Bhagwati’s desire to influence Modi may anger the RSS

Modi has promised to revive an economy going through its worst slowdown since the 1980s. For the first time, addressing his potential role in a Modi government, Bhagwati, known as the most famous living economist never to win a Nobel prize, said he saw himself in an external council advising the prime minister. ‘I’d be glad to chair something like that, and I think that’s what they might do,’ Bhagwati said.

Bhagwati said his pro-growth protege Arvind Panagariya was a strong candidate for the more hands-on role of chief economist to the prime minister, if Modi is elected. ‘The kind of person they would want, and I think correctly, as a chief economist would be my co-author, who is about 60 compared to my 80. I don’t have that kind of energy anymore,’ Bhagwati said, adding that people close to Modi had approached him to ask about Panagariya’s suitability for the role.

Bhagwati urged Modi to move decisively to attract foreign investment, and said that he would eventually implement a policy opposed by his party - to allow foreign retailers like Wal-Mart and Tesco free access to Indian markets. ‘He will do it, but he can’t do it right away, because you can’t go against your party. It’s impossible, he is not a stupid man,’ he said, adding that Modi’s room for manoeuvre would depend on the size of Modi’s victory.

Bhagwati’s most urgent policy prescription, however, is to slow government spending, which he blames for high inflation. ‘At the beginning he (Modi) has got to say ‘look, we’re going to bring inflation under control. ... There is no escape from turning off the spigot.’ Bhagwati said he expected Modi to keep Reserve Bank of India governor Raghuram Rajan, whose hawkish use of monetary policy to target stubbornly high inflation has led some in the BJP to call for his ouster.

‘On the financial side his best bet is to stick with Raghu Rajan,’ Bhagwati said. Bhagwati’s close friend, current prime minister Manmohan Singh, ushered in India’s first round of economic reforms in 1991, based in part on ideas they had discussed as students together at Britain’s Cambridge University in the 1950s. But Bhagwati said that as prime minister over the past decade Singh had failed to put his ideas into practice - something he expected to change if Modi wins.