Not often does an economists’ spat make the evening news. Yet that’s precisely what happened earlier this month in India, where breathless correspondents have recorded in tit-for-tat detail the very public tiff between Jagdish Bhagwati and Amartya Sen. It’s not the first time that the India-born Ivy League professors — Bhagwati teaches at Columbia University, Sen at Harvard — have been at opposite poles over the economic direction of their motherland. But their divergent views on how to lift millions out of poverty is more than a mere academic feud — it reflects the uncertain future of Asia’s third largest economy.
An abridged version of the clash of the economic titans goes like this: Bhagwati argues that continuing the market reforms started when the Indian economy liberalized in 1991 will help create the growth needed to bring more citizens out of poverty. Sen, a Nobel laureate, argues that focusing on growth alone is not enough, and that public expenditure on social programs, especially health care and education, is vital to help the country meet its full potential. The long-running chicken-and-egg debate was revived earlier this month after the Economist reviewed An Uncertain Glory: India and Its Contradictions, Sen’s recent book co-authored with Jean Drèze. Bhagwati and Arvind Panagariya — his co-author on their recent book Why Growth Matters: How Economic Growth in India Reduced Poverty and the Lessons for Other Developing Countries — responded with a letter to the editor, claiming that Sen had only “belatedly learned to give lip service to growth.” Sen took the bait, submitting an equally curt letter defending his record. A frenzy of commentary in the Indian press ensued.
The shrillness of the debate has mellowed, but the questions it raised linger. Righting the grim fiscal landscape — and keeping India on an upward trajectory that will continue to improve citizens’ lives — has been a national priority since the country began to fall off its high-growth path two years ago. On July 30, the Reserve Bank of India cut its growth forecast for the current fiscal year from 5.7% to 5.5%. This week, following the rupee’s fall to a record low earlier in the month, Prime Minister Manmohan Singh met with business leaders to discuss how to combat the weak currency and boost investor confidence. “The reason [the Bhagwati-Sen debate] is resonating now is because of what is happening in India — the sense that growth is slow, and that maybe the country is on the verge of a financial crisis,” says Arvind Subramanian, a senior fellow at the Peterson Institute for International Economics in Washington. “Essentially, we have had three decades of reasonable growth, and the question is whether that model has run out of steam.”
The debate’s stark polarization can also be traced to India’s other central preoccupation: politics. In this month’s media scrum, the economists’ opposing philosophies have been shoehorned into the evolving narrative of national elections set for next year. Sen and Drèze support social-welfare programs, a calling card of the ruling Congress Party; Sen has also openly criticized Narendra Modi, the recently appointed campaign chief of the opposition Bharatiya Janata Party. These remarks have led many in India to conclude that the two academics back Singh’s Congress-led government. Bhagwati and Panagariya, for their part, have pointed to Gujarat, the state where Modi is chief minister, as a model of growth and social progress. (Modi, a controversial and divisive politician because of the killing of at least 2,000 Muslims during unrest in Gujarat in 2002, is expected to go for the country’s top job next year.)
What’s the right way forward for India? Most economists working in India today, says Partha Mukhopadhyay, a senior research fellow at the New Delhi–based Centre for Policy Research, fall somewhere on a “sliding scale” between reform-oriented growth at one end and government-led redistribution of wealth at the other. (One example of the latter is the recently signed Food Security Bill, which aims to give some two-thirds of the population 5 kg of subsidized grain a month at a cost of billions to the treasury.) But more important, Mukhopadhyay says, “if the Indian growth story is to happen, the state has to learn how to function.” In other words, if government spending on health care and education is not yielding higher quality and efficiency — which many argue it is not — then the money is going to waste. On the other hand, simply letting the state off the hook for underperforming in these areas, and counting on private-sector growth to pull them forward, is not practicable either.
While Subramanian has been critical of Sen’s advocacy of heavy social expenditure, he also doubts the contention by Bhagwati and other free-marketeers that reforms alone will translate into the growth needed to reduce the country’s devastating poverty. “India is now one of the most open countries to foreign direct investment, but foreigners are not going to come in because they have absolutely no faith in the stability of the regulatory regime,” he says. “The state has to do a lot of basic things that it’s not doing.” Ensuring that rule of law and basic services are functioning will be crucial to creating more growth and stopping the flight from the public sphere of more and more members of India’s growing middle class, who are increasingly seeking private health care, living in gated communities and sending their kids to school overseas. Perhaps the question that Indian voters should be asking themselves today is not whose economic theory is correct, but who are the men and women in government who can make things right.