Preface August 2008 : In the summer of 1977, I had run out of money completely after my first year as a Research Student at Cambridge; I was offered a job to teach at a renowned girls’ school at Cambridge but when I returned to India, I was offered a Junior Research Fellowship at the Indian Statistical Institute, New Delhi, by Professor VK Chetty (author of some excellent work on Indian monetary economics) which I accepted for a few months. (It was all vegetarian by way of cuisine at ISI so I used to cycle to the Jawaharlal Nehru University campus for some non-vegetarian food — only to encounter at the restaurant there some of those who run the CPI-M party today! They did not quite know what to make of a libertarian!) From the ISI, I moved for most of 1977-78 to the Delhi School of Economics as Visiting Assistant Professor, thanks to an invitation from Mrinal Datta-Chaudhuri and the late Dharma Kumar, where I was given the office of Sukhamoy Chakravarty as he was on sabbatical leave. Professor Chakravarty and I met and talked for the first time then; ten years later on July 14 1987 at his Planning Commission offices, he signed and gifted me his last personal copy of the famous Reserve Bank report by the committee he had chaired. I tried strenuously without success to invite him to the perestroika-for-India project I had been leading at the University of Hawaii , Manoa, but he could not come due to ill health. This review of his 1987 book Development Planning was written at Manoa on November 5 1987 for the journal “Economic Affairs” in London, and must have been published sometime in 1988.
“A Review of Sukhamoy Chakravarty, Development Planning, The Indian Experience, Oxford: Clarendon Press, 1987, First published in Economic Affairs, London, 1988.
by
Subroto Roy
Readers of Economic Affairs may know that this reviewer has been far from sympathetic towards the thinking behind the process of economic planning in India. In a recent IEA publication, (Pricing, Planning and Politics: A Study of Economic Distortions in India, Occasional Paper 69, 1984), it was argued that the feasible role of the State has been fundamentally misconceived and misdescribed in independent India, with tragic consequences for both economy and polity. Without mitigating the force of that conclusion, it is possible to recommend the slim volume under review as indispensable to anyone seriously interested in the complexities of economic policy in India.
Sukhamoy Chakravarty is perhaps the foremost economist in India today. He has been a principal student of the theory of development planning as well as instrumental in the formulation of economic policy in the country. The work under review derives from his Radhakrishnan Memorial Lectures given at All Souls College, Oxford, in 1985. It is a critical and yet sympathetic assessment of Indian experience, which offers critics of planning a more formidable foil than has been available thus far.
The key decisions which have shaped the present state of India’s economy and polity were taken in the mid 1950s by Jawaharlal Nehru on the advice of PC Mahalanobis. Both had been impressed with what they supposed to be Soviet experience and disillusioned with what they supposed to be the experience of the relatively decentralized market economies of the West. The decisions taken entailed, among other things, widespread and detailed regulation of private industry, large-scale industrial investments by the government, widespread and detailed control of foreign trade and payments, an assumption of inflows of foreign aid, and a neglect of agriculture.
Chakravarty suggests these decisions may have been rational at the time. In other words, whatever we might think of them now, given the circumstances and the state of knowledge then, India did what India should have done.
The present reviewer disagrees. The grounds for disagreement briefly are (a) a liberal alternative had been clearly expressed in India even in the 1950s (by B.R. Shenoy, Milton Friedman and Peter Bauer) but was for all practical purposes forcibly silenced; (b) this alternative has had at least as strong a claim, if not a much stronger claim, to economic reasoning and evidence than what came to be accepted.
Be this as it may, Chakravarty is a serious, scholarly, and undogmatic planner, and it so happens that several of his strongest opinions in the book are ones with which the liberal critic will have no disagreement at all. For example, he stresses the great importance of providing infrastructure in agriculture, and of “the need to upgrade the quality of human agents through appropriate investment in health, education and nutrition” (p. 75). T. W. Schultz of the University of Chicago has argued precisely the same for several decades now, and in fact received the Nobel Prize in recognition of it. So had Milton Friedman in a Memorandum to the Government of India in 1955. Then Chakravarty decries mere stimulation of monetary demand through what is called deficit financing, which amounts to little more than printing money” (p. 76), and points further to the government monopoly over the banking system, which gives it “command over financial savings of the community at largely negative real rates of interest” (p. 79). Here Chakravarty draws upon his experience as chairman of a very important commission of the Reserve Bank of India, which, in an excellent report, made a candid assessment of the politicisation of the money supply in India (Report of the Committee to Review the Working of the Monetary System, Bombay: Reserve Bank of India, 1985).
Then Chakravarty speaks of the “level of efficiency in the operation and maintenance of the public sector”, and says “the type of managerial culture that is needed to realize a higher level of productivity of capital and labour cannot be reached with the present style of running public enterprises” (p. 79).
Critics of development planning can hardly be in disagreement with such statements. They might add perhaps that a major way to improve competitiveness and raise revenues which could then go towards provision of public goods and investment in agriculture draw out the huge volumes of black money in the underground economy would be to sell most if not all of the non-defence public sector. Combined with optimal provision of public goods, the deregulation of private industry and the encouragement of competition in all spheres, such a policy would go far towards a commonsensical approach at home, even while the economy remained relatively closed to the outside or opened only slowly.
Chakravarty expresses a considerable scepticism with respect to current beliefs in India that the importation of the latest industrial technologies will somehow swiftly turn the economy outward to export-led growth (pp.72-73). His argument is sobering, as when he points to balance of payments problems in a transition and also to possible external constraints on the growth of exports. This too the critic of Indian planning may find plausible. And besides, if shallow liberalization fails, then there is danger that the real thing will never come to be tried.
In general, Chakravarty advocates a method of careful and undogmatic assessment of facts and given circumstances, followed by measured and incremental responses. His splendid essays will be useful to friends and critics of development planning alike.”
