Features: Magazine | Literary Review | Life | Metro Plus | Open Page | Education Plus | Book Review | Business | SciTech | NXg | Friday Review | Cinema Plus | Young World | Property Plus | Quest |

State of Indian economy

MACROECONOMICS OF POST-REFORM INDIA, Vol. I;

These volumes are a collection of articles reflecting the valuable contributions of Mihir Rakshit, a renowned economist and an esteemed teacher, on the current state of the Indian economy. They include a set of 14 papers written since the early years of economic reforms initiated in 1991, reflecting the author’s deep interest in issues related to fiscal and monetary policies, inflation, banking, services sector, and foreign capital inflows, the focus being on the p olicy changes that have taken place in these areas as the reforms got under way. The author’s intellectual excellence and scholarship in dealing with macro-economic theory and policy stands out in the way he has analysed these issues.

The publication provides an effective theoretical challenge to the mainstream doctrines that have dominated official economic policies right from the beginning of the reform process in 1991. In the introductory chapter, especially written for the selected essays in the two volumes, Rakshit has sought to link up the arguments put forth in various essays to project an alternative framework, following the tradition of a structuralist approach based on a dualistic inter-sectoral view of the economy. Its merit lies in the rejection of the catch-all aggregative stance of mainstream economics, which fails to address the problems faced by, and the specificities entailed in the functioning of, developing economies like India’s. In choosing to adopt that alternative method, the author has moved away from the neo-classical as well as the Keynesian paradigms of an aggregative approach and in the direction of a Kaleckian approach. However, the reader may look for a more complete framework that could be pitted against the conventional theorising on related matters, a promise, or better still, a project; it remains incomplete in the book.

As for the individual essays, each stands on its own, offering detailed analysis blended with sharp critiques of official policies relating to the fiscal apparatus, monetary regime, food distribution and subsidies, the pace of inflation, banks and, finally, the flows of foreign capital — especially in the form of speculator FIIs — and their impact on official reserves. One should read these essays keeping in mind the exigencies in which they were written — often as inputs to the debates running in Economic and Political Weekly and Money and Finance. Written with an analytical rigour and backed by detailed empirical observations, the essays deal with issues that continue to draw attention in the current scenario, thanks to the unfulfilled claims and promises of mainstream economic policies in the country.

While acknowledging the excellence of analysis as well as contemporaneous relevance of the issues handled in the two volumes, one feels it necessary to point at a few missing aspects which are mostly related to the structuralist method or approach developed by the author in the introductory section of volume I.

A structuralist approach based on a two-sector model, if applied today to an economy like India’s, needs to recognise the impact of trade liberalisation (and especially, the WTO norms) on supply constraints in agriculture. Thus one observes the price as well as quantity fluctuations in crucial cash crops (with repercussions on food grain output and availability) in the Indian economy since the liberalisation of the economy and since the WTO norms were enforced in full form.

The liberalised open economies are also subject to uncertainties which are common in them. In particular one needs to consider the significance of asset substitution in financial markets, with expectations playing a major role in the flow of cross-border finance as well as the domestic stock markets. The dual economy models of the structuralist variant which are introduced by the author do not consider such aspects, even while dealing with the foreign capital flows in later chapters. With the current global financial crisis in full swing, the relevance of those aspects can hardly be over-emphasised in any attempt to capture the essence of a dual economy in post-reform India.

The introductory chapter on the theoretical frame could be more relevant to interpret the Indian economy in the global setting if situated in the context of the over-riding dominance of finance, on economic theory in its neo-liberal frame and with its dictates on policy.

The few points mentioned above do not undermine the value of these two volumes containing the selected papers of Mihir Rakshit in making a conclusive statement on the limits of the current economic policies in India, in terms of generating a stable growth path of the economy with reasonable access to basic necessities for the majority of people.

These essays will continue to provide inputs, to further research and on official policy, relating to matters of cardinal importance. The two volumes will remain an invaluable and indispensable collection for students, researchers and policy makers in India as well as in other developing countries.

Printer friendly page  
Send this article to Friends by E-Mail