Remarks for the Convocation Ceremony at the Meghnad Desai Academy of
Economics
Mumbai, August 3rd 2018
Urjit R. Patel
&
1. The "Class of 2018" their parents, guests & students, Lord Meghnad Desai,
Chairman of the Meghnad Desai Academy of Economics, and the academic
fraternity of the Academy, I am deeply honoured to be invited to the convocation
ceremony. It reminds me fondly of my graduation ceremony three decades back.
2. Although his enormous standing and body of work is well known, let me say a
few words about Lord Meghnad Desai, the Academy's Chairman, Professor
Emeritus at the London School of Economics, a renowned academic and a
prominent global public figure. His contributions to the field of economics and
education, and particularly his commitment to teaching at the London School of
Economics, are the stuff of legend. He has also been an enlightened institution
builder, a shining example of which is the Centre for the Study of Global
Governance that he established in 1992. Lord Desai has written extensively,
covering international political economy, Marxian economics, monetary economics,
Lord Desai's book "Testing
economic history and globalisation (as an aside,
Monetarism" was
required reading for macro courses in the UK in the 1980s). He
has also worked extensively on issues relating to the Indian polity and has also
been a sagacious influence in the political life of the UK. In recognition of these
contributions to society at large, he was bestowed with the Lordship of St. Clement
Danes in 1991 by the United Kingdom and the Padma Bhushan by the Government
of India in 2008. From where I hail, Lord Desai delivered the First Brahmananda
Memorial Lecture in September 2004, a lecture instituted by the Reserve Bank of
India in the fond memory of an eminent teacher and scholar of economics, Prof.
P.R. Brahmananda. It was most apposite that the first memorial lecture was
delivered by one of his most distinguished students.
3. As I understand, the Meghnad Desai Academy has been established as an
institution of excellence to provide graduate students with the academic rigour and
technical skills to meet the needs of a more challenging profession that gets more
demanding with every passing day for academics, policy makers and practitioners
in markets, industry, policy think tanks and government. It is befitting that the
Academy has been initiated by some of India's
leading economists and finance
professionals, bringing in rich and diverse perspectives for students.
Role of economists/researchers in shaping policy
4. In keeping with the occasion, let me say a few words about economists. Their
vital role in shaping public perceptions and discourses and in designing strategic
policies in the corporate sector, central banks, governments and multilateral
institutions, is more often than not unsung. Rigorous research and training helps in
formulating informed set of policy choices and consequent decisions. In the domain
of public policy, we have to distinguish between the direct and the indirect impact
that economists can make. The former is what we usually think of when we consider
how experts might affect formulation of a policy, say, minimising the subsidy burden
on the exchequer. However, their greatest contribution to policymaking may take
place through less direct routes such as through their research by nudging
policymakers to think about economic problems/challenges in newer/different ways.
5. Policy makers too have a crucial role in creating an enabling environment for
economists to contribute to society. In this context, the Government of India has to
be lauded for instituting three land mark reforms in recent years. One cannot and
should not underestimate the sagacity and uncommon courage of the Government
to undertake reforms that can only be described as truly transformative. These will
shape, for the better, our economic evolution in the years and decades to come.
6. In 2016, the Government legislated amendments to the RBI Act to invest the
Reserve Bank of India with the specific mandate to operate the monetary policy
to "maintain price stability while
framework of the country whose primary objective is
the objective of
keeping in mind growth". This was a fundamental shift in the
institutional architecture for the conduct of monetary policy, with the formal transition
to a flexible inflation targeting framework and the relinquishing of the monetary
policy decision by the Governor to a six member monetary policy committee (MPC).
Another momentous reform is the establishment of the GST council whereby the
Government of India has created one of the most effective institutional mechanisms
for cooperative federalism. Along with the State Governments, it has offered a
refreshing counter-narrative to the divisive course of the international federal
dialogue, voluntarily choosing to relinquish and then pool sovereignty for a larger
collective cause. Also, the enactment of the Insolvency and Bankruptcy Code, 2016
(IBC) is a watershed towards improving the credit culture in our country. The IBC
provides for a single window, time-bound process for resolution of assets with an
explicit emphasis on promotion of entrepreneurship, maximisation of value of
assets, and balancing the interests of all stakeholders. These steps are
that they show the Government's
unprecedented in the history of our nation in
commitment to sound public policy by establishing institutions and ceding power to
them to perform functions vital for securing and entrenching macroeconomic and
financial stability.
7. Economists are often misunderstood and at times maligned. To illustrate,
economists are heaped with the criticism that they failed to see and predict the
2007-08 global financial crisis, and this has dented the credence of their profession.
To my mind this is patently unfair. Doctors understand diseases but cannot predict
when one will fall ill. The fundamental mission of economists is not to forecast crises
but to explain how mankind behaves in the ordinary business of life and in doing so
they do warn of crisis formations, suggest pre-emptive strategies and formulate
mitigating policies that address those crises that slip through macroeconomic
surveillance. More often than not, they meet with resistance. Hyman Minsky
laboured in relative obscurity from the start of his academic career in the 1950s until
1996, when he died.1 His research about financial crises and their causes attracted
little mainstream attention back then. It was only in 2007 when the subprime-
mortgage crisis erupted, that everyone started turning to his writings as they tried to
make sense of the chaos engulfing global financial markets. The eruption of a
financial crisis from a state of dormancy or calm is now often referred to as the
"Minsky" George Akerlof's landmark
moment. In another striking example, paper
"The Market for
Lemons",2 was rejected by several journals before it was finally
published. As time passed, his seminal paper brought home the wisdom that
adverse selection was a fundamental cause of market failures and the idea turned
into a foundation stone of information economics.
8. New and fresh ideas often meet a wall of resistance as they tend to challenge
inertia in the existing shores of thinking. So as you go into the world to answer your
calling, be fearless and experimental in opening up your minds and in thinking out
of the box. I am confident that young minds like you can think differently, produce
new thinking and bring more creativity into empirical scrutiny of the ideas you
Your "millennial"
theorise. generation must strive to challenge the accepted wisdom
so that we can have more 'creative destruction' in society and a brave new world.
9. In my own profession as central banker, thinking new and fresh is demanded
by the ever changing world in which we operate. To give an example, we have been
trying to understand household and firm behaviour through our surveys and
analysis. However, the need now is to understand micro-level price formation
dynamics in new dimensions such as e-commerce, digital transactions and big
cross sectional data. This applies to domains such as banking, non-banking
financial intermediation, payments, currency management and financial inclusion as
well. In the absence of this type of research, policy choices could yield sub-optimal
outcomes at times. There is an acute information deficit regarding the unorganised
sector in India, despite its significant role in income and employment generation.
The absence of official or non-official statistics has not, however, prevented
economists from conducting survey-based studies to help understand its dynamics.
10. In closing, I would like to quote Paul Romer, a pioneer of endogenous growth
"The Trouble with Macroeconomics":3 "Even
theory, from his much cited paper
when it works well, science is not perfect....Scientists commit to the pursuit
of truth
even though they realise that absolute truth is never revealed. All they can hope for
is a consensus that establishes the truth of an assertion in the same loose sense
that the stock market establishes the value of a firm. It can go astray, perhaps for
long stretches of time. But eventually, it is yanked back to reality by insurgents (my
who are free to challenge the consensus and supporters of the
emphasis)
consensus who still think that getting the facts right matters."
11. As you pass out as young economists remember that you have the power to
shape the destiny of this country and touch the lives of its millions. You are the
harbingers of our enlightened society of tomorrow; equipped with ideas and also the
ability to convert them into a better reality for all. I congratulate all the new
graduates of the Academy, and wish you all a very bright future ahead.
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