The Indian Economy, in the 90s

This is a review of books by former Governor of the Reserve Bank of India, Bimal Jalan, India’s Economic Policy: Preparing for the Twenty-First Century and The Indian Economy: Problems and Prospects.

These books offer a great ring side view of the working of the Indian economy. They are, however, dated. To be fair, these are old books, published in the 90s. Nevertheless, they are still relevant to some extent.

For instance, in Problems and Prospects, Bimal Jalan speaks of corruption and how to deal with it, by differentiating the supply and demand for the same, supply being the side of the transaction where people are willing to bribe, and demand being the side where people want, demand, bribes. He puts forth a model to stop both sides of this transaction. His suggestions have, hearteningly, been implemented under the Prevention of Corruption Act, where the bribe taker is heavily penalized (although this has been pushed a tad bit too far by penalizing even lack of action which may result in indirect benefit to unrelated persons causing a loss to the exchequer; it penalizes complicity in corruption, which many believe is doing more harm than good, by making bureaucrats slow and averse to doing risky things, thus compounding the problems of red tapism). He also says that the whistle-blowers should be protected and incentivized for their courage. This seems to be a logical way of thinking about corruption.

Some observations by Jalan made me laugh, mirthlessly. Like, “Indian democracy is schizophrenic” by which he means that although we romanticize democracy (freedom liberty equality!), we’re deeply suspicious of how it works (everyone’s corrupt!). Hence our civil society is weak, parliamentary representatives are not motivated to work for the people and seek to gratify self-interests. General will is all but thrown out the window. But this is changing, as we have seen with “people’s movements” and a burgeoning civil society that increasingly dictates policy. This is a great shift in our democracy that people haven’t taken much notice of!

In his book, India’s Economic Policy, he talks about the weight of Public Sector Enterprises and the losses they incur to the exchequer, and recommends that the state shake them off. This has been a popular demand in India, and the recent governments have taken cognizance of it as they have initiated strategic sales of many of the state concerns.

India’s Economic Policy reads like a journal of the Indian Economy in the 90s, as we were bubbling with hope and trepidation after the giant LPG reforms of 1991.

Some of the issues that are still very relevant, that I picked up, are

  • Making the party whip less powerful – and making the Indian democracy a true representation of people’s interests, as opposed to being a minion of party interests.
  • Separating policy making from policy implementation (ie., the politician and bureaucrat should have more sharper differentiation of functions, and the latter should be allowed to tailor policy to suit the needs of the grassroots)
  • Decentralize, because overcentralization of schemes and programmes has made them inefficient.

The good news is that most of these reforms are in the pipeline, have been implemented already, or have been tried and discarded. I would still recommend it to someone who’s trying to understand the Indian economy from its roots and shoots. I’d rate Indian Economy: Problems and Prospects higher than India’s Economic Policy: Preparing for the Twenty-First Century, for its relevance today and the future.

Indian Economy: Problems and Prospects – 3/5

India’s Economic Policy: Preparing for the Twenty-first Century – 2/5

Bimal Jalan’s books are like a reading of the history of the Indian Economy, and the story of her evolution. They’re good. Easy reading, if you’re conversant with basic economics and have a rough understanding of issues related to the Indian economy. But to understand the economy as it is today, policy, problems, I’d suggest (highly recommend) reading the Indian Economic Surveys. The Economic Survey is cooler – with references to Bob Dylan music, dry and witty sarcasm, it is a giant authoritative perspective of the economy today.

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