The outgoing chief economic advisor says Nehru brought in technocrats into economic planning, knowing he needed them to manage budgets. He said, ?I?m like a bird, who is on this leaf for a brief moment and will fly off?
TCA Srinivasa-Raghavan?s On the Turnpike traces the origin and history of the Indian Economic Service and in the process provides fascinating glimpses into how economic policy in India was shaped, the drama behind the various budgets, and the thinking and compulsions that led to key decisions being made. The book describes the circumstances under which the cadre for advising and shaping economic policy under the ministry of finance was born, the contributions it has made, the challenges it has faced and the path ahead. Foreword is delivered by outgoing chief economic advisor Kaushik Basu, who tells Sukalp Sharma and Sarika Malhotra that, ?There was a series of celebrations and we decided we should do a book on the history of the service. We thought that it would be really interesting if we could blend it with a story of the Indian economy.?
A professional service
From politicians to bureaucrats, the instinctive urge is that if something needs to be done to the economy, you phone and urge the captains of industry, please do so and so things; you call the trade unions and tell them to work extra hours; you urge people. But professional economists know that the economy is a complex machine; one needs to find the critical knobs and levers, and move them. That?s the whole task of the profession of economic policy-making. In emerging countries, this is often missed. Hopefully woven into this book is the message that India is now on its way to becoming a sophisticated 21st century economy. So we have to run our policy like a modern rather than a feudal society.
The years 1991-1993 really mark the change in thinking on policy-making. The notion of incentives?absolutely critical to running of an economy?came into play. Beyond a point you can?t do much by telling people what they ought to do.
From Nehru to now
I am a great admirer of Nehru. His commitment to secularism and democracy has contributed a lot to modern India. But in terms of policy, he took the dominant view. If you see South Korea and India in the 1950s, both were dealing with similar settings. Both believed the economy could be controlled. By the early 1960s, South Korea started rejecting this approach while India did not change. So, while South Korea and India had the same per capita income in 1950, 40 years later their per capita income was 22 times larger than ours. Democracy is extremely important. But it makes change much harder. Once you make people believe in a system, trying to change it unless there is a dramatic crisis, like India?s in 1991, is extremely difficult. Still, Nehru brought in technocrats for economic planning. That was a very good thing he did.
Nehru made it very clear that presenting the budget was not his cup of tea, or something he enjoyed. ?I?m like a bird, who is on this leaf for a brief moment and will fly off.? He was particularly aware of the need for professionals and consulted with top international economists. And that philosophy has continued. I?ve worked very closely with Pranab Mukherjee. Our internal discussions were really model discussions, free-floating.
Badge of socialism
A country is shaped by its entire history. In the early period, there was a duality. We were doing very poorly in terms of basic literacy but in higher eduction?since it was very close to the heart of Nehru, Indira and Shastri?India did remarkably well by emerging country standards. The likes of China and Malaysia are catching up now. But if you think of the 1970s and 80s, India stood out with its IITs, IIMs, and Central Universities. So, if you look at American universities today, Indian students are much more dominant than Chinese students. In the 1990s, when the Silicon Valley took off, IT took off, the US felt this huge need for human capital, and India was ready to supply. We have to give credit to the 1950s, ?60s and ?70s.
During those times, we chose to wear a badge of socialism and but India did not practice socialism in spirit. It was a word that we used, a lip service we paid. Every political leader, up to Rajiv Gandhi, had a compulsion to quote socialism. India?s fraction of GDP coming from state-owned enterprises has never really been near the socialist countries. Our flourishing enterprises (from the Tatas and the Birlas to the SMEs and street-corner shops) were instances of capitalism. But we had a very hands-on, regulating and controlling government. That was a policy mistake.
GenNext reforms
Since 1991, India has got a rough understanding of the role of incentives and markets. There are some years when growth will be faster and some when it will be slower, but reforms are continuous over a long time. You deal with policies on an everyday basis while reforms stack up for a while and then with a jolt you usher them in.
Overall, the sense is that since Independence, through various stages of growth, we have remained an extremely cautious economy and polity. This is really a part of our democratic decision-making. It takes a lot of time in India to get a reform in place, but once you have done this through a consensus, then it stays. Even though we are going through a difficult period, I remain optimistic. Some eruptions are taking place, but we have relatively well-managed politics. As for economic policy, we will experiment, change, and move ahead.
Path to fiscal indiscretion
Soon after presenting the budget for 1969, Morarji Desai resigned over the issue of ?social? control of banks (14 of which were later nationalised in July). Within a few months, the political crisis, which had been brewing for about a year, finally broke on the Congress party. In July that year, the party split into two factions, one led by Indira Gandhi as the young turk and the other by the Old Gang, now portrayed as a bunch of politicians who stood between prosperity and the masses. Just how determined she was to win the political battle was brought home to the nation when she rose to present the budget for 1970-71 on February 28, 1970.
For the first time since Independence, the budget became an instrument of politics. Until that last day of February in 1970, the budget had been a tool devoted to, and designed for, the economy alone. The idea that it could be used to project the Congress party as a saviour of the poor never crossed anyone?s mind. Politics did intervene from time to time but only tangentially. Nehru had been too honest a politician to allow the budget to be used for party political purposes. It was, he made it clear, to be used for gaining purely economic objectives.
So when taxes were raised, the Government didn?t go to town saying it was in order to redistribute wealth or to attack poverty ?directly?, whatever that meant. It simply said that higher taxes were necessary to pay for such and such investments in plant and machinery or for meeting such and such contingent liability. Aware of the implications of introducing issues relating to the redistribution of wealth into the budget, until 1970, governments consciously avoided linking distributional issues to the budget. It was, until Indira Gandhi changed it, simply a document of housekeeping with a few remarks about the state of house thrown in. Indira Gandhi?s defenders say it was all right for Nehru to walk the straight and narrow path as the Congress never faced any sort of challenge until 1967. But once the challenge arose?both within and outside the party?it became impossible to avoid using whatever weapons were at hand. After all, she only changed the emphasis and the pattern of expenditure from industrial investment to rural areas via the poverty alleviation programmes. This had the merit of bringing the poverty question bang into the centre of policy debate.
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On the Turnpike: Indian Economy Since 1947 & Indian Economic Service at 50
TCA Srinivasan-Raghavan
Foreword by Kaushik Basu
Academic Foundation
Hardcover, pg 102
Rs. 1,500