Economy: 2004-14 will be as damaging as mid 60s, 70s'

[Sakal Gharelu Ustad]

Economy: 2004-14 will be as damaging as mid 60s, 70s': Blog on Policy Puzzles by Bibek Debroy | ET Blogs

In describing the Indian economy since 1947, 1991 is regarded as a watershed. That's because of economic reforms. In 1991 proper, as opposed to what happened later, what were those reforms? They were on the external sector (trade, exchange rate, foreign investment) and industrial policy. Who was Industry Minister in 1991? We don't remember. It was P.V. Narasimha Rao. As PM, legacy of Narasimha Rao as architect of reforms has been forgotten and disowned. His retention of the industry portfolio was a conscious decision to drive liberalization.

A myth has been perpetuated about who drove those reforms and present expectations about reforms are also based on that. In rewriting history to suit what is convenient, one also tends to gloss over and ignore something else. By September or October 1990, the reform blueprint was already agreed on, in consultation with World Bank and IMF. Ipso facto, regardless of who was FM in 1991, the blueprint would have been implemented. It only remained for FM to draft the speech. It is now common knowledge that Dr Manmohan Singh wasn't Narasimha Rao's first choice as FM. That happened to be I.G. Patel. Where was Dr Manmohan Singh at that time? Between 1987 and 1990, he was Secretary General of the South Commission. In 1990, South Commission prepared a report titled, "The Challenge to the South". If one reads that report, it is difficult to argue out a case that anyone who authored or co-authored that report has strong reform credentials.

There was a watershed before 1991 too and that was between mid-1960s and mid-1970s. The worst excesses of State intervention happened then, not earlier. Two points about this. First, those policies are identified with Indira Gandhi. Having accepted that, there were several advisers and bureaucrats (including economists) who went along with the tide. They should be just as culpable as Indira Gandhi. Anyone with a contrary view was ostracized and marginalized. Second, economists rarely understand law. They tend to think those policies characterizing State intervention were only about economics. They weren't. They were backed up with legislation and we are still struggling to remove or repeal legislation introduced between mid-1960s and mid-1970s. Economic policy is easier to change, law is more difficult. It has to go through a legislative process. At least among economists, there will be consensus that mid-1960s to mid-1970s set India back by a couple of development decades.
The consensus breaks down in understanding what has been happening since 2004, in the name of inclusive growth. I have a simple proposition and disclosure requires that I state there are few takers for this view, including in my fraternity (or sorority). The proposition is the following. When the history of the Indian economy is written twenty years down the line, we will look back at the 2004 to 2014 decade as one that was just as damaging as mid-1960s to mid-1970s, if not worse, because the world has changed. As was the case during that earlier decade, contrary views are not encouraged and are marginalized. Advisers, bureaucrats and economists flow along with the tide. That's partly because views of many people are malleable. That's a requisite trait for survival.

The details of policies are irrelevant. At a broad-brush level, we are talking about killing of private initiative and enterprise and dependence on doles and hand-outs from the State. We are talking about such subsidies being fiscally unsustainable. And the most damaging of all – once such policies are introduced, it is very difficult to roll them back.

Manmohan is praised for no reasons. It was a crisis and India had no option but to open up. The damage was already done and now the credit goes to a guy who cannot stand for anything.