In a video conference recently organized by an Indian business forum, American economist Joseph Stiglitz made some strong statements about India’s economy and its handling of the Covid19 pandemic. Unfortunately, his statements were not based on any analysis but loose opinions based on hearsay. One would normally ignore this, but when a much-acclaimed economist - a Nobel prize winner no less - makes such public pronouncements, it is important to challenge them before they get accepted as conventional wisdom.
Prof. Stiglitz bunched Brazil, US and India as having ignored the “experts” and consequently mismanaged the Covid19 response. This is odd since India’s approach was completely different from the others, and was based on the best advice and information available at that time.
It is important, therefore, to put the record straight on the intellectual framework of India’s response. Back in March, very little was known about Covid19 beyond the fact that there had been a major outbreak in Wuhan, China, and that it was suddenly killing a lot of people in northern Italy. The WHO was far from clear on its recommendation. Epidemics experts consulted by governments around the world provided wide ranging assessments. Some advocated herd immunity, while others predicted millions of deaths. Different government took different approaches and many changed course midway.
Indian policy-makers, consequently, were making decisions under extreme uncertainty while being aware that it would not be possible to course correct later with 1.35 billion people. They opted for what is known in financial markets as a “barbell” strategy – i.e. hedge for the worst possible outcome while progressing step-by-step with a Bayesian updating of information. The initial total lockdown, therefore, should be seen as a hedge against the worst possibilities. It was bolstered by advice from those who argued that a strong initial lockdown could stall the epidemic at an early stage (not an unreasonable idea). It also gave the space to arrange a large-scale medical response in terms of equipment, quarantine and testing capacity.
As time has passed, the central government then unlocked the economy step-by-step as information as well as our medical capacity both improved. Lockdowns, where appropriate, are now left to local governments. Unlike in the beginning, it is possible to make sensible tradeoffs between health and economic needs. This explains why the government is willing to open up now despite many infected people whereas it did a lockdown when there were very few. Since Prof. Stiglitz owes his fame to writings on asymmetric information, I am sure he will appreciate the thinking behind the barbell strategy.
The Indian economic response during the lockdown phase was similarly oriented more towards providing a cushion to the most vulnerable segments of society and the business sector. Unlike many other countries, it judged that trying to pump demand during a lockdown was like pressing the accelerator when the foot was firmly on the brake. Instead, long-term structural reforms were put in place. With the economy now mostly unlocked, there is a case for an appropriate demand stimulus with infrastructure investment taking center-stage.
Prof. Stiglitz agrees with the need for a demand stimulus but wants it funded by unrestrained monetization and extortionate taxes on billionaires. Indian media and academics tend to be too cautious on monetization. Carefully calibrated, it should indeed be part of the financing mix but the kind of unstrained monetization advocated by Prof Stiglitz is not advisable for India. It is perhaps an option of the US because of its “exorbitant privilege” of issuing the world’s anchor currency. Similarly, the good professor may like to read up on India’s economic history about the socialist-era experiment with a 97.5% marginal tax rate. Let’s say, it did not go well.
Finally, Professor Stiglitz accused the current government led by Prime Minister Modi of jeopardizing India’s economic prospects by stoking sectarian violence. But, as a social scientist, he should surely consider the data where the trend is downward. During the five-year period 2015-2019, riots across India killed 231 people. This is the same level as 2010-2014 and 24% below the 2005-2009 count. For a sense of how much things have improved, recall that 1650 people killed during 1990-94, and the thousands killed in the space of a few days during the anti-Sikh riots of 1984 or the Marichjhapi massacre of 1979.
The same can be said of terrorist attacks. There has been no large-scale attack on a major city since 2014. This is no trivial achievement for a country where this was routine for decades: the Mumbai attack of 26/11/2008, the Mumbai train bombings of 1993 and 2006, the Parliament attack in Delhi 2001, the Khalistani violence of the 1980s, Naxalite violence of the 1960s, and the many secessionist movements in the North-East. While pockets of militancy remain, there has been a palpable decline in terrorist activity of all shades.
To conclude, Prof. Stiglitz is famous for his work on asymmetric information and would do well to avoid politically tilted opinions based on selective information.
(Sanjeev Sanyal in Principal Economic Adviser, Government of India. All opinions are strictly personal).