Dr Mujumdars pedigree is immaculate Nuffield Fellow at Oxford, a distinguished career in the Reserve Bank of India, rising to the post of Principal Adviser, and much sought after by the International Monetary Fund for five secondments to central banks in Africa, Asia and Central America. Dr Mujumdar is a creature of the RBI of the sixties and the seventies and he candidly enjoyed the thraldom of the dirigiste state. He moderately dissented with the reforms of the eighties but reacted violently to those of the nineties. It would be unwise to ignore the anti-reform brigade. The dissenters need to be encouraged to come out in the open as there is a real danger if these views go underground only to subvert the reform process.
I must preface my assessment of the two volumes by stating that had the publishers prepared an index I would personally have got the maximum number of hits, needless to say all critical of my views! Rather than picking out a few issues out of the 95 chapters, it would be more meaningful to try and understand the underlying philosophy of Dr Mujumdars moorings.
Dr Mujumdars philosophical ancestor appears to be Nicholas Kaldor and this is brought out by the basic tenets of Dr Mujumdars beliefs: Money supply does not matter as money supply is what it is. Interest rates should not be an instrument of monetary policy in India. All that matters is the provision of credit to sectors preferred by the authorities and once the appropriate level of credit is determined, all that remains for the monetary authority to do is to provide that amount of credit to the chosen sectors.
In the Indian firmament, capital adequacy, income recognition, and provisioning and building of financial markets with depth are irritants and they digress the monetary authority from its central task of providing credit at low rates of interest. To Dr Mujumdar, activation of the government securities market was a serious error. He believes that the RBI did a disservice to the nation by making available to the government large amounts by way of market borrowing at market related rates of interest.
What is more, to Dr Mujumdar the raising of the government securities rate to 14 per cent for a 10-year maturity was a mortal sin and for that he berates this columnist ad nauseum as he comes back again and again to this theme. Dr Rangarajan and the present writer are picked out for a barrage of criticism for whatever the RBI did during the first half of the nineties. What is interesting is that he sees in Dr Rangarajans post-RBI writings a recantation which leads him to implore the authorities to listen to Dr Rangarajan and not to Tarapore a viewpoint I would endorse without any reservation!
To Dr Mujumdars way of thinking the two Narasimham Reports represent alien thoughts artificially forged onto the Indian financial system and he has great nostalgia for the halcyon days when public sector banks extended the geographical coverage of branches and lent without concern about viability of lending. Indeed, he hankers for the era when non-performing assets were not taken cognisance of by the Indian financial system.
Dr Mujumdar spits fire on the RBI monetary policy of 1991-92 and he attributes much of the problems of the Indian economy to the tight monetary policy of 1991-92. Again, he considers the 1995-96 monetary and exchange rate policies as a monumental miscalculation. Discerning readers would, however, no doubt appreciate that in the absence of the finely balanced measures on monetary policy and exchange rate management in 1995-96, India could have had yet another major crisis. But to Dr Mujumdar, all these problems would have just faded away and did not warrant the measures taken during that period. We are too close to the period and we need to remit to history to judge what would have happened had the RBI not held up the rear when there was a paralysis in other areas of economic policy in the latter part of 1990-91 and the first half of of 1991-92.
The advocacy in the recent period, by the authorities, of a preference for softening interest rates should warm the cockles of Dr Mujumdars heart but then, his anti-establishment approach puts him on a different tack. To him it is unacceptable that large borrowers get credit at sub-prime lending rates while small borrowers pay higher rates.
Dr Mujumdar, though less trenchant in his criticism of the RBI in the post-1997 period, cannot forgive the RBI for continuing with financial liberalisation, attempting to develop financial markets, liberalising the gold policy and the moves, albeit cautious, on capital account convertibility. Dr Mujumdars stance was pithily summed up by Dr I G Patel, the then Governor of RBI, when he said when I blow hot, you blow cold and when I blow cold, you blow hot. Dr Mujumdar would be in sync with Justice Astbury who said Reform! Reform! Arent things bad enough already.
While I personally find myself diametrically opposite to Dr Mujumdar on almost every issue, for all those who are in favour of financial reforms economists, bankers, academics, bureaucrats, industrialists and students Dr Mujumdars two volume book should be mandatory reading. He argues with consummate skill against virtually every aspect of the reform which he believes has been transplanted and foisted onto the Indian financial sector. Just because it does not reflect mainstream financial reforms does not mean that we can afford to ignore this book. After all, the world learnt the bitter lesson of ignoring Mein Kampf 75 years ago.