Is Modi Too Ambitious? Arvind Panagariya On Infrastructure, Reforms & Joining The Government

Is Modi Too Ambitious? Arvind Panagariya On Infrastructure, Reforms & Joining The Governmentfeatured


rvind Panagariya is a Professor of Economics & Jagdish Bhagwati Professor of Indian Political Economy at Columbia University. A well-known backer of Narendra Modi’s economic policies, the Princeton-trained economist is open to moving to India if offered a role in the new administration.

However, in an interview with The 545, the former Chief Economist with the Asian Development Bank cautioned that some of Modi’s infrastructure plans may be ambitious. Panagariya also called for urgent reforms in land and labor regulations, suggesting that a part of the solution would be to introduce “policy competition among the states.”

1. How would you place the three prime ministerial candidates in an economic context?

AP: Narendra Modi clearly talks in terms of development. Rahul Gandhi certainly goes more in terms of social programs. Arvind Kejriwal is difficult. On one hand you see his record in Delhi where he was going after these freebies, then on the manifesto he said he wants reforms, but the speeches that he gave in CII (Confederation of Indian Industry) don’t quite go along well with what he did in Delhi, so he is a bit harder to place in terms of an economic policy.

My choices are between the chief minister of Gujarat and Rahul Gandhi, who has delivered nothing…

2. Modi is running on the ticket of big infrastructure and economic change. How would you see it realistically playing out?

AP: The manifesto, much to my happiness, mentions key reforms of labor markets. It at least has a sentence or two on labor-intensive industries, which is something that I’ve been arguing very much – that without the labor intensive industries picking up, we won’t be able to get much of the employment effect that we are looking for.

The bullet train project is a toughie. One will actually need to see its feasibility. I think it is going to be an incredibly expensive project. He also mentions building new cities – 100 is very ambitious – but one has to take into account what size of cities is he talking about, of million people, or 50,000 people? Even 5,000 people can make a city. So if he means seriously large cities it is quite ambitious and of course it will take a lot of time. This of course means that Narendra Modi will require steps to restore growth to generate revenue, and of course that means executing key reforms that have been sitting in the back-burner all this time.

3. You have studied the Gujarat model and the “first difference” closely. How successful do you think it is, and do you think it can be replicated in the rest of the country?


Anybody who gives me about 10% growth for a reasonable period of time…is a hero

A country is different than a state, so the question to ask is that someone who has run the state very successfully, can he produce the outcomes in a country the same way? Policy choices are much more constrained in the state, whereas at the Center you get more play because you can change lots of laws. But then of course your playing field is much larger too. It’s a different problem to solve. Can a politician who has played in the state actually play out at the center – my answer is yes. If you look at the US – we could have said the same about President Clinton, George Bush, or Ronald Reagan – and these are three pretty successful presidents. From whatever I see of Narendra Modi, he looks to me quite capable.

4. You talk about crony capitalism and the Congress, but isn’t that a risk for Modi too, given his proximity to big industrialists like Gautam Adani and Mukesh Ambani?

AP: We should certainly be very cautious. What I do see is that nobody has charged that he is running a corruption scheme. His assets certainly don’t show that. My choices are between a government, which has been known to have allowed corruption to flourish under it versus somebody who’s known to have run basically a corruption-free government. I’m not saying that there’s no corruption in Gujarat; probably there is some.

5. What are the three things that whoever comes into power must do?

AP: He will have to first ensure that the decisions in the central government must be speeded up. Which of course means appointing a pragmatic environment minister. Certainly the environment has to be protected, but development also has to take place – it’s not one or the other. You can’t have the environment minister sit forever on files. The Prime Minister also has to come in and say to the bureaucracy that he takes responsibility for all the decisions. You need to move forward, because right now the entire process is paralyzed.

The second thing that he has to do immediately is restore the health of the banks. Non-performing assets and restructured loans together are almost 10% of the total loans and he will need to fix that.

There’s a third thing that he has to do, for all these big infrastructure projects. You need land for everything. The current land acquisition act is incredibly constraining. My own reading of the act, which is very complicated, is that if you start a large-scale acquisition today, you won’t complete it before seven years.

My personal advice would be, in each of the key legislations for land and labor, to introduce a clause pointing out the parts of the law that can be amended by the states only with the permission of the center. With the remainder, states are empowered to amend without any clearance from the center. Basically what you are doing is to amend land and labor legislations.

Some forward-looking states will amend labor and land laws…and unleash policy competition

6. Will you consider a job in the new government?

AP: Am I open to it? Yes. If I see that I could do some good, I would certainly consider it. I’m very happy here, and I’ve got great plans to start a center on Indian economic policies here with Professor Bhagwati. We have good things going on and produced a lot of very good research here in the last four five years together – about five books on policies on the national and state level. Either way, we’ll continue to contribute to India in one way or the other. But if I see there is greater value to be there for a few years, I’ll certainly think about it.


A former crime reporter from New Delhi, nowadays Indrani Basu can be found stopping people on New York streets and asking them their life histories. Tell her yours @IndraniBasu88

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