The Hindu Business Line : We are notorious for blowing our chances in cricket, and economy too

A LACKLUSTRE minister talks of investments, and the market reacts equally cheerlessly. Another rants before TV cameras about petroleum prices. Yet another is happy with earthen pots for espressos.

The airwaves are, therefore, getting clogged by random signals from divergent sources, and so are airports where `private' is a word best spoken in private. Whether clarity would emerge in due course and whether stability would be achieved in spite of shaky wheels are questions with no ready answers.

"India is notorious for blowing its chances, not only in cricket, but also vis-à-vis the economy," writes Kaushik Basu quite aptly in India's Emerging Economy, published by The MIT Press of the Massachusetts Institute of Technology (http://mitpress.mit.edu). The book he has edited is about `performance and prospects in the 1990s and beyond', and dedicated "To Dr Manmohan Singh, scholar, parliamentarian, senior economist, and friend."

Well, the friend is a PM today, but why is Basu so cautious about Indian economy? "In the late 1970s, with foreign exchange reserves beginning to build up, the savings rate crossing 20 per cent for the first time, and the economy running a food surplus, many felt that the time for India's economic takeoff had come. But India remained stubbornly rooted to the tarmac. Hence, there is reason to view the current buzz with caution." Towards the end of his introductory piece, Basu has a message for today's rulers: "To craft policy assuming that the features of the global economy and the rules of the global game that one does not like can be wished away is to count failure."

There is a paper by Amartya Sen on democracy and secularism, where he diagnoses what is wrong with India's democracy: `Timidity of its practice'. So his prescription: "The road ahead for India will depend much on the integration of different concerns: preservation of democracy, much grater political focus on social progress (particularly in education, healthcare, land reforms, and gender equity), and democratic pursuit of poverty-reducing economic changes (consolidating the scope for competition, incentives and openness, while removing barriers to mobility, sharing, and equity among differently placed economic groups)." In short, `reforms with a human face,' as our PM would say.

Pranab Bardhan, writing on `Disjunctures in the Indian reform process,' points out that "The largest single contributor to fiscal deficit for the country as whole is the staggering burden of losses in the State electricity boards... with a negative return of 17 per cent." With State governments competing to appease by cutting down power tariff, this percentage should already be climbing up.

Y. V. Reddy is always a pleasure to read. Thus, in providing a practitioner's perspective to monetary and fiscal sector reforms, argues for reforms in the real sector, particularly in domestic trade, to accompany liberalisation of the financial sector.

He also appeals for a distinction to be drawn "between what the financial sector can contribute and what fiscal action can contribute to matters relating to poverty alleviation." A new thought to those who thought that uplifting the poor is like a rath yatra where everybody gets to tug the rope.

"In the interest of efficiency and stability of the financial sector, intermediation may have to be progressively multi-institutional rather than wholly bank-centred." Yet, banks are special and the backbone of payment system, he says, but here is his warning: "They may face problems if subject to disproportionate burdens."

Ask accountants to draw a balance-sheet of the Indian economy, and they may disappoint you. But Mihir Rakshit attempts just that in the paper on macroeconomics of India's reform experience. He also talks of `fiscal fetishism,' wondering if there was `some method in the fiscal madness.

"Policies need to be framed, even if they may not always tally with `common sense' or conventional wisdom," Rakshit says. "Remember the age-old adage that in macroeconomic analysis so-called common sense very often proves nonsense."

State-level fiscal reforms are the focus of M. Govinda Rao's paper. "Transition to VAT is necessary not only to impart efficiency to the tax system but also to enhance revenue productivity," he writes, and that is a topical issue, with Mr P. Chidambaram back in the Finance Ministry. But a caveat: "A real danger of this reform being implemented in a half-baked manner."

Manuela Ferro, David Rosenblatt and Nicholas Stern join to write `Policies for pro-poor growth in India,' where there is something politicians may not like to hear: "The government must open its activities to public scrutiny, provide the public with the information it needs to express its opinions to the government, and establish mechanisms to take into account citizens' feedback."

Who is getting the public goods in India, asks Abhijit V. Banerjee. "The average child growing up in Orissa in the 1980s was seven times more likely to die in infancy than his or her equivalent in Kerala," is just one of the many shocking statistics he tosses at readers. "Access to public goods is substantially a matter of who can extract them from the political system," he says matter-of-factly. "It becomes increasingly likely that large chunks of rural India will turn into traps, with an infrastructure so bad that only those who are too poor to move and too powerless to challenge the system continue to be there." Frighteningly realistic.

Don't miss N. R. Narayana Murthy's case study of the software industry, his forte. "India must not be afraid to dream," he proclaims. We can create world-class companies, but his recipe requires "an enlightened political leadership, bureaucracy, corporate leadership, and academia" working collaboratively. Again, on IT and economic development, Nirvikar Singh calls for reforms in the telecom sector "that promote competition and innovation in providing last-mile access."

The last part of the book is devoted to `grassroots and the globe'. Barbara Harriss-White takes a look at the informal economy — the pale that is outside the scope of state regulation. "It comprises 60 per cent of net domestic product, 68 per cent of income, 60 per cent of savings, 31 per cent of agricultural exports, and even 41 per cent of manufactured exports." It is not shrinking, but it is the shock absorber of reforms.

The SEWA (Self-Employed Women's Association) experience is recounted by Renana Jhabvala and Ravi Kanbur. "Strategies for management should be developed by listening to the experiences of the poor and to their representatives," they write, because "a hands-off policy is not an option."

Ideal read also for our new representatives in the House before they get their feet wet in policies.

Economics@TheHindu.co.in

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