BOOK REVIEW. Stairway to high growth

When the Modi government came to power in mid-2014, the economy was at a difficult phase. Growth was stuttering and inflation was at a stubbornly high level. Coupled with this was the precariously high current account deficit fuelled by Indians’ obsession with the yellow metal, as gold imports in this period had surged.

The last few years of the UPA-II government were also marked by what was commonly perceived as “policy paralysis” or in other words a complete lack of initiative at implementing crucial reforms in the economy. As the UPA-II government was faced with serious corruption charges — 2G and coal cases — there was a perceptible reluctance on the part of the administration to bring in key policy changes to revive the economy. What made matters worse were the weak global economic environment, which was still suffering from the hangover of the 2008 financial crisis. It is in this socio-economic context that the NDA was voted to power, with the BJP promising to revive growth, generate jobs and eradicate corruption — the key elements of ‘ Achche Din ’.

On that cue, it is not surprising that in his latest book, ‘ Tracking the Indian Economy ’, C Rangarajan — former RBI Governor and Chairman of PM’s Economic Advisory Council and a keen observor of Indian economy — spends a great deal of time in addressing the issue of growth revival and the steps that need to be taken for that. Apart from holding several important positions in the government, Rangarajan has also written extensively on economic affairs in newspapers. His latest book is a collection of newspaper articles written between 2014 and late 2017.

The book is divided into two parts — the first comprising four sections (Growth, Reforms, Fiscal Policy and Monetary Policy), and the second comprising two articles, one on the synergy between growth and social development and the other about external sector reforms.

Reviving growth

Rangarajan rightly argues that reforms are only a means and not an end in themselves. Which means that the government, by putting in place reforms, can only create an enabling environment with the hope that it would lead to more growth. In other words, growth can happen only when investments take place at the ground level. In the short term, reviving stalled infrastructure projects, according to Rangarajan, is the surest way of getting growth back on track — these are the “low hanging fruits”.

In the long term, giving a push to public investments, especially in the coal, rail and power sectors, would help in reviving growth coupled with better governance and delivery mechanism.

On the Modi government’s ‘Make in India’ initiative, Rangarajan says for this initiative to succeed, stronger infrastructure and better human capital are crucial. GST, the Insolvency and Bankruptcy Code, easing of FDI and making India more conducive for both foreign and domestic private investments are the other crucial long-term reform measures that are expected to revive growth of the economy.

The section on reforms has a few interesting articles which give a brief history of the reforms process in India. Though Manmohan Singh as the Finance Minister between 1991-96 spearheaded the reforms process, Rangarajan says that it was Prime Minister PV Narasimha Rao who provided the vital political ballast. Strategically, Narasimha Rao also held the industry portfolio where some of the most far-reaching reforms were enacted, such as scrapping of the industrial licensing policy.

Rangarajan also gives a brief account of how India pledged its gold during the 1991 balance of payments crisis, which was not without its share of drama. When the gold was actually being transported to the airport, the bullion van had to stop as one of the vehicles of the convoy had a tyre burst, but “fortunately before much commotion could happen, the convoy resumed”.

On the bank NPA issue, Rangarajan says it is inevitable that banks may have to take a ‘haricut’, but to what extent remains to be seen. Also he argues that the debate on the NPA issue seems to be preoccupied more on the health of the banking sector and less on the resumption of credit to the corporate sector, which also needs equal attention. The revival of private investments crucially hinges on adequate bank credit to this sector. This is important for job creation too, which is one of the important promises of the Modi government.

Social development

In Part II, Rangarajan tackles the growth versus social development issue. He says “economic growth in a broader sense includes social development”, and “economic growth and social development must move in tandem so as to reap the synergic effects of the two moving together”.

But he warns that an improvement in social development without a corresponding boost in growth could lead to social tensions. So to avoid that pro-poor social policies “must be so fashioned to promote growth in the long run”. This chapter contains a wealth of State-wise data on social indices.

Rangarajan does talk about demonetisation and its impact on growth in a couple of articles. But given how much comment and analysis, both critical and otherwise, demonetisation has attracted in and outside the media, one wishes that he had delved deeper into this issue. Given Rangarajan’s vast experience in the government, it would have been interesting to see his views on this vastly “disruptive” exercise from a political economy angle.

In a book which is a collection of articles some repetition and overlap of issues are inevitable, but the editors of the book could have been more careful on this aspect. But apart from this minor quibble, this collection provides some key insights into some of the most crucial issues facing the economy along with some valuable policy suggestions.

MEET THE AUTHOR: C Rangarajan is former RBI Governor and chairman of the Prime Minister's economic advisory council. His books include Perspectives on Indian Economy and Structural Reforms  in Industry, Banking, and Finance

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