A middle path to nowhere

HOW KEYNESIAN? Neither the importance of exploiting a large home market nor fashioning a more egalitarian distribution of income seems to figure in Dr. Singh’s policies.  

Sanjaya Baru’s article “ >The economist as saviour” (editorial page, The Hindu, July 4, 2012), an account of Prime Minister Manmohan Singh’s economics could have juxtaposed specific issues of economic policy with Dr. Singh’s stance on them. What we get instead is unhelpful double reductionism: first, that Dr. Singh is a post-Keynesian and second, that the job of a post-Keynesian is to coax “animal spirits” into higher investment on private account, which is precisely what Dr. Singh is doing through his chosen “middle path.”

Keeping aside Dr. Singh’s Cambridge pedigree and his pre-1991 engagement with economic policy right up to the days of the South Commission, one should indeed be hard put to associate post-Keynesianism (a broad church certainly, but made even broader by Mr. Baru’s inclusion of Mr. Kaushik Basu) with Dr. Singh’s policy utterances and silences taken together over past two decades. We need only raise four issues of policy relevant for the period.

Four issues

First and foremost, no post-Keynesian concerned with a post-colonial, and fundamentally agrarian, economy such as India’s would make a fetish of the rate of growth, regardless of its quality. Dr. Singh as Finance Minister and as Prime Minister extolled India’s rate of growth and attributed it to reforms. In fact, however, the main driver of growth in the 1990s was a fortuitous sequence of good monsoons. In the first decade of the new millennium, the growth story revolves around the amorphous services sector which failed to make any dent on the quantum or quality of employment economy-wide. The question that looms very large in a structural sense is that despite all the incentives given to corporate India, the share of manufacturing in national income has not registered an appreciable growth. This by itself is a major indictment on economic policies Dr. Singh has espoused while in or out of power.

Second, a post-Keynesian would recognise that growth depends on growth of demand in the short as well as in the long-run. He would then pitch for continued growth in public expenditure both for stimulating demand and easing a number of constraints on the supply side. What we notice, on the contrary, is a steadily declining share of public capital formation, especially in agriculture, with the well-known disastrous consequences for the countryside. This was no doubt aggravated by Dr. Singh’s fiscal fundamentalism that is patently un-Keynesian. Neither the importance of exploiting a large home market nor fashioning a more egalitarian distribution of income to sustain domestic demand, both eminently Keynesian possibilities, seems to figure in the policy discourse animated by Dr. Singh as the Prime Minister.

Third, the Narasimha Rao-Singh reform process followed a sequencing that favoured the external and financial sectors over domestic and real sectors. In the bargain, the public sector and agriculture remain untouched by any serious reforms till today. Even so, India’s share in world trade flows is still minuscule while many Asian neighbours have surpassed her in export performance. At the same time, financial sector reforms have only led to the ascendancy of central banking to the detriment of development banking (of which directed credit was an integral part) built assiduously after bank nationalisation. It is a complete paradox that today we are made to wonder about financial inclusion. The Singh legacy is particularly evident when it comes to policy (non-) response to the continuing saga of inflation. The response is one of ping-pong between Finance Ministry and the Reserve Bank of India (RBI). The Ministry thinks inflation control is primarily in the domain of RBI, by way of monetary tightening, while the RBI suggests that nothing can be done until the Ministry reins in fiscal deficit numbers.

Finally, there is nothing quite Keynesian about leaving the exchange rate and current account deficit to the market or to global recession. As a student of Kaldor, Dr. Singh would have hinted at the possibility of dual exchange rate and restrictions on inessential imports, especially gold, to prevent a liquidity crisis. Doubtless, Dr. Singh and his able aides in economic policy-making have two protective belts against the tottering Indian economy, besides the art of soothsaying. Either the global economy is the culprit or coalitional politics prevent neo-liberal reforms to the hilt.

(G. Omkarnath is Professor of Economics at University of Hyderabad.)

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Printable version | Jan 23, 2021 5:36:12 PM |

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