Economic Mantras from the Rishis: A Review of Economic Policy Reforms and the Indian Economy

Citation

Sudarshan, R. (2004), "Economic Mantras from the Rishis: A Review of Economic Policy Reforms and the Indian Economy", International Journal of Social Economics, Vol. 31 No. 8, pp. 808-810. https://doi.org/10.1108/ijse.2004.31.8.808.1

If decision makers in India could act with decisiveness, and things happened rapidly, rather than gradually and glacially, a book based on a May 2000 conference on economic reforms needed in India would be outdated by now. A number of contributors to this book have either been, or still remain, decision makers in the country dealing with economic policy, and they must have been confident that what they have to say would have a long shelf life! The economic growth rate in India is no longer the low “Hindu rate of growth”, thanks to policy changes initiated in 1991, more forced on political decision makers by a balance of payments crisis, and less prompted by conviction. But the pace of implementation of that set of policy changes, now part of the new mantra of economic high priests featured in this book, seems faithful to it own “Hindu rate” of growth.

The editor, and her co‐author, Sajjid Chinoy, remark in their introductory, overview chapter: “The question is not whether further reforms will be on the agenda: It is whether reforms will take place quickly enough to accommodate an 8‐10 percent annual rate of growth, or whether, instead, they will proceed at a sufficiently relaxed pace so that 5‐6 percent growth will be the norm” (p. 44). The high priests featured in this book appear to have made up their minds to convene again in ten years time, convinced that their mantras will continue to bear more repetition then. The introductory chapter states that:

…if one were to assess fiscal performance since the crisis, the conclusion would have to be that the initial stabilisation package met with some success, but that reforms faltered before the underlying structural problems of inefficient expenditures and inelastic sources of revenue could be tackled.

Why did the reforms falter? The editor, in the concluding chapter of this book, outlining priorities for further reforms, states:

Obviously, in a democratic society, reforms can proceed only with the consent, if not the support, of the majority of the population. Find means to achieve greater support will undoubtedly entail a number of measures. Better explanations of reforms and their benefits by politicians and policy makers may make a significant difference. So, too, could more attention to education and health policy (p. 357).

This book, however, is not meant to be read by politicians. And while it has a chapter on education policy, and relationship between agricultural productivity and the demand for education, it has no chapter on health.

It almost seems as though academic research and policy prescriptions with respect to India lag behind the times, much as the Indian economy lags behind compared to other Asian achievers. In the pre‐independence and immediate post‐independence years, the strategy was to use large investments in capital projects and infrastructure to promote development and, thereby, reduce poverty. In the 1970s, emphasis of strategy shifted to health and education of the affected populations. By the 1980s, improved economic management and “market friendly” policies, prompted by structural adjustment programmes, were widespread in developing countries. Since the late 1990s, good governance, the values of democracy, transparency and accountability, participation of civil society, have now joined forces in the strategies against poverty. There is nothing in this volume on these recent themes that preoccupy much of the literature on economic performance and the role of governance. It remains firmly located in the era of structural adjustment prescriptions.

T.N. Srinivasan has a paper on alarming fiscal deficit in India. He demolishes the view that because inflation is low, there is a basis for an expansionary fiscal stance, financed by central bank borrowing, as evidence of a “closed‐economy mindset”. He argues that “the most critical issue facing the government at all levels is the unsustainability of the fiscal situation”, and proceeds to discuss how reforms of state government finances, tax and expenditure reforms, reduction of subsidies and disinvestment (the classic structural adjustment package) could help. Shankar Acharya, India's Chief Economic Advisor, notes the compliment paid to him, by repeating Srinivasan's praise for the Economic Survey, 1999‐2000 for “the clearest statement on the seriousness of the fiscal situation”. Maharishi Vashista (Srinivasan) thus proclaims the rishi Vishwamitra (Acharya) to be a Brahmarishi, renowned for his foresight and prescience.

Another of India's economic rishis, Montek Singh Ahulwalia, who was the Secretary, Finance and Economic Affairs, examines the performance of states under economic reforms. He notes growing differentials among the states (a problem that politicians and political scientists would worry about much more), and argues that the solution to this problem of widening disparities in growth rates does not lie in “backtracking from reforms or even slowing them down”. States suffering from low levels of investment could reduce their competitive disadvantage vis‐à‐vis more industrialised states by allowing greater flexibility with regard to labour, but this has not proved to be politically feasible. Good economics does not always prove to be good politics.

There are two chapters on policies towards the private sector, and they have the advantage of introducing some poetry in one of the presentations, even if all the contributors to this book ultimately speak the same structural adjustment prose.

If there is one person among India's economic rishis who has the ability to communicate clearly to those uninitiated to the mantras of economic reforms it is Ashok Desai, who was for some time Chief Economic Consultant to the Finance Minister, Manmohan Singh, the economist credited with the boldness for the volte face in India's time‐honoured set of economic policies. His comment on the papers by India's software industry by AnnaLee Saxenian, and, incidentally, on another paper by India's InfoTech hero, Narayanamurthy and another, is brilliant. This book is worth getting hold of just to be able to read this kind of accessible analysis. Unfortunately, the same cannot be said of the dissertation on India's small scale industry by Rakesh Mohan (another of India's economic rishis, who did his time as Chief Economic Advisor, and is now a Deputy Governor of India's central bank). But he is gifted with self‐knowledge, and warns that “readers will find this chapter quite data intensive and hence difficult to digest; there was no other way to present the evidence at hand” (p. 213). Is it little wonder that such compelling analysis should go over the heads of India's political decision makers who happen to think that quotas and subsidies in favour of small scale industries will benefit small people, and have the virtue of supporting David against Goliath?

Anne Krueger does point out that the connection between reforms, more rapid growth and rising living standards is not widely understood or recognised in India. The book she has edited is commendable for details that would appeal to economic rishis elsewhere. But it does not do much to make those connections that she finds missing in the common sense of India's people clear to that uninitiated, but politically critical, lot.

The views expressed in this review are the personal opinion of the author and must not be attributed to UNDP.