NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, May 27, 2014

Jagdish Bhagwati, university professor at Columbia University and senior fellow for international economics at the Council on Foreign Relations, has been described as the most creative international trade theorist of his generation. He has been a leader in the fight for freer trade for decades. He is well-known in India as a champion of economic liberalization—and an early advocate for the reforms undertaken in 1991. With his coauthor Arvind Panagariya, he published Why Growth Matters last year, a book which makes the case for economic growth as the path to inclusive poverty alleviation. He is proudly Gujarati, and is likely to be an external adviser to Prime Minister Narendra Modi.

I had the chance to talk with him about his views on trade, economic reform and what should be the Modi government’s next steps on the economy. A lightly edited transcript of our conversation follows, with Professor Bhagwati’s responses labeled “JB.”

Jagdish Bhagwati, university professor at Columbia University, is also a senior fellow for international economics at the Council on Foreign Relations (photo provided by Professor Bhagwati).

1. You and Arvind Panagariya have argued that growth should be the priority for poverty alleviation in India. But it has not always been easy to make growth-oriented reforms politically appealing in India. How do you interpret the success of the Modi campaign and its implications for economic liberalization? In other words, is a freer market a concept that now resonates in India?

JB: When policies are actually implemented that open up trade, free up foreign direct investment (FDI) and remove unnecessary restrictions, substantial growth starts. That’s what happened after 1991. When you have growth, you will also be able to offer opportunities to people to lift themselves up above the poverty line. Moreover, as I had emphasized almost 25 years ago in a lecture in Ahmedabad itself, when you grow—we know this from the United States as well—at every given tax rate you pull in more revenue. With more revenue coming in, you can undertake the social spending to give additional benefits to the poor, such as healthcare and education. So policies that promote growth represent a double-barreled attack on poverty.

Of course, the added revenues may be spent instead on guns and tanks. Here is where India has benefited from its democracy. As the poor see that they can do better, they want more: what I have called the Revolution of Perceived Possibilities. With a liberal democracy, which consists of a free press, an independent judiciary, NGOs and opposition parties, the economic aspirations can be translated into politically effective demand. That is at the heart of the political success of leaders like Narendra Modi.