India ‘mystery’ for global investors: Nobel laurate Abhijit Banerjee

Kolkata: Nobel laureate economist Abhijit Banerjee has warned that political polarisation in India is eroding transparency and making the country a “mystery” for global investors, even as the growth numbers remained robust.

In an interview with PTI, Banerjee said from an economic standpoint, the most critical issues confronting the country today were media freedom and transparency, arguing that investors ultimately cared about data credibility rather than political rhetoric.

"I think India is going through a politically polarised phase in the sense that there are many conflicts that have existed for a long time, and we have to decide, as a nation, to what extent we want to be seen as open and reliable. I think the real issues have to do with media freedom," he said.

"The most important issues are media freedom and transparency. Do we really know what the numbers are? That’s what investors care about," Banerjee said.

While India has continued to attract foreign investment, he described the inflows as unstable and highly sensitive to uncertainty.

"We have done reasonably well on foreign investment, but it’s flighty. The rupee is depreciating because money isn’t coming in fast enough," he said, linking currency weakness to the absence of sustained capital inflows.

Banerjee cautioned that policy unpredictability, combined with internal polarisation, was undermining the country's credibility as a long-term investment destination.

"People need to know what the policy rules are. Will there be shifts in attitude towards specific companies?" he said.

"Unless we have a very predictable and transparent policy regime and a transparent media, India will remain a mystery to the world," he added.

He said if India wanted to deepen its capital markets and attract long-term global capital, transparency had to be institutional rather than episodic.

"I think our internal polarisation is undermining our commitment to transparency. And that, I think, is the key point. If we want to be the kind of place where people always want to invest, we need transparency at all levels," the 64-year-old economist said.

On whether identity politics had overtaken growth priorities, Banerjee said such politics existed globally, including in the United States, but questioned whether the country's leadership had sufficiently thought through the practical roadmap to development.

"The government is serious about development, but it hasn’t thought enough about what it would actually take," he said.

"What is the roadmap, how to get everybody a really high-quality education, how to get out of this trap of very few good jobs, and what happens if AI takes away more of those jobs?" he said.

He warned that headline GDP growth could not indefinitely mask deeper social distress.

"GDP can grow, but if most people don’t have decent education, growth will slow and misery will increase. Distributional questions still need to be addressed." Beyond markets, Banerjee flagged long-term risks to political stability, arguing that economic reform becomes nearly impossible when trust in institutions breaks down.

"If people feel excluded from the voting process, that creates other problems,” he said, adding that erosion of trust makes consensus-driven reform extremely difficult.

Citing power subsidies to farmers, Banerjee said while direct compensation would be economically superior and environmentally necessary, especially as groundwater tables collapse, such reform was politically unviable due to trust deficits.

Banerjee dismissed the term "dole politics" to describe welfare, arguing that large public transfers to the middle and upper classes were rarely acknowledged.

"I really hate the term 'dole politics', and I hate it because I think we do not recognise the amount of public investment that goes to the rich and the middle classes," he said.

He said cash transfers were a rational response to an economy that had failed to generate sufficient jobs despite growth.

"We have not managed to create a Chinese-style vibrant labour market so that people can get jobs and benefit from growth. If you have jobless growth, the only way we can include people in the national growth process is through transfers, and that makes sense to me," he added.

Addressing concerns that welfare schemes could create dependency, Banerjee said debates on the future of work were being reshaped by rapid technological change, particularly artificial intelligence.

Pointing to early signs of disruption, Banerjee noted that Indian IT firms were already cutting back on hiring.

"We are already seeing IT companies not hiring mid-level skilled workers anymore. What will these people do?” he asked. “If AI replaces a large share of work, we will have to decide whether people are simply left to starve," he said.

On long-term priorities, Banerjee said India’s most serious failure lay in deeply unequal access to education and healthcare, warning that the system was structurally biased against the poor.

"What is striking is how unequal access to education and healthcare remains," he said. "The best schools are private, and the system is loaded against the poor." "If we want to harvest our talent, we need real equality of opportunity," he added, stressing that without genuine access to quality education, India’s demographic advantage would be squandered.

Banerjee was in Kolkata for a discussion on Poor Economics at the Exide Kolkata Literary Meet.