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India is close to tipping point of major recession: Abhijit Banerjee

India is close to tipping point of major recession: Abhijit Banerjee

Mumbai, Jan 07, 2020: Sounding the alarm on the state of the Indian economy, Nobel Laureate Abhijit Banerjee has said “we are extremely close to a tipping point of a major recession”. Comparing the slowing growth of the economy to the 1991 economic crisis, Banerjee, who along with Esther Duflo and Michael Kremer won the 2019 Nobel Prize in Economics, suggested that the focus should be on stimulating demand to revive the growth story.


Speaking at the Express Adda along with Duflo in Mumbai on Monday, he said: “The critical problem in the Indian economy is demand. You definitely want to stimulate demand.”

“At the risk of being censured by my macroeconomic friends, I feel we should forget about Budget deficits and meeting targets. We should even forget about inflation targeting. Let the economy rip a bit. We want to be open-handed right now. Since we are still a pretty closed economy, I do not think it is hard for the government to be more open-handed,” he said.


Commenting on the government’s move to cut corporate tax as a stimulus to spur investment in the private sector, he said, “I do not think that is what’s going to save the economy right now. The corporate sector is sitting on a bunch of cash actually. It isn’t using it for a good reason that there is no demand.”

Incidentally, at a time when migration, especially from neighbouring Bangladesh, has become a political issue, Banerjee said “there was no evidence that low-skill migration on the whole depressed wages. If anything, low-skill immigrants take up jobs that nobody wants in those economies, and thereby create new opportunities for everyone else. Incidentally, there is some evidence that high-skilled immigrants, who are welcome in most countries, do depress local wages.”

Duflo, meanwhile, contended that inequalities had increased and social mobility was on decline the world over. “One should have policies that ease migration,” she said.

Labelling Prime Minister Narendra Modi’s economics as left of centre, Banerjee said the Prime Minister’s “emotional heart has been in transfer schemes”.

Contending that one should not invest too much emotion into GDP forecasting, Banerjee also pointed out that the average consumption spending had tanked for the very first time between 2014 and 2018. “On every other macro economic statistic other than the GDP (exports, imports, investment), this looks like 1991, which is the year when the GDP had shrunk. (At this moment) we do not look like an economy that is growing fast,” he said, adding, “the only recipe to revive growth is to increase consumer confidence”.

“The real estate sector, which has played a role in connecting the urban and rural sector, has slowed massively, forcing young men working in the sector to go back to their villages,” he said.

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