Wanted in India: The World's Toughest Economist

India may be the world's most complex economic challenge. And the country is set to appoint a new finance minister.
How do you solve a problem like India? Photographer: Kuni Takahashi/Bloomberg

"All undertakings presuppose the treasury. Before anything, therefore, he should attend to the treasury."

These words of advice come from the "Arthashastra," a famous treatise on statecraft written around the end of the fourth century BC by the ruthlessly pragmatic Indian courtier Kautilya ("The Crooked One") and described recently by one scholar as "the world's first manual on political economy."

Kautilya's words were taken very seriously across the many centuries and empires of classical and medieval India, even as India's share of the world economy grew (see a history of world GDP here). Waves of colonization between the 17th and 20th century then drained the Indian economy of much of its strength, as did the disparities in technological capability created by the Industrial Revolution. The democracy that replaced the British Raj in 1947 turned India into a nation-state with its own economic ideology. Sadly, following the intellectual fashion of the time, it chose socialism.

India's myopic interpretation of socialism as a means to lift several hundred million people out of poverty meant that the materialist conception of life and fiscal rigor articulated by Kautilya largely got short shrift. It finally took a balance-of-payments crisis for India to open its doors to the world economy in 1991.

The results of India's socialism, though unevenly spread across the country and distributed between the middle-class and the poor, are now self-evident.

India has been one of the world's fastest growing economies over the last two decades. Its growth slowed recently, though, as the ruling center-left coalition government focused on ambitious expenditure plans (especially on giant social-security programs) rather than economic growth, which is needed to create jobs for a country that's adding 1 million new people every month to its workforce.

Given India's transitional place in the world economy, the most important person in the next government, which will be elected in May, won't be the prime minister but the finance minister. What's more, India probably has the most demanding economic policy post in the world, involving the management of the economic well-being, expectations and security for almost a fifth of world's population.

When considering the protection and expanding power of India's treasury, every finance minister must take into account the country's vast agricultural base, heavily dependent on the vagaries of India's monsoon season; its burgeoning industrial and real estate sector, hobbled by poor infrastructure and crony capitalism; the many millions of its citizens still desperately below the poverty line and in need of carefully targeted assistance from the state; the steadily growing foreign investment and susceptibility to shocks in the world economy and currency volatility that come with it; a large current account deficit rooted in India's dependence on expensive petroleum imports; a minuscule tax base in which less than 1 percent of the workforce pays income-tax; an informal economy that is larger than its formal economy; the development of large industrial projects and their impact on the subsistence economies linked to India's rivers and forests that continue to sustain millions of people; and an electorate (along with influential voices in his or her own party) that still reflexively craves the security of a government job and subsidies for food, power, cooking gas and petroleum.

Each time the finance minister makes a decision he or she can expect accusations of incompetence, naivete, delusion, wickedness, or of being a slave to foreign paymasters and the neoliberal order. Let's just say that it isn't a job that, for all his pragmatism and ambition, even Kautilya would have wanted.

Still we should make a short list of candidates.

Opinion polls suggest that the principal opposition party, the Bharatiya Janata Party, and its allies may win a narrow majority in the coming elections. So the first place to look would be within the rank-and-file of the BJP. The only time the BJP has been in power was from 1998-2004, and for four of those years the Finance Ministry was entrusted to Yashwant Sinha.

Sinha displayed a shrewd understanding of India's economic opportunities and bottlenecks in a globalizing world. His 2007 account of his time as finance minister, Confessions of a Swadeshi Reformer ("swadeshi" is a word associated with Gandhian thought, and subsequently with the economic propositions of the Indian right, emphasizing economic self-reliance) is a must-read for anyone who wants to understand the Indian economy. The economist Surjit Bhalla said Sinha is "among the top two finance ministers this country has produced." I see no reason to disagree.

There's a catch, though, for someone like Sinha becoming finance minister again. He represents the most progressive faction of a party that heeds the advice of a Hindu-nationalist parent organization, the Rashtriya Swayamsevak Sangh, which, at least in the field of economics, can be so antediluvian as to be ridiculous. (When I went to the BJP's national convention early in 2010, there was an elaborate demonstration of how India could become a superpower through cow power.)

A forward-thinking BJP finance minister would need to be protected by a strong prime minister from the economic nuts and nationalists of his own party. But Narendra Modi, the BJP's prime ministerial candidate is an RSS man at heart. That may be the reason that Sinha, the best man for the job, might not want it.

Then again, there's a small chance that a BJP-led government might not come to power in May. Perhaps a "Third Front" coalition India's smaller political parties, including several parties representing the left, could pip it to the post with support from the Congress. In that case, the resident economist of the Indian left, Sitaram Yechury of the Communist Party of India, could become the next finance minister.

In a recent interview in the business newspaper Mint, Yechury laid out the road map for "a more inclusive, sustainable growth trajectory," essentially ending tax breaks to corporations and spending the "legitimate tax" on public infrastructure projects to provide a stimulus to the economy. This sounds like a recipe for returning India to the dreaded "Hindu rate of growth," about 3.5 percent, that it experienced from the 1950s through the 1970s.

Of course, the finance minister's job is one for a specialist who doesn't necessarily need to be an elected politician. That means we can cast our net a bit wider and sift through India's large cast of professional economists. Jagdish Bhagwati, who recently sparred with Amartya Sen over the subject of economic growth, may be one possibility. Raghuram Rajan has one of the highest profiles of any Indian economist. But last year he became governor of India's central bank, the Reserve Bank of India, and it may be too early for him to leave.

Of all the Indian economists, though, I most admire Kaushik Basu, currently chief economist of the World Bank. Basu's book "Beyond the Invisible Hand: Groundwork for a New Economics," is a masterly, if necessarily dense, examination of the assumptions and fallacies of Adam Smith's economic theories. Not only has he published a large body of work on the economic realities in India, he also served briefly as the chief economic adviser to the current government -- unfortunately not a position with a lot of power.

He's strongly in favor of foreign direct investment in retail, which will please the country's next wave of foreign investors, and he understands that more economic power gives India a stronger negotiating position globally, from foreign policy to international trade treaties to the arts. India in the 21st century needs a new Kautilya to head its treasury, and his modern avatar might well be a man named Kaushik.

(Chandrahas Choudhury, a novelist, is the New Delhi correspondent for World View. His novel "Arzee the Dwarf" is published by New York Review Books. Follow him on Twitter at @Hashestweets.)

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.