Kaushik Basu named World Bank's chief economist

Kaushik Basu, till recently the chief economic adviser of the government of India, who created a political firestorm in April when he said here on the sidelines of the World Bank/International Monetary Fund meetings that no economic reforms were likely in India before 2014 when parliamentary elections are due, has been appointed the World Bank's Chief Economist and Senior Vice President.

Basu begins his term with the World Bank on October 1, 2012.

The new World Bank President Jim Yong Kim, in making the announcement on Wednesday, said, Basu -- who incidentally was on leave from his position as professor of economics and the C Marks Professor of International Studies at Cornell University, when he was co-opted into the Ministry of Finance by then finance minister and now President Pranab Mukherjee -- would be an invaluable asset to the bank.

Kim said that Basu, who also served as chairman of Cornell's Department of Economics and director of Cornell's Center for Analytic Economics and headed the Program on Comparative Economic Development, not only "having worked in a Ministry of Finance, in addition to his impressive academic achievements, is uniquely suited to help us offer evidence-based solutions and advice to client countries and provide innovative excellence in leading our development research."

"Kaushik brings first-hand experience from a developing country and will be a terrific asset to the institution," he added.

In April, after he returned to New Delhi after his controversial comments at the Carnegie Endowment for International Peace where the media and political uproar reached a crescendo, Basu was forced to clarify his remarks and denied saying that he had said that no economic reforms were possible till the parliamentary elections in 2014.

He said in a statement that his comments were not linked to India's general election but to a "possible European crisis," and explained that "at the Carnegie lecture, the gist of my argument was that 2014 was an important year because numerous European banks would have to begin to repay $ 1.3 trillion worth of loans that they had received from the European Central Bank."

"Some of this was reported on poorly, juxtaposing my comments on Europe in 2014 with the Indian election of 2014. This is unfortunate, because the central message of my talk was the possible European crisis of 2014 and India's major rise thereafter, likely overtaking China," he said.

Basu also said the opinion expressed by him at the meeting in Washington was his personal and it should not be seen as that of the government.

"This is one of the strengths of India that it allows us to generate and discuss new ideas without the government having to first endorses them," he said.

Basu argued that huge repayment of loan by European banks could result in third round of economic crisis after 2008 and 2011. "But soon after the possible European crisis of 2014, we could see India as the world's fastest growing economy, faster than even China," he said.

"I specifically mentioned that the problem with the Goods and Services Tax reform was that the opposition realised this is a good reform. Therefore, it was reluctant to let it happen under the current regime," he said.

"A single-party majority government would not face this problem. If there is a single-party majority in the next election, that will facilitate such reforms. I argued that some reforms, such as FDI in multi-brand retail, were likely to happen sooner because in principle they did not need the support of the opposition, and this will give a boost to the mood of the economy," Basu added.

At the time opposition members seized on Basu's comments, with former Finance Minister Yashwant Sinha saying that "I am not at all surprised at what Basu has told foreign investors in Washington."

Sinha said, "The fact is that this government has been suffering from paralysis in decision-making. Today, it is on a ventilator and Basu has merely stated the truth."

But the government's top policymakers like Montek Singh Ahluwalia, deputy chairman of the Planning Commission, speaking before Basu issued his clarification were quoted saying, "I am not sure what exactly Kaushik said, but he is too sensible a person to have said nothing can be done until after the next elections. The urgent task before the government is to revive the growth momentum and the investment climate and this does not require progress on a wide range of basic reforms for which parliamentary approval is necessary."

Ahluwalia predicted that "we can certainly revive growth if we take a number of executive decisions in quick time while also doing what we can to push longer term reforms."

Basu, who holds a PhD from the London School of Economics, founded the Centre for Development Economics at the Delhi School of Economics in 1992 and is a founding member of the Madras School of Economics. He has held visiting professorial positions at Harvard University, the Institute for Advanced Study, Princeton University, the London School of Economics, and M.I.T.

He has published widely and his contributions to the field span development economics, welfare economics, industrial organisation, and public economics.

His books include Analytical Development Economics (1997, MIT Press), Prelude to Political Economy: a Study of the Social and Political Foundations of Economics (2000, Oxford University Press), and Of People, Of Places: Sketches from an Economist's Notebook (1994, Oxford University Press) and Beyond the Invisible Hand: Groundwork for a New Economics (2011, Princeton University Press and Penguin).

Basu is a fellow of the Econometric Society and has been awarded India's National Mahalanobis Memorial Award. In May 2008 the president of India awarded Basu one of the country's highest civilian awards, the Padma Bhushan, for "distinguished service of high order."

Image: Kaushik Basu