Updated: September 13, 2011 08:26 IST

Reforms: the unfinished agenda

V. M. Rao
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GROWTH & FINANCE - Essays in Honour of C. Rangarajan; Edited by Sameer Kochhar; Academic Foundation, 4772-73/23, Bharat Ram Road, Daryaganj, New Delhi 110002, Rs. 1095
GROWTH & FINANCE - Essays in Honour of C. Rangarajan; Edited by Sameer Kochhar; Academic Foundation, 4772-73/23, Bharat Ram Road, Daryaganj, New Delhi 110002, Rs. 1095

This book inspires some confidence about India's capacity to face the present worrisome phase

India is now reckoned among the fastest growing economies in the world. The economic reforms initiated after the mid-1980s helped India to break through the ‘Hindu rate of growth' of about 3 per cent that prevailed in the earlier decades. Alongside the faster rate of growth, there has been diversification of the economy — from agriculture to industry and services — and growing and pervasive global linkages.

The emerging context has some notable features that are favourable to sustaining fast growth. Exports and mounting foreign exchange reserves are supportive of growth. The demographic dividend offered by the changing age-distribution profile of the population holds an exciting prospect. However, at the moment, there are dark clouds on the horizon raising serious concerns. The United States and Europe are going through a turbulent phase and it has its own impact on the Indian economy. Experts warn of a slowdown in growth as a consequence of India's global linkages. The common man is already struggling to cope with the persisting high inflation rate. A slowdown in growth could impose further burdens which may well prove to be the proverbial ‘last straw'.

The book under review, a festschrift in honour of C. Rangarajan, inspires some confidence about India's capacity to face the present worrisome phase. India has enough experience and capabilities to deal with the emerging situation in critical areas such as monetary policy, banking reforms, regulation of financial markets and financial inclusion.

Rangarajan has been a prominent member of the team led by Manmohan Singh that designed, nurtured, and implemented economic reforms over the past two decades. Besides an introduction by the editor, a foreword by Manmohan Singh and a preface by P. Chidambaram, the book has 16 essays. And the contributors include academics and policymakers/implementers, who steered the country towards accelerated growth through a global financial crisis that was much worse than the one confronting the world economy now.


In his lucid introduction, Sameer Kochhar says that the new system of determining the interest rate of government securities by market auctions helped in making it an effective tool in ensuring productive use of funds, sending out signals to the rest of the economy and countering the impact of adverse factors like the global financial crisis.

The money market became more robust and the banking system was only “marginally impacted by the crisis and the different components — public, private and foreign banks — lent remarkable diversity to the system,” he says.

Pointing out that the ventures in technology interventions have connected the national economy with the developed and the developing worlds, he observes that the policymakers are now “striving to improve connectivity across the length and breadth of the country.” Over the last three decades, NABARD has emerged as a proactive change agent in areas ranging from “food security and agricultural credit to environmental issues, skill development and rural livelihoods to microfinance and regulatory issues.”

While the reforms have worked well in their specific policy areas and functions, the book conveys an ominous message that the broader development agenda, of which the reforms are a critical component, is nowhere near completion.

Some of the salient points made are: The recent global inflation in food prices has triggered political upheavals in many developing countries. India has been a victim of general inflation as well as food price inflation for a prolonged period and it shows little sign of cooling off. P. Chidambaram is candid when he says (in the preface): “I am not sure whether we understand all the factors that contribute to price rise, nor am I sure we have at hand all the tools to control inflation.” While admitting that the inflation in food prices is equally, if not more, difficult to deal with, he makes the interesting point that, in its role as a promoter of growth, the government is often tempted to accept inflation, and this brings it in conflict with the RBI, whose primary goal is price stability. Often we end up with the worst of both worlds; zero growth plus inflation!

Raghbendera Jha argues that the recent high economic growth has had little impact on poverty and adduces evidence to show that hunger has increased during the post-reform period.


According to Jagdish Bhagwati, “those outside India show exuberance at high and rising growth [in Indian economy] following economic reforms in the early 1990s. At home, however, you are likely to hear condemnation from those worried about the underprivileged this prosperity has bypassed.” He wonders why the revenues generated by economic reforms are not being used to improve the health, education, and skills of the underprivileged.

It would be fair to say that economic reforms have led to growth, but the task of transforming that growth into ‘inclusive development' still eludes the policymaker. This is the unfinished part of our development agenda. It is a comforting thought that Rangarajan, who is aptly described as the “philosopher king', would be guiding the reforms in this crucial phase of reaching the benefits of reform to those sections who are desperately in need of them and, having waited so long, are on the verge of losing their patience.

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