India's Economic Policy: Preparing for the Twenty-First Century

by Bimal Jalan

A lucid and brilliantly-argued book on India's recent economic reforms Nearly fifty years after independence, India remains a very poor country. It ranks near the bottom in terms of per capita income, and is similarly placed in the Human Develoent Index which measures social well-being. Economic growth in India has been less than half that of China or even other countries in Asia. And governments, at the Centre as well as in the states, are close to insolvency. The reason for our spectacular underachievement lies in the continuation of policies which had a certain validity as a response to the colonial experience, but which have long outlived their usefulness. The global economic scene has changed dramatically since they were formulated, and we must respond to the new realities. Bimal Jalan, the well known economist and present Governor of the RBI, in this lucid and well-argued book, makes a case for governments doing what they alone can best do, and less of what they cannot do effectively.

217 pages, Hardcover

First published October 14, 2000

Reviews

[Anish · Rating 4 out of 5]

* What the poor need are jobs and resources, not a loss-making Public sector.

Summary of India’s Economic Policy - Bimal Jalan

- [ ] Whether our economic policy is befitting our socialist ideals or not, is a sterile debate.
- [ ] Policies are needed to reduce inefficiency and waste in the allocation and use of our national resources.
- [ ] A more efficient and productive economy, which yields more output per unit of input , is good for the poor
- [ ] Economic consequences of non enforcement of existing laws:
- [ ] Non-compliance and illegal activity become more profitable than legal activity
* In a utopian or truly liberal economic setups bans would be imposed very carefully. The counterintuitive approach is not enforcing regulations and banning them by deeming some products as illegal.
* Any ideology/ product banned has to be brought under the purview of the government, and banning needs to be done very carefully.

Government Jobs
- [ ] Central government has vastly expanded to more than 3.5 million employees ( Now
- [ ] State government 72 million employees
- [ ] Heavy budgetary burden of salaries and pensions
- [ ] Growing current account deficits

Historically
- [ ] Interventionist strategies helped establish an industrial base and an industrial culture.


- Korean economy > India (GNP)
- Korean population (5% Indian)
- Extreme poverty of the Indian kind

- [ ] Inability to fill top level vacancies in the public sector
- [ ] Widespread bureaucratic and political corruption
- [ ] Cultural factors are important in determining economic relationships, and where personal relations play an overriding role in influencing the behaviour of government servants towards private individuals

New proposed system : not controls and regulations
- But the one of ‘public surveillance’ and private economic activity by individuals, corporations and associations.

Overcentralisation leads to inefficiency and the diversion of resources from production to administration.

Future role of the public sector :
- Highly ideological debate
- Reckless expansion of the public sector at substantial public cost.
- Leads to the problem of India’s ‘internal debt’
- ‘Debt Trap’
- Explicit government subsidies to centrally owned public enterprises are 5 times the central Govts budget for education.

History of Public sector

- 1950-51
- Then Pvt sector didn’t have the financial means or technological capability to undertake large new investments in industry and infrastructure
- Govt became the principal source of providing fully secure jobs at wages rising faster than elsewhere in the economy.
- Led to further politicisation of public sector (Productive efficiency discounted)
- Financially unviable
* Provider of jobs
* Rescuer of sick enterprises
* Supplier of social services
* A source of funds
Led to political and administrative corruption .

Comparison
* India’s transmission losses 3 times > China
* Substantial excess labour in State electricity boards,
* Malaysia:
* Partial privatisation of large enterprises.
* What the poor need are jobs and resources, not a loss-making Public sector.

Why Privatisation ?
* Increases productivity, investment,
* Better pricing

Entire process has to be open and transparent.

Private enterprises have to be brought under public surveillance.

Public services :( abysmally inadequate)
* Scarcity of resources
* poor maintenance
* Untrained and unresponsive staff
* Poor accountability
* Widespread corruption

Role of government
* Set standards of services
* Monitor performance
* Ensure access for the poor
* Not necessarily get directly involved in delivering all essential public services.


Inflation is politically unpopular but fiscal deficits are not.
Reduce public expenditure.
By use of NGOs , pvt organisations, subject to performance review by the government.

Electoral concerns play an important role in determining expenditure priorities.
India has one of the largest agricultural research and education system.

Research
* Inadequate funding
* Suboptimal resource use
* Erosion in quality of researchers


While essential services fro the poor were suffering for want of resources, a substantial expenditure was being incurred to keep unproductive enterprises in operation for their presumed contribution to social welfare.

In India , states are spending twice as much on interests of government debt as they are on elementary education.

Salaries of health personnel have grown faster than all other components of health spending.

Washington consensus
* Immediate marketisation
* Wholesale privatisation
* Sharp reduction in Govt’s fiscal deficit.

Saving is a function of opportunity to invest.

Only realistic way of avoiding the pain of fiscal adjustment is fiscal prudence.

Bimal Jalan concludes with a hope that realism and not defunct ideologies, are the touchstone against which the merit or otherwise of the approach suggested in his essays are judged.