Economics Of Chance

As I.G. Patel, one of India’s foremost economists and policymakers, traces the evolution of Indian economic policy from his personal experiences, he shows that the policies of import controls and industrial licensing were a result of war-time controls, bureaucratic habits and regional pulls in a democratic structure. Economic policies were the consequence of a particularly Indian reality, shaped by civil servants, ministers and experts who were the product of a middle class nurtured by the nationalist struggle. The policies reflected their aspirations and compulsions.

It was, Patel argues, not Soviet Communism but American liberalism and British Labour that were the foundation stones of our views on economic policy. The post-war welfare states providing access to education, health and unemployment benefits created a faith in the need and efficacy of government intervention in people’s lives. It became easy to believe that the government could be honest, well-meaning, dedicated and intelligent enough to pursue public interest wisely and that people would give them willing cooperation.

Besides, the popular development model—the Harrod-Domar model of growth—focused attention exclusively on the rate of saving and investment as the engines of growth. Thus, little attention was paid to allocative efficiency and the role of motivation and incentives that lead to a rise in productivity.

The result was the lack of an appropriate policy framework, a clear statement of priorities or the role and relevance of the public and private sectors. While five-year plans were essentially statements of public expenditure, and other targets were indicative, this had policy implications. If the private sector had to produce so much coal, that capacity must be licensed and no more. No one asked why industrial capacity had to be licensed than be induced by incentives!

Patel traces the regime of import licences first to World War II and later to the ’56 forex crisis. In response to it, B.K. Nehru, who was joint secretary in charge of external finance, prepared a budget which served as a basis for determining how much India could afford to import. This later developed into a system where a clearance would be required from the Directorate-General of Technical Development that the product was not being, or could not be, produced at home. Not only could a product be imported only if this was the case, who’d import how much would be decided by the bureaucracy.

Tracking the evolution of a number of other policies like freight equalisation, the green revolution, bank nationalisation and exchange rates, Patel offers insights into both the process and the thinking that went behind them. He also shows how the element of chance, the absence or presence of certain people in key positions and the force of personalities, led to a certain policy. For instance, Patel says Shastri disliked controls and the corruption they bred and his untimely death delayed India’s economic reform process by two decades.

Patel’s closeness to some of the main policymakers gives the book an interesting flavour. After Nehru’s death, when Shastri became PM, it was difficult for T.T. Krishnamachari, the finance minister and someone who hero-worshipped Nehru, to accept anyone else. TTK would drop into Patel’s office, then the Chief Economic Advisor, and ask him to draft a sharp letter of resignation. "I would draft one, he would correct it and I would draft another and when he finally approved of it, I would tear it up. He would laugh and go away. And the game would resume a few days later."

The notes at the end of each chapter contain some of the most interesting comments. For all the respect for Mrs Gandhi’s intelligence and patriotism in the main text, it’s a little endnote that is most revealing. Waiting with her for a taxi after a dinner hosted by Nehru in ’54, Patel casually remarked on newsreports about her accompanying Nehru on foreign trips. She flared up and shouted at him that she never went with Nehru unless he was ill. Patel notes it was obvious she was suspicious by nature and saw disapproval and even hostility where none existed. And that these failings ultimately clouded her visions and actions.

Morarji Desai, on the other hand, trusted his advisors. He also had a rather unexpected sense of humour. At a dinner at Patel’s house in Washington, Desai sat on a sofa and gently knocked his head against the wall. After a while he asked what was behind the wall. When Patel told him there was a stairwell, he said: ‘Thank God. There was so much resonance I wondered whether there was a big vacuum in my head."

The charming personal touch, the sometimes forgotten details of a meeting, the gentle wit and respectful attitude while writing about most leaders add to Patel’s credibility, as well as make his book immensely readable.