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Monday, October 25, 2021

Remembering reform

We lost Rajiv Gandhi on May 21 more than a decade and a half ago; he was in active politics for barely a decade.

Written by Yoginder K. Alagh |
May 21, 2009 2:05:40 am

We lost Rajiv Gandhi on May 21 more than a decade and a half ago; he was in active politics for barely a decade. Yet he left a lasting impact; some of our central ideas were given concrete shape in his years in power: high growth as a strategy with decentralisation and markets as instruments; technology-based opportunities to resolve India’s problems; human development and growth based on local communities; and integration with the global economy with an independent mind-set as the redefinition of self-reliance.

This column has often reflected on the experience and relevance of each of his ideas while discussing the present. There is a reason why the ideas survived,and that is that Rajiv didn’t just set objectives. As Gopi Arora once told me,he was India’s first prime minister who had worked in an organisation and for a living; he knew the discipline required to cover the last mile. It was never enough to say that we need faster-growing agriculture,he would want a spreadsheet for each district and then he would go out to look.

At one level,he was about detail; at another,about integration. Local government was to be integrated with agro-climatic plans and hence watersheds,aquifer plans and diversification. The network we laid still lives,even as subsequent governments sabotaged ideas only because they were not theirs.

Now the critics. That India has been growing from the ’80s is now accepted. But it is interesting that the fulcrum of that growth,the policy initiatives of those years,are neither fully understood nor causally related with that growth. (Even though technology,strategic domestic reform and widespread agricultural growth are the policy initiatives succeeded and lauded since.) Later coalition policy regimes with little that was new to offer,some in borrowed “reform” attire and comparatively lacklustre performance,deliberately underplayed (and sometimes ravaged) the legacy. Those critiques,some by very influential persons,can be ignored for they are not worth the government paper on which they are written.

Then there is the claim from some academic (and most official) economists in the ’90s that growth in the ’80s was slower than in the ’90s,that it was unsustainable and that it was without a vision. As regards “causes”,Meghnad Desai sums up the dominant argument outside India: “Opening out the economy to foreign borrowing on official account in the ’80s was the beginning of an admission that self-reliance was not a successful strategy.” After all,“a lifetime of living off tariffs and subsidised interest rates has inured the big business classes against the virtues of competition.” Thus the argument that the policy systems of the ’80s were designed to establish a cosy relationship between the capitalists and the establishment is factually incorrect. By the mid-’80s,around two-thirds of Indian industry was out of domestic controls. Eighties’ policy broke the back of the one-to-one link between the bureaucrat and the capitalist and it was very clear that global reform was to come next.

Rajiv was very clear about this.

Then there are reasons. Dani Rodrik and Arvind Subramanian said that ’80s growth was because of a business-friendly regime. That ignores the strategic nature of policy-making then. The development of industry-level rules rather than firm-level intervention,of competition at home to lay a transition for later reform and the use of trade and fiscal policies for these objectives have been extensively described elsewhere. Recent converts to Indian growth were wrong when they said India was not growing. They are wrong now when they say it was growing but for the wrong reason. 

And then it was claimed that growth then was unsustainable,leading to fiscal deficits,fixed in the ’90s. Yes,the combined fiscal deficit was 9.4 per cent of GDP in 1990/ 91,but it’s over 10 per cent now. India,we are told,had to sell gold in 1990-91 because it had splurged. But that was a very unusual year. For one,the Janata Dal government of 1990 was explicitly against growth. The Eighth Plan Approach Paper they brought out was the only one not to have a growth target. With the level of short-term debt we have today,wouldn’t we have a crisis of confidence too if the PM’s closest economic advisers,instead of talking growth,PPPs and convertibility,constantly kept on saying that that was not an objective of policy and deriding Indian achievements? It is time to set the record straight so that the future sights are clearer. After all,those ideas have resonance; growth today depends on the same ideas. Fixing how we view history is important.

The writer,a former Union minister,is chairman,Institute of Rural Management,Anand

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