On 8th August 2019, Rakesh Mohan (RM), former Deputy Governor of the RBI, delivered the inaugural lecture of the Economics Society of St. Stephen’s College. It was based on the growth trajectory of India and the need for a comprehensive push. Post the lecture, Antora Bhattacharya (AB) and Rhea Sinha (RS) interviewed him. The transcript of the interview is as follows:
RS: Sir what inspired you to take up Economics after pursuing a degree in engineering?
RM: That was almost 50 years ago! When I did Electrical Engineering, even though I liked Math and Physics, I realised that there was no academic challenge in studying these subjects. After completing the degree, I wanted to pursue Economics from a development point of view and that is what propelled me towards Economics as a subject.
AB: Since India gained independence, the region of Kashmir has been ravaged by wars and conflicts. Today, its economy is primarily agrarian, having not developed to embrace the service sector as in most other states. From a historical perspective, what do you believe might have been the economic growth story of Kashmir, had it been free from such problems?
RM: I do not know much about the economics of Kashmir to answer this question properly. It is obvious that all these wars and conflicts have slightly negatively impacted its economy. To understand the economy of Kashmir, I believe it would be best to compare it with other hilly states of India like Himachal Pradesh and Uttarakhand. Himachal Pradesh has a great health and education sector. In that regard, so does Kashmir. Another important sector in Kashmir that earns a lot of revenue is tourism. In fact, I think tourism in Kashmir has more scope to develop and generate revenue than even in Himachal. So, on comparing with other hilly states, the economy of Kashmir would be fine, but I don’t believe there would be any boom, as such, or major development like in states such as Gujarat and Tamil Nadu.
RS: India is divided into two different economic settings, the urban and the rural. The phenomenon of urbanisation is considered to be directly proportional to development. Do you think that emphasis on urban growth and greater focus on creation of job opportunities beyond the primary sector could be an avenue for positive growth or do you think the pursuit of such an activity be counterproductive to development?
RM: There is absolutely no reason as to why ‘urbanisation’ would actually be categorized as counterproductive. In fact the question that we need to ask is: why has the phenomenon of urbanisation not occured at a faster rate in India? There is a dire need to focus on building and creating a manufacturing sector in our country, but considering India’s circumstances and huge population it is imperative to make sure that it is labor intensive. When we make our manufacturing sector labor intensive there will also be an upsurge in the services that are being provided. This will necessitate the need of a service sector organically and thus would help in moving our country towards development. Thus there becomes the absolute need to focus on ‘urbanisation’.
AB: There has recently been a shift in the political structures prevalent in many countries around the world, with major powers like the USA and the UK electing right wing, conservative governments. From an economist’s perspective, why do you believe such governments are being elected right now?
RM: This is a very good question and I get asked this a lot. There has definitely been a shift towards electing right wing governments in major developed countries. However, if you actually look at the numbers, like, for example, if you compare the votes received by Mitt Romney against Obama in the 2012 US Presidential election, and those received by Trump against Hillary, there isn’t a very big difference. Trump even lost the popular vote to Hillary and only won the election due to the electoral college system in the US. So, this shows that there hasn’t been a very big shift towards supporting the right wing as believed. However, this also doesn’t explain the election and popularity of leaders like Duterte in Philippines, Erdogan in Turkey and even Modi for that matter. I will say this: there is a lot of resentment felt by the people. Since the 2008 financial crisis, growth has been slow. Most people affected by the crisis continue to feel resentment towards the status quo. They feel like the current political structures have only helped the rich become even richer, and do not benefit the common people in any way. This explains why populist governments are being elected around the world.
RS: Due to globalisation, we see the need for greater coordination among monetary policy approaches. Do you believe the hegemonic influence of a first world country like USA on monetary practices could be detrimental to India’s economy in the long run?
RM: This a very relevant question, considering that our economy is no longer just confined to the borders of the nation, but rather extends across the entire globe. It becomes absolutely necessary to bring about a certain standardisation in the monetary policy of countries which take part in the global economy. The monetary policy in the USA which looks at setting interest rates to combat inflation is something that isn’t suitable for a country like India. The globalisation of financial markets, even if imperfect, has now magnified the impact of monetary policy actions taken in one country on others.
AB: What books would you recommend to students who are interested in understanding growth and development of India from a macroeconomic perspective?
RM: This is a tough question. I could recommend my reading list (laughs). The best book, in my opinion, is “Why Growth Matters: How Economics Growth in India Reduced Poverty and the Lessons for Other Developing Countries” by Arvind Panagariya. It is a very simple and comprehensive book. I would recommend reading it.