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February 9, 2003
REVIEWS: Musings on Indian economy
The story of the Indian economic policy from Independence to the present day, in the words of one who contributed in large part to its shaping, “is one of evolution and continuity — not of revolutionary or sharp turns in direction.”
“It reflects Indian realities,” states I.G. Patel, a former Governor of the Reserve Bank of India and Chief Economic Advisor, in his autobiographical account, Glimpses of Indian economic policy: an insider’s view.
“Its size, diversity and democratic aspirations and indeed compulsions, all make for compromise, eclecticism and even incompatible cohabitation. It needs a big smack or an electric shock for a huge and complex animal, say the elephant, to make it change its direction — and that, too, only slowly,” he notes.
Patel goes on to argue that the divisive character of the Indian society, the need to preserve the Indian federation, the workings of a parliamentary democracy where a hundred and even a thousand flowers have to be allowed to bloom, all led to a kind of eclectic melange where every policy of special pleading found a place. Once introduced, each policy acquired its own momentum and vested interests and became difficult to limit, let alone reverse. If the private sector was controlled, it was also protected, assisted and coddled.
There were also other influences: the overpowering sense of a scarcity complex generated by the foreign exchange crisis, the inability of the Indian private sector to handle very large projects and the fear of a resurgence of foreign domination through large-scale foreign investment.
Patel, who during his career in government worked with five prime ministers, recalls that the two most common criticisms of Indian economic policy then related to “our ‘socialism’ or antipathy to Indian and foreign private enterprise, and ‘deficit financing’ or inflation”. He candidly admits that, to a large extent, criticism of the policies of controls and public sector predominance was justified, and “it was not easy to defend all we did”. In this perspective, reminisces Patel, the speeches T.T. Krishnamachari (the then finance minister) made in Washington and New York had a special purpose: they were designed to convince the Americans that India did believe in private enterprise and private property, and was not a communist stooge and its socialism was of a special type. Patel acknowledges that much clever drafting went into this kind of ‘neither this nor that’ argumentation.
The period between 1961 and 1972 was the most active and rewarding in Patel’s professional life. But his memory serves him poorly about what happened during this time. “Perhaps absorption in day-to-day routine but demanding responsibilities leaves little marks on one’s mind,” he says.
He describes the experience of the Second Five Year Plan as “sad” which had reduced the glamour of planning and diminished the ardour for boldness and novelty.
He admits that the enthusiasm for planning and bold plans which abated then never really caught a second breath in India. In the larger historical perspective, planning would be judged to have had a life of barely ten years in India. What endured, alas, was the scarcity mentality and the consequent licence-permit Raj; and what was revived later was the ideological face of socialism with its penchant for nationalization of the means of production or, at least, the public occupation of the commanding heights of the economy.
Patel bemoans the Indian passion for gold jewellery. Gold, he writes, has seldom been a good investment over the long run. His hunch is that such gold as is now held in bars and biscuits, is largely for the purpose of hoarding black wealth in a convenient way — it costs little to store and is less conspicuous than marble houses or a flamboyant lifestyle.
The reason why gold bond schemes are popular and are resurrected every now and then is that politicians, administrators and businessmen all have a common interest: to regularize their ill-gotten wealth. This assertion, made by a former policy-maker of India, obviously carries weight. And he also makes an observation about banknotes worth taking note of: “Most people who accept illegal gratification or are otherwise the recipients of black money do not keep their ill- gotten earnings in the form of currency for long. The idea that black money or wealth is held in the form of notes tucked away in suitcases or pillow-cases is naive.”
The Soviets are too often blamed for selling India a wrong model of development or a lot of useless equipment. Patel is not convinced. “They did not sell us anything as a price of their friendship. We extracted it from them and we drew our own right or wrong lessons from the Soviet experience. The blame for inefficient use of equipment must also lie at our door.” Patel gives us to understand that he was fiercely independent. He cites an altercation he had with Mr Morarji Desai, when he was the finance minister in the Janata government, before taking over as RBI governor. “He wanted me to reduce interest rates when I took charge — to some six per cent. I had to tell him that that was neither possible nor desirable and that he will have to find another governor if he was keen on it. I never heard about it again.”
During his five years with the RBI, he learnt how important it was for the RBI governor to resist and say ‘no’. “If I have to claim any credit for myself as a governor, it is largely in the tenacity with which I resisted pressures of the wrong kind.” Is Dr Ishrat Hussain, our central bank governor, reading?
Mrs Gandhi could not shed the suspicion that Patel was a ‘Morarji man’, and perhaps she was incapable of accepting that anyone could be his own man. Even then, Patel claims, he retained her trust, just as he did of other leaders of strong and differing persuasions. Patel gives no indication of having performed some kind of a balancing act for having won this all- round support.
Glimpses of Indian economic policy: an insider’s view
By I.G. Patel
OUP, New Delhi. Available at Oxford University Press, 5 Bangalore Town, Sharae Faisal, Karachi-75350
Tel: 021-4529025
Email:
ouppak@theoffice.net
ISBN 0-19-565885-X
205pp. Rs600
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