What sort of finance minister would the distinguished policy-oriented economist Dr I G Patel have made? This is an interesting counterfactual proposition worth pondering in this review, since he was the first choice of Prime Minister P V Narasimha Rao for this position in 1991. If he hadn’t declined the offer, Dr Patel would have been the architect of India’s reforms. What gave the Congress-led government elbow room to introduce reforms was an economic crisis. The reform was technocratic in its support base and widely associated with an IMF-sponsored programme of fiscal consolidation and structural reform.
For such reasons, the big bang reforms during that period may not have been radically different in terms of sequencing or timing under Dr Patel. But would there have been a similar unfinished agenda two decades later? Despite all the benefits that this process unleashed in the economy — like the acceleration in overall growth that has made India one of the fastest-growing economies in the world — would this process have still occasioned a sense of unease that the outcomes could have been better? More pertinently, would it have left Dr Patel with a sense of failure or a sense of achievement?
This valuable edition of articles and essays by Dr Patel, many of which were unpublished in his time, does provide material to answer these questions. For starters, the lecture on the “The Idea of India as an Ideal” shows that he had a holistic, long term-view of reforms. There is a sense of realism when he argued, “we should be under no illusion that with the implementation of economic reforms — a distant dream anyway — we would be among the richest countries in per capita terms in one generation. Nor will there be an end to poverty or any significant reduction in inequality” (Chapter 19).
In this milieu, a good enough dream to fulfill was providing everyone food, clothing shelter, roads, electricity, sanitation, safe drinking water, access to the literary treasures of the world and eliminating malnutrition. Whether all of this would abolish poverty is a different matter. With good universal education and steady progress over a generation, inequality might decline but not be eradicated. “However, with full stomachs, a decent environment and proper education, people do not worry about what the other person has locked up in his vaults and bank accounts,” he added.
Although Dr Patel was seized of the reform imperative, he also saw merit in not neglecting the broad-based industrial structure that was built earlier under state ownership. “It would be suicidal to let our capital goods industries wither away out of neglect, inefficiency and abject surrender to competition from abroad…there is no reason why India cannot have a vibrant and competitive iron and steel industry or a machine-building capacity” (Chapter 21). The way forward was not to disinvest their equity to fund budgetary expenditures but to restructure or privatise inefficient public enterprises.
As finance minister, he could have made a big difference in fashioning an exit policy that still remains a major lacuna of the reforms process. “Exit” to him was a not a four-letter word for hiring and firing labour. It also entailed allowing the Schumpeterian process of creative destruction to run its course: “Exit has everything to do with big business also, it means that no one is going to say that nobody can take over the Tatas and Birlas or any thing like that and that they must be there forever. Then you are not talking of exit policy. You are talking of the same things of which you are blaming labour” (Chapter 20).
Decades of experience as a policy maker provided Dr Patel with a sense that economic policy is formulated in an “imperfect political and social context”. That the route to the rational is not always direct! In a fractured polity, compromises, thus, will have to be made. A “dynamic search for the optimum, for the second and even third best based on compromises and buying time” is of the essence of economic life in a democracy like India’s (Chapter 21). With such a sense of pragmatism, he would definitely have sought to widen the constituency for reform during the critical juncture of the early 1990s. Nevertheless, he was disappointed that reforms made no difference to corruption.
These observations are only an appetiser for reading the stimulating articles in this book that reflect the changing policy imperatives during the post-Independence period. These include the Second Five Year Plan, monetary and credit policy right down to the banking and financial system, including a heartfelt appreciation of Professor A C Pigou. The two editors of this volume, Deena Khatkhate and Dr Y V Reddy, have provided an authoritative background and context to the various articles and essays in the book. But that would be no substitute for going through the written thoughts of one of India’s finest economists who could easily have signed off as finance minister if he had chosen to.
OF ECONOMICS, POLICY AND DEVELOPMENT: AN INTELLECTUAL JOURNEY BY I G PATEL
Edited by Deena Khatkhate and Y V Reddy
Oxford University Press, 2012
456 pages; Rs 1,295
