Four years ago, an Indian-origin economist from MIT had warned of a great crisis in the Indian economy. Specifically, he had talked about India’s “broken” banking and financial sector and the frightening scale of bankruptcy in its corporate sector, particularly in infrastructure and power.
Nobody had paid much attention then. Who, after all, was a not-so-well-known economist from America to preach about India? Our economic leaders knew better.
Today, however, almost everyone acknowledges that those observations were spot on.
The economist who had warned that India was riding a tiger and there was no use pretending there is no crisis, was none other than Dr Abhijit Vinayak Banerjee, Ford Foundation International Professor of Economics at the Massachusetts Institute of Technology (MIT). He is among the three people this week who shared the Economics Nobel Prize for their work on finding solutions to fight poverty.
Dr Banerjee joins the small list of Indians who have won the Nobel Prize which includes among others legends such as poet Rabindranath Tagore (India’s first Nobel Prize winner), scientist C.V. Raman, geneticist Har Gobind Khorana and economist Amartya Sen, besides of course adopted Indian Mother Teresa of Calcutta.
Dr Banerjee along with his wife and fellow economist, Esther Duflo, both from MIT, and Michael Kremer from Harvard University together won the world’s most prestigious economics prize for their work. The jury of the Royal Swedish Academy of Sciences said this year’s “laureates have introduced a new approach to obtaining reliable answers about the best ways to fight global poverty”.
India’s economic development and its widespread poverty has clearly been a lifelong concern for Dr Banerjee, who was born in Mumbai in 1961 but grew up in Calcutta where he finished school from South Point and his graduation from the prestigious Presidency College. His father, Dr Dipak Banerjee, a celebrated economist in his own right, was the youngest head of the economics department of Presidency College. Dr Banerjee’s social consciousness was formed in Calcutta and probably fortified by his stint at New Delhi’s Jawaharlal Nehru University (JNU), from where he completed his masters in economics. It appears that he spent 10 days behind bars in Tihar Jail for participating in an agitation while at JNU. Thereafter, he went on to do his Ph.D. at Harvard University, where his thesis was on “Essays in Information Economics”.
Although an American citizen, he remains an Indian at heart. His mother Nirmala Banerjee, in a television interview following the prize, declared: “He is very much an Indian in every sense. He was very reluctant to change his citizenship.”
In fact, her son’s association with India, far from fading after moving to the United States, only seems to have deepened. His focus over the years seems to have moved away from highly mathematical work to seeking solutions to alleviate poverty in his country of origin and other parts of the developing world.
He first came in contact with his future wife in 1990 when he supervised her Ph.D. which was on the link between education and higher wages in a developing country like Indonesia. Subsequently, the two worked together on several research projects, including in India. He was in fact her guide during her first field trip to India in 1997.
Dr Duflo, described as a left-of-centre French intellectual, and Dr Banerjee, an India-born liberal, appear to have bonded over several trips to India and other developing countries. In 2003, Dr Banerjee, Dr Duflo and Sendhil Mullainathan founded the Abdul Latif Jameel Poverty Action Lab at MIT with the aim of “transforming how the world approaches the challenges of global poverty”.
This work led to the couple co-authoring a much-discussed book in 2011 titled Poor Economics; on their experiments in combating poverty in the developing world. A lot of the work involved testing accepted approaches to poverty alleviation and discovering new insights into the process through actual field studies.
This collaboration had two results: one, an enduring insight into the problems of poverty, and the other a personal relationship that culminated in their marriage in 2015. The Nobel Prize in a sense was an acknowledgement of the success of their relationship, particularly of their path-breaking work.
“This year’s laureates have introduced a new approach to obtaining reliable answers about the best ways to fight global poverty”; the Nobel Prize jury declared, adding: “The three found efficient ways of combatting poverty by breaking down difficult issues into smaller, more manageable questions, which can then be answered through field experiments… They have shown that these smaller, more precise, questions are often best answered via carefully designed experiments among the people who are most affected.”
Dr Banerjee never took his eyes off India and his insights were not restricted to poverty alone. When he was invited to speak at the 2015 ET Global Business Summit, he minced no words in pointing out that our “financial sector, our banking sector is broken like nobody’s business, more broken than it has ever been, in my view, and in that form, I do feel that we are in, I think, the people who need the money in infrastructure sector are massively in debt… The bad news is that even if people came to us with tonnes of money to lend, I do not think we are in a position to borrow… we do not have the kind of equity that we should have had. One of the consequences of that is that the last four years, a very large number of infrastructure and power companies that are on paper probably still not bankrupt are, in effect, I think, bankrupt. That is our fundamental problem, unless we solve that problem, all the capital sloshing around is not going to go anywhere.”
He had prophesied that a huge bailout of the banking sector would be needed and that the danger lay in doing too little or being too conservative. Four years down the line, little has changed. Corporate debt has only risen and the term “non-performing assets”, or NPAs, of banks has become common parlance.
He has also been critical of the Narendra Modi government’s economic policies, particularly demonetisation and GST implementation. Sadly, neither his advice on macro-economic issues nor his research on poverty will find any official takers in his country of origin. On the other hand, millions of Indians would perhaps now be inspired to read his work and maybe find inspiration for the future.
