Financial Daily from THE HINDU group of publications
Monday, Jan 09, 2006
Reflections on turning points in the economy
This is what Dr Arvind Subramaniam and Prof Dani Rodrik call a pro-business change in economic policies in the 1980s. They attribute the sharp resurgence in India's economic growth to these policy changes.
The question my interlocutor raised was whether there was any conscious design behind these policy changes of the 1980s. Was it influenced by the West, the IMF or the Bank?
There was admittedly a spate of discrete papers produced by various Committees which provided the ideological underpinning for the changes. Mr M. Narasimham himself headed a Committee which examined principles of the possible shift from physical to financial controls.
Although it came in 1985, after Indira-ji's demise, it reflected the thinking that prevailed at the time. The Narasimham Committee also examined the area of industrial licensing and related matters, where it identified some broad lines of reform.
I remember one exercise in which I was involved that of determining the appropriate import duty level on a particular product, a petro-chemical, in place of regulations banning or restricting its import. The calculations involved an estimate of local cost of indigenous production and calculating the tariffs at such a level as to make it prohibitively costly to import. The calculations involved controversial estimates of productivity and capital costs.
It has to be admitted that the policy changes that Indira Gandhi introduced were, partly at least, shaped by international forces, including the influence exercised by the IBRD and the IMF on various policy-makers. The Indira Gandhi-led reforms did not derive from any specific pressures of either Assocham or FICCI.
The reforms were technocratically led by opinion-makers within the bureaucracy and political leadership of the Congress. Talking of turning points in policy formulation, I have necessarily to fall back on my undoubtedly limited repertoire of contact with important persons in India's economic history. One of the most important turning points I was associated with relates to the Green Revolution.
A little-known episode in this context has to do with the late Dr G.V. Chalam, an agricultural scientist. In the early 1960s, he had returned from a visit to Manila, where he had interacted with the International Rice Research Institute. I happened to be Private Secretary to Union Minister C. Subramaniam, the legendary agricultural reformer.
On his arrival in Delhi, Dr Chalam called me from the airport. Dr Chalam had brought with him a parcel containing the miracle seeds of Taichung Native (I) rice and the quarantine official would not let him bring it in. While the official was technically within his right, I had to persuade him, saying that Dr Chalam was bringing it at the Minister's bidding which was terminologically inaccurate.
Dr Chalam had brought the seeds on his own initiative. He was associated with the National Seeds Corporation at the time. He went on to propagate the high-yielding variety of rice with great gusto.
While Dr Chalam had the faith of an enthusiast, his experimentation with rice coincidentally has to be seen in the backdrop of the far more ambitious efforts initiated and led by Dr M.S. Swaminathan for wheat as also other foodgrains. Dr Swaminathan had himself independently been on track of the then emerging knowledge-based research on high yielding varieties of wheat.
While Dr Swaminathan pioneered the changes in the Indian agricultural landscape and thus laid the foundation for India's food security, Dr Chalam played a little-recognised but definitive role in first alerting the Minister to the possibilities of high-yielding varieties.
Another turning point I recall relates to the launch of the milk revolution in the same period. That again has to do with C. Subramaniam's tenure in the Food and Agriculture Ministry. A late-night protest by the dairy farmers who were supplying to Delhi Milk Scheme was keeping Subramaniam very preoccupied. He immediately called on Dr Verghese Kurien for help. Dr Kurien had till then been confined to Amul and Anand in Gujarat.
Within a few days, Dr Kurien landed at Krishi Bhavan, accompanied by his advisers. Dr Kurien carefully laid down his conditions for rendering assistance to the Minister. These involved freedom from bureaucratic interference. He was and is remarkably allergic to bureaucracy.
He recognised, however, that it was the same bureaucracy which helped to take various actions needed by him to implement the spectacular changes he was keen on. Thus was born the National Dairy Development Board and the renovated Delhi Milk Supply Scheme.
The transformation initiated by NDDB under Dr V. Kurien's inspired leadership is now part of history as it paved the way for the milk revolution, which Dr Kurien has implemented not only in India but also extended to other countries. The initiative of CS behind this reform has to be remembered as a contributory factor to the emergence of Dr Kurien's revolutionary role.
Turning to a less well-known reform with which CS was associated, I would recall the establishment of the Super Bazaar at New Delhi, which formed the model for the Super Bazaars movement. This was CS' response to the inflationary spiral, which he expected in the aftermath of the devaluation of 1966.
With his knack for locating potential leaders, CS identified Lakshmi Jain, a leading light of the Indian Cooperative Union of New Delhi. Mr Jain proved a veritable dynamo of energy and established the Super Bazaar at Delhi in Connaught Place in record time. The pessimists, who started with a snobbish contempt of his initiative, remained to pay homage to the Super Bazaar's success.
CS' response, a la Super Bazaar, was characteristic of his approach to all problems. The Super Bazaar solution, in effect, was in a sense the beginning of India's retail revolution albeit, a cooperative approach to consumer marketing building on the experience of similar stores in UK and other countries. It was a no-nonsense riposte to free market enthusiasts, who condemn such intervention with market forces as counterproductive.
That the Super Bazaar movement did help in stabilising the prices and reduced profiteering by the retail traders of New Delhi and elsewhere is borne out by history. Unfortunately, the historic initiative started by Mr Jain under CS' leadership has not expanded as it deserved to do.
The economist, who was my interlocutor recently, raised a question as to whether (late) Rajiv Gandhi's Budget of 1985 was in itself a response to an ideological campaign for change in India. I responded saying that to the best of my information it was essentially driven by Rajiv Gandhi's own appreciation of India's economic reality and the need for change.
He was of course ably aided in this by his associates Mr Arun Nehru and Mr Arun Singh, as well as Mr V.P. Singh, his Finance Minister.
Mr Singh piloted the reformist budget of 1985, which was in many ways a forerunner of Dr Manmohan Singh's Budget of 91-92. Rajiv Gandhi's initiatives, however, ran aground with the unfortunate Bofors allegations, which succeeded in emasculating the Congress Party at the time, thanks to Mr Singh's revolt.
Another turning point relates to Michel Camdessus' visit. Mr Camdessus, the then MD, IMF, met Rajiv Gandhi soon after his presentation of the Budget for 1989-90. Mr Camdessus promised a safety net of a few billion dollars, if India would approach IMF with the Budget statement as an earnest statement of India's intentions. No separate assurances to be furnished. Mr Camdessus had anticipated a BoP crisis for India and felt it needed and deserved help. He appreciated India's sensitivity to approach the IMF so soon after the aid in the early 1980s.
But thanks to some of political advisers, who reportedly warned Rajiv-ji that any approach to IMF may be electorally disastrous, this initiative was stopped. I have often wondered whether India's economic history would have been different if Rajiv Gandhi had taken up Camdessus' offer of a safety net. But that was not to be.
Rajiv Gandhi had, of course, valid reasons for politically deferring the decision. He had indicated to his bureaucrats that he would take up the offer on his return to power after the polls. India was destined to go through the 1991 trauma. Perhaps, it has emerged stronger as a result. But it is undeniable that acceptance of Camdessus' offer would have made an important difference. That was a turning point to remember and ponder about.
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