Economists are not generally given to speaking of each other in deeply reverential tones and Indian economists even less so than others, at least about fellow Indians. But as with all such rules of mean behaviour, there is one exception: I.G. Patel.
When it comes to him, they all lower their eyes and bow their heads. And amongst a certain class of them, mostly above the age of 75, relative importance has always been gauged by whether or not they knew him and if so, how well.
His contribution to Indian economic policy during the 30 years he reigned was enormous. But he was not a very prolific writer of papers or maker of speeches. As memories of him fade, the only tangible things that will be left will be his writings. This volume brings all of them together.
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Deena Khatkhate, a former IMF hand, and someone who knew Dr Patel well, and Y.V. Reddy who needs no introduction, have rendered great service in collaborating to edit the book. The Introduction by Khatkhate and the Epilogue by Reddy neatly summarise Patel’s views on a whole gamut of issues.
Patel had but one objective: growth and development. It was a no-nonsense approach and it is amply reflected in these essays which cover monetary and credit policy, gold policy, planning, growth with equity, reforms in India, banking, financial systems, and the international economic system.
There are also two very elegantly written chapters on A.C. Pigou and Adam Smith. Pigou, says Patel, in spite of his brilliant contributions to economics, seems to have “developed an increasing awareness of the difficulty of reconciling his own analytical bent of mind with the somewhat diffuse and diverse requirements of a fruit bearing science, perhaps a growing recognition of the inadequacy of economic science per se and a humane inclination to turn away from some of the harsher judgments of economic reasoning.”
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About Adam Smith, Patel says, Smith was perhaps not quite right when he said that a man’s self-esteem depended on what he could afford. Instead he cites his own experience in China.
In 1977, during a visit, he was told that the Chinese “had a different view in keeping up with the Joneses. They did not believe in having something because the neighbours had it. They believed in not having something until the neighbours could afford it.”
Gandhiji and Thomas Aquinas, Patel came to believe, were more appropriate to the world’s needs than a simple linear progression of individual consumption.
These essays will resonate particularly well with those over 50 because they take one down the years, back when views were held with great certainties and brooked no dissent. In that sense the immediate past seems to have been no different from the one that preceded it.
Patel’s “be careful” and “don’t be so sure” approach show how prescient and incisive his interventions were. The combination of thoughtfulness, intellect and practicality serve to remind readers of the many futile debates of those days.
As one reads the volume, one thing soon emerges: as an economist, it is hard to categorise Patel in the standard ways: Keynesian or monetarist or neo-this or that. These papers clearly testify to the flexibility of his intellect, a key attribute of his way of functioning.
Policy man
In India, he became the quintessential policy man who, in spite of being immensely practical, never lost sight of the basics of economics. That led to him being correct — most of the time.
He started at the IMF in 1950 where he wrote some papers. These are included in this volume. They are theoretical and deal with topics like the elasticity of demand for gold in India and the demand for money.
Thanks to about 15 years in the finance ministry, most of it spent in persuading the West to lend or donate money to India, Patel understood economic policy extremely well. The lessons can be found in a distilled form in these essays.
The most direct message is contained in the chapter on central banks and their governors. The key question has always been this: how does the RBI Governor uphold his mandate of price and monetary stability when governments are doing their best to ruin both?
Patel has very astute advice to offer which must become compulsory reading for those appointed as RBI governors and waiting to take up their new assignments. The IAS officers will learn the need to uphold the institution’s mandate and the non-IAS ones will learn to deal with political needs.
On gold, he was something of a Keynesian fundamentalist. Keynes, it will be recalled, had called gold a “barbarous relic.”
In Patel’s paper, the conclusion was the opposite of the conventional view then. The demand for gold in India, he showed, was highly responsive to price and income changes.
The policy implication was that if you wanted people to save more in financial instruments and less in gold, you needed to restrict the supply of gold so that its price became very high relative to average household incomes.
Indeed the government did try that and it worked for a while. But since financial savings get eroded by inflation, the demand for gold stayed stubbornly high. In the end only the smugglers were benefitted.
But it was only in 1991 that the gold import policy was liberalised. Today, Indians import well over $55 billion of gold, some of it for re-export as jewellery, but most of it for substituting financial savings.
The RBI is wringing its hands in despair as Dr Patel wags his finger at it with that trademark sternness he was feared for.
OF ECONOMICS, POLICY AND DEVELOPMENT — An Intellectual Journey by I G Patel: Edited by Deena Khatkhate, Y. V. Reddy; Oxford University Press, YMCA Library Building, Jai Singh Road, New Delhi-110002. Rs. 1295.