Offers a different way of thinking: Bhagwati

Excerpts from What's Hot on CNBC-TV18 Watch the full show »

The Finance Minister has turned author and he has just launched a book 'Why Good Economics Works for Everyone'. Chief Economist, International Monetary Fund, Raghuram Rajan and Professor of Economics at Columbia University, Jagdish Bhagwati and Vice Chairman of the Planning Commision, Isher Ahluwalia debate the SEZ issue, which is consuming so much airtime and newsprint, and ofcourse talk about the finance minister's book.

Rajan feels the debate is about the right issues. He says, "We have this discussion about not taking over prime agricultural land and if you push that with logical conclusion, then the only place for SEZ should be in the middle of the Thar desert, but we don't want to situate them there. If one looks at the productivity of industrial land, it is far greater than any agricultural land. So, the issue is not about displacing agriculture but about paying the right price to the agriculturist. The main question over land acquisition today is that whether the cultivator gets an appropriate price - a price, which is equivalent to the value of that land in industrial use."

Other eminent people who were present at this panel discussion were Arun Jaitley, Kapil Sibal, Sunil Mittal and Shekhar Gupta and they had lots to contribute...

Excerpts of an interview given to CNBC-TV18

Q: In his book, Chidambaram says that for every Rs 1 hike on paddy or wheat, it puts a political party out of office, so where do you go from there?

Rajan: Then lets talk about the right issue and not the wrong issues. Another right issue is the capacity of the government, if you sacrifice the capacity of the government through tax sops, then sometimes they are worthwhile, but sometimes they are excessive. How do you make sure they are of the right amount?

In the case of SEZs, it again goes back to why don't you auction of these rights to these SEZs, why are you giving them away in a free for all. So, that is the kind of debate we should have - is it going to be too costly to auction it out, is it going to deter investment, are we going to get the right investment, are we going to get incremental investment or no investment at all? We don't have that kind of debate. So, when we say good economics - do we have the right kind of debate to identify the good economics?

Now on coming to the book - I think the same set of reforms can work differently depending on where you sit. For eg: take the case of educational reforms, the country needs it but if you are in the middle-class then you are going to be worried about expanding access to education to all the universities to all the unwashed masses, because once they get access to education they are going to compete with you for jobs. So, you don't have a strong incentive to push for that, but they have. So you are seeing the same economic reform with different eyes and the outcome can be very different depending on where political power lies.

So, we can all talk about what is good economics. Good economics depends on where you sit and the actual outcome depends on the tussle between the various groups. Ultimately the book is saying lets have a decent debate about these issues. Let us bring the issue upfront, let us bring data and more analysis to these questions and I think we need more of that.

Q: You spoke about populism in the good sense. Now, given with where we actually stand with respect to the Indian economy, if you could identify breakthrough areas in which the finance minister ought to be doing something, - then what would the five priority areas be?

Bhagwati: High growth has happened and now it's a question of what should we focus on. Issues like SEZs etc are going to come up repeatedly in different forms and on that I agree with Rajan but I would say the problem was even deeper. For SEZ, there are two issues - one, is when do you take land and how do you find a developmental purpose, a social purpose but the legislature has to decide on how to compensate them and these are two different issues, which can't be left to judges or demonstrators etc.

Ahluwalia: It is too complex an issue for me to say I have a view on this debate, But moving back to the book and how we have some controversial areas in which the book offers different ways of thinking - for example, take the wheat prices today, take agriculture, we keep saying we need agricultural growth and if that is needed then farmers need incentives, especially if they are now in competition with farmers from the industrial world, where they are subsidized by those rich governments and FM has a coloumn in which he says, 'should government be swayed by consumer concerns or should they be planning to offer higher prices to farmers' and that to my mind is the only way to go.

And yet, when you look at the policy today - as international prices have risen, there is a growing concern at home about domestic price of wheat increasing and how are we fighting that? We have allowed import of wheat at zero duty and this is when your industry needs protection of 12.5%, your automotive sector needs protection at even higher levels. A Punjab farmer has now got to compete with French wheat producers at zero duty of imports and I think these are precisely the questions, which the government must face.