What should be India's long-term economic agenda?
What are the ideas you would like to see in long-term economic policy?
It is time for India to go for a major export thrust; in particular, in labour-intensive manufacturing export. This will also help mitigate the problem of poverty by enhancing India’s ability to absorb labour. But this will require a huge amount of effort and co-ordinated policy initiatives. It is not just a question of tweaking one tax rate here and giving one subsidy there. Fortunately, the mood of the country is such that you can float some big ideas and hope for them to find acceptance.
What is your view on the revival of Pigovian (of British economist Arthur Cecil Pigou) economic thought globally?
The Pigovian construct of intervening through taxes and subsidies is important but somewhat dated. I think we need more imaginative policymaking than going back to the old Pigovian constructs. Yes, there is of course a role in using taxes and subsidies to correct for externalities. But beyond that the important thing is for the government to play a more enabling role. The government’s first knee-jerk reaction must not be to stop people from doing what they are doing but to give individuals the latitude and freedom to innovate and perform trade and exchange. India is too big and complex a country for our government to be able to deliver all that its large citizenry needs — its food needs, employment needs and so on. To attempt this is to court failure. Instead government must conserve its limited resources to make surgical interventions and to be a referee for the marketplace that encourages the citizenry to provide for the needs of one another.
But wouldn’t Pigovian interventions be relevant in an economy trying to control emissions?
That is right but again this relates to the limited domain of externalities, where one person’s action adversely affects another’s well-being. This is an important area but we must not be obsessed with it. Pigou, I should warn you, became an obsessive hypochondriac in his old age.
(This story appears in the 19 February, 2010 issue of Forbes India. To visit our Archives, click here.)