Jeffrey Sachs: ‘Weak private investment … as there is lack of clarity about long-term direction’

Written by Aanchal Magazine
, Pranav Mukul
| New Delhi |

Updated: January 31, 2020 11:38:35 am

Jeffrey SachsUrging the Indian government to set clear and quantified long-term targets before making budget plans to get away from the short-term political cycle to the longer-term development cycle, JEFFREY SACHS, economist and Director of the Center for Sustainable Development at Columbia University said that short-term measures cannot compete with long-term needs if they lead to an unsustainable fiscal situation. Speaking with AANCHAL MAGAZINE and PRANAV MUKUL, he said that India needs a clear narrative on its where it is going, what is it going to look like in 10 years, what the growth sectors are, and what is the government’s priority. Edited excerpts:
India’s growth story has taken a hit. We have an upcoming budget, so should growth be the focus or sticking to budget targets?
Our economic policy should be oriented towards improving the common good. For India, that means continued improvements of basic public services, such as health and education as fundamental goals and addressing the growing environmental crisis with massive air pollution, the water crisis and the climate change crisis. The slow growth in many places in the world including India comes in part from a slowdown of private investment because there is a lack of clarity about the long-term direction. So when I emphasise the social services and the change of energy system because of the climate and the resilience of infrastructure, these would give much greater clarity to private investors as well. How to proceed, the direction of, for example, electrification, the building of the solar power in this country, the electrification of vehicles, and the development of battery supply chains, areas where the private sector should be involved. But because there isn’t clarity of public policy, we neither have the public investments nor the private investments. We have the same situation in the United States actually where private investment is weak because the government makes no sense in its policies, it’s incoherent and despite tax cuts and many benefits for the business sector, those are basically being pocketed as income not spent on new investments by the business sector. It’s a reflection of the broad business environment.
You had earlier said that India needs a government that operates like a business and needs a timetable and proper agenda. Do you think that has happened in the last 5-6 years?
I think it’s probably happened less now than maybe during the first term. I don’t see the clear goals, timelines. The idea of the sustainable development goals is to set clear goals for 2030, clear timelines to achieve those goals, clear budgets to fund the timelines, and clear metrics to assemble the evidence of being on track or off track. I don’t really see that happening in a number of areas right now. I don’t think it’s happening on environment, energy systems, water, health, education. We are in 2020, that’s a round number, start of the new decade. And I would say that the 10 years to 2030 should be viewed as a unit of time for purposes of public planning. I would urge the government set clear, monitored, quantified targets and then make clear budget plans for achieving them and use the 10-year time horizon for clarity and for getting away from the very short-term political cycle to the longer-term development cycle.
The India picture was one of being an exciting destination for global investors because of a large middle-income base and the high growth rates. But now major foreign investors like Vodafone are taking a step back, Do you think the policy mechanism is making India less attractive for global investors?
Right now, because of the policies of a number of governments, there is quite a significant decline in foreign investment taking place because people like Trump are trying to break globalization. In India, I think some of the protectionist impulses are there as well. And again, I mentioned the surprise last-minute decision of India not to join RCEP. This is causing everybody to think – What should we do? The uncertainty with China is palpable, and will definitely also change the dynamics. What’s lost right now it’s a clear narrative where we are going, what is indeed going to look like in 10-20 years; where are the growth sectors; where is the government’s priority; how is it leading the particular challenges. If those are clearly answered the outcomes will also include more investor confidence, both domestic and foreign.
Right now India is seeing continued social protests? Does that add to the uncertainty and how do global investors view it?
This is like what we’re viewing in the US, which is actions being taken by government, which deeply discomfort parts of society and create animosity and distrust and social protest. To my mind, these are detrimental to sustainable development and to the real challenges that we face in the US. We’re in the middle of this right now. The Trump administration is deeply anti-migrant, deeply racist in many ways. In India, it’s this situation of an extraordinarily diverse civilization, with people of so many ethnicities, so many religious traditions, so many backgrounds, that I believe that the strength of this civilization is its diversity. And that should be championed. I think what the protests are about is that this is a reaction against a very different view. In general, the world truly is diverse and when we pretend that it’s not diverse, we end up fighting each other and all of this particularism and ethnic politics. So it’s rather upsetting to me. Here, same with the United States and it’s true in many other places as well that dominant groups are cracking down. We are in a time right now where dominant groups feel that they can load it over minority groups and we will not make it as a humanity with that point of view.
Read | ‘The biggest fear is if growth doesn’t pick up, it will spill onto the streets’
India has tried to not to get caught up in the trade wars but for you, it still seemed to have suffered from it. Do you think it’s much more complex issue than what India’s policymakers have been able to fathom?
Well, Trump is a bully. But nobody says so. And the result is that there’s a lot more dislocation in the world economy because of the bullying, then there should be. This is a general point, it’s not only India that doesn’t say it. Europe doesn’t say it. Because that’s what bullies do. They get away with bullying for a while. And India indeed got caught up in the middle of this. I think what’s important for India is to have clarity about the longer-term interests aligning with the United States, so-called against China would be a dreadful mistake, economically and geopolitically. Because cooperation in the Asian region is crucial because India and China should be developing strong business relations and peaceful compatible foreign policy relations. The US wants to pull India into an anti-China camp. This is ridiculous from the point of view of India’s interests. So, this is what I mean, it would be detrimental for economic development, certainly. I think India does have a delicate balancing act to play, but the strategy should be especially good relations in Asia. I was disappointed that India did not join the RCEP. I think that this was a setback for the Indian economy. Again, a lack of clarity. Here you have this large market forming China, Japan, Korea, Australia, New Zealand, ASEAN, and India alone says no, no, we’re not going to be part of that. Well, that can’t make sense. So, this is another point of uncertainty from India’s point of view.
There is an alternate school of thought which has been developing in India’s looking inwards because of certain issues like Huawei and the entire Wuhan-virus situation that threatens India’s health security. Would you agree with India’s need to become more self-dependent in certain sectors?
China has a ‘Made in China 2025’ policy. It’s one of the things that got the US revved up because China said we’re going to build certain sectors and they’re doing it. I think it’s appropriate for India to have strategic sectors and to be working on them, not backward protected sectors, but forward-looking sectors, but rarely is the choice all or nothing. India will not be creating 5G (equipment manufacturing capabilities) in the short term, this is for sure. So, India either will be participating in this with the low-cost suppliers or it will lag maybe a decade or more. Of course, developing the capacity in digital areas is extremely important and India has a lot of potential for that. But I would also think that alongside that is active trade and investment with China. And the idea of strategic industries is not closed economy. It is integrated, but with some added state support, strategic support for particular areas, which I believe in. It’s a more nuanced approach. And it’s rarely protectionism rather than support for some added support for some important sectors.
Demonetisation was one of the significant events in India and you had mentioned the possibility of India going the cashless way. But we are back with more cash in the economy. Should we still pursue less cash economy goals?
I think the follow up to demonetisation was not very good. The decision seemed to have been taken abruptly. It had a certain appeal: we’re going to crack down on corruption; we’re going to legalise transactions. Maybe if there had been a year of thinking beforehand about what would happen the next day, how it would be managed, how accounts would be in place, how merchants would be able to deal and so on, the economic effects would have been net positive. It’s interesting the government didn’t pay much of a political price for it. What surprised me was the relative lack of intensive follow up as a strategic move. It was more a one-shot move without a lot of systematic management afterwards, and I thought there would be more systematic rollout, but it seems to have been done rather quickly without preparation.
There has been a shift of narrative within India from poverty-related issues to unemployment. Do you think the unemployment problem is stealing away the attention that poverty issues deserve?
I don’t think that there are different agendas. Poverty and jobs both depend fundamentally on skills. If you take a 20-year perspective, by far, the most important investment in this country is young people, their health, their nutrition, and their education and their skill development. That’s where the real life of any economy is, but especially in economy at India’s stage of development, which has great potential if the skills are cultivated in the country. Poverty agenda, per se, or the jobs agenda is really not different from the social agenda. You need healthy, well nourished, well educated people to provide a productive economy and for jobs to be on offer and for investors to invest. And so it’s to my mind not a choice between jobs-based strategy and a social-based strategy but it is a matter of time horizon. Maybe some people think a jobs-based strategy is a very short-term investments in very labor intensive, unskilled activities. That’s not what I would have in mind for a jobs programme. What I would have in mind for jobs programme is building sectors and industries of the future by building the skills and the health of the young labour force.
India has tried to not to get caught up in the trade wars but you it still seemed to have suffered from it. Do you think it’s much more complex issue than what India’s policymakers have been able to fathom?
Well, Trump is a bully. But nobody says so. And the result is that there’s a lot more dislocation in the world economy because of the bullying, then there should be. This is a general point, it’s not only India that doesn’t say it. Europe doesn’t say it. Because that’s what bullies do. They get away with bullying for a while. And India indeed got caught up in the middle of this. I think what’s important for India is to have clarity about the longer term interests aligning with the United States, so-called against China would be a dreadful mistake, economically and geopolitically. Because cooperation in the Asian region is crucial, because India and China should be developing strong business relations and peaceful compatible foreign policy relations. The US wants to pull India into an anti-China camp. This is ridiculous from the point of view of India’s interests. So, this is what I mean, it would be detrimental for economic development, certainly. I think India does have a delicate balancing act to play, but the strategy should be especially good relations in Asia. I was disappointed that India did not join the RCEP. I think that this was a setback for the Indian economy. Again, a lack of clarity. Here you have this large market forming China, Japan, Korea, Australia, New Zealand, ASEAN, and India alone says no, no, we’re not going to be part of that. Well, that can’t make sense. So, this is another point of uncertainty from India’s point of view.
There is an alternate school of thought which has been developing in India’s looking inwards because of certain issues like Huawei and the entire Wuhan-virus situation that threatens India’s health security. Would you agree with India’s need to become more self-dependent in certain sectors?
China has a ‘Made in China 2025’ policy. It’s one of the things that got the US revved up because China said we’re going to build certain sectors and they’re doing it. I think it’s appropriate for India to have strategic sectors and to be working on them, not backward protected sectors, but forward looking sectors, but rarely is the choice all or nothing. India will not be creating 5G (equipment manufacturing capabilities) in the short term, this is for sure. So, India either will be participating in this with the low-cost suppliers or it will lag maybe a decade or more. Of course, developing the capacity in digital areas is extremely important and India has a lot of potential for that. But I would also think that alongside that is active trade and investment with China. And the idea of strategic industries is not closed economy. It is integrated, but with some added state support, strategic support for particular areas, which I believe in. It’s a more nuanced approach. And it’s rarely protectionism rather than support for some added support for some important sectors.
Demonetisation was one of the significant events in India and you had mentioned the possibility of India going the cashless way. But we are back with more cash in the economy. Should we still pursue less cash economy goals?
I think the follow up to demonetisation was not very good. The decision seemed to have been taken abruptly. It had a certain appeal: we’re going to crack down on corruption; we’re going to legalise transactions. Maybe if there had been a year of thinking beforehand about what would happen the next day, how it would be managed, how accounts would be in place, how merchants would be able to deal and so on, the economic effects would have been net positive. It’s interesting the government didn’t pay much of a political price for it. What surprised me was the relative lack of intensive follow up as a strategic move. It was more a one-shot move without a lot of systematic management afterwards, and I thought there would be more systematic rollout, but it seems to have been done rather quickly without preparation.
There has been a shift of narrative within India from poverty-related issues to unemployment. Do you think the unemployment problem is stealing away the attention that poverty issues deserve?
A: I don’t think that there are different agendas. Poverty and jobs both depend fundamentally on skills. If you take a 20-year perspective, by far, the most important investment in this country is young people, their health, their nutrition, and their education and their skill development. That’s where the real life of any economy is, but especially in economy at India’s stage of development, which has great potential if the skills are cultivated in the country. Poverty agenda, per se, or the jobs agenda is really not different from the social agenda. You need healthy, well nourished, well educated people to provide a productive economy and for jobs to be on offer and for investors to invest. And so it’s to my mind not a choice between jobs-based strategy and a social-based strategy but it is a matter of time horizon. Maybe some people think a jobs-based strategy is a very short-term investments in very labor intensive, unskilled activities. That’s not what I would have in mind for a jobs programme. What I would have in mind for jobs programme is building sectors and industries of the future by building the skills and the health of the young labor force.
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