On Finance, The Big Picture

What value addition can a new book impart? There is always value addition if you get the right authors. Besides, this isn’t a general book on the economy. It focuses on macroeconomics and monetary policy. Because the book is dedicated to C. Rangarajan. The choice of the area helps. This is one area (external as well as domestic financial), where in fits and starts reforms have incrementally happened. Despite scams and global financial crises, no great debate on first generation vis-a-vis second generation vis-a-vis third generation was necessary.

Here is the first paragraph on Rangarajan. “Chakravarti Rangarajan is unique among the fraternity of distinguished economists in India. Most members of this club have either remained in the academic world or been part of the government for most of their career. Many economists from the academic world have made brief forays into government and there are some from the government who have ventured briefly into academia. Rangarajan is a rare example of an economist who has had a long and successful academic career followed by an equally long and distinguished career in government.” True. Pennsylvania, Wharton, IIM-A, RBI, Planning Commission, back to RBI, Andhra Pradesh, the Twelfth Finance Commission. (The book doesn’t mention the last two.)

Reflecting Rangarajan’s interests, the book has three themes. On macroeconomic policy, there are five papers. There are five on banking and international finance. Finally, on monetary policy and the financial sector there are four papers.

I said value addition is possible if you get the right authors. However a caveat is needed. How do you define right authors? Three criteria suggest themselves. First, authors must be knowledgeable. Second, they must have something new to say. Third, they must write well. Not all papers satisfy these tests. In general, all papers in the banking and international finance section are excellent. This is the good segment. Papers in the monetary policy and financial sector segment are variable. I won’t call this a bad segment though. However, papers in the first segment of macroeconomic policy are indeed generally ugly. This is despite a paper co-authored by Lawrence Klein, who was also Rangarajan’s teacher in Pennsylvania. In this segment, one should mention an attempt by Vasudeva to talk about development policy in the form of a dialogue between a disciple and a teacher. Amartya Sen tried this once, in Essays in Honour of Amiya Dasgupta. It didn’t work then. It doesn’t work now and the Sen attempt was cleverer.

The fifteenth paper, which knits everything together, is actually the best. This is the introduction. Since the Ahluwalia, Reddy and Tarapore writing styles are so different, you wonder who did the writing. There are two reasons why the introduction is good. First, it doesn’t ignore events before 1991. Second, it is written well. Here is my favourite sentence, about Sukhomoy Chakravarty. “In the spectrum of pro-market versus pro-controls he (SC) was not seen to be located in the pro-market end of the spectrum and it was Rangarajan who persuaded Chakravarty that the time had come to move away from administratively-fixed interest rates.” This was 1985. Can you express this Chakravarty versus Chakravarti difference better?

Finally, the last sentence of the introduction concisely sums up the entire book. “By paying him a richly deserved tribute, this volume applauds all who alongside Rangarajan engaged in the transformation of the Indian economy.” We may not get 8 per cent. But we have begun to think 8 per cent. That’s no less a transformation.