An Economist in the Real World

India is an ageless place where the past infuses every aspect of modern life. Since ushering in an economic liberalisation programme in 1991, India has been in a headlong rush to modernise and open up its complex and multifaceted economy to global market forces. The architect of the economic reforms in the early 1990s was Dr Manmohan Singh, Minister of Finance in the Congress government led by P.V. Narasimha Rao. Yet, despite the mantra of India’s march to progress, the modern Indian economy remains a captive to its past.

In 2004, Dr Singh became Prime Minister of India, the first Sikh to hold the office. Midway through his ten-year term as Prime Minister, in 2009, he took the bold step of appointing a gifted Cornell economics professor, Kaushik Basu, as Chief Economic Adviser to the Government of India (Manmohan Singh himself once held the post). The appointment, as Professor Basu explains, was a brave move and a break in tradition as he himself had no prior experience in government, and certainly not the frontline of economic policy-making, having till then spent his entire career engaged in academic research and teaching.

During his two-and-a-half year stint as Chief Economic Adviser, Professor Basu kept a diary, realising that his valuable experiences in government should not be left to the vagaries of memory. The result is a lively and deeply personal account of the inner workings of the Indian government from the comfort of Basu’s perch in Lutyen’s Delhi as well as a primer on the contemporary Indian economy and the art of economic policy (or deal) making.

The book’s title reflects the author’s efforts to make the art of economic policy-making accessible to the reader without a formal training in economics. This is no easy task, but Basu largely succeeds in shepherding the reader through the thickets of real world economic problems. While the book primarily deals with a range of economic policies from setting tax rates to designing subsidies to creating voucher schemes for India’s rural poor, it also makes the case for paying closer attention to the social, behavioural and institutional foundations of Indian society, so vital to understanding the impact of economic policies on a society anchored to a complex set of social, historical and political factors.

Basu’s views on key areas for reform of the contemporary Indian economy are dealt with in a sequence of inter-related chapters, in which he argues for major economic and administrative reform. “Much of India’s rules of administration”, he says, “are inherited from Britain. India’s problem is that it has held on to those rules more steadfastly than Britain and other Commonwealth nations” (168). This situation is made even more challenging because, since 1947, the scaffolding for the Indian economy came from the two principal architects of post-independence India, Mahatma Gandhi and Jawaharlal Nehru, whose different economic philosophies often meant that “there were deep contradictions policy-makers tried to accommodate within the same system that would later give rise to fault lines and fissures in the economy and hold up development” (16). India’s policy-makers are still wrestling with this legacy today.

Still, Basu argues passionately that the Indian growth story remains intact, although supportive policy reform is needed to raise the nation to the platform of industrialized countries. The road ahead will contain challenges, surprises and pitfalls, but the prospect of a major economic take-off is very real and Basu points to India’s youthful and ambitious population, the widespread use of the English language, the tradition of higher education, and its democratic institutions and inherited traditions of civic tolerance as militating to open up new opportunities for the Indian economy.

Professor Basu, presently serving as World Bank Chief Economist, left the Indian economic service before Narendra Modi’s Bharatiya Janata Party (BJP) swept to power in a dramatic landslide general election in May 2014 promising to kick-start India’s ailing economy and restore confidence in its deeply corrupt political and judicial system. Despite electoral promises and commitments made by the Modi government, very little of the reform programme on which the BJP staked its reputation has been implemented. Such setbacks, if they persist, will drain momentum and weigh on the performance of the Indian economy at a vital juncture in its economic development.

Still, the Indian economic renaissance remains an exciting project and this highly entertaining and hugely informative insider’s view of high government office in North Block, Rajpath, is essential reading for anyone wanting to understand the vagaries of economic policy-making in contemporary India. The creators of the BBC series, Yes Minister, could not have scripted it any better.

Kaushik Basu. An Economist in the Real World: the art of policymaking in India. New York: Penguin Viking, 2016.

Mark Donoghue has held faculty appointments at the Australian National University, National University of Singapore and the University of Notre Dame (Australia). He is currently on the faculty of SIM University, Singapore. He has published extensively in the field of the history of economic thought and has a biography of William Thomas Thornton forthcoming.