An authoritative, long-awaited account of India’s recent economic history is out that takes on critics of the 1991 reforms conclusively, and establishes Manmohan Singh as the chief agent of change to whom credit should go for the success that followed. The book fills the gaps in our knowledge and understanding of the years before and after. Its author, C. Rangarajan was a bookish academic once. His thesis at the University of Pennsylvania was on an aspect of the monetary transmission mechanism in the US. His entry to the Reserve Bank of India (RBI) was by accident. The year was 1982. The economy was run with controls. RBI set the interest rates that banks would pay on saving deposits. Every morning, Rangarajan fixed the rupee-dollar exchange rate, and, among other roles, negotiated with the International Monetary Fund (IMF). India’s balance of payments tended to tether in and out of difficulty, tipped over by oil prices, hauled back with help from the IMF and inflows into NRI deposits. The government was in the habit of exploiting the power of RBI’s rupee-printing presses for money creation so that it could spend beyond its means.
“The task of the RBI was reduced to one of offsetting the impact of the expansionary fiscal policy… It was the drive to grow fast at any cost that bore the seeds of a crisis that finally bust a few years later," Rangarajan writes in Forks in the Road: My Days at RBI and Beyond, a breathtaking memoir that reviews how India went on to discredit and discard an entire way of economic thinking.
Its author is a wonkish economist who spent 32 years in a variety of roles that allowed him to get involved in reforming India from a planned to a market-led economy.
His rich legacy is made of lasting, disruptive reforms: The 1991 balance-of-payments crisis, making the rupee market-determined, reversing the policy of nationalization by licensing new private banks, granting freedom to banks for fixing deposit and lending interest rates, gaining autonomy on RBI’s monetary policy, ending the practice of automatic monetization of the fiscal deficit, and the sea change that was brought to government borrowing. India’s dramatic turnaround became that success story the IMF unfailingly tells every crisis-stricken country at its door, cap in hand.
Writing at age 90, from the distance of time and perspective, Rangarajan has reassessed using new data and information the changes he led, producing a stunningly earnest and detached memoir that’s replete with analyses of what was done, done well and done not so well. He takes clear positions, without getting drawn into partisan conflicts. His battles are intellectual, his arguments analytical. The policies he helped put in place are working, producing intended results. They have not had to be diluted or taken back.
The seminal reports he wrote and helped write are still aiding our reforms process and thinking. Such as the all-important report of the committee headed by Sukhamoy Chakravarty (1982), one of the many committees Manmohan Singh had appointed when he was RBI’s governor (1982-85) to which the modernization of India’s financial and monetary systems in the following decades can be traced back to.
What do we learn about reforms from this memoir? A reform succeeds when it is implemented with clarity about losers that the proposed changes will produce, and how the opposition they’re sure to stage is managed. Sequencing reforms appropriately and coherently is key to success.
What distinguishes the good economists from the rest?
“Differing assumptions and value judgements."
Unluckily for readers, the distance may have blurred the author’s personal learning arc.
“I have tried my best not to project myself as the centrepiece," Rangarajan writes. Character, though, has a way of revealing itself even when the author intends to hold back. He’s never impolitic. He doesn’t strike deals with New Delhi, compromising RBI’s institutional autonomy for personal career advancement.He has had his share of let-downs: He gets nominated to the Rajya Sabha but quickly learns there’s little interest there in serious policy debate; Singh fails to make him finance minister despite wanting to; and Prime Minister Narendra Modi has let his seminal report on poverty languish at a time when the subject is central to all policymaking. He takes all of this in his stride.
Off-stage events are considered integral to memoirs. Rangarajan has left out from this account the ineluctable power struggles, interplay of raging egos, difficulty of explaining the inner logic of reforms and unpopular actions in the demotic to politicians and bureaucrats, and political economy insights. In various capacities, he interacted with numerous prime ministers: V.P.Singh, Chandra Shekhar,
Narasimha Rao, I.K.Gujral, A.B.Vajpayee and Manmohan Singh. Barring stray remarks, he doesn’t add to our understanding of these makers of history. It doesn’t make the book any less compelling, though. Where he praises Manmohan Singh, to whom this book is dedicated, he writes straight, good and fine, and without the sort of fakery economist-authors tend to plough while portraying their favourite prime ministers.
His condemnation of RBI’s current policy choices and its shrunk autonomy, thus, becomes weighty: “Inflation in India in 2022 cannot be described just as ‘cost-push’. Abundance of liquidity was an important factor… In the final analysis, quantitative contraction, which obviously implies a rise in the policy rate, is the answer to control inflation whatever may be the trigger."
Puja Mehra is consulting editor, Mint, and the author of ‘The Lost Decade (2008-18): How India’s Growth Story Devolved into Growth Without a Story’
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