Indian economy in a 'tailspin', warns Nobel laureate Banerjee

New York: The newly-minted economics Nobel laureate Abhijit Banerjee has warned that the Indian economy is going into "a tailspin" and his prescription is for the government to focus to increasing demand rather than on deficits or stability.

When "the economy going into a tailspin is the time when you don't worry so much about monetary stability and you worry a little more about demand, the demand is a huge problem right now in the economy," he said at a news conference at the Massachusetts Institute of Technology (MIT) in Cambridge on Monday after his prize was announced.

The fall in consumption was a warning sign for India, he said while answering a question about the state of the Indian economy partly in Bengali, which he translated into English.

He said, "The economy is doing very badly in my view. One of the numbers that just came out is the National Sample Survey which comes out every one and a half years or so and it gives you the average consumption in urban and rural areas in India and the fact that we see in that is that between 2014-15 and 2017-18, that number has slightly gone down.

That's the first time such a thing has happened in many, many, many, many years. So that is a very glaring warning sign."

In this scenario, he said that the government was concentrating on deficits and monetary stability when the focus should be on increasing demand.

"The government has a large deficit, but right now, it is sort of, at least, aiming to please everybody by pretending to hold to some budgetary targets and monetary targets," he said. He criticised Prime Minister Narendra Modi's government over the use of data.

"There is enormous fight going on in India about which data is right. and the government has a particular view of all data that is inconvenient to it is wrong," he said.

"Nonetheless, this is something that even the government is recognising that there is a problem," he added. Banerjee was reflecting the views of many economists who have questioned the reliability of government data, among them former government chief economic adviser Arvind Subramanian, who asserted in a Harvard University paper that India's growth rate may have been overstated by 2.5 per cent for each of the years between 2011-12 and 2016-17.

Earlier in response to a question about Latin America, Banerjee had said that since they worked on hard evidence and had not studied that area and done the homework he could not give an opinion.