Russia where socialism fell into a one party route,“ Basu said.
Basu explained that India’s democracy hindered short-term economic growth, especially when compared to countries with more authoritarian regimes like China. Democracy reduced India’s flexibility in experimenting with new macroeconomic policies.
Nonetheless, Basu advocated for a democratic approach rather than an authoritarian one, because adopting a coercive structure similar to China’s “may work for some time but, in the long run, would have a backlash.”
Although India’s gross domestic product did increase during his tenure in office, Basu expressed concerns about the nation’s nearly 10 percent rise in inflation rates — a rate that does not impact places such as Latin America to the same degree but is detrimental to India’s production and redistribution of wealth and income.
“I realized after working in the government [of India] that there’s a lot of intelligence but some political restraints,” Basu said.
In particular, he argued that the Indian government’s decision to combat black money by eliminating 86% of banknotes in circulation was one of the country’s largest mistakes. He said that it was a huge intervention without enough professional input.
Basu also said that it is not too late for India to reverse this trend but that carefully constructed policies addressing both short- and long-term difficulties would be necessary.
Basu’s lecture was the first in the South Asia Program Spring Seminar Series of 2018, which invites speakers to give informal talks every Monday on topics relevant to the program.