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Nobel Laureate Dr. Abhijit Banerjee was awarded the 2019 Nobel Prize in Economics with his wife Dr. Esther Duflo, and Dr. Michael Kremer for pioneering the use of randomised controlled trials in development economics. He has transformed how policymakers and governments understand poverty alleviation. His groundbreaking research—demonstrating the power of simple interventions like the effectiveness of offering free lunches in India to encourage children to attend school and school-based deworming in Kenya—has reshaped the global fight against poverty and redirected billions of dollars toward programmes proven to work.
Professor Banerjee is currently the Ford Foundation International Professor of Economics at the Massachusetts Institute of Technology. In 2003, he founded the Abdul Latif Jameel Poverty Action Lab with Duflo and Sendhil Mullainathan, and remains one of the directors of the lab.
He spoke exclusively to Shalini Kathuria Narang on how a nation like India can survive 50% tariffs and how India can strike a balance between entering a pact with the United States and safeguarding its local industries and agriculture amongst other topics. Banerjee was attending the annual South Asian Literature and Arts (SALA) festival in the Bay Area.
How does India survive 50% tariffs that President Trump has imposed on India?
I don't think there is an easy answer to it. One of the things that we definitely need to think about is targeted subsidies. Transitions are very hard to manage and there's lots of evidence showing that transitions, if mismanaged, have long-term consequences. Businesses often find it very hard to handle the liquidity consequences. Even viable businesses often will go under because they can’t deal with the changes.
The rupee is already sliding. It might slide a bit more, but I think the rupee sliding is going to actually help with the tariffs, because they’ll effectively lower our prices. It’s a time to be aggressive in supporting our industries that are particularly targeted by the US.
Will the development priorities for a country like India change now with the new world order?
India should be trying to have as many free trade agreements as possible. In the world economy isolation does not pay off. The US will learn that lesson on its own, but it's not an obvious implication, the changes that have been happening in the world economy have been in the direction of brands. Brands being more important, sort of global platforms being more important for production. All of these things work in the direction of benefiting countries that have large markets. I read today in The New York Times that China has a bit more domestic focused tourism. There are things you can do that are based on the domestic market, but I don't think of it as being first order.
The Trump administration has pulled the plug on aid, how will it impact poverty and education programs globally?
Three most important things need to be said about that. One is that consequences in India are not directly from the aid itself. We don't really get much, and it would be a drop in our ocean. On the other hand, we are, like many other countries, quite conservative in the way we do our policies. And one of the things that USAID was funding was a kind of an experiment called Development Innovation Ventures (DIV) headed by Michael Kramer who won the Nobel Prize with us. Experimentation is difficult inside the government. A lot of good ideas were being generated and then scaled up, and that process has now been rudely interrupted.
This lab was supplying the whole world with different kinds of greenfield ideas, some which were immediately scalable, some which were going through a multiple scaling process. That's gone. That's probably not particularly known in India, but it actually was a valuable and unique piece of what the US was providing.
The second issue doesn't directly affect India, but should be. India should feel the pain of it, because the Bureau of Humanitarian Affairs that's part of the USAID was the world's leading funder of action against extreme events-humanitarian disasters in parts of Africa, Syria and Gaza. These are major humanitarian crises. Some of the USAID funding is restored, but we don't know fully how bad the cuts are yet, and it will depend a bit on future budget appropriations. It's one of the places where the biggest humanitarian disasters are likely to happen, and as a middle income country, India should contemplate whether it has a role to play in the survival of people who have no other recourse, basically in war torn areas where there are droughts, etc. I do think that while India has its own problems, it should also want to be a global player and take the lead and sometimes be a donor rather than a recipient.
The third one, where the US has curtailed funding, is anything to do with climate and any kind of climate innovation. The Trump administration is kind of committedly anti-climate. And that's another place where we have to think whether we should take a more aggressive stance in particular. This is not just USAID, it's across the board. The US has become one of the world's most committedly polluting nations. Some of the easiest climate wins are maybe outside India, we should consider being part of the consortia. Buy up the cheapest carbon available. Those are ways to contribute to the global good, but also we are definitely one of the countries that are going to suffer most from the climate disasters. We're really right in the line of fire.
India also has to strike a balance between entering a pact with the US and safeguarding its local industries and agriculture. What should be India's stance?
India really needs to do something to make its agriculture and dairy competitive globally. Now this is complicated because, in fact, both agriculture and dairy are subsidised in countries like the US and in Europe. So what competitive means with what's a living level playing field are actually not totally obvious issues. India has a difficult challenge with huge numbers of people who get a part of their living from agriculture or the dairy sector. Very few countries have managed to move that many people out of these occupations. China has, but almost only China has. I think India could have done more, but I don't think India is at the point of willing to take the world market as a benchmark. And it's not even clear what that means because of the complicated array of subsidies that bind across the world.
What’s the impact of AI on developing economies like India?
India is going to be on both sides of that (AI advantages and disadvantages). We have these global centres, which are kind of a new version of our IT industry, and those are going to be important for AI development.
It's also true that a lot of our middle skills-based jobs are going to disappear, and they have already been disappearing. People have been pointing out that the middle classes are not doing as well as the rich in India. And it's the fact that people have been emphasising, and it seems widely recognised. The middle classes are hurting.
We are doing a poor job of taxing the ultra rich, partly because we are scared of them leaving the country. We really need to think about how much of that huge number of our super rich are moving to Dubai and here and there and buying golden visas elsewhere. So we're under pressure. I see why we are.
India’s capacity to invest in the upskilling of its youth is limited by its fiscal constraints. We've done a decent job in the last few years and GST has helped. We need progressive taxation. The access to the market means there are things that other countries have done. Sweden doesn’t let you leave after you build your business. You have to still pay taxes for many years.
So there are things that can be done. I think we should start to think about what to do and how to beef up the government. I think that AI will help a lot of businesses and those will need highly skilled people. I don't know whether it’ll help everybody else. And it seems right now, the middle classes are hurting.
English (US) ·