University News

Economist discusses India’s role in global economy

Staff Writer
Monday, November 19, 2012

The Eurozone crisis woke up India “with a jolt last year,” prompting the nation to strive to adapt to a changing global economy, said World Bank Chief Economist Kaushik Basu in the second installment of a two-part lecture on Indian economic development Friday afternoon. 

Basu – the inaugural speaker of the Brown-India Initiative’s OP Jindal Distinguished Lecture series – was previously the chief economic adviser for India’s Ministry of Finance.

Basu traced the history of India’s economic development since 1947, when it gained independence, to 2009 in the first part of the lecture, and he continued from that point Friday, discussing India’s relationship to the European and American economic crises and the role of economic analysis in creating laws.

Before the Eurozone crisis, Basu said, the borrowing rates for different countries across the European Union were relatively similar. Yet when the debt crisis hit, the differences in interest rates grew, and those disparities became more salient to the global markets and to countries like India.

India is now trying to balance its role as a growing economic power with the dangers a globalized economy presents, Basu said. 

“There is a tightrope run in India between inflation management and growth management,” Basu said.

Basu’s work also focuses on game theory and the way individual actors respond to the incentives created by new laws. 

Referencing a paper he authored while working for the Indian Ministry of Finance about bribery and corruption laws in India, Basu said the Prevention of Corruption Act of 1988 “treats the act of giving a bribe and the act of taking a bribe as equally wrong.”

In cases of “harassment bribes,” such as a worker demanding a fee for a driver’s license, where one party is essentially being extorted, this law can actually convince people not to report bribery out of fear of legal retribution, Basu said. Basu previously authored a controversial report suggesting that only demanding a bribe should be illegal.

“My hunch is the incidence of bribery is going to go down if you change the law and make it asymmetric,” Basu said.

Basu also spoke about the idea of law itself as an exercise in game theory – he argued that citizens only change their behavior in response to a new law when they have a reasonable assumption that the policemen and judges will carry out the rule. Governments in countries like India that have trouble implementing important laws should keep that idea in mind going forward, Basu said.

“If everyone decides that a law is not worth looking at, it becomes meaningless,” Basu said. “The only power of law comes from expectations in our minds about other people.”

Gayatri Singh GS, who attended both weeks’ lectures, said Basu’s “breadth of experiences” helped him deliver an informative presentation.

“Both sets were incredibly detailed,” she said, adding that she admired that Basu was “weaving a great narrative.”

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