Feasting on Indian economics

Dr C Rangarajan is one of the finest and most illustrious economists that India has produced. He has worked in diverse fields from teaching and research to policy making at the highest level.

Prior to his present assignment as the Chairman of the Twelfth Finance Commission, he was governor of Andhra Pradesh.

His varied experience is reflected in the richness of his writings that bring together the finer aspects of economic theory and its practice.

The two-volume collection of 25 essays by Dr Rangarajan, written at various points in time, capture a wide variety of issues in the real, monetary, fiscal and external sector. The various themes are organised into four parts, two in each volume.

The ten articles in Part I cover not only agriculture and industry and the economy in general but, more importantly, the interrelationships between different sectors as well.

One of the papers studies in detail the linkages between agriculture and industry within a macro framework.

This study is a bit dated as it covers the period 1961 to 1972, but the framework can be easily adapted to study the changes in the relationship between different sectors in the post-reform era in India.

The other articles in this section deal with important issues of industrial growth, conflict between inflation and employment, productivity and forecasting of corporate investment.

Part II of Volume one covers monetary and financial sectors "" an area with which Dr Rangarajan is often closely associated with because of his long stint at the Reserve Bank of India.

But, from the variety of issues that Dr Rangarajan has dealt with so competently in his career, it would not be incorrect to say that his canvas extends far beyond monetary economics and that he has left hardly any area of economics untouched by his analytical rigour and insight.

His innovative approach is evident in one of his finest papers entitled 'Money, Output and Prices: A Macroeconometric Approach'. The aggregated model developed here captures the differential impact of money supply on prices and output.

The model simulations suggest a stronger impact of money supply on prices than on output. The chapter on reserve money lucidly explains not only the underlying concepts but also the adjustments that need to be made to the published data so that meaningful empirical work and relevant policy conclusions can be derived from it.

Dr Rangarajan pioneered the concept of inflation threshold "" the growth maximising rate of inflation "" which is an issue of significant contemporary relevance.

As a member, he made a significant contribution to the Chakravarty Committee Report on the Monetary System.

This report comprehensively covered the various aspects of monetary and financial systems in India. In one of the articles, Dr Rangarajan explains the analytical framework of the Chakravarty Committee Report.

One of my favourite parts of the collection is the fiscal section that is covered in Part III of Volume II. The first two articles of this section focuses on the issue of fiscal dynamics and its interaction with other sectors.

The issue of debt sustainability assumes greater significance today when fiscal imbalance remains a critical risk in the otherwise healthy economic scenario.

The section on external sector (Part IV) covers a wide variety of issues from relationship between trade volatility and growth performance to issues related to currency convertibility.

The analysis of the trade volatility on economic performance uses a robust framework that goes beyond the usual cross-country regressions to draw relevant conclusions from the perspective of a developing country.

The study finds that long-run income and export multipliers are higher for developing than for developed countries. It also establishes that increase in export instability has adverse implications for growth.

The other articles discuss the important issues of convertibility on current and capital account, exchange rate mechanisms and systems and Liberalised Exchange Rate Management Systems (LERMS).

In the Preface to the two volumes, Dr Rangarajan acknowledges that the omission of some of his earlier articles "disrupts the continuity of economic thinking and leaves gaps in the topics covered".

This notwithstanding, the two volumes not only bring together his earlier research in one place, but also serve as a very useful reference guide to the students and practitioners of economics alike.

SELECTED ESSAYS ON INDIAN ECONOMY

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C. Rangarajan
Volume I and II
Academic Foundation, 2004
Pages: 334+344
Price: Rs 995