From Prof Jagdish Bhagwati and Prof Arvind Panagariya.
Sir, The continuing deterioration in the state of the Indian economy and the slide in the rupee underline the peril that India’s policy makers have ignored to date as they wrap themselves in soothing populist rhetoric and policies.
First, the present government had ceased, until very recently, significant forward movement on the growth-oriented reforms that generated high growth since 1991 and reduced poverty hugely. The latest statistics show that poverty has declined yet more in recent years. But careful analysis shows that this has to do with not the populist schemes of the Congress government but with the reforms enacted under the preceding BJP government.
Second, the government is poised to produce yet more disaster in the economy by supporting the massive expansion of the Food Security Bill. Contrary to the assertions of a handful of ideological economists, most economists have noted that this expansion of social expenditures when revenue intake has slowed due to reduced growth is a sure-fire recipe for inflation to worsen.
This poses a danger to the Indian economy as it may precipitate reversal of earlier reforms by a panicky government. It also promises an electoral disaster for the incumbent Congress government: both the middle class and the poor (who are often hurt by inflation) can now be expected to turn to opposition parties at the impending election by next year. The populism that has been embraced in the hope of winning the election will have then turned into a poison pill.
Jagdish Bhagwati, Council on Foreign Relations
Arvind Panagariya, Columbia University, New York, NY, US