In Kaushik Basu's Journal, an Irreverent Peek Into the Interior of Policy Worlds

Kaushik Basu cannot be accused of sloth. Research papers, books and newspaper columns tumble out of him in a steady stream. His latest book, Policymaker’s Journal: From New Delhi to Washington D.C. (Simon and Schuster India), is a diary covering two spells in policy realms.

He joined the Ministry of Finance in India for three years as chief economic adviser (CEA) starting in 2009, a year after the global crisis of September 2008.  From there he moved to the World Bank as chief economist (and senior vice president) during 2012-16.  The book is not a serious review of economic policy, ground covered in an earlier book, but is more a conspiratorial invitation to the reader to take a peek into the interior of policy worlds, marvel at the people he meets and laugh with him at what goes on there. The front cover blurb by Raghuram Rajan describes the book as “interesting, funny, and insightful”.

Although the book claims to be just “impressions of the moment” jotted down at the time, insertions of later provenance detract in some cases from the immediacy of a true diary. The entry for December 25, 2009 has an extended disquisition on Amartya Sen, doctoral guide and lifelong mentor of the author, who dined with the Basus that night.  

Also read: Amartya Sen on the Class Factor in the Economics of Disaster

Kaushik Basu’s humour stems from a deliciously privileged sense of his own clarity of speech and thought, as he gazes at a world less blessed. To quote from his first day in office as CEA: “The problem stems from the fact that I speak clearly. The art of political speech is to say things that sound meaningful but are impossible to pin down. No one can say what you said is wrong because no one can understand what you said.”

Here is a later diary entry: “When it comes to creative, analytical thinking, I try not to, but I do feel disdain towards most people, including successful academics.  I keep feeling I am seeing through problems much deeper, much more transparently, than they can.”

His expertise in slashing a game-theoretic sword through the thicket of microeconomic issues in development policy did not equip him for a context where the dominant problems were how to contain and reverse the Indian response to the G-20 call for a concerted fiscal stimulus in the aftermath of the global crisis, and the consequent inflationary pressures. He started a working paper series in the Ministry of Finance, of which one in March 2011 aimed to show that the corruption then raging could be stopped in its tracks by a law protecting people reporting corruption. The point at which corruption stings the ordinary citizen is far removed from the place where it draws its sanction. In reporting an incident, the victim would be taking on a Goliath whose size and muscle could extend to eliminating him altogether. His best bet would be to stay anonymous.

Kaushik Basu admits he does economics for the fun of exercising his logical skills, not to make the world a better place. But he says he cast aside his pursuit of fun, and entered policymaking to “try to raise the standard of living and well-being of the nation that was in my charge”. Not quite in his charge. The job of CEA, in managerial parlance, is a staff function, not a line function.  The only deliverable is the annual Economic Survey, due in Parliament the day before the Union Budget. The CEA is free to air his opinion in the Economic Survey, and has enough attached staff and access to government data to fulfil his fondest research dreams. However, the CEA is not in the line of command along which policy is actually designed and executed, within the Ministry of Finance or beyond.  The odd file might be marked to him for his opinion.  That being the case, Basu as CEA cannot be blamed for having left the Indian economy with an untamed fiscal deficit, high inflation and slowing growth, at his departure in 2012 after a three-year term. 

By virtue of his close links to Prime Minister Manmohan Singh, he was given more opportunities than the typical CEA – being called to present his stand on an issue directly before the Cabinet, or to represent India at G-20 meetings.  

The CEA is also head of the Indian Economic Service (IES), set up to generate a trained cadre of professional economists, with experience of the Indian system gained from working their way up the ladder. Basu found them a useful source for “so many tricky aspects of Indian policymaking that I still do not fully understand.  I have to keep calling them to explain things to me.” He is too modest to say what he did for them in return, by way of strengthening the service or enriching them intellectually. 

To frame successful policy in India, one has to be a fiscal plumber by profession, know budget heads and how funds flow and the points at which they can be covertly or overtly obstructed. One has to know that legislated limits on fiscal deficits have led to a number of stratagems, like delaying expenditures in seemingly legitimate ways. (Basu comments sarcastically on his wife Alaka’s struggles to extract her delayed salary from a public university: “Hats off, India”). Those delays result among other things in the high working capital requirements of Indian business.  The CEA is actually well positioned to get that kind of grunt work done, but sadly, many of them, unfamiliar as they were with the Indian system, or not interested in anything other than themselves, did not even know such work needed to be done.

The second section of the book deals with the author’s term as chief economist of the World Bank in 2012. There is more seriousness of purpose, perhaps inspired by the square footage of “the largest office I have ever occupied”. Sometimes the old irreverence returns. When asked to speak on a subject on which he knew nothing, he relied on experience in India which “had trained me well to speak without content”.

The World Bank offered a much larger global canvas than India possibly could. The chief economist presides over a vast division of the World Bank in charge of collection, dissemination and analysis of statistics, with a research group of highly skilled empirical economists.  The division had already started the annual Ease of Doing Business Report, but Basu opened a second office for it in Malaysia, an excellent choice of location.  Malaysia is the only country to have successfully challenged the policy prescriptions of the International Monetary Fund, during and after the East Asian crisis of the late nineties.

Basu is proud of having prodded the World Bank into formally adopting the twin targets of eliminating extreme poverty by 2030, and “promoting shared prosperity”, measured by the well-being of the bottom 40% of the population in each country, with an added commitment to issuing data on the second indicator every year.

At the same time, he did not care to ram through the abundant opportunities he got to actually improve conditions faced by the poorest deciles.  On a visit to one of the South African townships, a legacy of apartheid, he describes how the hapless inhabitants live on land with no ownership or tenancy rights, with raging crime and prohibitive transport costs to day jobs in the cities.  He is content to recall a paper he wrote in the Economic Journal on the importance of property and tenancy rights, and leave it at that.  In his subsequent dinner with South African Finance Minister Pravin Gordhan, he could have pressed for a subsidised bus service to these settlements. If he did, he does not say so. Spatially contextual interventions like that are what reduce the bite of poverty.

Basu enjoyed the World Bank job more than the one in India. He interacted with the movers and shakers of the world. He walked across from his World Bank office to the White House to attend a meeting called by President Obama, preparatory to his second trip to India.  

The best segments of the book are the memories triggered by encounters with the great economists, like Hal Varian and Kenneth Arrow. Working economists can relate to the blessing of having good journal editors like Varian, who exercise judgement over referee reports, or the sense of elevation that comes from having gentle giants like Arrow at the head of the profession. Basu was able to create opportunities for incessant travel to charming parts of the world, descriptions of which turn segments of the book into an extended travelogue. 

In all fairness, Basu does occasionally laugh at himself. He was flattered when John Nash attended one of his talks, for the five minutes that he stayed awake. He is aware that policy is “major life-affecting decisions we take with so little understanding of the consequences of these actions”. He even laughs at his own vanity.  At a mega talk in Dhaka, when the chairman introduced him as the Shah Rukh Khan of academics, “I tried hard not to nod but I think I did.”

“In any case so much of life is luck.” Said disarmingly at the time of his World Bank appointment, Kaushik Basu continues to be lucky. He roosts at Cornell University, than which a more scenic location or amenable professional environment can scarcely be imagined. His country honoured him with a Padma Bhushan even before his appointment as CEA. What more could anyone want? 

Indira Rajaraman was Member of the 13th Finance Commission (2007-09), and Member of the Central Board of Directors, Reserve Bank of India for a four-year term 2011-15.