Professor KN Raj, who passed away on Wednesday, has been widely acclaimed for his role in nation-building through pioneering efforts in diverse spheres. Most notable were his contributions to a) RBI, where he helped devise the balance of payment accounts for the nation, b) the Planning Commission on the First Five Year Plan, c) the Delhi School of Economics, where he joined hands with one of the finest teams of economists India has seen including Amartya Sen and Jagdish Bhagwati, d) the Economic and
Political Weekly, to which he contributed two of his best students, Krishna Raj and Ram Manohar Reddy, as editors and e) the Centre for Development Studies (CDS) in Trivandrum, which he built to rival global peers in its heydays, attracting talent from around the country and abroad, including his students from Delhi like Mihir Shah, now a member of the Planning Commission.
Professor Raj started his career in the Nehruvian era. Many have tried to label him as a left liberal or a Keynesian. Amartya Sen has described Professor Raj as a remarkable applied economist, whose leadership was sought to develop the Delhi School of Economics into an advanced school of economics. Sen describes his time at the school as the most intellectually challenging period of his academic life.
In fact, many would agree that a remarkable applied economist would be the most apt description for a man whose extraordinary range of work extended from macroeconomic issues like five year plans, balance of payments, savings and investments, employment, agriculture, the political economy of intermediate regimes and decentralisation to micro projects like the Bhakra Nangal dam, on which he even made a cost-benefit analysis.
But Professor Raj was all this and much more, a true visionary who had the gut instincts to understand changes across the globe and the economy. I remember his introductory class for the MPhil course at CDS in the mid-eighties, where he instilled in us the need for investigating issues in a comparative perspective both historically and spatially, pointing out how India?s achievements were to be rated, for instance, in comparison with China, which has become very fashionable in recent times.
But the best example of Professor Raj?s extraordinary vision was the Report of the Committee on Taxation of Agriculture Wealth and Income which was submitted in 1972, in the heyday of the socialist agenda of Indira Gandhi. She had only recently abolished the Privy Purse, stopping payments to the erstwhile princes, and nationalised most of the private banks.
The terms of the committee were mainly to examine the system of direct taxation of agriculture wealth and income including capital gains, the use of agriculture taxes to reduce income disparities and, most importantly, to suggest consequential changes in the general system of taxation of wealth and income.
The committee straightforwardly recommended that agriculture income should be taxed as putting it outside the tax net not only offered plenty of scope for evasion but also on the grounds of equity and distributive justice. However, it was the other recommendations, especially relating to the last of its terms of reference, which were more historic in the sense that they predated the reforms of the mid-eighties and the early nineties.
In his report, Professor Raj pointed out that the main reasons for tax evasion and the creation and proliferation of black money were high direct tax rates, the economy of shortages and the consequent controls and licences, ceilings on and disallowance of business expenses, high rates of sales tax, donation to political parties and corrupt business practices.
The recommendations of Professor Raj?s report were striking as they took on the popular notions of those times by clearly pointing out that a high rate of taxation created a psychological barrier to greater effort, undermined the will to save and invest and also left very little scope for manoeuvrability or for raising additional resources for any emergency.
So the committee recommended, right in the early seventies, a reversal of course and a substantial reduction in the marginal rate of tax, including surcharge, from the then prevailing rate of 97.75% to 75%, which would have reduced income taxes by almost one fourth, a measure that would have outshone the tax cuts in the dream budget of the UPA government. The committee also recommended tax cuts for the middle and lower levels and wanted that all tax reductions be made at one stroke to create an effective impact. Professor Raj clearly understood that radical changes in policies were the need of the hour.
Even more outstanding was his recommendation that a committee of experts be appointed to enquire into the utility of all existing controls, licencing and permit systems and to suggest elimination of those which were no longer necessary, something which Indira Gandhi hesitatingly tried to implement almost a decade and a half later in the mid eighties.
After making these radical recommendations, Professor Raj was back home in Kerala to build another institution that could focus on the issues that he held close to his heart. He was both a true visionary and a practical economist, who did not mind speaking his mind even when this meant going against popular sentiments and dominant views.