Is “Cambridge Philosophy” dead, in Cambridge? Can it be resurrected, there? Case Study: Renford Bambrough (& Subroto Roy) preceded by decades Cheryl Misak’s thesis on Wittgenstein being linked with Peirce via Ramsey…

October 27, 2017 — drsubrotoroy

“What is the use of studying philosophy if all that does for you is to enable you to talk with some plausibility about some abstruse questions of logic, etc., & if it does not improve your thinking about the important questions of everyday life?” Wittgenstein, letter to Malcolm, 1944

1. In my current excursions into “Physics and Reasoning”, I stumbled some days ago upon Professor Cheryl Misak’s 2012 lecture at the Cambridge philosophy department about Ramsey having linked Peirce with Wittgenstein https://www.youtube.com/watch?v=nQuNWNjYcVY also her 2014 lecture at London’s Royal Institute of Philosophy https://www.youtube.com/watch?v=c_Nxr3ZQxqA. I note too Professor Misak has a 2016 book titled Cambridge Pragmatism whose contents are advertised by Oxford University Press as follows

Part I Cambridge, Massachusetts
1: Peirce
2: James
3: Bridges across the Atlantic
Part II Cambridge, England
4: The Anti-Pragmatism of Pre-War Cambridge
5: The Pull of Pragmatism on Russell
6: Ramsey
7: Wittgenstein: Post-Tractatus
Conclusion

I have not seen the book, I enjoyed her talks published at YouTube, and I look forward to seeing results of her original archival work with Ramsey’s papers.

Whether Wittgenstein’s later work was affected by Peirce more than a dozen years after Peirce’s death in 1914, and how it may have done so through Ramsey in particular, has been studied extensively if sporadically over years by Jaime Nubiola of the University of Navarre “Scholarship on the Relations Between Ludwig Wittgenstein and Charles S. Peirce” in I. Angelelli & M. Cerezo, eds., Proceedings of the III Symposium on History of Logic, Gruyter, Berlin, 1996; Mathieu Marion of Quebec University, “Wittgenstein, Ramsey and British Pragmatism” in European Journal of Pragmatism and American Philosophy [Online], IV-2 | 2012, 24 December 2012; Albert Atkin of Sheffield University http://www.iep.utm.edu/peircebi/ and doubtless others. Professor Misak’s findings in Ramsey’s papers will add to existing scholarship that is already large.

2. What I found disconcerting even shocking, however, has to do with her audience at the Cambridge philosophy department in 2012. That audience, with its noted Professors in attendance and participating, was evidently clueless that two Cambridge people, namely Renford Bambrough, philosophy, and myself, economics, decades ago in the 1980s had described the link between Peirce and Wittgenstein via Ramsey. If someone asserts at Cambridge today a claim of linking Peirce with Wittgenstein through Ramsey, one expects a Cambridge philosophy audience to be sufficiently informed to know Bambrough, in an extremely difficult achievement, had already done so in 1979.

Bambrough sent me, then in Blacksburg, the proof of his article reproduced below; a clearer copy of the published article may be found at

http://onlinelibrary.wiley.com/doi/10.1111/j.1475-4975.1981.tb00439.x/abstract.

My Philosophy of Economics: On the Scope of Reason in Economic Inquiry published in 1989 in Routledge’s International Library of Philosophy was the first work by an economist in that series, known earlier as the International Library of Psychology, Philosophy and Scientific Method and even before that as the International Scientific Series. It sold out quickly and was in paperback two years later. Chapter 5 and Chapter 9 had long passages placing Peirce and Wittgenstein together in regard to doubt and certainty, and the use of mathematics. Keeping with my purpose of addressing extant problems in economic theory while using philosophy as discreetly as possibly, I noted Bambrough had established the link between Wittgenstein and Peirce via Ramsey:

To repeat:

3. Now before its publication my book manuscript had been mostly under contract with University of Chicago Press, not Routledge. About 1984 one of Chicago’s half a dozen reviewers hit me with a large surprise: my argument had been anticipated decades earlier in America by MIT’s Sidney Stuart Alexander! I had no idea of this though I knew Alexander’s publications on other subjects the balance of payments.

Alexander, who was Paul Samuelson’s contemporary and Robert Solow’s teacher, was extremely gracious, read my manuscript and immediately declared with great generosity it was clear to him my arguments had been developed independently of his own. Alexander had come at the problem from an American tradition of John Dewey, Peirce’s pupil, I had done so from Wittgenstein through John Wisdom and Renford Bambrough. Alexander and I had arrived at similar conclusions but had done so completely independently!

Before we had met, Alexander wrote in support of my work:

“(This) is a very ambitious work directed at the foundations of normative judgments in economics. The author arrives at some conclusions very closely matching those I arrived at some years ago. It is clear, however, that Dr. Roy arrived at his conclusions completely independently. That is all the more piquant to me in that the philosophical underpinning of his work is the development of philosophy in England from the later Wittgenstein, while mine derives principally from earlier work in the United States by the pragmatists and those who may loosely be called neo-pragmatists. A prominent Cambridge ethical philosopher of the early thirties referred to the United States as the place where moribund English philosophies were to be hailed as the latest thing. Now the most characteristically American philosophy seems to have arrived first by a wide margin at a position gaining wider acceptance in England as well as America.

Dr. Roy reveals a clear understanding of the methodological positivism that invaded economic policy analysis in the thirties and still dominates the literature of economics…. Following Renford Bambrough (Moral Scepticism and Moral Knowledge) he arrives at a position equivalent to that of the American pragmatists, especially Dewey, who insist that the problematic situation provides the starting point for the analysis of a problem even though there are no ultimate starting points. The methodological implication is the support of inquiry as fundamental, avoiding both scepticism and dogmatism. Roy develops his position with a great deal of attention to the ramifications of the problem both in philosophy and in economics….”

When we did meet, as he drove me around MIT in his car, Alexander joked how it used to be bad form in his time to make comparisons about a trio of pairs: Cambridge vs Cambridge, baseball vs cricket, and “American English” vs (what is now called) “British English”!

I asked whom he had referred to as the “prominent Cambridge ethical philosopher”, he said C D Broad and decades later I found Broad’s condescending passage

“… all good fallacies go to America when they die, and rise again as the latest discoveries of the local professors…” Five Types of Ethical Theory 1930, p. 55.

No wonder Alexander found “piquant” that I had reached via Wittgenstein and Bambrough an equivalent position to his own decades earlier via American pragmatism. [Besides by Alexander, a most perspicacious review of my book is by Karl Georg Zinn.]

Within economics, Alexander and I were pirate ships blowing holes and permanently sinking the positivist Armada of “social choice theory” etc. Amartya Sen arrived at Cambridge in 1953, the year Philosophical Investigations was published, two years after Wittgenstein’s death the year after Wittgenstein died. Professor Sen told me, in 2006, John Wisdom and C D Broad both knew him at the time, all at Trinity College; if anyone, Amartya Sen should have conveyed to Kenneth Arrow in America in the 1960s and 1970s the implications for economic theory of Wittgenstein’s later work. Instead I had to do so in 1989, Arrow graciously admitting when he read my book:

“I shall have to ponder your rejection of the Humean position which has, I suppose, been central in not only my thought but that of most economists. Candidly, I have never understood what late Wittgenstein was saying, but I have not worked very hard at his work, and perhaps your book will give guidance.”

4. Last week I wrote to Professor Misak at the University of Toronto:

“Dear Professor Misak, I do hope you accounted for Renford Bambrough’s 1979 linking of Peirce, Wittgenstein and Ramsey, here http://onlinelibrary.wiley.com/doi/10.1111/j.1475-4975.1981.tb00439.x/abstract

My 1989 book Philosophy of Economics applied both, and Sidney Alexander of MIT recognized it. Of course my book was viciously attacked in America. Your U of T colleague (GBC) was an old friend from Cambridge days and knows all about me. Cordially Suby Roy …”

I expected to hear back something like: “Dear Dr Roy, Thanks for this. Yes I have acknowledged your 1989 book in a footnote, though I was unable to locate the earlier Bambrough piece and will do so now.” Instead Professor Misak replied

“Dear Suby, Some Americans don’t like anyone to have had thoughts similar to those of their heroes! Thanks for these references. Cheryl”

Excuse me? “Some Americans don’t like anyone to have had thoughts similar to those of their heroes”?

I have had to take this to mean

“Subroto Roy (doubtless an American national, surely he isn’t still an Indian? Answer: He is) objects to Cheryl Misak having had ‘similar thoughts’ to his hero Bambrough”.

A puzzling response from an eminent Professor of Philosophy at the University of Toronto. I wrote back: “Hello, I’m afraid your paragraph is too enigmatic for me”. Professor Misak’s second reply was even more curious than the first:

“Apologies. I just meant that some Peirce scholars don’t like to think that Ramsey and Wittgenstein might have been promoting the same ideas. The reasoning behind their aversion is enigmatic to me! Cheers, Cheryl.”

I am afraid I do not accept such a completely irrelevant mention of “some Peirce scholars”. If through negligence or some mishap, Professor Misak, not having received the effort due to her during the peer review process from either her 2012 Cambridge philosophy department audience or her Oxford University Press referees, has failed to acknowledge in her book the prior work of Bambrough and others including myself it is necessary and sufficient a corrigendum be now inserted into the book giving references to these earlier works, that’s all.

5. The case is evidence that while Cambridge obviously has a fine department teaching academic philosophy, that could easily be mistaken for a fine department at an Australian or American university or even Oxford, the distinct product once known as “Cambridge Philosophy” in the line descending from Wittgenstein through John Wisdom and Renford Bambrough is quite dead there. Several lines descended from Wittgenstein through his several disciples, including Max Black whom I visited and talked extensively with at Cornell throughout the Fall of 1983, and whom I was privileged to count as a friend, an experience I have yet to write of.

“But there is one disciple who stands apart from the rest; the work of Professor Wisdom is truly Wittgensteinian, yet at the same time original and independent…Wisdom carries Wittgenstein’s work further than he himself did, and faces its consequences more explicitly… Wisdom’s approach is much less esoteric than Wittgenstein’s, and his conclusions are perhaps easier to come to grips with. We see in Wisdom something like a new application of Wittgenstein’s ideas; we recognize the same forms there, yet cast, as it were, in a new medium…” (David Pole, The later philosophy of Wittgenstein, 1958).

Wisdom in his obituary notice of Wittgenstein said if he was asked to say in one sentence what Wittgenstein had accomplished he would say it was asking the question “Can you play chess without the Queen?” Wisdom’s disciple Bambrough in turn said if he was asked to say in one sentence what Wisdom accomplished he would say it was Wisdom replying to such a question about Wittgenstein as he had done. I said in my 2004 public lecture at the University of Buckingham: “If I was asked to answer in one sentence what has been the combined contribution to human thought of Wittgenstein, Wisdom and Bambrough, indeed of modern British philosophy as a whole, I would say it has been the proof that there are no unanswerable questions, that there is no question to which there is not a right answer. By “common reasoning” I shall mean merely to refer to the structure of any conversation well-enough described by F R Leavis’s operators in literary criticism: “This is so, isn’t it?, Yes, but….”. My “yes” to your “This is so, isn’t it?” indicates agreement with what you have said while my “but…” tells you I believe there may be something more to the matter, some further logical relation to be found, some further fact to be investigated or experiment carried out, some further reflection necessary and possible upon already known and agreed upon facts. It amounts to a new “This is so, isn’t it?” to which you may respond with your own, “Yes, but…”; and our argument would continue. Another set of operators is: “You might as well say…”; “Exactly so”; “But this is different…” This was how Wisdom encapsulated the “case-by-case” method of argument that he pioneered and practiced. It requires intimate description of particular cases and marking of similarities and differences between them, yielding a powerful indefinitely productive method of objective reasoning, distinct from and logically prior to the usual methods of deduction and induction that exhaust the range of positivism. We are able to see how common reasoning may proceed in practice in subtle fields like law, psychology, politics, ethics, aesthetics and theology, just as objectively as it does in natural science and mathematics. Wittgenstein had spoken of our “craving for generality” and our “contemptuous attitude towards the particular case”. Wisdom formalized the epistemological priority of particular over general saying: “Examples are the final food of thought. Principles and laws may serve us well. They can help us to bring to bear on what is now in question what is not now in question. They help us to connect one thing with another and another and another. But at the bar of reason, always the final appeal is to cases.” And “Argument must be heard”. In all conflicts – whether within a given science, between different sciences, between sciences and religion, within a given religion, between different religions, between sciences and arts, within the arts, between religion and the arts, between quarreling nations, quarreling neighbours or quarreling spouses, whether in real relationships of actual life or hypothetical relationships of literature and drama – an approach of this kind tells us there is something further that may be said, some improvement that can be carried out, some further scope for investigation or experiment allowing discovery of new facts, some further reflection necessary or possible upon known facts. There are no conflicts that are necessarily irresoluble. Where the suicide-bombers and their powerful adversaries invite us to share their hasty and erroneous assumption that religious, political or economic cultures are becoming irreconcilable and doomed to be fights unto death, we may give to them instead John Wisdom’s “Argument must be heard….”

Bambrough, applying Wisdom applying Wittgenstein, and integrating all this with his deep classical scholarship and knowledge of Aristotle and Plato in particular, showed how objectivity and reasoning are possible in politics, in ethics, in theology, in aesthetics, in literature, as much or as little as in science or mathematics.

Bambrough’s path-breaking works of general epistemology and ontology are two three four humble papers in Proceedings of the Aristotelian Society

“Universals and Family Resemblances”
https://www.jstor.org/stable/4544648

“Unanswerable Questions”

https://www.jstor.org/stable/4106729?seq=1#page_scan_tab_contents

“Objectivity and Objects”

https://www.jstor.org/stable/4544817?seq=1#page_scan_tab_contents

“Thought, Word and Deed”

https://academic.oup.com/aristoteliansupp/article-abstract/54/1/105/1779886?redirectedFrom=PDF

I, applying all of this from Bambrough to the economic theory of Marshall, Keynes, Hicks, Hayek, Hahn, Friedman, Arrow and others Frank Hahn, Milton Friedman, Kenneth Arrow and others showed in 1989 the same for economic policy and normative economics. I have since then tentatively applied similar methods of reasoning to diplomacy, politics, psychology, religion, literature, and presently explore physics.

What Wisdom did was far more astonishing, showing, among many other things, how the confluence of Freud and Wittgenstein could be found to help us comprehend all that seems so irrational: hopes & fears, dreams & the unconscious, psychoses & neuroses, everything said or done has an explanation, usually when there has been an adequate description. Modes of reasoning are manifold, well beyond the deduction and statistical inference induction known to the positivist. Then besides, there’s reflection about known facts too. Really if you can make reasonable sense of dreams and the unconscious, of the psychotic and the neurotic, as Wisdom did, the differences between Pakistan and India over Kashmir, between the West and Islam, between Einstein and Quantum Mechanics too become amenable…

My praise of Wisdom and Bambrough in my 2004 public lecture was extravagant: “For some 25 years I have been learning of and reflecting upon the work of two great modern British philosophers, John Wisdom (1904-1993) and Renford Bambrough (1926-1999). In the 1980s in America, I came to apply their thinking in Philosophy of Economics (Routledge 1989), a book which got me into a lot of trouble there. Returning to Britain in 2004, I am dismayed to find their work almost forgotten or unknown today, even at the Ancient University that had been their home. “Orientalists” from the West once used to comprehend and highlight the achievements of the East for the peoples of the East who were unaware of them; I am happy to return the favour by becoming an “Occidentalist” in highlighting a little of the work of two of Britain’s finest sons of which she has become unaware. Wisdom and Bambrough played a kind of modern-day Plato and Aristotle to the Socrates played by Wittgenstein (1889-1951); the knowledge they achieved in their lives and have left behind for us to use and apply to our own problems make them, in terms of Eastern philosophy, rather like the “Boddhisatvas” of Mahayana Buddhism. I do not expect anyone to share such an extravagant view, and will be more than satisfied if I am able to suggest that we can have a grasp of the nature and scope of human reasoning thanks to their work which may help resolve the most intractable and seemingly irreconcilable of all current international problems, namely the grave cultural conflicts made apparent since September 11, 2001….”

In 2007 I added:

“I had been attracted to Cambridge partly by its old reputation for philosophy, especially that of Wittgenstein. But I met no worthwhile philosophers there until a few months before I was to leave for the United States in 1980, when I chanced upon the work of Renford Bambrough. Hahn had challenged me with the question, “how are you so sure your value judgments promoting liberty blah-blah are better than those of Chenery and the development economists?” It was a question that led inevitably to ethics and its epistemology — when I chanced upon Bambrough’s work, and that of his philosophical master, John Wisdom, the immense expanse of metaphysics (or ontology) opened up as well. “Then felt I like some watcher of the skies, When a new planet swims into his ken; Or like stout Cortez when with eagle eyes, He star’d at the Pacific…” It has taken me more than a quarter century to traverse some of that expanse; when I returned to Britain in 2004 as the Wincott Visiting Professor of Economics at the University of Buckingham, I was very kindly allowed to deliver a public lecture, “Science, Religion, Art and the Necessity of Freedom”, wherein I repaid a few of my debts to the forgotten work of Bambrough and Wisdom — whom I extravagantly compared with the Bodhisattvas of Mahayana Buddhism, also saying that the trio of Wittgenstein, Wisdom and Bambrough were reminiscent of what Socrates, Plato and Aristotle might have been like. I had written to Bambrough from within Cambridge expressing my delight at finding his works and saying these were immensely important to economics; he had invited me to his weekly discussion groups at St John’s College but I could not attend. Between 1979 and 1989 we corresponded while I worked in America on my application of his and Wisdom’s work to problems in economics. We met only once when I returned to Cambridge from Blacksburg for my doctoral viva voce examination in January 1982. Six years later in 1988 he said of my Philosophy of Economics, “The work is altogether well-written and admirably clear”, and on another occasion he said he was “extremely pleased” at the interest I had taken in his work. The original preface of Philosophy of Economics said he was not responsible for the use I had made of his writings, which I reiterated in the 2004 lecture. At our meeting, he offered to introduce me to Wisdom who had returned to Cambridge from Oregon but I was too scared and declined, something I have always regretted since. It is only in the last few years that I have begun to grasp the immensity of Wisdom’s achievement in comprehending, explaining and extending the work of both Wittgenstein and Freud. His famous “Virginia Lectures” of 1957 were finally published by his admirers with his consent as Proof and Explanation just before his death in 1993. As for Bambrough, I believe he may have been or become the single greatest philosopher since Aristotle; he told me in correspondence there was an unfinished manuscript Principia Metaphysica (the prospectus of which appeared in Philosophy 1964), which unfortunately his family and successors knew nothing about; the fact he died almost in obscurity and was soon forgotten by his University speaks more about the contemporary state of academic philosophy than about him.“

Single-handedly I have over a few decades restored the philosophical work of John Wisdom and Renford Bambrough. That there was good reason to do so is now obvious.

Will Cambridge Philosophy wish to revive “Cambridge Philosophy” within Cambridge?

Well if so, here’s a reading list from this Indian economist… yes in India (get over those racist thoughts at once!):

John Wisdom (1904-1993), Main Philosophical Works:

Interpretation and Analysis, 1931

Problems of Mind and Matter 1934

Other Minds, 1952

Philosophy & Psychoanalysis, 1953

Paradox & Discovery, 1965

Logical Constructions (1931-1933),1969

Proof and Explanation (The Virginia Lectures 1957), 1991

Secondary literature:

Wisdom: Twelve Essays, R. Bambrough (ed) 1974

Philosophy and Life: Essays on John Wisdom, I. Dilman (ed) 1984.

Renford Bambrough (1926-1999), Main Philosophical Works:

“Socratic Paradox”, Philosophical Quarterly, 1960

“Universals and Family Resemblances”, Proceedings of the Aristotelian Society 1960-61

“Plato’s Modern Friends and Enemies”, Philosophy 1962

The Philosophy of Aristotle, 1963

“Principia Metaphysica”, Philosophy 1964

New Essays on Plato and Aristotle (edited by R. Bambrough), 1965

“Unanswerable Questions”, Proceedings of the Aristotelian Society Supplement 1966

Plato, Popper and Politics (edited by R. Bambrough), 1967

Reason, Truth and God 1969

“Foundations”, Analysis, 1970

“Objectivity and Objects”, Proceedings of the Aristotelian Society 1971-72

“How to Read Wittgenstein”, in Understanding Wittgenstein, Royal Institute of Philosophy 1972-3

“The Shape of Ignorance”, in Lewis (ed) Contemporary British Philosophy, 1976

Introduction & Notes to Plato’s Republic (Lindsay trans.), 1976

Conflict and the Scope of Reason, 1974; also in Ratio 1978

“Intuition and the Inexpressible” in Katz (ed) Mysticism & Philosophical Analysis, 1978

Moral Scepticism and Moral Knowledge, 1979

“Thought, Word and Deed”, Proceedings of Aristotelian Society Supplement 1980

“Peirce, Wittgenstein and Systematic Philosophy”, MidWest Studies in Philosophy, 1981

“The Scope of Reason: An Epistle to the Persians”, in Objectivity and Cultural Divergence, Royal Institute of Philosophy, 1984

“Principia Metaphysica: The Scope of Reason” also known as “The Roots of Reason”; a work and manuscript mentioned several times but now unknown.

Of course it’s more likely Cambridge Philosophy fails to move from its inertia, is uninterested in what I have outrageously called “Cambridge Philosophy”, and instead continues to provide the homogeneous, Americanized, philosophical product that is available in Australia, North America, Oxford etc.

If so, People, not to worry…. enjoy all this “Cambridge Philosophy” at your leisure… and come to see me… in India…

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[Postscript 1 from Twitter 22 November 2017: I was still not in Kindergarten

when Wisdom delivered his Virginia Lectures:

published decades later in 1991 which I bought at a Bethesda bookshop in 1993…I had been to see Prof SF Barker at Johns Hopkins too. I regret I was too scared to meet Wisdom in 1982 when Bambrough suggested it. But yes for a few decades now I have single-handedly restored the work of Wisdom and Bambrough. My intellectual debt to Britain repaid with interest…

Postscript 2 from Twitter 9 January 2018 What is remarkable is John Wisdom’s Virginia Lectures 1957, published eventually in 1991 as Proof and Explanation, remain as fresh as a daisy if you read them now in 2018… It was the pre Elvis Presley age in music! https://www.youtube.com/watch?v=9v8m9jH4uNY …]

How the India-Bangladesh Enclaves Problem Was Jump-Started in 2007 Towards its 2015 Solution: A Case Study of Academic Impact on Policy

June 8, 2015 — drsubrotoroy

How the India-Bangladesh Enclaves Problem Was Jump-Started in 2007 Towards its 2015 Solution: A Case Study of Academic Impact on Policy

by

Subroto Roy, with Brendan Whyte

Progress on the complex problem of India-Bangladesh enclaves started slightly in 1958 and especially 1974, then came to be stalled completely. In May 2007 press reports said a joint delegation was doing some survey work.

That same month, I as Contributing Editor at The Statesman newspaper (biding my time away from a corrupted academia) stumbled on the excellent doctoral work done by a young researcher in Australia on what seemed at the time the impossibly intractable problem of India-Bangladesh enclaves.

I wrote to the newspaper’s Editor on 9 May 2007,

Dear Ravi, You may know that there is an incredibly complex problem between India and Bangladesh relating to enclaves between them, some dating back to Cooch Behar and Mughal enclaves 200 years ago. An Australian researcher named Brendan Whyte at the Univ of Melbourne has done the definitive study of the problem. I think we should invite him to produce a 2000-2500 word two parter on his work which would be very helpful to both governments and to public discussion. If you agree, I can write to him and invite him or you can do so directly. I will have to find his email. Regards Suby

I enclosed a published abstract of Whyte’s work:

“Waiting for the Esquimo: An historical and documentary study of the Cooch Behar enclaves of India and Bangladesh. Whyte, Dr Brendan (2002) “Waiting for the Esquimo: An historical and documentary study of the Cooch Behar enclaves of India and Bangladesh” School of Anthropology, Geography and Environmental Studies, University of Melbourne

“Enclaves are defined as a fragment of one country totally surrounded by one other. A list of the world’s current enclaves and a review of the literature about them reveals a geographical bias that has left enclaves outside western Europe almost untouched. This bias is particularly noticeable in the almost complete absence of information on the Cooch Behar enclaves, along Bangladesh’s northern border with India. The Cooch Behar enclaves number almost 200. This total includes about two dozen counter-enclaves (enclaves within enclaves), and the world’s only counter-counter-enclave. Together, these enclaves represent 80% of the total number of enclaves existing in the world since the 1950s, and have been at the centre of Indo-East Pakistani and then Indo-Bangladeshi boundary disputes since Cooch Behar acceded to India in 1949.

The incredibly complex Cooch Behar sector of the Indo-Bangladesh boundary is investigated in detail for the first time, from historical, political and geographical perspectives. The history of the enclaves is traced, from their origin c.1713 until the present, in an attempt to understand their genesis and survival under a succession of states, from the Kingdom of Cooch Behar and the Mughal Empire in the 1700s, to Bangladesh and the Republic of India today. The difficulties of the enclaves’ existence for their residents and the two countries today is contrasted with their peaceful, albeit administratively inconvenient, existence until 1947, to prove that the enclaves themselves are not the cause of border tensions in the area, but are rather a focus for other cross-border disputes.

The current situation of the enclaves is described, highlighting the abandonment of the enclave residents by each country, which refuse to allow the other to administer its exclaves. India’s inability to implement a 1958 treaty with Pakistan, and its continued delay in ratifying a subsequent 1974 treaty with Bangladesh to exchange the enclaves is highlighted as the major factor impeding resolution of the enclave dispute. That the delays have been rooted in Indian internal politics is demonstrated. Highly disparate official and media reports as to the number, area and population of the enclaves are analysed to determine the true extent of the enclave problem, and the first ever large-scale map of the enclaves is published, locating and naming each enclave.”

The Statesman‘s Editor agreed, and I went about trying to locate Dr Whyte. I think I phoned Australia, asked after him, and learnt he was a New Zealander teaching at a university in Thailand. On 10 May, I wrote to his former department head, Ian Rutherfurd:

Dear Dr Rutherfurd, I am Contributing Editor at The Statesman of Calcutta and New Delhi, and would like to be in touch with your colleague Brendon Whyte but there is no email for him at your site. Please tell him we much wish him to write a two-part article on the editorial page (over two days) for us of less than 2500 words in total on his important research on the India-Bangladesh enclaves. There would be a relatively tiny honorarium probably from the Editor but a large impact on policy and public discussion in both countries. The Statesman is India’s oldest and most eminent newspaper. It may be seen at http://www.thestatesman.net and I am to be found at http://www.independentindian.com Many thanks, Subroto Roy, PhD (Cantab.), BScEcon (London), Contributing Editor

Brendan Whyte replied the same day:

Dear Dr Roy, I have received your message, and am honoured to be asked to write a piece for your paper. I now work in Thailand. Are there any further details regarding this assignment in addition to your information below? For example, is there a deadline, and if so, when? Do you want/can you accept maps/photos and if so how to send them to you? Can the text be sent to you be email or do you prefer a printed version instead of/in addition to an email? Regarding email should the text be in the body of an email or do you prefer an attachment in Word/RTF or other format? Do you prefer a Word document, or should the text be in the body of an email Thank you very much Brendan Whyte, PhD, Faculty of Management Science,Ubon Ratchathani University, THAILAND

I wrote back the same day

Dear Dr Whyte, Many thanks for the quick reply, and our thanks to your colleagues for locating you. The Statesman’s editorial page is as influential a place as there can be in serious Indian public discussion, though I have to say there is far too little such discussion in the country. At my suggestion, the Editor has invited a 2500 word two-part article (over two days); I have said you may have done the definitive work in the area. I know nothing of the subject and am reluctant to suggest any further guidelines, and leave to you to say what you wish once you get a sense of the audience and likely impact. I have in recent months published numerous special articles in The Statesman, and these may be seen at http://www.independentindian.com to give you a sense of the kind of quality you may aim at — though certainly we are a newspaper and not a technical journal. Regarding graphs, each article would have an illustration a few inches square and if you felt you could squeeze the relevant data into two such articles for the two days it would be excellent. Do drop by Calcutta when you can. The honorarium will be a few thousand rupees I expect though the Editor has not specified it yet. No there is no time rush; I accidentally found your work through a wordpress.com blog on strange maps. On second thoughts, if your articles generated invitations from geography departments in India or other invitations to give lectures on the subject, that too would be a worthwhile aim. Best regards Suby Roy

Brendan sent his proposed article a month later in June.

I replied:

Hello, I have reduced it by 300 words without reducing any substance. I hope you may agree. Can you please try to reduce another 200 words, eg of the Belgian/Dutch case? I normally don’t allow anyone to touch my stuff so if you would like to try to reduce it all yourself, that’s fine. Also, 198 is not equal to 106+91+3+1. Please send all the graphics you may think suitable, and people here will try to figure out what to use. It may all go on one day on the Op-Ed page, I have no iodea what the Editor may decide. Also add your PhD University Thanks for this. The work is excellent and I hope it brings you the publicity you deserve. Suby Roy

Brendan sent his final draft on 16 July 2007

Hi Suby, My apologies that this has taken me so long, but the teaching year has been so busy! I have reduced it to 2274 words, about 10% below your limit of 2500. It is attached as a Word file, and appended below as plain text. I hope to send some illustrations separately in the next day or two. Let me know if the revised article is ok or not. Thanks, Brendan

I wrote to the Editor again the same day:

Subject: India-Bangladesh Enclaves: A Major Foreign Policy Problem Solved

Dear Ravi, Apropos our correspondence two months ago, Dr Brendan Whyte has at our request produced an excellent analysis of one of the trickiest and longest-standing problems between India and Bangladesh, viz. enclaves. Dr Whyte is a political geographer from New Zealand who worked on this subject for his doctoral thesis at the University of Melbourne, Australia. He apparently teaches in Thailand at present. By publishing this, we will be doing the MEA a very big favour, besides of course contributing to an important yet neglected public problem relevant to Eastern India. I recommend it for a Saturday night-Sunday night two-parter, rather than the Perspective page, given its close factual basis. Sincerely, Suby.

I wrote to Brendan:

Hello, Your article looks to me first-rate. The basis of a Government White Paper on this side or that. I have forwarded it to the Editor with my recommendation. Please send me any illustrations asap, as he may go with it any day though likely not before the weekend. Best wishes SR

Brendan Whyte’s 16 July 2007 final draft was this:

“The Enclave Problem: India and Bangladesh can and must solve this 300 year problem!

There are 198 “enclaves” (chhit-mahals) between India and Bangladesh. Cooch Behar district has 106 enclaves in Bangladesh, and Bangladesh has 92 enclaves in India: 88 in Cooch Behar, 3 in Jalpaiguri, and 1 between Cooch Behar and Assam’s Dhubri district. The enclaves vary from clusters of villages to individual fields. The smallest Indian enclave may be Panisala, only 0.1093 ha; the smallest Bangladeshi enclave is Upan Chowki Bhajni #24 at 0.2870 ha. The largest are India’s Balapara Khagrabari at 25.95 sq. km, and Bangladesh’s 18.68 sq. km Dahagram-Angarpota. The 198 enclaves also include 3 Indian and 21 Bangladeshi counter-enclaves (enclaves within enclaves). India also possesses the world’s only counter-counter-enclave: a 0.69 ha jute field inside a Bangladeshi enclave inside an Indian enclave inside Bangladesh! Enclave populations-sizes are unknown. The last censuses to include enclaves were in 1951, although the Pakistani enumeration was incomplete. The population today is probably under 100,000 persons in total, 60% living in Indian enclaves in Bangladesh, the rest in Bangladeshi enclaves in India.

The enclaves are 300 years old, originating during the Mughal wars against Cooch Behar in the late 1600s. A treaty was concluded in 1711 in which the Mughals obtained three chaklas from Cooch Behar, but the Subahdar of Bengal rejected the treaty and forced Cooch Behar to cede further lands in 1713, reducing it to about its present borders. This second treaty is the origin of the enclaves: as in feudal Europe, the holdings of kings and their vassals were not contiguous wholes but rather a patchwork of land parcels, so the ceded chaklas included lands inside the unceded areas and vice versa. The East India Company fixed the Bengal-Cooch Behar boundary about 1773, and by 1814 noted that the enclaves were safe havens for bandits. Yet the Company itself created more enclaves in 1817 when it adjudicated a territorial dispute between Cooch Behar and Bhutan, creating Cooch Behari enclaves in then-Bhutanese territory (now Alipar Duar district of Jalpaiguri). These enclaves remained when the British annexed the Bhutanese lands in 1865.

The British quashed the bandit menace but proliferation of liquor, ganja and opium shops in the enclaves became an excise problem between Bengal and Cooch Behar. After discussions, the main boundary of Cooch Behar became the customs and excise boundary. All Cooch Behar enclaves in British India fell under British excise control while all British enclaves in Cooch Behar fell under Cooch Behari excise control. This practical solution to the problem in hand left the sovereignty of the enclaves intact.

A full exchange of enclaves was suggested by the British in the early 1930s, to reduce the costs of the upcoming survey and demarcation of the Cooch Behar boundary but the idea was dropped in face of strong local objections, and all the enclaves were surveyed and demarcated with pillars by the late 1930s.

Partition and independence in 1947, and the subsequent accession of Cooch Behar to India in 1949, elevated the enclaves to the international level. Initially this was unproblematic, with India and Pakistan concluding agreements on cross-border trade and movement in the enclave areas. Censuses in 1951 included the enclaves. But Pakistan’s unilateral 1952 introduction of visas requirements, and immediate Indian reciprocation sealed the fate of the enclave dwellers. High-level politics subordinated the needs of enclave dwellers on both sides.

Full exchange was again agreed upon by the 1958 Nehru-Noon Accord, and this was reiterated in modified form in the 1974 Indira-Mujib Agreement between India and Bangladesh (Bangladesh would keep its largest enclave, Dahagram-Angarpota, to guarantee access to which, India would lease it a short corridor. But a succession of mainly Indian legal challenges regarding the constitutionality of both accords prevented implementation until 1992, when the Tin Bigha corridor was finally opened. The exchange of the remaining enclaves, agreed in 1958 and 1974 and cleared of legal challenged by 1990 remains unimplemented, despite constant Bangladeshi calls for India to implement the agreements fully.

Meanwhile, since the 1950s the chhit mahalis, or enclave dwellers, have been effectively rendered stateless by the two governments abandoning responsibility for them.

India’s fencing of its border with Bangladesh has added a physical dimension to the political isolation of its own enclaves. The chhit mahalis on both sides are unable to vote, to attend schools or markets, to be helped by NGOs working in either country, or to seek police help or medical attention. Each country claims its original citizens have been forced out of their enclaves by the population of the other country surrounding them, and so each country refuses to extend its governmental responsibilities to the supposed invaders. Simultaneously each denies it can legally assist the populations of the other country’s enclaves inside its own territory. Abandoned by both sides, the chhit mahalis struggle to survive without the ability to protect their rights, homes or lives. Bandits once more make use of the enclaves to escape the jurisdiction of the surrounding state.

The problem is one of India and Bangladesh’s own making but it is not unique. Since 1996, when the Lithuanian enclave of Pogiry in Belarus (population: three) was exchanged for equivalent land, 259 enclaves have remained on the world map. Besides India-Bangladesh, there are 61 enclaves affecting 21 countries as owners or hosts. Most consist of a single farm, or a village and its surrounding farmland, inside a neighbouring country. Some approach the complexity of the Cooch Behar enclaves, such as 30 enclaves (including 8 counter-enclaves) belonging to Belgium and the Netherlands in the village of Baarle (population 8500).

The Belgian-Dutch enclaves originated in a feudal agreement c.1198, and emerged at the international level when Belgium declared independence from the Netherlands in 1830. The enclaves were an annoyance to customs, police and foreign ministry officials; but arrangements allowed goods to pass into and through the enclaves, paying tax only if they were destined for the other country or its enclaves. Nevertheless, smuggling brought prosperity to a village on the economic and political periphery of both countries. Today the village park boasts a statue honouring the smugglers. The economic union of Belgium and the Netherlands and the subsequent European Union have eliminated the profitabililty of smuggling without the need for policing or fences. Differences in tax rates and national laws remain, so that some types of business, such as sex or fireworks shops can only operate in one country and its enclaves, and not in the other. Yet the village happily contains both sorts of shops, each in the permitting country, but serving customers from both. Different planning laws, educational syllabii, post offices, town halls, and churches exist side by side. Several businesses and houses straddle the enclave boundaries, enjoying two postal address and two telephone connections. The policemen from each country share an office. The fire departments work together with special hose-coupling devices. Utilities, sewerage, road maintenance and rubbish collection are conducted by one country or he other for the population of both. Where a national law unduly inconveniences the enclaves, an exception is granted. Thus while Sunday shopping is illegal in the Netherlands, the shops in Baarle’s Dutch enclaves may open on Sundays to compete with the Belgian shops, and the village has a thriving Sunday market, drawing crowds from both countries. Before the Euro was introduced, all shopkeepers and government offices accepted both national currencies. Overall the village has boomed as a border market, increasingly tourism-oriented, marketing its enclaves as a tourist attraction. Without the enclaves Baarle would be a small unimportant village. The enclaves have allowed it to surpass its neighbouring villages in size and prosperity.

Other enclaves are often placed inside the customs, postal or telephone jurisdiction of the surrounding country. Switzerland tolerates a casino in the Italian tax-haven enclave of Campione d’Italia, on condition that Swiss citizens have a daily betting limit. Germany’s village of Büsingen, also inside Switzerland, is inside the Swiss customs and currency area, not that of the EU. Passage from the UAE into the Omani enclave of Madha and into the UAE’s counter-enclave of Dahwa inside remain free of controls for locals and foreigners alike. On Cyprus, locals from two villages enclaved inside the British territory (and military base) of Dhekelia move about freely, and farm land under both British and Cypriot sovereignty.

What can India and Bangladesh learn from these foreign enclave cases? They have three main options. The worst is to maintain the status quo, each country refusing to properly govern its own enclaves while also forbidding the other to govern its enclaves across the intervening territory. This “dog-in-the-manger” attitude has reduced the enclaves to poverty and despair, countenanced violence and oppression, fostered corruption, and encourages the problems of criminal dens and drug-cultivation in the enclaves.

The second option is an enclave exchange. Inhabitants should be given two independent options concerning citizenship and relocation. For up to two years after the enclave exchange, they should have the option to choose whether to retain their current citizenship or to become citizens of the other country. They should also have the independent option to remain owning and farming the land they occupy after its tranfer to the other country, or of being resettled on land of equivalent value, size and productive capacity in their original country. There is no reason why they should not be able to choose to stay in situ and retain their old citizenship, nor why they could not hold both citizenships: dual nationality is an increasingly common occurrence worldwide.

The problems with this policy include a requirement for equivalent land for the resettlement of those wishing to relocate, and the need for each country to recognise the inhabitants of its enclaves as its own citizens before exchange. An imbalance in the numbers on each side desiring resettlement will cause difficulties. But it would only repeat the injustices of the 1947 partition if an exchange was made without addressing the needs of the enclave inhabitants, and allowing them some input into the process. The enclaves also form the world’s most complicated boundary, and include the world’s only counter-counter-enclave: so another problem with exchange is heritage loss. Finally, an exchange of enclaves is also an admittance of failure.

Enclave exchange will remove a cartographic anomaly but it will not solve the underlying tensions in bilateral relations. The enclaves are not a problem in themselves but are simply a focus point for distrust and tension created elsewhere. Exchange may not improve the lives of the chhit mahalis, who may end up marginalised, landless and dispossessed by the exchange process. Even if able to remain on their lands, they will still be living in an economically and politically peripheral location. Therefore any exchange should be entered into only with the will of, and in full consultation with, the people involved, so as not to become a further injustice.

A third policy is to retain the enclaves but improve their situation. The 30 enclaves of Belgium and the Netherlands at Baarle, along with other enclaves of Europe and the Middle East, are a good model for this. The advantages are many. It would put the enclave dwellers in charge of their own destiny, leaving them on their lands, but able to engage fully as citizens of their own country.

The distances between each country and its own enclaves are small, often less than one kilometre, rarely more than two or three. Designated access routes, for foot, cart and motorised traffic, could be easily set up and policed. This would allow enclave dwellers to traverse the intervening country to reach the nearest schools and markets of their own country. The local district commissioners should be granted authority to meet frequently and at will to discuss any problems and work out local solutions, without having to refer to New Delhi or Dhaka. Officials such as teachers, doctors, district officials, electoral officers, census enumerators and police should also be permitted visa-free access on demand. Which country’s currency, excise laws, and postal system, electricity and other services are used in an enclave should be based on principles of efficiency, not on chauvinistic nationalism.

There is no reason why exchange of enclaves for customs and excise purposes made in the 1930s could not be readopted. Indian enclaves could be alcohol-free like surrounding Bangladesh, and Bangladeshi enclaves could be prohibited from slaughtering cows as in India. This is no more a threat to the sovereignty of either country than is the differing alcohol and tax regimes of the Indian states and territories. The unique border situation of the enclaves would encourage tourism to this forgotten region in both countries, offering new economic possibilities to an area devoid of industrial capability and development.

India and Bangladesh are not alone in wrestling with the problem of enclaves. Similar problems have been solved in most other enclaves around the world. The long-delayed exchange of the Cooch Behar enclaves, mooted since 1910 and agreed upon in 1958 may simplify the border itself, but it is unlikely to improve bilateral relations, assist economic development of the area or improve the lives of the enclave dwellers. The needs and desires of the chhit-mahalis must be taken into account, but action must be taken to remove their current effective statelessness. The examples of successful enclaves elsewhere in the world suggest that even if relations between two countries are not completely harmonious, enclaves can exist and be beneficial to the economic potential of the area and the prosperity of its inhabitants. These two aspects are the raison d’etre of government, hence it behoves the governments concerned to ensure that any solution to the enclave problem addresses these issues and not merely cartographic simplification, which may only cement the 1947 division more firmly.”

Brendan’s article was published in two parts on Sunday and Monday July 22 2007 & July 23 2007 with very slight alteration –except the splendid maps he had sent failed to be published!

“The Enclave Problem India, Bangladesh can and must solve this 300-year-old issue! By BRENDANWHYTE

There are 198 “enclaves” (chhit-mahals) between India and Bangladesh. Cooch Behar district has 106 enclaves in Bangladesh, and Bangladesh has 92 enclaves in India: 88 in Cooch Behar, 3 in Jalpaiguri, and 1 between Cooch Behar and Assam’s Dhubri district. The enclaves vary from clusters of villages to individual fields. The smallest Indian enclave may be Panisala, only 0.1093 ha; the smallest Bangladeshi enclave is Upan Chowki Bhajni #24 at 0.2870 ha. The largest are India’s Balapara Khagrabari at 25.95 sq. km, and Bangladesh’s 18.68 sq. km Dahagram-Angarpota. The 198 enclaves also include 3 Indian and 21 Bangladeshi counter-enclaves (enclaves within enclaves). India also possesses the world’s only counter-counter-enclave: a 0.69 ha jute field inside a Bangladeshi enclave inside an Indian enclave inside Bangladesh! Enclave population-sizes are unknown. The last census to include enclaves was conducted in 1951, although the Pakistani enumeration was incomplete. The population today is probably under 100,000 in total, 60% living in Indian enclaves in Bangladesh, the rest in Bangladeshi enclaves in India. The enclaves are 300 years old, originating during the Mughal wars against Cooch Behar in the late 1600s. A treaty was concluded in 1711 in which the Mughals obtained three chaklas from Cooch Behar, but the Subahdar of Bengal rejected the treaty and forced Cooch Behar to cede further lands in 1713, reducing it to about its present borders. This second treaty is the origin of the enclaves: as in feudal Europe, the holdings of kings and their vassals were not contiguous wholes but rather a patchwork of land parcels, so the ceded chaklas included lands inside the unceded areas and vice versa. The East India Company fixed the Bengal-Cooch Behar boundary about 1773, and by 1814 noted that the enclaves were safe havens for bandits. Yet the Company itself created more enclaves in 1817 when it adjudicated a territorial dispute between Cooch Behar and Bhutan, creating Cooch Behari enclaves in then-Bhutanese territory (now Alipurduar district of Jalpaiguri). These enclaves remained when the British annexed the Bhutanese lands in 1865. The British quashed the bandit menace but proliferation of liquor, ganja and opium shops in the enclaves became an excise problem between Bengal and Cooch Behar. After discussions, the main boundary of Cooch Behar became the customs and excise boundary. All Cooch Behar enclaves in British India fell under British excise control, while all British enclaves in Cooch Behar fell under Cooch Behari excise control. This practical solution to the problem in hand left the sovereignty of the enclaves intact. A full exchange of enclaves was suggested by the British in the early 1930s, to reduce the costs of the upcoming survey and demarcation of the Cooch Behar boundary but the idea was dropped in face of strong local objections, and all the enclaves were surveyed and demarcated with pillars by the late 1930s. Partition and independence in 1947, and the subsequent accession of Cooch Behar to India in 1949, elevated the enclaves to the international level. Initially this was unproblematic, with India and Pakistan concluding agreements on cross-border trade and movement in the enclave areas. The 1951 census included the enclaves. But Pakistan’s unilateral 1952 introduction of visa requirements, and immediate Indian reciprocation sealed the fate of the enclave dwellers. High-level politics subordinated the needs of enclave dwellers on both sides. Full exchange was again agreed upon by the 1958 Nehru-Noon accord, and this was reiterated in a modified form in the 1974 Indira-Mujib agreement between India and Bangladesh (Bangladesh would keep its largest enclave, Dahagram-Angarpota, to guarantee access to which, India would lease it a short corridor). But a succession of mainly Indian legal challenges regarding the constitutionality of both accords prevented implementation until 1992, when the Tin Bigha corridor was finally opened. The exchange of the remaining enclaves, agreed in 1958 and 1974 and cleared of legal challenges by 1990 remains unimplemented, despite constant Bangladeshi calls for India to implement the agreements fully. Meanwhile, since the 1950s the chhit mahalis, or enclave dwellers, have been effectively rendered stateless by the two governments abandoning responsibility for them. India’s fencing of its border with Bangladesh has added a physical dimension to the political isolation of its own enclaves. The chhit mahalis on both sides are unable to vote, to attend schools or markets, to be helped by NGOs working in either country, or to seek police help or medical attention. Each country claims its original citizens have been forced out of their enclaves by the population of the other country surrounding them, and so each country refuses to extend its governmental responsibilities to the supposed invaders. Simultaneously each denies it can legally assist the populations of the other country’s enclaves inside its own territory. Abandoned by both sides, the chhit mahalis struggle to survive without the ability to protect their rights, homes or lives. Bandits once more make use of the enclaves to escape the jurisdiction of the surrounding state. The problem is one of India and Bangladesh’s own making but it is not unique. Since 1996, when the Lithuanian enclave of Pogiry in Belarus (population: three) was exchanged for equivalent land, 259 enclaves have remained on the world map. Besides India-Bangladesh, there are 61 enclaves affecting 21 countries as owners or hosts. Most consist of a single farm, or a village and its surrounding farmland, inside a neighbouring country. Some approach the complexity of the Cooch Behar enclaves, such as 30 enclaves (including 8 counter-enclaves) belonging to Belgium and the Netherlands in the village of Baarle (population 8500). The Belgian-Dutch enclaves originated in a feudal agreement c.1198, and emerged at the international level when Belgium declared independence from the Netherlands in 1830. The enclaves were an annoyance to customs, police and foreign ministry officials; but arrangements allowed goods to pass into and through the enclaves, paying tax only if they were destined for the other country or its enclaves. Nevertheless, smuggling brought prosperity to a village on the economic and political periphery of both countries. Today the village park boasts a statue honouring the smugglers. The economic union of Belgium and the Netherlands and the subsequent European Union have eliminated the profitabililty of smuggling without the need for policing or fences. Different town halls and churches exist side by side. Several businesses and houses straddle the enclave boundaries, enjoying two postal addresses and two telephone connections. The policemen from each country share an office. The fire departments work together with special hose-coupling devices. Utilities, sewerage, road maintenance and rubbish collection are conducted by one country or the other for the population of both. Where a national law unduly inconveniences the enclaves, an exception is granted. Thus while Sunday shopping is illegal in the Netherlands, the shops in Baarle’s Dutch enclaves may open on Sundays to compete with the Belgian shops, and the village has a thriving Sunday market, drawing crowds from both countries. Before the Euro was introduced, all shopkeepers and government offices accepted both national currencies. Overall the village has boomed as a border market, increasingly tourism-oriented, marketing its enclaves as a tourist attraction. Without the enclaves Baarle would be a small unimportant village. The enclaves have allowed it to surpass its neighbouring villages in size and prosperity. Other enclaves are often placed inside the customs, postal or telephone jurisdiction of the surrounding country. Switzerland tolerates a casino in the Italian tax-haven enclave of Campione d’Italia, on condition that Swiss citizens have a daily betting limit. Germany’s village of Büsingen, also inside Switzerland, is inside the Swiss customs and currency area, not that of the EU. Passage from the UAE into the Omani enclave of Madha and into the UAE’s counter-enclave of Dahwa inside remain free of controls for locals and foreigners alike. On Cyprus, locals from two villages enclaved inside the British territory (and military base) of Dhekelia move about freely, and farm land under both British and Cypriot sovereignty. (To be concluded)

The enclave problem~II What can India and Bangladesh learn from these foreign enclave cases? They have three main options. The worst is to maintain the status quo, each country refusing to properly govern its own enclaves while also forbidding the other to govern its enclaves across the intervening territory. This “dog-in-the-manger” attitude has reduced the enclaves to poverty and despair, countenanced violence and oppression, fostered corruption, and encouraged the problems of criminal dens and drug-cultivation in the enclaves. The second option is an enclave exchange. Inhabitants should be given two independent options concerning citizenship and relocation. For up to two years after the enclave exchange, they should have the option to choose whether to retain their current citizenship or to become citizens of the other country. They should also have the independent option to remain owning and farming the land they occupy after its transfer to the other country, or of being resettled on land of equivalent value, size and productive capacity in their original country.

Dual nationality There is no reason why they should not be able to choose to stay in situ and retain their old citizenship, nor why they could not hold both citizenships: dual nationality is an increasingly common occurrence worldwide. The problems with this policy include a requirement for equivalent land for the resettlement of those wishing to relocate, and the need for each country to recognise the inhabitants of its enclaves as its own citizens before exchange. An imbalance in the numbers on each side desiring resettlement will cause difficulties. But it would only repeat the injustices of the 1947 Partition if an exchange was made without addressing the needs of the enclave inhabitants, and allowing them some input into the process. The enclaves also form the world’s most complicated boundary, and include the world’s only counter-counter-enclave: so another problem with exchange is heritage loss. Finally, an exchange of enclaves is also an admittance of failure. Enclave exchange will remove a cartographic anomaly but it will not solve the underlying tensions in bilateral relations. The enclaves are not a problem in themselves but are simply a focus point for distrust and tension created elsewhere. Exchange may not improve the lives of the chhit mahalis, who may end up marginalised, landless and dispossessed by the exchange process. Even if able to remain on their lands, they will still be living in an economically and politically peripheral location. Therefore any exchange should be entered into only with the will of, and in full consultation with, the people involved, so as not to become a further injustice. A third policy is to retain the enclaves but improve their situation. The 30 enclaves of Belgium and the Netherlands at Baarle, along with other enclaves of Europe and the Middle East, are a good model for this. The advantages are many. It would put the enclave dwellers in charge of their own destiny, leaving them on their lands, but able to engage fully as citizens of their own country. The distances between each country and its own enclaves are small, often less than one kilometre, rarely more than two or three. Designated access routes, for foot, cart and motorised traffic, could be easily set up and policed. This would allow enclave dwellers to traverse the intervening country to reach the nearest schools and markets of their own country. The local district commissioners should be granted authority to meet frequently and at will to discuss any problems and work out local solutions, without having to refer to New Delhi or Dhaka. Officials such as teachers, doctors, district officials, electoral officers, census enumerators and police should also be permitted visa-free access on demand. Which country’s currency, excise laws, and postal system, electricity and other services are used in an enclave should be based on principles of efficiency, not on chauvanistic nationalism. There is no reason why exchange of enclaves for customs and excise purposes made in the 1930s could not be readopted. Indian enclaves could be alcohol-free like surrounding Bangladesh, and Bangladeshi enclaves could be prohibited from slaughtering cows as in India. This is no more a threat to the sovereignty of either country than is the differing alcohol and tax regimes of the Indian states and territories. The unique border situation of the enclaves would encourage tourism to this forgotten region in both countries, offering new economic possibilities to an area devoid of industrial capability and development.

Economic potential

India and Bangladesh are not alone in wrestling with the problem of enclaves. Similar problems have been solved in most other enclaves around the world. The long-delayed exchange of the Cooch Behar enclaves, mooted since 1910 and agreed upon in 1958 may simplify the border itself, but it is unlikely to improve bilateral relations, assist economic development of the area or improve the lives of the enclave dwellers. The needs and desires of the chhit-mahalis must be taken into account, but action must be taken to remove their current effective statelessness. The examples of successful enclaves elsewhere in the world suggest that even if relations between two countries are not completely harmonious, enclaves can exist and be beneficial to the economic potential of the area and the prosperity of its inhabitants. These two aspects are the raison d’etre of government, hence it behooves the governments concerned to ensure that any solution to the enclave problem addresses these issues and not merely cartographic simplification, which may only cement the 1947 division more firmly.

(Concluded)”

I wrote to him immediately Hello, You were published in yesterday’s Sunday Statesman and continued in this morning’s edition, as the special article on the editorial page. I am enclosing the text as it appears on the Internet edition. Through some apparent editorial mishap, the illustrattions you sent never got published, and two photographs were used. I think you could follow it up with an invited talk in Kolkata. If you wish, I can look into that possibility. Send me a cv if you are interested and I shall see what I can do. Re working with me on the China-India problem, a visit from you might enable us to talk further. I am introducing you separately to the Editor’s assistant who should help with copies, money etc. Best wishes Subroto Roy

All that was between May and July 2007.

On 6 September 2011, Dr Manmohan Singh as India’s PM on a visit to Bangladesh apparently signed what the India’s Foreign Ministry calls the “2011 Protocol”. And now a few days ago, Prime Minister Sheik Hasina, Prime Minister Narendra Modi, along with the agreement of Chief Minister Mamata Banerjee, have all signed a comprehensive landmark “Land Boundary Agreement” between India and Bangladesh, solving the 300 year problem! All’s well that ends well…

And yes, Excellencies, PM Sheikha Hasina, PM Narendra Modi, former PM Manmohan Singh, CM Mamata Banerjee: re the Land Boundary Agreement, Dr Brendan Whyte and I and The Statesman newspaper may all take a bow after you…

Nota Bene: The Statesman for some reason did not publish along with Dr Whyte’s excellent article these important maps which are now published here below for the first time:

A personal note: The words “enclave” and “No Man’s Land” entered my vocabulary due to my father back in January 1965 when we crossed from India through No Man’s Land into what was then East Pakistan. He was with India’s diplomatic post in Dhaka and during the 1965 war would be acting head while his friend G Parthasarathi was head of Mission in Karachi [Correction November 2015: Parthasarathi left shortly before the war, replaced in August 1965 by Kewal Singh]. Half a dozen years later in the summer of 1971, I was a schoolboy volunteer in West Dinajpur helping in small ways the innumerable refugees who had poured across the porous boundary with East Dinajpur during the tyranny West Pakistan had unleashed in East Pakistan; there was effectively no boundary distinction left then. I dedicate my part of this work to my late father MK Roy 1915-2012.

Posted in Academic research, Agriculture, Asia and the West, Assam, Bangladesh, Bangladesh India land Boundary Agreement 2015, Bangladesh's economy, Bengal, Brendan Whyte, Britain in India, Commonsense, Diplomacy, Economic Policy, Enclaves, Enclaves in International Law, Fathers and sons, Food and agriculture, Governance, Hindus and Muslims, Imperialism, India Bangladesh Land Boundary Agreement 2015, India in international law, India's Agriculture & Food, India's Bangladesh liberation war, India's Foreign Policy, India's Foreign Service, India's History, India's Land, India's Partition, India's peasants, India's Union-State relations, India-Bangladesh Enclaves, India-Pakistan Enclaves, Mamata Banerjee, Manmohan Singh, Narendra Modi, Pakistan, Pakistan in international law, Pakistan's civil war, Pakistan's origins, Sheikh Hasina, The Statesman. Leave a Comment »

Some of My Works, Interviews etc on India’s Money, Public Finance, Banking, Trade, BoP, Land, etc (an incomplete list)

November 23, 2013 — drsubrotoroy

My “Critique of Monetary Ideas of Manmohan & Modi: the Roy Model explaining to Bimal Jalan, Nirmala Sitharaman, RBI etc what it is they are doing” of 2019 is here.

Foundations of India’s Political Economy: Towards an Agenda for the 1990s edited by Subroto Roy & William E James, 1986-1992… pdf copy uploaded 2021

Pricing, Planning & Politics: A Study of Economic Distortions in India 1984, uploaded as pdf 2021

My Sep 2019 recommendation PM address each State Legislature, get all India Govt Accounting & Public Decision Making to have integrity; 16 May 2014 Advice scrap “Planning Commission”,integrate its assets with the Treasury, get the nationalised banks & RBI out of the Treasury

My critical assessment dated 23 August 2013 of Professors Jagdish Bhagwati & Amartya Sen and Dr Manmohan Singh is here…

My critique of PM Modi’s 8 November 2016 statement began on Twitter immediately, and is summarized here “Modi & Monetary Theory: Economic Consequences of the Prime Minister of India”

My critical assessment dated 19 August 2013 of Professor Raghuram Rajan is here and here.

My 3 Dec 2012 Delhi talk on India’s Money is now available at You-Tube in an audio version here.

My July 2012 article “India’s Money” in the Caymans Financial Review is here and here https://independentindian.com/2012/07/21/my-article-indias-money-in-the-cayman-financial-review-july-2012/

My 5 December 2012 interview by Mr Paranjoy Guha Thakurta, on Lok Sabha TV, the channel of India’s Lower House of Parliament, broadcast for the first time on 9 December 2012 on Lok Sabha TV, is here and here in two parts.

My interview by GDI Impuls banking quarterly of Zürich published on 6 Dec 2012 is here.

My interview by Ragini Bhuyan of Delhi’s Sunday Guardian published on 16 Dec 2012 is here.

“Monetary Integrity and the Rupee” (2008)

https://independentindian.com/2008/09/28/monetary-integrity-and-the-rupee/

“India’s Macroeconomics” (2007)

“Fallacious Finance” (2007)

https://independentindian.com/2007/03/05/fallacious-finance-the-congress-bjp-cpi-m-et-al-may-be-leading-india-to-hyperinflation/

https://independentindian.com/2021/12/01/on-the-simplest-smallest-most-universal-direct-flattax-of-500-rupees-per-annum-for-india-accruing-to-the-states-with-a-bpl-exemption-too/

Budgets & Financial Positions of Three of India’s Most Populous States (combined population c.300 million)…Brought to you especially by Dr Subroto Roy… Feel free to use (with acknowledgment)…

“Growth and Government Delusion” (2008)

https://independentindian.com/2008/02/22/growth-government-delusion/

“Distribution of Govt of India Expenditure (Net of Operational Income) 1995”
https://independentindian.com/2008/07/27/distribution-of-govt-of-india-expenditure-net-of-operational-income-1995/

“India in World Trade & Payments” (2007)

https://independentindian.com/2007/02/12/india-in-world-trade-payments/

“Path of the Indian Rupee 1947-1993″ (1993)

https://independentindian.com/1993/06/01/path-of-the-indian-rupee-1947-1993/

“Our Policy Process” (2007)

https://independentindian.com/2007/02/20/our-policy-process-self-styled-planners-have-controlled-indias-paper-money-for-decades/

“Indian Money and Credit” (2006)

https://independentindian.com/2006/08/06/indian-money-and-credit/

“Indian Money and Banking” (2006)

https://independentindian.com/2006/04/23/indian-money-and-banking/

“Indian Inflation” (2008)

https://independentindian.com/2008/04/16/indian-inflation-upside-down-economics-from-new-delhis-establishment/

How the Liabilities/Assets Ratio of Indian Banks Changed from 84% in 1970 to 108% in 1998 https://independentindian.com/2008/10/20/how-the-liabilitiesassets-ratio-of-indian-banks-changed-from-84-in-1970-to-108-in-1998/

“Growth of Real Income, Money & Prices in India 1869-2004” (2005)

https://independentindian.com/2008/07/28/growth-of-real-income-money-prices-in-india-1869-2004/

“How to Budget” (2008)

https://independentindian.com/2008/02/26/how-to-budget-thrift-not-theft-should-guide-our-public-finances/

“Waffle but No Models of Monetary Policy: The RBI and Financial Repression (2005)”

https://independentindian.com/2005/10/27/waffle-but-no-models-of-monetary-policy-the-rbi-and-financial-repression/

“The Dream Team: A Critique” (2006)

https://independentindian.com/2006/01/08/the-dream-team-a-critique/

“Against Quackery” (2007)

https://independentindian.com/2007/09/24/against-quackery/

“Mistaken Macroeconomics” (2009)

https://independentindian.com/2009/06/12/mistaken-macroeconomics-an-open-letter-to-prime-minister-dr-manmohan-singh/

Towards a Highly Transparent Fiscal & Monetary Framework for India’s Union & State Governments (RBI lecture 29 April 2000)

https://independentindian.com/2000/04/29/towards-a-highly-transparent-fiscal-monetary-framework-for-india%E2%80%99s-union-state-governments/

“The Indian Revolution (2008)”

https://independentindian.com/2008/12/08/the-indian-revolution/

Can India Become an Economic Superpower or Will There Be a Monetary Meltdown? (2005)

https://independentindian.com/2005/05/05/can-india-become-an-economic-superpower-or-will-there-be-a-monetary-meltdown-2005/

Memo to Kaushik Basu, 2010

Land, Liberty, & Value, 2006

https://independentindian.com/2006/12/31/land-liberty-value/

On Land-Grabbing, 2007

https://independentindian.com/2007/01/14/on-land-grabbing/

No Marxist MBAs? An amicus curiae brief for the Honourable High Court

https://independentindian.com/2007/08/29/no-marxist-mbasan-amicus-curae-brief-for-the-honourable-high-court/

Coverage in The Asian Age/Deccan Herald of 4 Dec 2012.

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Did Jagdish Bhagwati “originate”, “pioneer”, “intellectually father” India’s 1991 economic reform? Did Manmohan Singh? Or did I, through my encounter with Rajiv Gandhi, just as Siddhartha Shankar Ray told Manmohan & his aides in Sep 1993 in Washington? Judge the evidence for yourself. And why has Amartya Sen misdescribed his work? India’s right path forward today remains what I said in my 3 Dec 2012 Delhi lecture!

August 23, 2013 — drsubrotoroy

Did Jagdish Bhagwati “originate”, “pioneer”, “intellectually father” India’s 1991 economic reform? Did Manmohan Singh? Or did I, through my encounter with Rajiv Gandhi, just as Siddhartha Shankar Ray told Manmohan & his aides in Sep 1993 in Washington? Judge the evidence for yourself. And why has Amartya Sen misdescribed his work? India’s right path forward today remains what I said in my 3 Dec 2012 Delhi lecture!

[See also “I’m on my way out”: Siddhartha Shankar Ray (1920-2010)…An Economist’s Tribute”; “Rajiv Gandhi and the Origins of India’s 1991 Economic Reform”; “Three Memoranda to Rajiv Gandhi 1990-1991″

Foundations of India’s Political Economy: Towards an Agenda for the 1990s edited by Subroto Roy & William E James, 1986-1992… pdf copy uploaded 2021

Foundations of Pakistan’s Political Economy: Towards an Agenda for the 1990s, edited by William E James & Subroto Roy, 1986-1993… pdf copy uploaded 2021

Critique of Amartya Sen: A Tragedy of Plagiarism, Fake News, Dissimulation

Part I: Facts vs Fiction, Flattery, Falsification, etc

1. Problem

2. Rajiv Gandhi, Siddhartha Shankar Ray, Milton Friedman & Myself

3. Jagdish Bhagwati & Manmohan Singh? That just don’t fly!

4. Amartya Sen’s Half-Baked Communism: “To each according to his need”?

Part II: India’s Right Road Forward Now: Some Thoughtful Analysis for Grown Ups

5. Transcending a Left-Right/Congress-BJP Divide in Indian Politics

6. Budgeting Military & Foreign Policy

7. Solving the Kashmir Problem & Relations with Pakistan

8. Dealing with Communist China

9. Towards Coherence in Public Accounting, Public Finance & Public Decision-Making

10. India’s Money: Towards Currency Integrity at Home & Abroad

Part I: Facts vs Fiction, Flattery, Falsification, etc

1. Problem

Arvind Panagariya says in the Times of India of 27 July 2013

“…if in 1991 India embraced many of the Track-I reforms, writings by Sen played no role in it… The intellectual origins of the reforms are to be found instead in the writings of Bhagwati, both solely and jointly with Padma Desai and T N Srinivasan….”

Now Amartya Sen has not claimed involvement in the 1991 economic reforms so we are left with Panagariya claiming

“The intellectual origins of the reforms are to be found instead in the writings of Bhagwati…”

Should we suppose Professor Panagariya’s master and co-author Jagdish Bhagwati himself substantially believes and claims the same? Three recent statements from Professor Bhagwati suffice by way of evidence:

(A) Bhagwati said to parliamentarians in the Lok Sabha on 2 December 2010 about the pre-1991 situation:

“This policy framework had been questioned, and its total overhaul advocated, by me and Padma Desai in writings through the late 1960s which culminated in our book, India: Planning for Industrialization (Oxford University Press: 1970) with a huge blowback at the time from virtually all the other leading economists and policymakers who were unable to think outside the box. In the end, our views prevailed and the changes which would transform the economy began, after an external payments crisis in 1991, under the forceful leadership of Prime Minister Manmohan Singh who was the Finance Minister at the time….”

**(B) Bhagwati said to Economic Times on 28 July 2013:**

“When finance minister Manmohan Singh was in New York in 1992, he had a lunch for many big CEOs whom he was trying to seduce to come to India. He also invited me and my wife, Padma Desai, to the lunch. As we came in, the FM introduced us to the invitees and said: ‘These friends of mine wrote almost a quarter century ago [India: Planning for Industrialisation was published in 1970 by Oxford] recommending all the reforms we are now undertaking. If we had accepted the advice then, we would not be having this lunch as you would already be in India’.”

**(C) And Bhagwati said in Business Standard of 9 August 2013:**

“… I was among the intellectual pioneers of the Track I reforms that transformed our economy and reduced poverty, and witness to that is provided by the Prime Minister’s many pronouncements and by noted economists like Deena Khatkhate.. I believe no one has accused Mr. Sen of being the intellectual father of these reforms. So, the fact is that this huge event in the economic life of India passed him by…”

From these pronouncements it seems fair to conclude Professors Bhagwati and Panagariya are claiming Bhagwati has been the principal author of “the intellectual origins” of India’s 1991 reforms, has been their “intellectual father” or at the very least has been “among the intellectual pioneers” of the reform (“among” his own collaborators and friends, since none else is mentioned). Bhagwati has said too his friend Manmohan Singh as Finance Minister participated in the process while quoting Manmohan as having said Bhagwati was the principal author.

Bhagwati’s opponent in current debate, Amartya Sen, has been in agreement with him that Manmohan, their common friend during college days at Cambridge in the 1950s, was a principal originating the 1991 reforms, saying to Forbes in 2006:

“When Manmohan Singh came to office in the early 1990s as the newly appointed finance minister, in a government led by the Congress Party, he knew these problems well enough, as someone who had been strongly involved in government administration for a long time.”

In my experience, such sorts of claims, even in their weakest form, have been, at best, scientifically sloppy and unscholarly, at worst mendacious suppressio veri/suggestio falsi, and in between these best and worst interpretations, examples of academic self-delusion and mutual flattery. We shall see Bhagwati’s opponent, Amartya Sen, has denied academic paternity of recent policies he has spawned while appearing to claim academic paternity of things he has not! Everyone may have reasonably expected greater self-knowledge, wisdom and scholarly values of such eminent academics. Their current spat has instead seemed to reveal something rather dismal and self-serving.

You can decide for yourself where the truth, ever such an elusive and fragile thing, happens to be and what is best done about it. Here is some evidence.

2. Rajiv Gandhi, Siddhartha Shankar Ray, Milton Friedman & Myself

Professor Arvind Panagariya is evidently an American economics professor of Indian national origin who holds the Jagdish Bhagwati Chair of Indian Political Economy at Columbia University. I am afraid I had not known his name until he mentioned my name in Economic Times of 24 October 2001. He said

In mentioning the volume “edited by Subroto Roy and William E James”, Professor Panagariya did not appear to find the normal scientific civility to identify our work by name, date or publisher. So here that is now:

This was a book published in 1992 by the late Tejeshwar Singh for Sage. It resulted from the University of Hawaii Manoa perestroika-for-India project, that I and Ted James created and led between 1986 and 1992/93. (Yes, Hawaii — not Stanford, Harvard, Yale, Columbia or even Penn, whose India-policy programs were Johnny-come-latelies a decade or more later…) There is a sister-volume too on Pakistan, created by a parallel project Ted and I had led at the same time (both now in pdf):

In 2004 from Britain, I wrote to the 9/11 Commission saying if our plan to study Afghanistan after India and Pakistan had not been thwarted by malign local forces among our sponsors themselves, we, a decade before the September 11 2001 attacks on the USA, may just have come up with a pre-emptive academic analysis. It was not to be.

Milton Friedman’s chapter that we published for the first time was a memorandum he wrote in November 1955 for the Government of India which the GoI had effectively suppressed. I came to know of it while a doctoral student at Cambridge under Frank Hahn, when at a conference at Oxford about 1979-1980, Peter Tamas Bauer sat me down beside him and told me the story. Later in Blacksburg about 1981, N. Georgescu-Roegen on a visit from Vanderbilt University told me the same thing. Specifically, Georgescu-Roegen told me that leading Indian academics had almost insulted Milton in public which Milton had borne gamely; that after Milton had given a talk in Delhi to VKRV Rao’s graduate-students, a talk Georgescu-Roegen had been present at, VKRV Rao had addressed the students and told them in all seriousness “You have heard what Professor Friedman has to say, if you repeat what he has said in your exams, you will fail”.

In 1981-1982 my doctoral thesis emerged, titled “On liberty & economic growth: preface to a philosophy for India”,

My late great master in economic theory, Frank Hahn (1925-2013), found what I had written to be a “good thesis” bringing “a good knowledge of economics and of philosophy to bear on the literature on economic planning”, saying I had shown “a good knowledge of economic theory” and my “critique of Development Economics was powerful not only on methodological but also on economic theory grounds”.

I myself said about it decades later “My original doctoral topic in 1976 ‘A monetary theory for India’ had to be altered not only due to paucity of monetary data at the time but because the problems of India’s political economy and allocation of resources in the real economy were far more pressing. The thesis that emerged in 1982 … was a full frontal assault from the point of view of microeconomic theory on the “development planning” to which everyone routinely declared their fidelity, from New Delhi’s bureaucrats and Oxford’s “development” school to McNamara’s World Bank with its Indian staffers. Frank Hahn protected my inchoate liberal arguments for India; and when no internal examiner could be found, Cambridge showed its greatness by appointing two externals, Bliss at Oxford and Hutchison at Birmingham, both Cambridge men. “Economic Theory and Development Economics” was presented to the American Economic Association in December 1982 in company of Solow, Chenery, Streeten, and other eminences…” How I landed on that eminent AEA panel in December 1982 was because its convener Professor George Rosen of the University of Illinois recruited me overnight — as a replacement for Jagdish Bhagwati, who had had to return to India suddenly because of a parental death. The results were published in 1983 in World Development.

Soon afterwards, London’s Institute of Economic Affairs published Pricing, Planning and Politics: A Study of Economic Distortions in India. This slim work (now in pdf) was the first classical liberal critique of post-Mahalonobis Indian economic thought since BR Shenoy’s original criticism decades earlier. It became the subject of The Times’ lead editorial on its day of publication 29 May 1984 — provoking the Indian High Commission in London to send copies to the Finance Ministry in Delhi where it apparently caused a stir, or so I was told years later by Amaresh Bagchi who was a recipient of it at the Ministry.

The Times had said

“When Mr. Dennis Healey in the Commons recently stated that Hongkong, with one per cent of the population of India has twice India’s trade, he was making an important point about Hongkong but an equally important point about India. If Hongkong with one per cent of its population and less than 0.03 per cert of India’s land area (without even water as a natural resource) can so outpace India, there must be something terribly wrong with the way Indian governments have managed their affairs, and there is. A paper by an Indian economist published today (Pricing, Planning and Politics: A Study of Economic Distortions in India by Subroto Roy, IEA £1.80) shows how Asia’s largest democracy is gradually being stifled by the imposition of economic policies whose woeful effect and rhetorical unreality find their echo all over the Third World. As with many of Britain’s former imperial possessions, the rot set in long before independence. But as with most of the other former dependencies, the instrument of economic regulation and bureaucratic control set up by the British has been used decisively and expansively to consolidate a statist regime which inhibits free enterprise, minimizes economic success and consolidates the power of government in all spheres of the economy. We hear little of this side of things when India rattles the borrowing bowl or denigrates her creditors for want of further munificence. How could Indian officials explain their poor performance relative to Hongkong? Dr Roy has the answers for them. He lists the causes as a large and heavily subsidized public sector, labyrinthine control over private enterprise, forcibly depressed agricultural prices, massive import substitution, government monopoly of foreign exchange transactions, artificially overvalued currency and the extensive politicization of the labour market, not to mention the corruption which is an inevitable side effect of an economy which depends on the arbitrament of bureaucrats. The first Indian government under Nehru took its cue from Nehru’s admiration of the Soviet economy, which led him to believe that the only policy for India was socialism in which there would be “no private property except in a restricted sense and the replacement of the private profit system by a higher ideal of cooperative service.” Consequently, the Indian government has now either a full monopoly or is one of a few oligipolists in banking, insurance, railways, airlines, cement, steel, chemicals, fertilizers, ship-building, breweries, telephones and wrist-watches. No businessman can expand his operation while there is any surplus capacity anywhere in that sector. He needs government approval to modernize, alter his price-structure, or change his labour shift. It is not surprising that a recent study of those developing countries which account for most manufactured exports from the Third World shows that India’s share fell from 65 percent in 1953 to 10 per cent in 1973; nor, with the numerous restrictions on inter-state movement of grains, that India has over the years suffered more from an inability to cope with famine than during the Raj when famine drill was centrally organized and skillfully executed without restriction. Nehru’s attraction for the Soviet model has been inherited by his daughter, Mrs. Gandhi. Her policies have clearly positioned India more towards the Soviet Union than the West. The consequences of this, as Dr Roy states, is that a bias can be seen in “the antipathy and pessimism towards market institutions found among the urban public, and sympathy and optimism to be found for collectivist or statist ones.” All that India has to show for it is the delivery of thousands of tanks in exchange for bartered goods, and the erection of steel mills and other heavy industry which help to perpetuate the unfortunate obsession with industrial performance at the expense of agricultural growth and the relief of rural poverty.”…..

**I felt there were inaccuracies in this and so replied dated 4 June which The Times published on 16 June 1984:**

Milton and I met for the first time in the Fall of 1984 at the Mont Pelerin Society meetings at Cambridge when I gave him a copy of the IEA monograph, which he came to think extremely well of. I told him I had heard of his 1955 document and asked him for it; he sent me the original blue/purple version of this soon thereafter.

[That original document was, incidentally, in my professorial office among all my books, papers, theses and other academic items including my gown when I was attacked in 2003 by a corrupt gang at IIT Kharagpur — all yet to be returned to me by IIT despite a High Court order during my present ongoing battle against corruption there over a USD 1.9 million scam !… Without having ever wished to, I have had to battle India’s notorious corruption first hand for a decade!]

I published Milton’s document for the first time on 21 May 1989 at the conference of the Hawaii project over the loud objection of assorted leftists…

Amartya Sen, Jagdish Bhagwati, Manmohan Singh or any of their acolytes will not be seen in this group photograph dated 21 May 1989 at the UH President’s House, because they were not there. The Government of India was represented by the Ambassador to Washington, PK Kaul, as well as the Consul General in San Francisco, KS Rana (later Ambassador to Germany), besides the founding head of ICRIER who had invited himself.

Manmohan Singh was not there as he precisely represented the Indian economic policy establishment I had been determined to reform! In any case, he had left India about 1987 on his last assignment before retirement, with Julius Nyerere of Tanzania relating to the “South-South Commission”.

I have said over more than a half dozen years now that there is no evidence whatsoever of Manmohan Singh having been a liberal economist in any sense of that word at any time before 1991, and scant evidence that he originated any liberal economic ideas since. The widespread worldwide notion that he is to be credited for originating a sudden transformation of India from a path of pseudo-socialism to one of pseudo-liberalism has been without basis in evidence — almost entirely a political fiction, though an explicable one and one which has served, as such political fictions do, the purposes of those who invent them.

Jagdish Bhagwati and Amartya Sen were in their mid 50s and were two of the three senior-most Indians in US academic economics at the time. I and Ted James, both in our 30s, decided to invite both Bhagwati and Sen to the Hawaii project-conference as distinguished guests but to do so somewhat insincerely late in the day, predicting they would decline, which is what they did, yet they had come to be formally informed of what we were doing. We had a very serious attitude that was inspired a bit, I might say, by Oppenheimer’s secret “Manhattan project” and we wanted neither press-publicity nor anyone to become the star who ended up hogging the microphone or the limelight.

Besides, and most important of all, neither Bhagwati nor Sen had done work in the areas we were centrally interested in, namely, India’s macroeconomic and foreign trade framework and fiscal and monetary policies.

Bhagwati, after his excellent 1970 work with Padma Desai for the OECD on Indian industry and trade, also co-authored with TN Srinivasan a fine 1975 volume for the NBER Foreign Trade Regimes and Economic Development: India.

TN Srinivasan was the third of the three senior-most Indian economists at the time in US academia; his work made us want to invite him as one of our main economic authors, and we charged him with writing the excellent chapter in Foundations that he came to do titled “Planning and Foreign Trade Reconsidered”.

The other main economist author we had hoped for was Sukhamoy Chakravarty from Delhi University and the Government of India’s Planning Commission, whom I had known since 1977 when I had been given his office at the Delhi School of Economics as a Visiting Assistant Professor while he was on sabbatical; despite my pleading he would not come due to ill health; he strongly recommended C Rangarajan, telling me Rangarajan had been the main author with him of the crucial 1985 RBI report on monetary policy; and he signed and gave me his last personal copy of that report dating it 14 July 1987. Rangarajan said he could not come and recommended the head of the NIPFP, Amaresh Bagchi, promising to write jointly with him the chapter on monetary policy and public finance.

Along with Milton Friedman’s suppressed 1955 memorandum which I was publishing for the first time in 1989, TN Srinivasan and Amaresh Bagchi authored the three main economic policy chapters that we felt we wanted.

Other chapters we commissioned had to do with the state of governance (James Manor), federalism (Bhagwan Dua), Punjab and similar problems (PR Brass), agriculture (K Subbarao, as proposed by CH Hanumantha Rao), health (Anil Deolalikar, through open advertisement), and a historical assessment of the roots of economic policy (BR Tomlinson, as proposed by Anil Seal). On the vital subject of education we failed to agree with the expert we wanted very much (JBG Tilak, as proposed by George Psacharopolous) and so we had to cover the subject cursorily in our introduction mentioning his work. And decades later, I apologised to Professor Dietmar Rothermund of Heidelberg University for having been so blinkered in the Anglo-American tradition at the time as to not having obtained his participation in the project.

[The sister-volume we commissioned in parallel on Pakistan’s political economy had among its authors Francis Robinson, Akbar Ahmed, Shirin Tahir-Kehli, Robert La Porte, Shahid Javed Burki, Mohsin Khan, Mahmood Hasan Khan, Naved Hamid, John Adams and Shahrukh Khan; this book came to be published in Pakistan in 1993 to good reviews but apparently was then lost by its publisher and is yet to be found; the military and religious clergy had been deliberately not invited by us though the name of Pervez Musharraf had I think arisen, and the military and religious clergy in fact came to rule the roost through the 1990s in Pakistan; the volume, two decades old, takes on fresh relevance with the new civilian governments of recent years.] [Postscript 27 November 2015: See my strident critique at Twitter of KM Kasuri, P Musharraf et al e.g. at https://independentindian.com/2011/11/22/pakistans-point-of-view-or-points-of-view-on-kashmir-my-as-yet-undelivered-lahore-lecture-part-i/ passing off ideas they have taken from this volume without acknowledgement, ideas which have in any case become defunct to their author, myself.]

Milton himself said this about his experience with me in his memoirs:

And Milton wrote on my behalf when I came to be attacked, being Indian, at the very University that had sponsored us:

My obituary notice at his passing in 2006 said: “My association with Milton has been the zenith of my engagement with academic economics…. I was a doctoral student of his bitter enemy yet for over two decades he not only treated me with unfailing courtesy and affection, he supported me in lonely righteous battles: doing for me what he said he had never done before, which was to stand as an expert witness in a United States Federal Court. I will miss him much though I know that he, as a man of reason, would not have wished me to….”

In August 1990 in Delhi I came to tell Siddhartha Shankar Ray about the unpublished India-manuscript resulting from the Hawaii project that was in my possession as it headed to its publisher.

Ray was a family-friend whose maternal grandfather CR Das led the Congress Party before MK Gandhi and had been a friend and colleague of my great grandfather SN Roy in Bengal’s politics in the 1920s; Ray had also consented to stand on my behalf as Senior Counsel in a matter in the Supreme Court of India.

Ray was involved in daily political parlays at his Delhi home with other Congress Party personages led by PV Narasimha Rao. These senior regional figures seemed to me to be keeping their national leader, Rajiv Gandhi, aloof in splendid isolation at 10 Jan Path.

Ray told me he and his wife had been in London in May 1984 on the day The Times had written its lead editorial on my work and they had seen it with excitement. Upon hearing of the Hawaii project and the manuscript I had with me, Ray immediately insisted of his own accord that I must meet Rajiv Gandhi, and that he would be arranging a meeting.

Hence it came to be a month later that a copy of the manuscript of the completed Hawaii project was be given by my hand on 18 September 1990 to Rajiv Gandhi, then Leader of the Opposition and Congress President, an encounter I have quite fully described elsewhere. I offered to get a copy to the PM, VP Singh, too but a key aide of his showed no interest in receiving it.

Rajiv made me a senior adviser, and I have claimed principal authorship of the 22 March 1991 draft of the Congress manifesto that actually shook and changed the political thinking of the Congress on economic matters in the direction Rajiv had desired and as I had advised him at our initial 18 September 1990 meeting.

“… He began by talking about how important he felt panchayati raj was, and said he had been on the verge of passing major legislation on it but then lost the election. He asked me if I could spend some time thinking about it, and that he would get the papers sent to me. I said I would and remarked panchayati raj might be seen as decentralized provision of public goods, and gave the economist’s definition of public goods as those essential for the functioning of the market economy, like the Rule of Law, roads, fresh water, and sanitation, but which were unlikely to appear through competitive forces.

I distinguished between federal, state and local levels and said many of the most significant public goods were best provided locally. Rajiv had not heard the term “public goods” before, and he beamed a smile and his eyes lit up as he voiced the words slowly, seeming to like the concept immensely. It occurred to me he had been by choice a pilot of commercial aircraft. Now he seemed intrigued to find there could be systematic ways of thinking about navigating a country’s governance by common pursuit of reasonable judgement. I said the public sector’s wastefulness had drained scarce resources that should have gone instead to provide public goods. Since the public sector was owned by the public, it could be privatised by giving away its shares to the public, preferably to panchayats of the poorest villages. The shares would become tradable, drawing out black money, and inducing a historic redistribution of wealth while at the same time achieving greater efficiency by transferring the public sector to private hands. Rajiv seemed to like that idea too, and said he tried to follow a maxim of Indira Gandhi’s that every policy should be seen in terms of how it affected the common man. I wryly said the common man often spent away his money on alcohol, to which he said at once it might be better to think of the common woman instead. (This remark of Rajiv’s may have influenced the “aam admi” slogan of the 2004 election, as all Congress Lok Sabha MPs of the previous Parliament came to receive a previous version of the present narrative.)

Our project had identified the Congress’s lack of internal elections as a problem; when I raised it, Rajiv spoke of how he, as Congress President, had been trying to tackle the issue of bogus electoral rolls. I said the judiciary seemed to be in a mess due to the backlog of cases; many of which seemed related to land or rent control, and it may be risky to move towards a free economy without a properly functioning judicial system or at least a viable system of contractual enforcement. I said a lot of problems which should be handled by the law in the courts in India were instead getting politicised and decided on the streets. Rajiv had seen the problems of the judiciary and said he had good relations with the Chief Justice’s office, which could be put to use to improve the working of the judiciary.

The project had worked on Pakistan as well, and I went on to say we should solve the problem with Pakistan in a definitive manner. Rajiv spoke of how close his government had been in 1988 to a mutual withdrawal from Siachen. But Zia-ul-Haq was then killed and it became more difficult to implement the same thing with Benazir Bhutto, because, he said, as a democrat, she was playing to anti-Indian sentiments while he had found it somewhat easier to deal with the military. I pressed him on the long-term future relationship between the countries and he agreed a common market was the only real long-term solution. I wondered if he could find himself in a position to make a bold move like offering to go to Pakistan and addressing their Parliament to break the impasse. He did not say anything but seemed to think about the idea. Rajiv mentioned a recent Time magazine cover of Indian naval potential, which had caused an excessive stir in Delhi. He then talked about his visit to China, which seemed to him an important step towards normalization. He said he had not seen (or been shown) any absolute poverty in China of the sort we have in India. He talked about the Gulf situation, saying he did not disagree with the embargo of Iraq except he wished the ships enforcing the embargo had been under the U.N. flag. The meeting seemed to go on and on, and I was embarrassed at perhaps having taken too much time and that he was being too polite to get me to go. V. George had interrupted with news that Sheila Dixit (as I recall) had just been arrested by the U. P. Government, and there were evidently people waiting. Just before we finally stood up I expressed a hope that he was looking to the future of India with an eye to a modern political and economic agenda for the next election, rather than getting bogged down with domestic political events of the moment. That was the kind of hopefulness that had attracted many of my generation in 1985. I said I would happily work in any way to help define a long-term agenda. His eyes lit up and as we shook hands to say goodbye, he said he would be in touch with me again…. The next day I was called and asked to stay in Delhi for a few days, as Mr. Gandhi wanted me to meet some people…..

… That night Krishna Rao dropped me at Tughlak Road where I used to stay with friends. In the car I told him, as he was a military man with heavy security cover for himself as a former Governor of J&K, that it seemed to me Rajiv’s security was being unprofessionally handled, that he was vulnerable to a professional assassin. Krishna Rao asked me if I had seen anything specific by way of vulnerability. With John Kennedy and De Gaulle in mind, I said I feared Rajiv was open to a long-distance sniper, especially when he was on his campaign trips around the country. This was one of several attempts I made since October 1990 to convey my clear impression to whomever I thought might have an effect that Rajiv seemed to me extremely vulnerable. Rajiv had been on sadhbhavana journeys, back and forth into and out of Delhi. I had heard he was fed up with his security apparatus, and I was not surprised given it seemed at the time rather bureaucratized. It would not have been appropriate for me to tell him directly that he seemed to me to be vulnerable, since I was a newcomer and a complete amateur about security issues, and besides if he agreed he might seem to himself to be cowardly or have to get even closer to his security apparatus. Instead I pressed the subject relentlessly with whomever I could. I suggested specifically two things: (a) that the system in place at Rajiv’s residence and on his itineraries be tested, preferably by some internationally recognized specialists in counter-terrorism; (b) that Rajiv be encouraged to announce a shadow-cabinet. The first would increase the cost of terrorism, the second would reduce the potential political benefit expected by terrorists out to kill him. On the former, it was pleaded that security was a matter being run by the V. P. Singh and then Chandrashekhar Governments at the time. On the latter, it was said that appointing a shadow cabinet might give the appointees the wrong idea, and lead to a challenge to Rajiv’s leadership. This seemed to me wrong, as there was nothing to fear from healthy internal contests for power so long as they were conducted in a structured democratic framework. I pressed to know how public Rajiv’s itinerary was when he travelled. I was told it was known to everyone and that was the only way it could be since Rajiv wanted to be close to the people waiting to see him and had been criticized for being too aloof. This seemed to me totally wrong and I suggested that if Rajiv wanted to be seen as meeting the crowds waiting for him then that should be done by planning to make random stops on the road that his entourage would take. This would at least add some confusion to the planning of potential terrorists out to kill him. When I pressed relentlessly, it was said I should probably speak to “Madame”, i.e. to Mrs. Rajiv Gandhi. That seemed to me highly inappropriate, as I could not be said to be known to her and I should not want to unduly concern her in the event it was I who was completely wrong in my assessment of the danger. The response that it was not in Congress’s hands, that it was the responsibility of the VP Singh and later the Chandrashekhar Governments, seemed to me completely irrelevant since Congress in its own interests had a grave responsibility to protect Rajiv Gandhi irrespective of what the Government’s security people were doing or not doing. Rajiv was at the apex of the power structure of the party, and a key symbol of secularism and progress for the entire country. Losing him would be quite irreparable to the party and the country. It shocked me that the assumption was not being made that there were almost certainly professional killers actively out to kill Rajiv Gandhi — this loving family man and hapless pilot of India’s ship of state who did not seem to have wished to make enemies among India’s terrorists but whom the fates had conspired to make a target. The most bizarre and frustrating response I got from several respondents was that I should not mention the matter at all as otherwise the threat would become enlarged and the prospect made more likely! This I later realized was a primitive superstitious response of the same sort as wearing amulets and believing in Ptolemaic astrological charts that assume the Sun goes around the Earth — centuries after Kepler and Copernicus. Perhaps the entry of scientific causality and rationality is where we must begin in the reform of India’s governance and economy. What was especially repugnant after Rajiv’s assassination was to hear it said by his enemies that it marked an end to “dynastic” politics in India. This struck me as being devoid of all sense because the unanswerable reason for protecting Rajiv Gandhi was that we in India, if we are to have any pretensions at all to being a civilized and open democratic society, cannot tolerate terrorism and assassination as means of political change. Either we are constitutional democrats willing to fight for the privileges of a liberal social order, or ours is truly a primitive and savage anarchy concealed beneath a veneer of fake Westernization….. Proceedings began when Rajiv arrived. This elite audience mobbed him just as the farmers had mobbed him earlier. He saw me and beamed a smile in recognition, and I smiled back but made no attempt to draw near him in the crush. He gave a short very apt speech on the role the United Nations might have in the new post-Gulf War world. Then he launched the book, and left for an investiture at Rashtrapati Bhavan. We waited for our meeting with him, which finally happened in the afternoon. Rajiv was plainly at the point of exhaustion and still hard-pressed for time. He seemed pleased to see me and apologized for not talking in the morning. Regarding the March 22 draft, he said he had not read it but that he would be doing so. He said he expected the central focus of the manifesto to be on economic reform, and an economic point of view in foreign policy, and in addition an emphasis on justice and the law courts. I remembered our September 18 conversation and had tried to put in justice and the courts into our draft but had been over-ruled by others. I now said the social returns of investment in the judiciary were high but was drowned out again. Rajiv was clearly agitated that day by the BJP and blurted out he did not really feel he understood what on earth they were on about. He said about his own family, “We’re not religious or anything like that, we don’t pray every day.” I felt again what I had felt before, that here was a tragic hero of India who had not really wished to be more than a happy family man until he reluctantly was made into a national leader against his will. We were with him for an hour or so. As we were leaving, he said quickly at the end of the meeting he wished to see me on my own and would be arranging a meeting. One of our group was staying back to ask him a favour. Just before we left, I managed to say to him what I felt was imperative: “The Iraq situation isn’t as it seems, it’s a lot deeper than it’s been made out to be.” He looked at me with a serious look and said “Yes I know, I know.” It was decided Pitroda would be in touch with each of us in the next 24 hours. During this time Narasimha Rao’s manifesto committee would read the draft and any questions they had would be sent to us. We were supposed to be on call for 24 hours. The call never came. Given the near total lack of system and organization I had seen over the months, I was not surprised. Krishna Rao and I waited another 48 hours, and then each of us left Delhi. Before going I dropped by to see Krishnamurty, and we talked at length. He talked especially about the lack of the idea of teamwork in India. Krishnamurty said he had read everything I had written for the group and learned a lot. I said that managing the economic reform would be a critical job and the difference between success and failure was thin….”

“… I got the afternoon train to Calcutta and before long left for America to bring my son home for his summer holidays with me. In Singapore, the news suddenly said Rajiv Gandhi had been killed. All India wept. What killed him was not merely a singular act of criminal terrorism, but the system of humbug, incompetence and sycophancy that surrounds politics in India and elsewhere. I was numbed by rage and sorrow, and did not return to Delhi….”

In December 1991, I visited Rajiv’s widow at 10 Jan Path to express my condolences, the only time I have met her, and I gave her for her records a taped copy of Rajiv’s long-distance telephone conversations with me during the Gulf War earlier that year. She seemed an extremely shy taciturn figure in deep mourning, and I do not think the little I said to her about her late husband’s relationship with me was comprehended. Nor was it the time or place for more to be said.

In September 1993, at a special luncheon at the Indian Ambassador’s Residence in Washington, Siddhartha Shankar Ray, then the Ambassador to Washington, pointed at me and declared to Manmohan Singh, then Finance Minister, in presence of Manmohan’s key aides accompanying him including MS Ahluwalia, NK Singh, C Rangarajan and others,

“Congress manifesto was written on his computer”.

This was accurate enough to the extent that the 22 March 1991 draft as asked for by Rajiv and that came to explicitly affect policy had been and remains on my then-new NEC laptop.

At the Ambassador’s luncheon, I gave Manmohan Singh a copy of the Foundations book as a gift. My father who knew him in the early 1970s through MG Kaul, ICS, had sent him a copy of my 1984 IEA monograph which Manmohan had acknowledged. And back in 1973, he had visited our then-home at 14 Rue Eugene Manuel in Paris to advise me about economics at my father’s request, and he and I had ended up in a fierce private debate for about forty minutes over the demerits (as I saw them) and merits (as he saw them) of the Soviet influence on Indian economic policy-making. But in 1993 we had both forgotten the 1973 meeting.

In May 2002, the Congress passed an official party resolution moved by Digvijay Singh in presence of PV Narasimha Rao and Manmohan Singh that the 1991 reforms had originated with Rajiv Gandhi and not with either Narasimha Rao or Manmohan; no one dissented. It was intended to flatter Sonia Gandhi as the Congress President, but there was truth in it too which all Congress MPs of the 13th Lok Sabha had come to know in a publication of mine they had received from me at IIT Kharagpur where since 1996 I had become Professor.

Manmohan Singh himself, to his credit, has not at any point, except once during his failed Lok Sabha bid, claimed the reforms as his own invention and has said always he had followed what his Prime Minister had told him. However, he has not been averse to being attributed with all the credit by his flatterers, by the media, by businessmen and many many others around the world, and certainly he did not respond to Ambassador Siddhartha Shankar Ray telling him and his key aides how the Congress-led reform had come about through my work except to tell me at the 1993 luncheon that when Arjun Singh criticised the reforms in Cabinet, he, Manmohan, would mention the manifesto.

On 28 December 2009, Rajiv’s widow in an official Congress Party statement finally declared her late husband

“left his personal imprint on the (Congress) party’s manifesto of 1991.″

How Sonia Gandhi, who has never had pretensions to knowledge of economics or political economy or political science or governance or history, came to place Manmohan Singh as her prime ministerial candidate and the font of economic and political wisdom along with Pranab Mukherjee, when both men hardly had been favourites of her late husband, would be a story in its own right. And how Amartya Sen’s European-origin naturalised Indian co-author Jean Drèze later came to have policy influence from a different direction upon Sonia Gandhi, also a naturalised Indian of European origin, may be yet another story in its own right, perhaps best told by themselves.

I would surmise the same elderly behind-the-scenes figure, now in his late 80s, had a hand in setting up both sets of influences — directly in the first case (from back in 1990-1991), and indirectly in the second case (starting in 2004) . This was a man who in a November 2007 newspaper article literally erased my name and inserted that of Manmohan Singh as part of the group that Rajiv created on 25 September following his 18 September meeting with me! Reluctantly, I had to call this very elderly man a liar; he has not denied it and knows he has not been libeled.

One should never forget the two traditional powers interested in the subcontinent, Russia and Britain, have been never far from influence in Delhi. In 1990-1991 what worried vested bureaucratic and business interests and foreign powers through their friends and agents was that they could see change was coming to India but they wanted to be able to control it themselves to their advantage, which they then broadly proceeded to do over the next two decades. The foreign weapons’ contracts had to be preserved, as did other big-ticket imports that India ends up buying needlessly on credit it hardly has in world markets. There are similarities to what happened in Russia and Eastern Europe where many apparatchiks and fellow-travellers became freedom-loving liberals overnight; in the Indian case more than one badly compromised pro-USSR senior bureaucrat promptly exported his children and savings to America and wrapped themselves in the American flag.

The stubborn unalterable fact remains that Manmohan Singh was not physically present in India and was still with the Nyerere project on 18 September 1990 when I met Rajiv for the first time and gave him the unpublished results of the UH-Manoa project. This simple straightforward fact is something the Congress Party, given its own myths and self-deception and disinformation, has not been able to cope with in its recently published history. For myself, I have remained loyal to my memory of my encounter with Rajiv Gandhi, and my understanding of him. The Rajiv Gandhi I knew had been enthused by me in 1990-1991 carrying the UH-Manoa perestroika-for-India project that I had led since 1986, and he had loved my advice to him on 18 September 1990 that he needed to modernise the party by preparing a coherent agenda (as other successful reformers had done) while still in Opposition waiting for elections, and to base that agenda on commitments to improving the judiciary and rule of law, stopping the debauching of money, and focusing on the provision of public goods instead. Rajiv I am sure wanted a modern and modern-minded Congress — not one which depended on him let aside his family, but one which reduced that dependence and let him and his family alone.

As for Manmohan Singh being a liberal or liberalising economist, there is no evidence publicly available of that being so from his years before or during the Nyerere project, or after he returned and joined the Chandrashekhar PMO and the UGC until becoming, to his own surprise as he told Mark Tully, PV Narasimha Rao’s Finance Minister. Some of his actions qua Finance Minister were liberalising in nature but he did not originate any basic idea of a change in a liberal direction of economic policy, and he has, with utmost honesty honestly, not claimed otherwise. Innumerable flatterers and other self-interested parties have made out differently, creating what they have found to be a politically useful fiction; he has yet to deny them.

Siddhartha Shankar Ray and I met last in July 2009, when I gave him a copy of this 2005 volume I had created, which pleased him much.

I said to him Bengal’s public finances were in abysmal condition, calling for emergency measures financially, and that Mamata Banerjee seemed to me to be someone who knew how to and would dislodge the Communists from their entrenched misgovernance of decades but she did not seem quite aware that dislodging a bad government politically was not the same thing as knowing how to govern properly oneself. He, again of his own accord, said immediately,

“I will call her and her people to a meeting here so you can meet them and tell them that directly”.

It never transpired. In our last phone conversation I mentioned to him my plans of creating a Public Policy Institute — an idea he immediately and fully endorsed as being essential though adding “I can’t be part of it, I’m on my way out”.

“I’m on my way out”. That was Siddhartha Shankar Ray — always intelligent, always good-humoured, always public-spirited, always a great Indian, my only friend among politicians other than the late Rajiv Gandhi himself.

In March February 2010, my father and I called upon the new Bengal Governor, MK Narayanan and gave him a copy of the Thatcher volume for the Raj Bhavan Library; I told him the story about my encounter with Rajiv Gandhi thanks to Siddhartha Shankar Ray and its result; Narayanan within a few days made a visit to Ray’s hospital-bed, and when he emerged after several hours he made a statement, which in substance he repeated again when Ray died in November 2010:

“There are few people in post-Independence India who could equal his magnificent contribution to India’s growth and progress”.

To what facts did MK Narayanan, a former Intelligence Bureau chief, mean to refer with this extravagant praise of Ray? Was Narayanan referring to Ray’s politics for Indira Gandhi? To Ray’s Chief Ministership of Bengal? To Ray’s Governorship of Punjab? You will have to ask him but I doubt that was what he meant: I surmise Narayanan’s eulogy could only have resulted after he confirmed with Ray on his hospital-bed the story I had told him, and that he was referring to the economic and political results that followed for the country once Ray had introduced me in September 1990 to Rajiv Gandhi. But I say again, you will have to ask MK Narayanan himself what he and Ray talked about in hospital and what was the factual basis of Narayanan’s precise words of praise. To what facts exactly was MK Narayanan, former intelligence chief, meaning to refer when he stated Siddhartha Shankar Ray had made a “magnificent contribution to India’s growth and progress”?

3. Jagdish Bhagwati & Manmohan Singh? That just don’t fly!

Now returning to the apparent desire of Professor Panagariya, the Jagdish Bhagwati Professor of Indian Political Economy at Columbia, to attribute to Jagdish Bhagwati momentous change for the better in India as of 1991, even if Panagariya had not the scientific curiosity to look into our 1992 book titled Foundations of India’s Political Economy: Towards an Agenda for the 1990s or into Milton Friedman’s own 1998 memoirs, we may have expected him to at least turn to his co-author and Columbia colleague, Jagdish Bhagwati himself, and ask, “Master, have you heard of this fellow Subroto Roy by any chance?”

Jagdish would have had to say yes, since not only had he received a copy of the proofs of my 1984 IEA work Pricing, Planning and Politics: A Study of Economic Distortions in India, he was kind enough to write in a letter dated 15 May 1984 that I had

“done an excellent job of setting out the problems afflicting our economic policies, unfortunately government-made problems!”

Also Jagdish may or may not have remembered our only meeting, when he and I had had a long conversation on the sofas in the foyer of the IMF in Washington when I was a consultant there in 1993 and he had come to meet someone; he was surprisingly knowledgeable about my personal 1990 matter in the Supreme Court of India which astonished me until he told me his brother the Supreme Court judge had mentioned the case to him!

Now my 1984 work was amply scientific and scholarly in fully crediting a large number of works in the necessary bibliography, including Bhagwati’s important work with his co-authors. Specifically, Footnote 1 listed the literature saying:

“The early studies notably include: B. R. Shenoy, `A note of dissent’, Papers relating to the formulation of the Second Five-Year Plan, Government of India Planning Commission, Delhi, 1955; Indian Planning and Economic Development, Asia Publishing, Bombay, 1963, especially pp. 17-53; P. T. Bauer, Indian Economic Policy and Development, George Allen & Unwin, London, 1961; M. Friedman, unpublished memorandum to the Government of India, November 1955 (referred to in Bauer, op. cit., p. 59 ff.); and, some years later, Sudha Shenoy, India : Progress or Poverty?, Research Monograph 27, Institute of Economic Affairs, London, 1971. Some of the most relevant contemporary studies are: B. Balassa, `Reforming the system of incentives in World Development, 3 (1975), pp. 365-82; `Export incentives and export performance in developing countries: a comparative analysis’, Weltwirtschaftliches Archiv, 114 (1978), pp. 24-61; The process of industrial development and alternative development strategies, Essays in International Finance No. 141, Princeton University, 1980; J. N. Bhagwati & P. Desai, India: Planning for Industrialisation, OECD, Paris : Oxford University Press, 1970; `Socialism and Indian Economic Policy’, World Development, 3 (1975), pp. 213-21; J. N. Bhagwati & T. N. Srinivasan, Foreign-trade Regimes and Economic Development: India, National Bureau of Economic Research, New York, 1975; Anne O. Krueger, `Indian planning experience’, in T. Morgan et al. (eds.), Readings in Economic Development, Wadsworth, California, 1963, pp. 403-20; `The political economy of the rent-seeking society, American Economic Review, 64 (June 1974); The Benefits and Costs of Import-Substitution in India: a Microeconomic Study, University of Minnesota Press, Minneapolis, 1975; Growth, distortions and patterns of trade among many countries, Studies in International Finance, Princeton University, 1977; Uma Lele, Food grain marketing in India : private performance and public policy, Cornell University Press, Ithaca, 1971; T. W. Schultz (ed.), Distortions in agricultural incentives, Indiana University Press, Bloomington, 1978; V. Sukhatme, “The utilization of high-yielding rice and wheat varieties in India: an economic assessment”, University of Chicago PhD thesis, 1977….”

There were two specific references to Bhagwati’s work with Srinivasan:

“Jagdish Bhagwati and T. N. Srinivasan put it as follows : `The allocation of foreign exchange among alternative claimants and users in a direct control system . . .would presumably be with reference to a well-defined set of principles and criteria based on a system of priorities. In point of fact, however, there seem to have been few such criteria, if any, followed in practice.’”

and

“But as Bhagwati and Srinivasan report, `. . . the sheer weight of numbers made any meaningful listing of priorities extremely difficult. The problem was Orwellian: all industries had priority and how was each sponsoring authority to argue that some industries had more priority than others? It is not surprising, therefore, that the agencies involved in determining allocations by industry fell back on vague notions of “fairness”, implying pro rata allocations with reference to capacity installed or employment, or shares defined by past import allocations or similar rules of thumb’”

and one to Bhagwati and Desai:

“The best descriptions of Indian industrial policy are still to be found in Bhagwati and Desai (1970)…”

Professors Bhagwati and Panagriya have not apparently referred to anything beyond these joint works of Bhagwati’s dated 1970 with Padma Desai and 1975 with TN Srinivasan. They have not claimed Bhagwati did anything by way of either publication or political activity in relation to India’s economic policy between May 1984, when he read my soon-to-be-published-work and found I had

“done an excellent job of setting out the problems afflicting our economic policies, unfortunately government-made problems”,

and September 1990 when I gave Rajiv the University of Hawaii perestroika-for-India project results developed since 1986, which came to politically spark the 1991 reform in the Congress’s highest echelons from months before Rajiv’s assassination.

There may have been no such claim made by Bhagwati and Panagariya because there may be no such evidence. Between 1984 and 1990, Professor Bhagwati’s research interests were away from Indian economic policy while his work on India through 1970 and 1975 had been fully and reasonably accounted for as of 1984 by myself.

What is left remaining is Bhagwati’s statement :

“When finance minister Manmohan Singh was in New York in 1992, he had a lunch for many big CEOs whom he was trying to seduce to come to India. He also invited me and my wife, Padma Desai, to the lunch. As we came in, the FM introduced us to the invitees and said: ‘These friends of mine wrote almost a quarter century ago [India: Planning for Industrialisation was published in 1970 by Oxford] recommending all the reforms we are now undertaking. If we had accepted the advice then, we would not be having this lunch as you would already be in India’

Now this light self-deprecating reference by Manmohan at an investors’ lunch in New York “for many big CEOs” was an evident attempt at political humour written by his speech-writer. It was clearly, on its face, not serious history. If we test it as serious history, it falls flat so we may only hope Manmohan Singh, unlike Jagdish Bhagwati, has not himself come to believe his own reported joke as anything more than that.

The Bhagwati-Desai volume being referred to was developed from 1966-1970. India saw critical economic and political events in 1969, in 1970, in 1971, in 1972, in 1975, in 1977, etc.

Those were precisely years during which Manmohan Singh himself moved from being an academic to becoming a Government of India official, working first for MG Kaul, ICS, and then in 1971 coming to the attention of PN Haksar, Indira Gandhi’s most powerful bureaucrat between 1967 and 1974: Haksar himself was Manmohan Singh’s acknowledged mentor in the Government, as Manmohan told Mark Tully in an interview.

After Manmohan visited our Paris home in 1973 to talk to me about economics, my father — who had been himself sent to the Paris Embassy by Haksar in preparation for Indira Gandhi’s visit in November 1971 before the Bangladesh war —

had told me Manmohan was very highly regarded in government circles with economics degrees from both Cambridge and Oxford, and my father had added, to my surprise, what was probably a Haksarian governmental view that Manmohan was expected to be India’s Prime Minister some day. That was 1973.

PN Haksar had been the archetypal Nehruvian Delhi intellectual of a certain era, being both a fierce nationalist and a fierce pro-USSR leftist from long before Independence. I met him once on 23 March 1991, on the lawns of 10 Jan Path at the launch of General V Krishna Rao’s book on Indian defence which Rajiv was releasing, and Haksar gave a speech to introduce Rajiv (as if Rajiv needed introduction on the lawns of his own residence); Haksar was in poor health but he seemed completely delighted to be back in favour with Rajiv, after years of having been treated badly by Indira and her younger son.

Had Manmohan Singh in the early 1970s gone to Haksar — the architect of the nationalisation of India’s banking going on right then — and said “Sir, this OECD study by my friend Bhagwati and his wife says we should be liberalising foreign trade and domestic industry”, Haksar would have been astonished and sent him packing.

There was a war on, plus a massive problem of 10 million refugees, a new country to support called Bangladesh, a railway strike, a bad crop, repressed inflation, shortages, and heaven knows what more, besides Nixon having backed Yahya Khan, Tikka Khan et al.

Then after Bangladesh and the railway strike etc, came the rise of the politically odious younger son of Indira Gandhi and his friends (at least one of whom is today Sonia Gandhi’s gatekeeper) followed by the internal political Emergency, the grave foreign-fueled problem of Sikh separatism and its control, the assassination of Indira Gandhi by her own Sikh bodyguards, and the Rajiv Gandhi years as Prime Minister.

Certainly it was Rajiv’s arrival in office and Benazir’s initial return to Pakistan, along with the rise of Michael Gorbachev in the changing USSR, that inspired me in far away Hawaii in 1986 to design with Ted James the perestroika-projects for India and Pakistan which led to our two volumes, and which, thanks to Siddhartha Shankar Ray, came to reach Rajiv Gandhi in Opposition in September 1990 as he sat somewhat forlornly at 10 Jan Path after losing office. “There is a tide in the affairs of men, Which taken at the flood, leads on to fortune….

My friend and collaborator Ted James died of cancer in Manila in May 2010; earlier that year he came to say publicly

“Seldom are significant reforms imposed successfully by international bureaucracies. Most often they are the result of indigenous actors motivated by domestic imperatives. I believe this was the case in India in 1991. It may have been fortuitous that Dr. Roy gained an audience with a receptive Rajiv Gandhi in 1990 but it was not luck that he was prepared with a well-thought out program; this arose from years of careful thought and debate on the matter.”

Changing the direction of a ship of state is very hard, knowing in which direction it should change and to what degree is even harder; it has rarely been something that can be done without random shocks arising let aside the power of vested interests. Had Rajiv Gandhi lived to form a new Government, I have little doubt I would have led the reform that I had chalked out for him and that he had approved of; Sonia Gandhi would have remained the housewife, mother and grandmother that she had preferred to be and not been made into the Queen of India by the Congress Party; Manmohan Singh had left India in 1987 for the Nyerere project and it had been rumoured at the time that had been slightly to do with him protesting, to the extent that he ever has protested anything, the anti-Sikh pogrom that some of Rajiv’s friends had apparently unleashed after Indira’s killing; he returned in November 1990, joined Chandrashekhar in December 1990, left Chandrashekhar in March 1991 when elections were announced and was biding his time as head of the UGC; had Rajiv Gandhi lived, Manmohan Singh would have had a governor’s career path, becoming the governor of one state after another; he would not have been brought into the economic reform process which he had had nothing to do with originating; and finally Pranab Mukherjee, who left the Congress Party and formed his own when Rajiv took over, would have been likely rehabilitated slowly but would not have come to control the working of the party as he did. I said in my Lok Sabha TV interview on 5 9 December 2012 that there have been many microeconomic improvements arising from technological progress in the last 22 years but the macroeconomic and monetary situation is grim, because at root the fiscal situation remains incoherent and confused. I do not see anyone in Manmohan Singh’s entourage among all his many acolytes and flatterers and apologists who is able to get to these root problems. We shall address these issues in Part II.

What Manmohan Singh said in self-deprecating humour at an investors’ lunch in New York in 1992 is hardly serious history as Jagdish Bhagwati has seemed to wish it to be. Besides, it would have been unlike Manmohan, being the devoted student of Joan Robinson and Nicholas Kaldor as he told Mark Tully, to have taken such a liberalising initiative at all. Furthermore, the 1969 American Economic Review published asurvey of Indian economic policy authored by his Delhi University colleagues Jagdish Bhagwati and Sukhamoy Chakravarty which made little mention of his work, and it would have been unreasonable to expect him to have been won over greatly by theirs. Perhaps there is a generous review from the 1970s by Manmohan Singh of the Bhagwati-Desai volume hidden somewhere but if so we should be told where it is. A list of Manmohan Singh’s publications as an economist do not seem easily available anywhere.

Lastly and perhaps most decisively, the 1970 Bhagwati-Desai volume, excellent study that it was, was hardly the first of its genre by way of liberal criticism of modern Indian economic policy! Bhagwati declared in his 2010 speech to the Lok Sabha

“This policy framework had been questioned, and its total overhaul advocated, by me and Padma Desai in writings through the late 1960s…”

But why has Bhagwati been forever silent about the equally if not more forceful and fundamental criticism of “the policy framework”, and advocacy of its “total overhaul”, by scholars in the 1950s, a decade and more earlier than him, when he and Manmohan and Amartya were still students? Specifically, by BR Shenoy, Milton Friedman, and Peter Bauer? The relevant bibliography from the mid 1950s is given in Footnote 1 of my 1984 work.

Peter Tamas Bauer (1915-2002) played a vital role in all this as had he himself not brought the Friedman 1955 document to my attention I would not have known of it.

As undergraduates at the LSE, we had been petrified of him and I never spoke to him while there, having believed the propaganda that floated around about him; then while a Research Student at Cambridge, I happened to be a speaker with him at a conference at Oxford; he made me sit next to him at a meal and told me for the first time about Milton Friedman’s 1955 memorandum to the Government of India which had been suppressed. I am privileged to say Peter from then on became a friend, and wrote, at my request, what became I am sure the kiss of death for me at the World Bank of 1982:

**Later he may have been responsible for the London Times writing its lead editorial of 29 May 1984 on my work.**

Now Milton had sent me in 1984, besides the original of his November 1955 memorandum to the Government of India, a confidential 1956 document also which seemed to have been written for US Government consumption. I did not publish this in Hawaii in 1989 as I was having difficulty enough publishing the 1955 memorandum. I gave it to be published on the Internet some years ago, and after Milton’s passing, I had it published in The Statesman on the same day as my obituary of him.

It makes fascinating reading, especially about Mahalanobis and Shenoy, of how what Bhagwati wishes to call “the policy framework” that, he claims, he and Desai called for a “total overhaul” of, came to be what it was in the decade earlier when he and Amartya and Manmohan were still students.

Friedman’s 1956 document said

“I met PC Mahalanobis in 1946 and again at a meeting of the International Statistical Institute in September 1947, and I know him well by reputation. He was absent during most of my stay in New Delhi, but I met him at a meeting of the Indian Planning Commission, of which he is one of the strongest and most able members. Mahalanobis began as a mathematician and is a very able one. Able mathematicians are usually recognized for their ability at a relatively early age. Realizing their own ability as they do and working in a field of absolutes, tends, in my opinion, to make them dangerous when they apply themselves to economic planning. They produce specific and detailed plans in which they have confidence, without perhaps realizing that economic planning is not the absolute science that mathematics is. This general characteristic of mathematicians is true of Mahalanobis but in spite of the tendency he is willing to discuss a problem and listen to a different point of view. Once his decision is reached, however, he has great confidence in it. Mahalanobis was unquestionably extremely influential in drafting the Indian five-year plan. There were four key steps in the plan. The first was the so-called “Plan Frame” drafted by Mahalanobis himself. The second was a tentative plan based on the “Plan Frame”. The third step was a report by a committee of economists on the first two steps, and the fourth was a minority report by BR Shenoy on the economists’ report. The economists had no intention of drafting a definitive proposal but merely meant to comment on certain aspects of the first two steps. Shenoy’s minority report, however, had the effect of making the economists’ report official. The scheme of the Five Year Plan attributed to Mahalanobis faces two problems; one, that India needs heavy industry for economic development; and two, that development of heavy industry uses up large amounts of capital while providing only small employment. Based on these facts, Mahalanobis proposed to concentrate on heavy industry development on the one hand and to subsidize the hand production cottage industries on the other. The latter course would discriminate against the smaller manufacturers. In my opinion, the plan wastes both capital and labour and the Indians get only the worst of both efforts. If left to their own devices under a free enterprise system I believe the Indians would gravitate naturally towards the production of such items as bicycles, sewing machines, and radios. This trend is already apparent without any subsidy. The Indian cottage industry is already cloaked in the same popular sort of mist as is rural life in the US. There is an idea in both places that this life is typical and the backbone of their respective countries. Politically, the Indian cottage industry problem is akin to the American farm problem. Mohandas Gandhi was a proponent of strengthening the cottage industry as a weapon against the British. This reason is now gone but the emotions engendered by Gandhi remain. Any move to strengthen the cottage industry has great political appeal and thus, Mahalanobis’ plan and its pseudo-scientific support for the industry also has great political appeal. I found many supporters for the heavy industry phase of the Plan but almost no one (among the technical Civil Servants) who really believes in the cottage industry aspects, aside from their political appeal. In its initial form, the plan was very large and ambitious with optimistic estimates. My impression is that there is a substantial trend away from this approach, however, and an attempt to cut down. The development of heavy industry has slowed except for steel and iron. I believe that the proposed development of a synthetic petroleum plant has been dropped and probably wisely so. In addition, I believe that the proposed five year plan may be extended to six years. Other than his work on the plan, I am uncertain of Mahalanobis’ influence. The gossip is that he has Nehru’s ear and potentially he could be very influential, simply because of his intellectual ability and powers of persuasion. The question that occurs to me is how much difference Mahalanobis’ plan makes. The plan does not seem the important thing to me. I believe that the new drive and enthusiasm of the Indian nation will surmount any plan, good or bad. Then too, I feel a wide diversity in what is said and what is done. I believe that much of Nehru’s socialistic talk is simply that, just talk. Nehru has been trying to undermine the Socialist Party by this means and apparently the Congress Party’s adoption of a socialistic idea for industry has been successful in this respect. One gets the impression, depending on whom one talks with, either that the Government runs business, or that two or three large businesses run the government. All that appears publicly indicates that the first is true, but a case can also be made for the latter interpretation. Favour and harassment are counterparts in the Indian economic scheme. There is no significant impairment of the willingness of Indian capitalists to invest in their industries, except in the specific industries where nationalization has been announced, but they are not always willing to invest and take the risks inherent in the free enterprise system. They want the Government to support their investment and when it refuses they back out and cry “Socialism”..”

I look forward to seeing a fundamental classical liberal critique from India’s distinguished American friends at Columbia University, Professors Jagdish Bhagwati and Padma Desai and Arvind Panagariya, if and when such a critique arises, of the “policy framework” in India as that evolved from the mid 1950s to become what exists across India in 2013 today. Specifically: Where is the criticism from Bhagwati of Mahalanobis and friends? And where is Bhagwati’s defence of Shenoy, leave aside of Milton Friedman or Peter Bauer? They seem not to exist. The most we get is a footnote again without the civility of any references, in the otherwise cogent 1975 Desai-Bhagwati paper “Socialism and Indian Economic Policy” alleging

” Of these three types of impact of the Soviet example, the Plan-formulation approach was to be enthusiastically received by most commentators and, indeed, to lead to demands on the part of aid agencies for similar efforts by other developing countries. However, the shift to heavy industry was seen as a definite mistake by economic opinion of the Chicago school variety, reflecting their basic unfamiliarity with the structural models of growth and development planning of the Feldman-Mahalanobis variety-an ignorance which probably still persists. The detailed regulation was not quite noticed at the time, except by conservative commentators whose position however was extreme and precluded governmental planning of industrial investments on any scale.”

Desai and Bhagwati naturally found no apparent desire to locate any possible scientific truth or reasonableness among

“conservative commentators”

nor among the unnamed and undescribed

“economic opinion of the Chicago school variety”.

Could Desai and Bhagwati have done anything different after all, even when talking about India to an American audience, without being at risk of losing their East Coast Limousine Liberal credentials? Bhagwati used to routinely declare his “socialist” credentials, and even the other day on Indian TV emphatically declared he was not a “conservative” and scornfully dismissed “Thatcher and Reagan” for their “trickle down economics”…

Jagdish Bhagwati has evidently wanted to have his cake and eat it too…

4. Amartya Sen’s Half-Baked Communism: “To each according to his need”?

If I have been candid or harsh in my assessments of Jagdish Bhagwati and Manmohan Singh as they relate to my personal experience with the change of direction in Indian economic policy originating in 1990-1991, I am afraid I must be equally so with Bhagwati’s current opponent in debate, Amartya Sen. Certainly I have found the current spat between Bhagwati and Sen over India’s political economy to be dismal, unscholarly, unscientific and misleading (or off-base) except for it having allowed a burst of domestic policy-discussion in circumstances when India needs it especially much.

None of this criticism is personal but based on objective experience and the record. My criticism of Professor Bhagwati and Dr Manmohan Singh does not diminish in the slightest my high personal regard for both of them.

Similarly, Amartya Sen and I go back, momentarily, to Hindustan Park in 1964 when there was a faint connection as family friends from World War II (as Naren Deb and Manindranath Roy were friends and neighbours, and we still have the signed copy of a book gifted by the former to the latter), and then he later knew me cursorily when I was an undergraduate at LSE and he was already a famous professor, and I greatly enjoyed his excellent lectures at the LSE on his fine book On Economic Inequality, and a few years later he wrote in tangential support of me at Cambridge for which he was thanked in the preface to my 1989 Philosophy of Economics — even though that book of mine also contained in its Chapter 10 the decisive criticism of his main contribution until that time to what used to be called “social choice theory”. Amartya Sen had also written some splendid handwritten letters, a few pages of which remain with me, which puzzled me at the time due to his expressing his aversion to what is normally called ‘price theory’, namely the Marshallian and/or Walrasian theory of value.

Professor Sen and I met briefly in 1978, and then again in 2006 when I was asked to talk to him in our philosophical conversation which came to be published nicely. In 2006 I told him of my experience with Rajiv Gandhi in initiating what became the 1991 reform on the basis of my giving Rajiv the results of the Hawaii project, and Amartya was kind enough to say that he knew I had been arguing all this “very early on”, referring presumably to the 1984 London Times editorial which he would have seen in his Oxford days before coming to Harvard.

This personal regard on my part or personal affection on his part aside, I have been appalled to find Professor Sen not taking moral and intellectual responsibility for and instead disclaiming paternity of the whole so-called “Food Security” policy which Sonia Gandhi has been prevailed upon over the years by him and his acolytes and friends and admirers to adopt, and she in her ignorance of all political economy and governance has now wished to impose upon the Congress Party and India as a whole:

“Questioner: You are being called the creator of the Food Security Bill.

Amartya Sen: Yes, I don’t know why. That is indeed a paternity suit I’m currently fighting. People are accusing me of being the father”.

Amartya Sen has repeatedly over the years gone on Indian prime-time television and declared things like

“If you don’t agree there’s hunger in the world, there’s something morally wrong with you”

besides over the decades publishing titles like Poverty and Famines: An Essay on Entitlement and Deprivation, Hunger and Public Action, The Political Economy of Hunger etc and ceaselessly using his immense power with the media, with book publishing houses, with US academic departments and the world development economics business, to promote his own and his acolytes’ opinions around the world, no matter how ill-considered or incoherent these may be. A passage from his latest book with Jean Drèze reportedly reads

“If development is about the expansion of freedom, it has to embrace the removal of poverty as well as paying attention to ecology as integral parts of a unified concern, aimed ultimately at the security and advancement of human freedom. Indeed, important components of human freedoms — and crucial ingredients of our quality of life — are thoroughly dependent on the integrity of the environment, involving the air we breathe, the water we drink, and the epidemiological surroundings in which we live….”

Had such a passage reached me in an undergraduate essay, I would have considered it incoherent waffle, and I am afraid I cannot see why merely because it is authored by an eminence at Harvard and his co-author, the evaluation should be any different. I am reminded of my encounter in 1976 with Joan Robinson, the great tutor in 1950s Cambridge of Amartya and Manmohan: “Joan Robinson cornered me once and took me into the office she shared with EAG… She came at me for an hour or so wishing to supervise me, I kept declining politely… saying I was with Frank Hahn and wished to work on money… “What does Frankie know about India?” she said… I said I did not know but he did know about monetary theory and that was what I needed for India; I also said I did not think much about the Indian Marxists she had supervised… and mentioned a prominent name… she said about him, “Yes most of what he does can go straight into the dustbin”…” The Indian Marxist whom I had referred to in this conversation with Joan was not Amartya but someone else much younger, yet her candid “can go straight into the dustbin” still applies to all incoherent waffle, whomsoever may produce it.

Indeed, Amartya Sen, if anyone, really should get down to writing his memoirs, and candidly so in order to explain his own thinking and deeds over the decades to himself and to the world in order that needless confusions do not arise.

Else it becomes impossible to explain how someone who was said to be proud to have been a Communist student on the run from the police in West Bengal, who was Joan Robinson’s star pupil at a time she was extolling Maoist China and who has seemingly nurtured a deep lifelong fascination and affection for Communist China despite all its misdeeds, who was feted by the Communist regime of West Bengal after winning the Bank of Sweden Prize (on the same day that same regime had tossed into jail one unfortunate young Mr Khemkha merely for having been rude to its leaders on the Internet), and who seemed to share some of those winnings on social causes like primary education at the behest of the Communist regime’s ministers, etc, how someone with that noble comradely leftist personal history as an economist allows a flattering interviewer with a Harvard connection to describe him in Business Standard of 25 July 2013 as having been all along really a

“neoclassical economist”

who also happens to be

“the greatest living scholar of the original philosopher of the free market, Adam Smith”!

Amartya Sen a neoclassical economist and a great scholar of Adam Smith? It is hilarious to suppose so. The question arises, Does Sen, having published about Adam Smith recently in a few newspapers and leftist periodicals, agree with such a description by his flattering admirer from Harvard at Business Standard? “Neoclassical” economics originated with men like Jevons, Menger, Walras, Pareto, Marshall, Wicksell, and was marked by the theory of value being explained by a demand-side too, and not, like classical economics, merely by the cost of production alone on the supply side. Indeed a striking thing about the list below published by the Scandinavian Journal of Economics of Amartya’s books following his 1998 Bank of Sweden Prize

is how consistently these works display his avoidance of all neoclassical economics, and the absence of all of what is normally called ‘price theory’, namely the Marshallian and/or Walrasian theory of value. No “neoclassical economics” anywhere here for sure!

It would be fair enough if Professor Sen says he is hardly responsible for an admirer’s ignorant misdescription of his work — except the question still arises why he has himself also evidently misdescribed his own work! For example, in his 13 July 2013 letter to The Economist in response to the criticism of Jagdish Bhagwati and Arvind Panagariya, he says he had always been keenly interested in

“the importance of economic growth as a means— not an end”

and that this

“has been one of the themes even in my earliest writings (including “Choice of Techniques” in 1960 and “Growth Economics” in 1970)”.

This is a very peculiar opinion indeed to have been expressed by Professor Sen about his own work because the 1970 volume Growth Economics listed above among his books hardly can be said at all to be one of his own “earliest writings” as he now describes it to have been!

What had happened back then was that Sen, as someone considered a brilliant or promising young Indian economist at the time, had been asked by the editors of the famous Penguin Modern Economics Readings series to edit the specific issue devoted to growth-theory — a compendium of classic already-published essays including those of Roy Harrod, Evsey Domar, Robert Solow and many others, to which young Amartya was given a chance to write an editorial Introduction. Every economist familiar with that literature knows too that the growth-theory contained in that volume and others was considered highly abstract and notoriously divorced from actual historical processes of economic growth in different countries. Everyone also knew that the individual editors in that famous Penguin Modern Economics Series were of relative unimportance as they did not commission new papers but merely collected classics already published and wrote an introduction.

This is significant presently because neither Professor Sen nor Professor Bhagwati may be objectively considered on the evidence of his life’s work as an economist to have been a major scholar of economic growth, either in theory or in historical practice. As of December 1989, Amartya Sen himself described his own interests to the American Economic Association as

“social choice theory, welfare economics, economic development”

and Jagdish Bhagwati described his interests as

“theory of international trade and policy, economic development”.

Neither Sen nor Bhagwati mentioned growth economics or economic history or even general economic theory, microeconomics, macroeconomics, monetary economics, public finance, etc. Furthermore, Sen saying in his letter to The Economist that he has been always interested in economic growth seems to be baseless in light of the list of his books above, other than the Penguin compendium already discussed.

Incidentally in the same American Economic Association volume of 1989, Padma Desai had described her interests as

“Soviet economy and comparative economic systems”;

Arvind Panagariya had described his interests as

“economies of scale and trade; smuggling; parallel markets in planned economies”;

and one Suby Roy described his interests as

“foundations of monetary economics”.

Reflecting on Amartya Sen’s works over the 40 year period that I have known them

[and again, my personal copies of his books and those of Bhagwati and Desai, were all in my professorial office at IIT Kharagpur when I was attacked by a corrupt gang there in 2003; and IIT have been under a High Court order to return them but have not done so],

I wonder in fact if it might be fairly said that Sen has been on his own subjective journey over the decades around the world seeking to reinvent economics and political economy from scratch, and inventing his own terminology like “capabilities”, “functionings” and yes “entitlements” etc. to help him do so, while trying to assiduously avoid mention of canonical works of modern world economics like Marshall’s Principles, Hicks’s Value and Capital, Debreu’s Theory of Value, or Arrow and Hahn’s General Competitive Analysis, all defining the central neoclassical tradition of the modern theory of value.

But no contemporary science, economics and political economy included, is open to be re-invented from scratch, and what Amartya Sen has ended up doing instead is seeming to be continually trying to reinvent the wheel, possibly without having had the self-knowledge to realise this. Wittgenstein once made a paradoxical statement that one may know another’s mind better than one knows one’s own…

Here is a current example. Professor Sen says

“First, unlike the process of development in Japan, China, Korea and other countries, which pursued what Jean Drèze and I have called “Asian economic development” in our book, India has not had enough focus on public spending on school education and basic healthcare, which these other countries have had….”

Does Sen really believes believe he and Drèze have now in 2013 discovered and christened an economic phenomenon named “Asian economic development”? Everyone, from Japan and Bangkok and Manila, to Hawaii and Stanford to the World Bank’s East Asia department, including especially my Hawaii colleague Ted James, and many many others including especially Gerald M Meier at Stanford, were was publishing about all that every month — in the mid 1980s! In fact, our project on India and Pakistan arose in the 1980s from precisely such a Hawaiian wave! Everyone knows all that from back then or even earlier when the Japanese were talking about the “flying geese” model. (And, incidentally, Communist China did not at the time belong in the list.) Where was Amartya Sen in the mid 1980s when all that was happening? Jean Drèze was still a student perhaps. Is Professor Sen seeking to reinvent the wheel again with “Asian Economic Development” being claimed to be invented in 2013 by him and Drèze now? Oh please! That just won’t fly either!

A second example may be taken from the year before Professor Sen was awarded the Bank of Sweden Prize when he gave a lecture on “human capital” theory which was published as a survey titled “Human Capital and Human Capability” in World Development 1997 Vol. 25, No. 12,

Can you see any reference in this 1997 survey to TW Schultz’s 1960 American Economic Association Presidential Address or to Schultz’s classic 1964 book Transforming Traditional Agriculture or to his 1979 Bank of Sweden Prize address? I could not. If one did not know better, one might have thought from Professor Sen’s 1997 survey that there was nothing done worth talking about on the subject of “human capital” from the time of Adam Smith and David Hume until Amartya Sen finally came to the subject himself.

Thirdly, one is told by Sen’s admirer and collaborator, Professor James Foster of George Washington University, that what Sen means by his notion of

“effective freedom”

is that this is something

“enhanced when a marginally nourished family now has the capability to be sufficiently nourished due to public action”…

Are Amartya and his acolytes claiming he has invented or reinvented welfare economics ab initio? That before Amartya Sen, we did not know the importance of the able-bodied members of a community assisting those who are not able-bodied?

Where have they been? Amartya needed merely to have read Marshall’s Principles evenslightly to find Marshall himself, the master of Maynard Keynes and all of Cambridge and modern world economics, declaring without any equivocation at the very start

“….the study of the causes of poverty is the study of the causes of the degradation of a large part of mankind…”

But Marshall was interested in study, serious study, of poverty and its causes and amelioration, which is not something as easy or trivial as pontification on modern television. My 1984 article “Considerations on Utility, Benevolence and Taxation” which also became a chapter of my 1989 Philosophy of Economics surveyed some of Marshall’s opinion.

“From each according to his ability, to each according to his need” was a utopian slogan around 1875 from Karl Marx, which generations of passionate undergraduates have found impressive. Amartya Sen deserves to tell us squarely about his engagement with Marx or Marxist thought from his earliest days until now. His commitment in recent decades to democracy and the open and free society is clear; but has he also at the same time all along been committed to a kind of half-baked communist utopia as represented by Marx’s 1875 slogan?

“To each according to his need” sounds to be the underlying premise that is seeing practical manifestation in the Sonia Congress’s imposition of a so-called “right to food”; “from each according to his ability” is its flip side in the so-called “rural employment guarantee”. Leave aside the limitless resource-allocation and incentive and public finance problems created by such naive ideas being made into government policy, there is a grave and fundamental issue that Amartya and other leftists have been too blinkered to see:

Do they suppose the organised business classes have been weakly cooperative and will just allow such massive redistribution to occur without getting the Indian political system to pay them off as well? And how do the organised business classes get paid off? By their getting to take the land of the inhabitants of rural India. And land in an environment of a debauching of money and other paper assets is as good as gold.

So the peasants will lose their land to the government’s businessman friends on the one hand while purportedly getting “guaranteed” employment and food from the government’s bureaucrats on the other! A landless, asset-less slave population, free to join the industrial proletariat! Is that what Amartya wants to see in India? It may become what results within a few decades from his and his acolytes’ words and deeds.

Rajiv Gandhi once gave me his private phone numbers at 10 Jan Path. I used them back in January 1991 during the Gulf war. But I cannot do so now as Rajiv is gone. Amartya can. Let him phone Sonia and prevail upon her to put the brakes on the wild food and employment schemes he and his friends have persuaded her about until he reads and reflects upon what I said in January 2007 in “On Land-Grabbing” and in my July 2007 open letter to him, reproduced below:

“At a business meet on 12 January 2005, Dr Manmohan Singh showered fulsome praise on Buddhadeb Bhattacharjee as “dynamic”, “the Nation’s Best Chief Minister”, whose “wit and wisdom”, “qualities of head and heart”, “courage of conviction and passionate commitment to the cause of the working people of India” he admired, saying “with Buddhadeb Babu at the helm of affairs it appears Bengal is once again forging ahead… If today there is a meeting of minds between Delhi and Kolkata, it is because the ideas that I and Buddhadebji represent have captured the minds of the people of India. This is the idea of growth with equity and social justice, the idea that economic liberalization and modernization have to be mindful of the needs of the poor and the marginalized.”…. Dr Singh returned to the “needs of the poor and the marginalized” at another business meet on 8 January 2007 promising to “unveil a new Rehabilitation Policy in three months to increase the pace of industrialisation” which would be “more progressive, humane and conducive to the long-term welfare of all stakeholders”, while his businessman host pointedly stated about Singur “land for industry must be made available to move the Indian manufacturing sector ahead”. The “meeting of minds between Delhi and Kolkata” seems to be that agriculture allegedly has become a relatively backward slow-growing sector deserving to yield in the purported larger national interest to industry and services: what the PM means by “long-term welfare of all stakeholders” is the same as the new CPI-M party-line that the sons of farmers should not remain farmers (but become automobile technicians or IT workers or restaurant waiters instead). It is a political viewpoint coinciding with interests of organised capital and industrial labour in India today, as represented by business lobbies like CII, FICCI and Assocham on one hand, and unions like CITU and INTUC on the other. Business Standard succinctly (and ominously) advocated this point of view in its lead editorial of 9 January as follows: “it has to be recognised that the world over capitalism has progressed only with the landed becoming landless and getting absorbed in the industrial/service sector labour force ~ indeed it is obvious that if people don’t get off the land, their incomes will rise only slowly”. Land is the first and ultimate means of production, and the attack of the powerful on land-holdings or land-rights of the unorganised or powerless has been a worldwide phenomenon ~ across both capitalism and communism. In the mid-19th Century, white North America decimated hundreds of thousands of natives in the most gargantuan land-grab of history. Defeated, Chief Red Cloud of the Sioux spoke in 1868 for the Apache, Navajo, Comanche, Cheyenne, Iroquois and hundreds of other tribes: “They made us many promises, more than I can remember, but they never kept any except one: they promised to take our land, and they took it.” Half a century later, while the collapse of grain prices contributed to the Great Depression and pauperisation of thousands of small farmers in capitalist America in the same lands that had been taken from the native tribes, Stalin’s Russia embarked on the most infamous state-sponsored land-grab in modern history: “The mass collectivisation of Soviet agriculture (was) probably the most warlike operation ever conducted by a state against its own citizens…. Hundreds of thousands and finally millions of peasants… were deported… desperate revolts in the villages were bloodily suppressed by the army and police, and the country sank into chaos, starvation and misery… The object of destroying the peasants’ independence…was to create a population of slaves, the benefit of whose labour would accrue to industry. The immediate effect was to reduce Soviet agriculture to a state of decline from which it has not yet recovered… The destruction of the Soviet peasantry, who formed three quarters of the population, was not only an economic but a moral disaster for the entire country. Tens of millions were driven into semi-servitude, and millions more were employed as executants…” (Kolakowski, Main Currents of Marxism). Why did Stalin destroy the peasants? Lenin’s wishful “alliance between the proletariat and the peasantry” in reality could lead only to the peasants being pauperised into proletarians. At least five million peasants died and (Stalin told Churchill at Yalta) another ten million in the resultant famine of 1932-1933. “Certainly it involved a struggle ~ but chiefly one between urban Communists and villagers… it enabled the regime to obtain much of the capital desired for industrialization from the defeated village… it was the decisive step in the building of Soviet totalitarianism, for it imposed on the majority of the people a subjection which only force could maintain” (Treadgold, 20th Century Russia). Mr Bhattacharjee’s CPI-M is fond of extolling Chinese communism, and the current New Delhi establishment have made Beijing and Shanghai holiday destinations of choice. Dr Singh’s Government has been eager to create hundreds of “Special Economic Zones” run by organised capital and unionised labour, and economically privileged by the State. In fact, the Singur and Nandigram experiences of police sealing off villages where protests occur are modelled on creation of “Special Economic Zones” in China in recent years. For example, Chinese police on 6 December 2005 cracked down on farmers and fishermen in the seaside village of Dongzhou, 125 miles North East of Hong Kong. Thousands of Dongzhou villagers clashed with troops and armed police protesting confiscation of their lands and corruption among officials. The police immediately sealed off the village and arrested protesters. China’s Public Security Ministry admitted the number of riots over land had risen sharply, reaching more than seventy thousand across China in 2004; police usually suppressed peasant riots without resort to firing but in Dongzhou, police firing killed 20 protesters. Such is the reality of the “emergence” of China, a totalitarian police-state since the Communist takeover in 1949, from its period of mad tyranny until Mao’s death in 1976, followed by its ideological confusion ever since. Modern India’s political economy today remains in the tight grip of metropolitan “Big Business” and “Big Labour”. Ordinary anonymous individual citizens ~ whether housewife, consumer, student, peasant, non-union worker or small businessman ~ have no real voice or representation in Indian politics. We have no normal conservative, liberal or social democratic party in this country, as found in West European democracies where the era of land-grabbing has long-ceased. If our polity had been normal, it would have known that economic development does not require business or government to pauperise the peasantry but instead to define and secure individual property rights and the Rule of Law, and establish proper conditions for the market economy. The Congress and BJP in Delhi and CPI-M in Kolkata would not have been able to distract attention from their macroeconomic misdeeds over the decades ~ indicated, for example, by increasing interest-expenditure paid annually on Government debt as a fraction of tax revenues… This macroeconomic rot originated with the Indira Gandhi-PN Haksar capriciousness and mismanagement, which coincided with the start of Dr Singh’s career as India’s best known economic bureaucrat….”

“Professor Amartya Sen, Harvard University, Dear Professor Sen, Everyone will be delighted that someone of your worldwide stature has joined the debate on Singur and Nandigram; The Telegraph deserves congratulations for having made it possible on July 23. I was sorry to find though that you may have missed the wood for the trees and also some of the trees themselves. Perhaps you have relied on Government statements for the facts. But the Government party in West Bengal represents official Indian communism and has been in power for 30 years at a stretch. It may be unwise to take at face-value what they say about their own deeds on this very grave issue! Power corrupts and absolute power corrupts absolutely, and there are many candid communists who privately recognise this dismal truth about themselves. To say this is not to be praising those whom you call the “Opposition” ~ after all, Bengal’s politics has seen emasculation of the Congress as an opposition because the Congress and communists are allies in Delhi. It is the Government party that must reform itself from within sua sponte for the good of everyone in the State. The comparisons and mentions of history you have made seem to me surprising. Bengal’s economy now or in the past has little or nothing similar to the economy of Northern England or the whole of England or Britain itself, and certainly Indian agriculture has little to do with agriculture in the new lands of Australia or North America. British economic history was marked by rapid technological innovations in manufacturing and rapid development of social and political institutions in context of being a major naval, maritime and mercantile power for centuries. Britain’s geography and history hardly ever permitted it to be an agricultural country of any importance whereas Bengal, to the contrary, has been among the most agriculturally fertile and hence densely populated regions of the world for millennia. Om Prakash’s brilliant pioneering book The Dutch East India Company and the Economy of Bengal 1630-1720 (Princeton 1985) records all this clearly. He reports the French traveller François Bernier saying in the 1660s “Bengal abounds with every necessary of life”, and a century before him the Italian traveller Verthema saying Bengal “abounds more in grain, flesh of every kind, in great quantity of sugar, also of ginger, and of great abundance of cotton, than any country in the world”. Om Prakash says “The premier industry in the region was the textile industry comprising manufacture from cotton, silk and mixed yarns”. Bengal’s major exports were foodstuffs, textiles, raw silk, opium, sugar and saltpetre; imports notably included metals (as Montesquieu had said would always be the case). Bengal did, as you say, have industries at the time the Europeans came but you have failed to mention these were mostly “agro-based” and, if anything, a clear indicator of our agricultural fecundity and comparative advantage. If “deindustrialization” occurred in 19th Century India, that had nothing to do with the “deindustrialization” in West Bengal from the 1960s onwards due to the influence of official communism. You remind us Fa Hiaen left from Tamralipta which is modern day Tamluk, though he went not to China but to Ceylon. You suggest that because he did so Tamluk effectively “was greater Calcutta”. I cannot see how this can be said of the 5th Century AD when no notion of Calcutta existed. Besides, modern Tamluk at 22º18’N, 87º56’E is more than 50 miles inland from the ancient port due to land-making that has occurred at the mouth of the Hooghly. I am afraid the relevance of the mention of Fa Hiaen to today’s Singur and Nandigram has thus escaped me. You say “In countries like Australia, the US or Canada where agriculture has prospered, only a very tiny population is involved in agriculture. Most people move out to industry. Industry has to be convenient, has to be absorbing”. Last January, a national daily published a similar view: “For India to become a developed country, the area under agriculture has to shrink, urban and industrial land development has to take place, and about 100 million workers have to move out from agriculture into industry and services. This is the only way forward for bringing prosperity to the rural population”. Rice is indeed grown in Arkansas or Texas as it is in Bengal but there is a world of difference between the technological and geographical situation here and that in the vast, sparsely populated New World areas with mechanized farming! Like shoe-making or a hundred other crafts, agriculture can be capital-intensive or labour-intensive ~ ours is relatively labour-intensive, theirs is relatively capital-intensive. Our economy is relatively labour-abundant and capital-scarce; their economies are relatively labour-scarce and capital-abundant (and also land-abundant). Indeed, if anything, the apt comparison is with China, and you doubtless know of the horror stories and civil war conditions erupting across China in recent years as the Communist Party and their businessman friends forcibly take over the land of peasants and agricultural workers, e.g. in Dongzhou. All plans of long-distance social engineering to “move out” 40 per cent of India’s population (at 4 persons per “worker”) from the rural hinterlands must also face FA Hayek’s fundamental question in The Road to Serfdom: “Who plans whom, who directs whom, who assigns to other people their station in life, and who is to have his due allotted by others?” Your late Harvard colleague, Robert Nozick, opened his brilliant 1974 book Anarchy, State and Utopia saying: “Individuals have rights, and there are things no person or group may do to them (without violating their rights)”. You have rightly deplored the violence seen at Singur and Nandigram. But you will agree it is a gross error to equate violence perpetrated by the Government which is supposed to be protecting all people regardless of political affiliation, and the self-defence of poor unorganised peasants seeking to protect their meagre lands and livelihoods from state-sponsored pogroms. Kitchen utensils, pitchforks or rural implements and flintlock guns can hardly match the organised firepower controlled by a modern Government. Fortunately, India is not China and the press, media and civil institutions are not totally in the hands of the ruling party alone. In China, no amount of hue and cry among the peasants could save them from the power of organised big business and the Communist Party. In India, a handful of brave women have managed to single-handedly organise mass movements of protest which the press and media have then broadcast that has shocked the whole nation to its senses. You rightly say the land pricing process has been faulty. Irrelevant historical prices have been averaged when the sum of discounted expected future values in an inflationary economy should have been used. Matters are even worse. “The fear of famine can itself cause famine. The people of Bengal are afraid of a famine. It was repeatedly charged that the famine (of 1943) was man-made.” That is what T. W. Schultz said in 1946 in the India Famine Emergency Committee led by Pearl Buck, concerned that the 1943 Bengal famine should not be repeated following dislocations after World War II. Of course since that time our agriculture has undergone a Green Revolution, at least in wheat if not in rice, and a White Revolution in milk and many other agricultural products. But catastrophic collapses in agricultural incentives may still occur as functioning farmland comes to be taken by government and industry from India’s peasantry using force, fraud or even means nominally sanctioned by law. If new famines come to be provoked because farmers’ incentives collapse, let future historians know where responsibility lay. West Bengal’s real economic problems have to do with its dismal macroeconomic and fiscal position which is what Government economists should be addressing candidly. As for land, the Government’s first task remains improving grossly inadequate systems of land-description and definition, as well as the implementation and recording of property rights. With my most respectful personal regards, I remain, Yours ever, Suby”

How does India, as a state, treat its weakest and most vulnerable citizens? Not very well at all. It is often only because families and society have not collapsed completely, as they have elsewhere, that the weakest survive. Can we solve in the 21st Century, in a practical manner appropriate to our times, the problem Buddha raised before he became the Buddha some twenty six centuries ago? Says Eliot,

“The legend represents him as carefully secluded from all disquieting sights and as learning the existence of old age, sickness and death only by chance encounters which left a profound impression”

It is to this list we add “the poor” too, especially if we want to include a slightly later and equally great reformer some miles west of the Terai in the Levant. I said some years ago “As we as infants and children need to be helped to find courage to face the start of life, we when very elderly can need to be helped to find courage to face life’s end”. Old age carries with it the fear of death, fear of the end of life and what that means, which raises the meaning of life itself, or at least of the individual life, because we can hardly grasp what the end of life is if we haven’t what it is supposed to be the end of in the first place. What the very elderly need, as do the dying and terminally ill, is to find courage within themselves to comprehend all this with as much equanimity as possible. Companionship and camaraderie — or perhaps let us call it love — go towards that courage coming to be found; something similar goes for the sick, whether a sick child missing school or the elderly infirm, courage that they are not alone and that they can and will recover and not have to face death quite yet, that life will indeed resume.

As for the poor, I said in 2009 about the bizarre Indian scheme of “interrogating, measuring, photographing and fingerprinting them against their will” that “the poor have their privacy and their dignity. They are going to refuse to waste their valuable time at the margins of survival volunteering for such gimmickry.”

“What New Delhi’s governing class fails to see is that the masses of India’s poor are not themselves a mass waiting for New Delhi’s handouts: they are individuals, free, rational, thinking individuals who know their own lives and resources and capacities and opportunities, and how to go about living their lives best. What they need is security, absence of state or other tyranny, roads, fresh water, electricity, functioning schools for their children, market opportunities for work, etc, not handouts from a monarch or aristocrats or businessmen….” Or, to put it differently in Kant’s terms, the poor need to be treated as ends in themselves, and not as the means towards the ends of others…

Part II India’s Right Road Forward Now: Some Thoughtful Analysis for Grown Ups

5. Transcending a Left-Right/Congress-BJP Divide in Indian Politics

6. Budgeting Military & Foreign Policy

7. Solving the Kashmir Problem & Relations with Pakistan

8. Dealing with Communist China

9. Towards Coherence in Public Accounting, Public Finance & Public Decision-Making

10. India’s Money: Towards Currency Integrity at Home & Abroad

Posted in Academic research, Amartya Sen, Arvind Panagariya, Asia and the West, Bengal's Public Finances, Bhagwati-Sen spat, BJP, Britain in India, Cambridge Univ Economics, Cambridge University, Columbia University, Congress Party, Congress Party History, Credit markets, Economic inequality, Economic Policy, Economic quackery, Economic Theory, Economic Theory of Growth, Economic Theory of Interest, Economic Theory of Value, Economics of Public Finance, Financial Repression, Governance, Government accounting, Government of India, India's Big Business, India's Cabinet Government, India's Government economists, India's 1991 Economic Reform, India's balance of payments, India's Budget, India's bureaucracy, India's Capital Markets, India's constitutional politics, India's corruption, India's currency history, India's Economic History, India's Economy, India's Exports, India's Foreign Exchange Reserves, India's Government Budget Constraint, India's Industry, India's inflation, India's Macroeconomics, India's Monetary & Fiscal Policy, India's Polity, India's Public Finance, India's Reserve Bank, India's State Finances, Institute of Economic Affairs, Jagdish Bhagwati, Jean Drèze, LK Advani, Manmohan Singh, Margaret Thatcher's Revolution, Mihir Kumar Roy (MKRoy), Milton Friedman, Money and banking, Padma Desai, Paper money and deposits, Political Economy, Public Choice/Public Finance, Public property waste fraud, Rajiv Gandhi, Rajiv Gandhi's assassination, Reverse-Euro Model for India, Sen-Bhagwati spat, Siddhartha Shankar Ray, Sonia Gandhi, Subroto Roy, Sukhamoy Chakravarty, The Times (London), University of Hawaii, William E (Ted) James (1951-2010). Leave a Comment »

No magic wand, Professor Rajan? Oh but there is…2013 (Plus: 7 Jan 2016 “Professor Rajan stays or goes? My answer to a query”)

August 18, 2013 — drsubrotoroy

7 January 2016

3 June 2014

from World Economy & Central Banking Seminar at Facebook

Professor Rajan’s statement “I determine the monetary policy. I say what it is….ultimately the interest rate that is set is set by me” equates Indian monetary policy with the money interest rate; but monetary policy in India has always involved far more than that, namely, the bulk of Indian banking and insurance has been in government hands for decades, all these institutions have been willy-nilly compelled to hold vast stocks of government debt, both Union and State, on their asset-sides…and unlimited unending deficit finance has led to vast expansion of money supply, making it all rather fragile. My “India’s Money” in 2012 might be found useful. http://tinyurl.com/o9dhe8d

11 April 2014

from World Economy & Central Banking Seminar at Facebook

I have to wonder, What is Professor Rajan on about? Growth in an individual country is affected by the world monetary system? Everyone for almost a century has seen it being a real phenomenon affected by other real factors like savings propensities, capital accumulation, learning and productivity changes, innovation, and, broadly, technological progress… A “source country” needs to consult “recipient” countries before it starts or stops Quantitative Easing? Since when? The latter can always match policy such as to be more or less unaffected… unless of course it wants to ride along for free when the going is good and complain loudly when it is not…. Monetary policy may affect the real economy but as a general rule we may expect growth (a real phenomenon) to be affected by other real factors like savings propensities, capital accumulation, learning and productivity changes, innovation, and, broadly, technological progress..

22 September 2013

“Let us remember that the postponement of tapering is only that, a postponement. We must use this time to create a bullet proof national balance sheet and growth agenda, which creates confidence in citizens and investors alike…”

I will say the statement above is the first sensible thing I have heard Dr Rajan utter anywhere, cutting through all the hype…I should also think he may be underestimating the task at hand, so here’s some help as to what needs to be done from my 19 Aug 2013 Mint article “A wand for Raghuram Rajan” and my 3 Dec 2012 Delhi lecture:

“Rajan has apparently said, “We do not have a magic wand to make the problems disappear instantaneously, but I have absolutely no doubt we will deal with them.” Of course there are no magic wands but there is a scientific path forward. It involves system-wide improvements in public finance and accounting using modern information technology to comprehend government liabilities and expenditures and raise their productivity. It also involves institutional changes in public decision-making like separating banking and central banking from the treasury while making the planning function serve the treasury function rather than pretend to be above it. It is a road long and arduous but at its end both corruption and inflation will have been reduced to minimal levels. The rupee will have acquired sufficient integrity to become a hard currency of the world in the sense the average resident of, say, rural Madhya Pradesh or Mizoram may freely convert rupees and hold or trade foreign currencies or precious metals as he/she pleases. India signed the treaty of Versailles as a victor and was an original member of the League of Nations, the United Nations and the IMF. Yet sovereign India has failed to develop a currency universally acceptable as freely convertible world money. It is necessary and possible for India to aim to do so because without such a national aim, the integrity of the currency continues to be damaged regularly by governmental abuse. An RBI governor’s single overriding goal should be to try to bring a semblance of integrity to India’s money both domestically and worldwide.”

19 August 2013

9 August 2013

No magic wand, Professor Rajan? Oh but there is… read up all this over some hours and you will find it… (Of course it’s not from magic really, just hard economic science & politics)

Professor Raghuram Govind Rajan of the University of Chicago Business School deserves everyone’s congratulations on his elevation to the Reserve Bank of India’s Governorship. But I am afraid I cannot share the wild optimism in India’s business media over this. Of course there are several positives to the appointment. First, having a genuine PhD and that too from a top school is a rarity among India’s policy-makers; Rajan earned a 1991 PhD in finance at MIT’s management school for a thesis titled “Essays on banking” (having to do we are told “with the downside to cozy bank-firm relationships”). Secondly, and related, he has not been a career bureaucrat as almost all RBI Governors have been in recent decades. Thirdly, he has been President of the American Finance Association, he won the first Fischer Black prize in finance of that Association, and during Anne Krueger’s 2001-2006 reign as First Deputy MD at the IMF, he was given the research role made well-known by the late Michael Mussa, that of “Economic Counselor” of the IMF.

Hence, altogether, Professor Rajan has come to be well-known over the last decade in the West’s financial media. Given the dismal state of India’s credit in world capital markets, that is an asset for a new RBI Governor to have.

On the negatives, first and foremost, if Professor Rajan has renounced at any time his Indian nationality, surrendered his Indian passport and sworn the naturalization oath of the USA, then he is a US citizen with a US passport and loyalty owed to that country, and by US law he will have to enter the USA using that and no other nationality. If that happens to be the factual case, it will be something that comes out in India’s political cauldron for sure, and there will arise legal issues and court orders barring him from heading the RBI or representing India officially, e.g. when standing in for India’s Finance Minister at the IMF in Washington or the BIS in Basle etc. Was he an Indian national as Economic Counselor at the IMF? The IMF has a tradition of only European MDs and at least one American First Deputy MD. The Economic Counselor was always American too; did Rajan break that by having remained Indian, or conform to it by having become American? It is a simple question of fact which needs to come out clearly. Even if Rajan is an American, he and the Government of India could perhaps try to cite to the Indian courts the new precedent set by the venerable Bank of England which recently appointed a Canadian as Governor.

Secondly, does Professor Rajan know enough (or “have enough domain knowledge” in the modern term) to comprehend let aside confront India’s myriad monetary and public finance problems? Much of his academic experience in the USA and his approach to Western financial markets may be quite simply divorced from the reality of Indian credit markets and India’s peculiar monetary and banking system as these have evolved over decades and centuries. Mathematical finance is a relatively new, small specialised American sub-field of economic theory, and not a part of general economics. Rajan’s academic path of engineering and management in India followed by a finance thesis in the management department of a US engineering school may have exposed him to relatively little formal textbook micro- and macroeconomics, monetary economics, public finance, international economics, economic development etc, especially as these relate to Indian circumstances “Growing up in India, I had seen poverty all around me. I had read about John Maynard Keynes and thought, wow, here’s a guy who managed to have an enormous influence on the world. Economics must be very important.”… He ran across Robert Merton’s paper on rational option pricing, and something clicked that set him on his own intellectual path. “It all came together. You didn’t have these touchy-feely ways of describing human behavior; there were neat arbitrage ways of pricing things. It just seemed so clever and sophisticated,” he said. “And I could use the math skills that I fancied I had, so I decided to get my PhD.”

Let me take two examples. Does Rajan realise how the important Bottomley-Chandavarkar debates of the 1960s about India’s rural credit markets influenced George Akerlof’s “Market for Lemons” theory and prompted much work on “asymmetric information”, signalling etc in credit-markets, insurance-markets, labour-markets and markets in general, as acknowledged in the awards of several Bank of Sweden prizes? Or will he need a tutorial on the facts of rural India’s financial and credit markets, and their relationship with the formal sector? What the Bottomley-Chandavarkar debate referred to half a century ago still continues in rural India insofar as large arbitrage profits are still made by trading across the artificially low rates of money interest caused by financial repression of India’s “formal” monetised sector with its soft inconvertible currency against the very high real rates of return on capital in the “informal” sector. It is obvious to the naked eye that India is a relatively labour-abundant country. It follows the relative price of labour will be low and relative price of capital high compared to, e.g. the Western or Middle Eastern economies, with mobile factors of production like labour and capital expected to flow accordingly across national boundaries. Indian nominal interest-rates in organized credit markets have been for decades tightly controlled, making it necessary to go back to Irving Fisher’s data to obtain benchmark interest-rates, which, as expected, are at least 2%-3% higher in India than in Western capital markets. Joan Robinson once explained “the difference between 30% in an Indian village and 3% in London” saying “side by side with the industrial revolution went great technical progress in the provision of credit and the reduction of lender’s risk.”

What is logically certain is no country can have both relatively low world prices for labour and relatively low world prices for capital! Yet that impossibility seems to have been what India’s purported economic “planners” have planned to engineer! The effect of financial repression over decades may have been to artificially “reverse” or “switch” the risk-premium — making it lucrative for there to be capital flight out of India, with real rates of return on capital within India being made artificially lower than those in world markets! Just as enough export subsidies and tariffs can make a country artificially “reverse” its comparative advantage with its structure of exports and imports becoming inverted, so a labour-rich capital-scarce country may, with enough financial repression, end up causing a capital flight. The Indian elite’s capital flight out of India exporting their adult children and savings overseas may be explained as having been induced by government policy itself.

Secondly, Professor Rajan as a finance and banking specialist, will see at once the import of this graph above that has never been produced let aside comprehended by the RBI, yet which uses the purest RBI data. It shows India’s mostly nationalised banks have decade after decade gotten weaker and weaker financially, being kept afloat by continually pumping in of new “capital” via “recapitalisation” from the government that owns them, using more and more of the soft inconvertible currency that has been debauched merrily by government planners. The nationalised banks with their powerful pampered employee unions, like other powerful pampered employee unions in the government sector, have been the bane of India, where a mere 30 million privileged people in a vast population work with either the government or the organised private sector. The RBI’s own workforce at last count was perhaps 75,000… the largest central bank staff in the world by far!

Will Rajan know how to bring some system out of the institutional chaos that prevails in Indian banking and central banking? If not, he should start with the work of James Hanson “Indian Banking: Market Liberalization and the Pressures for Institutional and Market Framework Reform”, contained in the book created by Anne Krueger who brought him into the IMF, and mentioned in my 2012 article “India’s Money” linked below.

The central question for any 21st century RBI Governor worth the name really becomes whether he or she can stand up to the Finance Ministry and insist that the RBI stop being a mere department of it — even perhaps insisting on constitutional status for its head to fulfill the one over-riding aim of trying to bring a semblance of integrity to India’s currency both domestically and worldwide. Instead it is the so-called “Planning Commission” which has been dominating the Treasury that needs to be made a mere department of the Finance Ministry, while the RBI comes to be hived off to independence!

Professor Rajan has apparently said “We do not have a magic wand to make the problems disappear instantaneously, but I have absolutely no doubt we will deal with them.” Of course there are no magic wands but my 3 December 2012 talk in Delhi has described the right path forward, complex and difficult as this may be.

The path forward involves system-wide improvements in public finance and accounting using modern information technology to comprehend government liabilities and expenditures and raise their productivity, plus institutional changes in public decision-making like separating banking and central banking from the Treasury while making the planning function serve the Treasury function rather than pretend to be above it. The road described is long and arduous but at its end both corruption and inflation will have been reduced to minimal levels, and the rupee would have acquired integrity enough to become a hard currency of the world in the sense the average resident of, say, rural Madhya Pradesh or Mizoram may freely convert rupees and hold or trade foreign currencies or precious metals as he/she pleases.

India signed the Treaty of Versailles as a victor and was an original member of the League of Nations, UN and IMF. Yet sovereign India has failed to develop a currency universally acceptable as a freely convertible world money. It is necessary and possible for India to do so. Without such a national aim, the integrity of the currency continues to be damaged regularly by governmental abuse.

Professor Rajan will not want to be merely an adornment for the GoI in world capital markets for a few years, waiting to get back to his American career and life and perhaps to the IMF again. As RBI Governor, he can find his magic wand if he reads and reflects hard enough using his undoubted academic acumen, and then acts to lead India accordingly. Here is the basic reading list:

“Monetary Integrity and the Rupee” (2008)

“India’s Macroeconomics” (2007)

“Growth and Government Delusion” (2008)

“India in World Trade & Payments” (2007)

“Path of the Indian Rupee 1947-1993” (1993)

“Indian Money and Credit” (2006)

“Indian Money and Banking” (2006)

Indian Inflation

“Growth of Real Income, Money & Prices in India 1869-2004” (2005)

“Waffle but No Models of Monetary Policy: The RBI and Financial Repression (2005)”

“The Dream Team: A Critique” (2006)

“Mistaken Macroeconomics” (2009)

“The Indian Revolution (2008)”

https://independentindian.com/2013/11/23/coverage-of-my-delhi-talk-on-3-dec-2012/

Enjoy!

Posted in Academic economics, Academic research, Asia and the West, asymmetric information, Banking, Big Business and Big Labour, Bretton Woods institutions, Britain in India, Capital and labour, Deposit multiplication, Economic Policy, Economic quackery, Economic Theory, Economic Theory of Growth, Economic Theory of Interest, Economic Theory of Value, Economics of exchange controls, Economics of Exchange Rates, Economics of Public Finance, Financial Management, Financial markets, Financial Repression, Foreign exchange controls, Governance, Government accounting, Government Budget Constraint, India's Big Business, India's credit markets, India's Government economists, India's interest rates, India's savings rate, India's stock and debt markets, India's 1991 Economic Reform, India's agriculture, India's balance of payments, India's Banking, India's Budget, India's bureaucracy, India's Capital Markets, India's currency history, India's Foreign Exchange Reserves, India's Foreign Trade, India's Government Budget Constraint, India's Government Expenditure, India's Macroeconomics, India's Monetary & Fiscal Policy, India's nomenclatura, India's Polity, India's poverty, India's Public Finance, India's Reserve Bank, India's State Finances, India's Union-State relations, Inflation, Inflation targeting, Interest group politics, Interest rates, International economics, International monetary economics, International Monetary Fund IMF, Land and political economy, Microeconomic foundations of macroeconomics, Monetary Theory, Money and banking, Paper money and deposits, Power-elites and nomenclatura, Public Choice/Public Finance, Public property waste fraud, Raghuram Govind Rajan, Raghuram Rajan, Rajiv Gandhi, Rajiv Gandhi's assassination, Statesmanship, Unorganised capital markets. Leave a Comment »

Cambridge Economics & the Disputation in India’s Economic Policy (2013)

May 19, 2013 — drsubrotoroy

2021: https://independentindian.com/2021/07/26/critique-of-amartya-or-rather-critique-of-team-amartya-sens-production-of-home-in-the-world-etc/
1986-1992

Foundations of India’s Political Economy: Towards an Agenda for the 1990s edited by Subroto Roy & William E James, 1986-1992… pdf copy uploaded 2021

Foundations of Pakistan’s Political Economy: Towards an Agenda for the 1990s, edited by William E James & Subroto Roy, 1986-1993… pdf copy uploaded 2021

2006: https://independentindian.com/2006/05/21/the-politics-of-dr-singh/

2008: https://independentindian.com/2008/04/25/assessing-manmohan-the-doctor-of-deficit-finance-should-realise-the-currency-is-at-stake/

23 August 2013 :

https://independentindian.com/2013/08/23/did-jagdish-bhagwati-originate-pioneer-intellectually-father-indias-1991-economic-reform-did-manmohan-singh-or-did-i-through-my-encounter-with-rajiv-gandhi-just-as-siddhartha-shan/

19 May 2013

“Manmohan and Sonia have violated Rajiv Gandhi’s intended reforms; the Communists have been appeased or bought; the BJP is incompetent”

is what I said in Sep 2007 in an op-ed in The Statesman. I have to say it again, adding Amartya Sen too for his backing of the so-called “Food Security Bill”…

[Sonia was livid in a speech after I said in 2007 “Manmohan and Sonia have violated Rajiv Gandhi’s intended reforms” … Her stooges wanted me arrested! One said “lined up and shot”… Then she said she only meant to refer to Haryana politics! … https://twitter.com/subyroy/status/1064737873746976768?s=20 ]

But taking Sonia and Rajiv out of it all, we are left with a battle from within Cambridge economics, viz,

Sen and Singh (disciples of Joan Robinson, Kaldor, Dobb et al in the 1950s)

vs

myself … in my PhD thesis of 1981 under Frank Hahn...

15 July 2013

***I am afraid I cannot remember a cogent coherent book authored by Amartya Sen since his 1972 On Economic Inequality, which had nice surveys of the Gini coefficient and related concepts…***

**My 2006 conversation with him about his book Identity and Violence is here. (see too** “Is “Cambridge Philosophy” dead, in Cambridge? Can it be resurrected, there? Case Study: Renford Bambrough (& Subroto Roy) preceded by decades Cheryl Misak’s thesis on Wittgenstein being linked with Peirce via Ramsey…”)

I now see he and a co-author seem to have produced yet one more piece of extended undergraduate waffle…E.g. “If development is about the expansion of freedom, it has to embrace the removal of poverty as well as paying attention to ecology as integral parts of a unified concern, aimed ultimately at the security and advancement of human freedom. Indeed, important components of human freedoms — and crucial ingredients of our quality of life — are thoroughly dependent on the integrity of the environment, involving the air we breathe, the water we drink, and the epidemiological surroundings in which we live….”

15 July 2013

Where is Amartya’s reply to this?

And where is Manmohan’s reply to this?

And Manmohan was given a copy of this

by me at a luncheon at the Indian Embassy Residence in Washington in September 1993 when the Ambassador, the late Barrister SS Ray, told him in the presence of all his senior aides including Montek Ahluwalia and C. Rangarajan, that I had authored the 1991 reform for the then-dead Rajiv Gandhi… on my laptop…

So, to cut to the chase, I have not and do not accept that either Amartya Sen or Manmohan Singh have been leaders of economic thought about India at least (US and British economists can judge for themselves the impact of the former on their own economics). The Sonia Congress has misled itself on the basis of their advocacy and the pity is the BJP, Communists et al in India seem to be even worse…

“I have a student called Suby Roy…”: Reflections on Frank Hahn (1925-2013), my master in economic theory

January 31, 2013 — drsubrotoroy

1. “What was relatively weak at LSE was general economic theory. We were good at deriving the Best Linear Unbiased Estimator but left unsatisfied with our grasp of the theory of value that constituted the roots of our discipline. I managed a First and was admitted to Cambridge as a Research Student in 1976, where fortune had Frank Hahn choose me as a student. That at the outset was protection from the communist cabal that ran “development economics” with whom almost all the Indians ended up. I was wholly impecunious in my first year as a Research Student, and had to, for example, proof-read Arrow and Hahn’s General Competitive Analysis for its second edition to receive 50 pounds sterling from Hahn which kept me going for a short time. My exposure to Hahn’s subtle, refined and depthless thought as an economist of the first rank led to fascination and wonderment, and I read and re-read his “On the notion of equilibrium in economics”, “On the foundations of monetary theory”, “Keynesian economics and general equilibrium theory” and other clear-headed attempts to integrate the theory of value with the theory of money — a project Wicksell and Marshall had (perhaps wisely) not attempted and Keynes, Hicks and Patinkin had failed at.

Hahn insisted a central question was to ask how money, which is intrinsically worthless, can have any value, why anyone should want to hold it. The practical relevance of this question is manifest. India today in 2007 has an inconvertible currency, vast and growing public debt financed by money-creation, and more than two dozen fiscally irresponsible State governments without money-creating powers. While pondering, over the last decade, whether India’s governance could be made more responsible if States were given money-creating powers, I have constantly had Hahn’s seemingly abstruse question from decades ago in mind, as to why anyone will want to hold State currencies in India, as to whether the equilibrium price of those monies would be positive. (Lerner in fact gave an answer in 1945 when he suggested that any money would have value if its issuer agreed to collect liabilities in it — as a State collects taxes – and that may be the simplest road that bridges the real/monetary divide.)

Though we were never personal friends and I did not ingratiate myself with Hahn as did many others, my respect for him only grew when I saw how he had protected my inchoate classical liberal arguments for India from the most vicious attacks that they were open to from the communists. My doctoral thesis, initially titled “A monetary theory for India”, had to be altered due to paucity of monetary data at the time, as well as the fact India’s problems of political economy and allocation of real resources were more pressing, and so the thesis became “On liberty and economic growth: preface to a philosophy for India”. When no internal examiner could be found, the University of Cambridge, at Hahn’s insistence, showed its greatness by appointing two externals: C. J. Bliss at Oxford and T. W. Hutchison at Birmingham, former students of Hahn and Joan Robinson respectively. My thesis received the most rigorous and fairest imaginable evaluation from them…”

2. “Frank Hahn believed in throwing students in at the deep end — or so it seemed to me when, within weeks of my arrival at Cambridge as a 21 year old Research Student, he insisted I present my initial ideas on the foundations of monetary theory at his weekly seminar.

I was petrified but somehow managed to give a half-decent lecture before a standing-room only audience in what used to be called the “Keynes Room” in the Cambridge Economics Department. (It helped that a few months earlier, as a final year undergraduate at the LSE, I had been required to give a lecture at ACL Day’s Seminar on international monetary economics. It is a practice I came to follow with my students in due course, as there may be no substitute in learning how to think while standing up.) I shall try to publish exactly what I said at my Hahn-seminar when I find the document; broadly, it had to do with the crucial problem Hahn had identified a dozen years earlier in Patinkin’s work by asking what was required for the price of money to be positive in a general equilibrium, i.e. why do people everywhere hold and use money when it is intrinsically worthless. Patinkin’s utility function had real money balances appearing along with other goods; Hahn’s “On Some Problems of Proving the Existence of an Equilibrium in a Monetary Economy” in Theory of Interest Rates (1965), was the decisive criticism of this, where he showed that Patinkin’s formulation could not ensure a non-zero price for money in equilibrium. Hence Patinkin’s was a model in which money might not be held and therefore failed a vital requirement of a monetary economy. The announcement of my seminar was scribbled by a young Cambridge lecturer named Oliver Hart, later a distinguished member of MIT and Harvard University.”

3. Then there was Sraffa…I saw him many a time, in the Marshall Library… He would smile very broadly at me and without saying anything indicate with his hand to invite me to his office.. I fled in some fear… It was very stupid of me of course… Joan Robinson cornered me once and took me into the office she shared with EAG… She came at me for an hour or so wishing to supervise me, I kept declining politely… saying I was with Frank Hahn and wished to work on money… “What does Frankie know about India?” she said… I said I did not know but he did know about monetary theory and that was what I needed for India; I also said I did not think much about the Indian Marxists she had supervised… and mentioned a prominent name… she said about him, “Yes most of what he does can go straight into the dustbin”…

4. “I had been attracted to Cambridge partly by its old reputation for philosophy, especially that of Wittgenstein. But I met no worthwhile philosophers there until a few months before I was to leave for the United States in 1980, when I chanced upon the work of Renford Bambrough. Hahn had challenged me with the question, “how are you so sure your value judgements promoting liberty blah-blah are better than those of Chenery and the development economists?” It was a question that led inevitably to ethics and its epistemology — when I chanced upon Bambrough’s work, and that of his philosophical master, John Wisdom, the immense expanse of metaphysics (or ontology) opened up as well. “Then felt I like some watcher of the skies, When a new planet swims into his ken; Or like stout Cortez when with eagle eyes, He star’d at the Pacific…””

5. “I went to Virginia because James M. Buchanan was there, and he, along with FA Hayek, were whom Hahn decided to write on my behalf. Hayek said he was too old to accept me but wrote me kind and generous letters praising and hence encouraging my inchoate liberal thoughts and arguments. Buchanan was welcoming and I learnt much from him and his colleagues about the realities of public finance and democratic politics, which I quickly applied in my work on India…” Hahn told me he did not know Buchanan but he did know Hayek well and that his wife Dorothy had been an original member of the Mont Pelerin Society in 1947 or 1948. Hence I am amused reading a prominent NYU “American Austrian” say about Frank’s passing “I do think economics would have been better off if the Arrow-Debreu-Hahn approach had not been taken so seriously by the profession. I think it turned out to be an intellectual straight-jacket that prevented the discussion of valuable outside-the-box ideas”, and am tempted to paraphrase the closing lines of Tractatus — “Whereof one cannot speak, thereof one must be silent/About what one can not speak, one must remain silent” — to read “Of that of which we are ignorant, we should at least try not to gas about…” Hahn and Hayek were friends, from when Hayek taught at the London School of Economics in Robbins’ seminar, and Hahn was Robbins’ doctoral student.

6. “The Hawaii project manuscript contained inter alia a memorandum by Milton Friedman done at the request of the Government of India in November 1955, which had been suppressed for 34 years until I published it in May 1989. Milton and Rose Friedman refer to this in their memoirs Two Lucky People (Chicago 1998). Peter Bauer had told me of the existence of Friedman’s document during my doctoral work at Cambridge under Frank Hahn in the late 1970s, as did N. Georgescu-Roegen in America. Those were years in which Brezhnev still ruled in the Kremlin, Gorbachev was yet to emerge, Indira Gandhi and her pro-Moscow advisers were ensconced in New Delhi, and not even the CIA had imagined the Berlin Wall would fall and the Cold War would be over within a decade. It was academic suicide at the time to argue in favour of classical liberal economics even in the West. As a 22-year-old Visiting Assistant Professor at the Delhi School of Economics in 1977, I was greeted with uproarious laughter of senior professors when I spoke of a possible free market in foreign exchange. Cambridge was a place where Indian economists went to study the exploitation of peasants in Indian agriculture before returning to their friends in the well-known bastions of such matters in Delhi and Calcutta. It was not a place where Indian (let alone Bengali) doctoral students in economics mentioned the unmentionable names of Hayek or Friedman or Buchanan, and insisted upon giving their works a hearing. My original doctoral topic in 1976 “A monetary theory for India” had to be altered not only due to paucity of monetary data at the time but because the problems of India’s political economy and allocation of resources in the real economy were far more pressing. The thesis that emerged in 1982 “On liberty and economic growth: preface to a philosophy for India” was a full frontal assault from the point of view of microeconomic theory on the “development planning” to which everyone routinely declared their fidelity, from New Delhi’s bureaucrats and Oxford’s “development” school to McNamara’s World Bank with its Indian staffers. Frank Hahn protected my inchoate liberal arguments for India; and when no internal examiner could be found, Cambridge showed its greatness by appointing two externals, Bliss at Oxford and Hutchison at Birmingham, both Cambridge men.”

7. “I have a student called Suby Roy…” Frank sends me to America in 1980 to work with Jim Buchanan… One letter from him was all it took…

And then five years later in 1985 he calls me “probably the outstanding young Hayekian”, says I had brought “a good knowledge of economics and of philosophy to bear on the literature on economic planning”, had “a good knowledge of economic theory” and that my “critique of Development Economics was powerful not only on methodological but also on economic theory grounds” — all that to me has been a special source of delight.

We did not meet often after I left Cambridge but he wrote very kindly always, and finally said, hearing of my travails and troubles and adventures, “well you are having an interesting life…”…

In America, I once met Robert M Solow in a hotel elevator as we were on a panel at a conference together; I introduced myself as Hahn’s student… “Aren’t you lucky?” said Solow with a smile…and he was right… I was lucky…

I said of Milton Friedman that he had been “the greatest economist after John Maynard Keynes”; Milton’s critic, Frank Hahn, may have been the greatest economic theorist of modern times.

Frank Hahn (1925-2013)

Milton Friedman’s Nov 1955 Memorandum to the Govt of India which I published for the first time at UH-Manoa on 21 May 1989, and then later in the 1992 book: Now in pdf 2021

June 10, 2012 — drsubrotoroy

A Memorandum to the Government of India 1955 by Milton Friedman

(published by me for the first time some 34 years later on 21 May 1989 at UH-Manoa…that original document was in my professorial office at IIT Kharagpur — and is yet to be returned despite a High Court order!)

Now in pdf here https://independentindian.com/2021/11/12/foundations-of-indias-political-economy-towards-an-agenda-for-the-1990s-edited-by-subroto-roy-william-e-james/

and ‘Milton Friedman on the Mahalanobis-Nehru “Second Plan”’ …

and Milton Friedman: A Man of Reason, 1912-2006…

and Did Jagdish Bhagwati “originate”, “pioneer”, “intellectually father” India’s 1991 economic reform? Did Manmohan Singh? Or did I, through my encounter with Rajiv Gandhi, just as Siddhartha Shankar Ray told Manmohan & his aides in Sep 1993 in Washington? Judge the evidence for yourself. And why has Amartya Sen misdescribed his work? India’s right path forward today remains what I said in my 3 Dec 2012 Delhi lecture! )

Posted in Academic freedom, Academic research, Economic Policy, Economic Theory of Growth, Economics of exchange controls, India's 1991 Economic Reform, India's currency history, India's Economic History, India's Economy, India's Government Budget Constraint, India's Government Expenditure, India's Monetary & Fiscal Policy, Milton Friedman, University of Hawaii. Leave a Comment »

On the rot of institutions (and what an Academy might be like in the Facebook/Internet Age): Listening to the ladies….

August 31, 2011 — drsubrotoroy

From Facebook Aug 31 2011:

Subroto Roy has really done what he can, just about, for his country, & has been rewarded by his country’s government and its “institution of national importance” with the most despicable evil. It is a toss-up between whether my personal experience of Indian corruption and vicious state-tyranny is worse than my personal experience of bribery and perjury in the federal court system in America.

AKe Your bitterness is understandable. Patriotism is rising above appropriate anger toward individuals and continuing to love and serve the nation, even if it is infected by wicked individuals.

Subroto Roy Yes it is indeed, you are right…

AKe The history of most great nations contains examples of individuals who, though later acknowledged as heroes, were treated shabbily by their respective homelands. It is sad that you are being treated badly, but surely it is just by one institution and its envious employees, rather than by the entire country? At least, I hope this is caused by a small number of wickedly envious people rather than by an established policy of the government.;

Subroto Roy Corruption is endemic in India… the matters I exposed some years ago had to do with (a) apparent siphoning off money in building (and purchase) contracts; and (b) apparently abusing the fiduciary interest of students by stealing from their fees to pay for round the world business-class travel, etc.. No, I am not bitter, either about India or about America but yes, as I have said it is a toss-up between whether my personal experience of Indian corruption and vicious state-tyranny is worse than my personal experience of bribery and perjury in the federal court system in America.

AlKu A is right, though, that you were affected by individual actions more, I think, than by the nation as a whole in both instances. I wish that your fine work was getting the lion’s share of attention and not causing you troubles at all. But ideas have their natural audiences and all too often that audience is located in the future — as Andrea noted. Keep the faith, Suby. Truth does win out in time. And that really does matter too. Listen to the ladies, Suby …

Subroto Roy Thanks though, that you were affected by individual actions”, Individualism is of course something I know much about since my Hayek days (Frank Hahn called me 26 years ago “probably the outstanding young Hayekian”) but my experience has been mixed.

I have had quite long associations with three academic institutions, two in America, one in India. At the first, my academic work was attacked by a gang of what I have called “inert game theorists”, game theory being the prevalent fashion at the time, there was an academic freedom issue and I let it be; but on top of that arose the open and blatant sexual harassment of a woman graduate student by the department head, and my helping her, in a very minimal but essential way, contributed to the conflict. I did not fight it more than a bit and left (for BYU, where the Mormons gave me refuge and allowed me to complete my book, almost).

The second case, also in America, was one of outrageous collective targeting of my work as an academic and an economist by my national origin, even my purported race and religion, and when I did battle that, having immense faith in the American system, my adversary responded by demonstrated perjury, buying out my attorney (and getting caught doing it), and compromising the federal judge. Not good. Certainly my faith in the American system was shaken but not in America herself — why? because two of the greatest 20th C American economists, Milton Friedman and TW Schultz — gladly stood for me, and their testimony (ignored by the compromised judge) was far more important than anything else to me. I.e., it was these two American individuals (as well as several others less eminent but equally heroic) who allowed my faith in America to continue unshaken even though the personal experience of the institutions had been ghastly.

The Indian case is wholly different as it is a wholly different political culture for the most part. The issues are cheap and pathetic — fraudulent academic credentials, stealing money from the government, stealing money from students, stealing others’ property wherever possible in the knowledge you can get away with it, etc.

There is hardly anything of deep significance involved except it gives the lie to all the government and elite propaganda about how well India is doing — and in that context becomes relevant too what I did in America which came to Rajiv Gandhi through my advice to him in his last months

AlK meanwhile, it was Abigail Adams’s sage advice to “remember the ladies”

Subroto Roy Indeed I do, and follow it; my best buddy, an old lady almost 86, is usually full of sage wisdom these days.

Subroto Roy What is the solution? It is, in my case. what I have said here: “A friend has been kind enough to call me an Academician, which I probably am, though one who really needs his own Academy because the incompetence, greed and mendacity encountered too often in the modern professoriat is dispiriting.”

Subroto Roy And what does such an Academy consist of in the Internet/Facebook Age? Big buildings? Naaaa…

AlK What would Socrates do???? WWSD — for short

Subroto Roy Quite so, what would Socrates do? His Academy today would be his Facebook profile and his blog. 🙂

AlK I get to be Plato — called it first!!

Subroto Roy LOL… Platoletha has a nice ancient ring about it…

AK I think Aletha would be Πλάτωνίσ, and I would then be Ἀριστοτέλά, your devoted acolytes.

Subroto Roy LOL… 🙂 I actually was given the Roman name Subius Maximus myself by my buddy Bobbus Fluhartius, aka Bob Fluharty in Charleston WVa..

“Sidney Alexander & I are really the only ones who showed the basic logical contradictions caused by positivism having penetrated economics in the middle of the 20th Century”

July 24, 2011 — drsubrotoroy

from Is “Cambridge Philosophy” dead, in Cambridge? Can it be resurrected, there? Case Study: Renford Bambrough (& Subroto Roy) preceded by decades Cheryl Misak’s thesis on Wittgenstein being linked with Peirce via Ramsey… October 27, 2017

“3. Now before its publication my book manuscript had been mostly under contract with University of Chicago Press, not Routledge. About 1984 one of Chicago’s half a dozen reviewers hit me with a large surprise: my argument had been anticipated decades earlier in America by MIT’s Sidney Stuart Alexander! I had no idea of this though I knew Alexander’s publications on other subjects the balance of payments.

Alexander, who was Paul Samuelson’s contemporary and Robert Solow’s teacher, was extremely gracious, read my manuscript and immediately declared with great generosity it was clear to him my arguments had been developed independently of his own. Alexander had come at the problem from an American tradition of John Dewey, Peirce’s pupil, I had done so from Wittgenstein through John Wisdom and Renford Bambrough. Alexander and I had arrived at similar conclusions but had done so completely independently!

Before we had met, Alexander wrote in support of my work:

“(This) is a very ambitious work directed at the foundations of normative judgments in economics. The author arrives at some conclusions very closely matching those I arrived at some years ago. It is clear, however, that Dr. Roy arrived at his conclusions completely independently. That is all the more piquant to me in that the philosophical underpinning of his work is the development of philosophy in England from the later Wittgenstein, while mine derives principally from earlier work in the United States by the pragmatists and those who may loosely be called neo-pragmatists. A prominent Cambridge ethical philosopher of the early thirties referred to the United States as the place where moribund English philosophies were to be hailed as the latest thing. Now the most characteristically American philosophy seems to have arrived first by a wide margin at a position gaining wider acceptance in England as well as America.

Dr. Roy reveals a clear understanding of the methodological positivism that invaded economic policy analysis in the thirties and still dominates the literature of economics…. Following Renford Bambrough (Moral Scepticism and Moral Knowledge) he arrives at a position equivalent to that of the American pragmatists, especially Dewey, who insist that the problematic situation provides the starting point for the analysis of a problem even though there are no ultimate starting points. The methodological implication is the support of inquiry as fundamental, avoiding both scepticism and dogmatism. Roy develops his position with a great deal of attention to the ramifications of the problem both in philosophy and in economics….”

When we did meet, as he drove me around MIT in his car, Alexander joked how it used to be bad form in his time to make comparisons about a trio of pairs: Cambridge vs Cambridge, baseball vs cricket, and “American English” vs (what is now called) “British English”!

I asked whom he had referred to as the “prominent Cambridge ethical philosopher”, he said C D Broad and decades later I found Broad’s condescending passage

“… all good fallacies go to America when they die, and rise again as the latest discoveries of the local professors…” Five Types of Ethical Theory 1930, p. 55.

No wonder Alexander found “piquant” that I had reached via Wittgenstein and Bambrough an equivalent position to his own decades earlier via American pragmatism. [Besides by Alexander, a most perspicacious review of my book is by Karl Georg Zinn.]

Within economics, Alexander and I were pirate ships blowing holes and permanently sinking the positivist Armada of “social choice theory” etc. Amartya Sen arrived at Cambridge in 1953, the year Philosophical Investigations was published, two years after Wittgenstein’s death the year after Wittgenstein died. Professor Sen told me, in 2006, John Wisdom and C D Broad both knew him at the time, all at Trinity College; if anyone, Amartya Sen should have conveyed to Kenneth Arrow in America in the 1960s and 1970s the implications for economic theory of Wittgenstein’s later work. Instead I had to do so in 1989, Arrow graciously admitting when he read my book:

“I shall have to ponder your rejection of the Humean position which has, I suppose, been central in not only my thought but that of most economists. Candidly, I have never understood what late Wittgenstein was saying, but I have not worked very hard at his work, and perhaps your book will give guidance.””

Originally from 2011:

I heard from Mr Scott Peterson of Oregon,

“Dear Professor Roy, I have been reading your book Philosophy of Economics and happened to stumble on the following paper:’Public Finance Texts Cannot Justify Government Taxation’ Walter E. Block (Loyola University New Orleans, Joseph A. Butt, S.J. College of Business) has posted Public Finance Texts Cannot Justify Government Taxation: A Critique on SSRN. Here is the abstract: ‘In virtually all economic sub-disciplines, practitioners of the dismal science are exceedingly desirous of avoiding normative concerns, at least in principle. These are seen, and rightly so, as extremely treacherous. Being only human, they do sometimes stray off the path of positive analysis; but when they fall off the wagon in this manner, if at all, it is done relatively cautiously, and infrequently. There is one blatant exception to this general rule, however, and that is the field of public finance. Here, in sharp contrast to the usual practice, not only is normative economics embraced, it is done so with alacrity, and without apology. That is, most textbooks on the subject start off with one or several chapters which attempt to justify taxation on moral, efficiency, and other grounds. This occurs in no other field.’

When I read this I immediately thought of your discussion of the normative vs positive approaches in economics. Perhaps the exception economists make regarding public finance is that most economists’ paychecks come from the public sector.

Regards,

Scott Peterson

Dear Mr Peterson, Yes indeed. Thanks for the observation. Sidney Alexander and I are really the only ones who showed the basic logical contradictions caused by positivism having penetrated economics in the middle of the 20th Century. Are you at Facebook? Feel free to join me. Cordial regards, Suby Roy

“….Meanwhile, my main work within economic theory, the “Principia Economica” manuscript, was being read by the University of Chicago Press’s five or six anonymous referees. One of them pointed out my argument had been anticipated years earlier in the work of MIT’s Sidney Stuart Alexander. I had no idea of this and was surprised; of course I knew Professor Alexander’s work in balance of payments theory but not in this field. I went to visit Professor Alexander in Boston…. Professor Alexander was extremely gracious, and immediately declared with great generosity that it was clear to him my arguments in “Principia Economica” had been developed entirely independently of his work. He had come at the problem from an American philosophical tradition of Dewey, I had done so from a British tradition of Wittgenstein. (CS Peirce was probably the bridge between the two.) He and I had arrived at some similar conclusions but we had done so completely independently.”

Professor Alexander, contemporary of PA Samuelson, tutor of RM Solow and many others, deserves far greater attention, and I will do what I can towards that. He introduced me briefly to his MIT colleague Lester Thurow and I sent an email some time ago to Professor Thurow suggesting MIT should try to remember him better.

Furthermore…. (12 August 2013)… as Karl Georg Zinn observed in his perspicacious review:

“Either all of positive economics is attacked with just as much scepticism as anything in normative economics, or we accept one and reject the other when instead there are reasons to think they share the same ultimate grounds and must be accepted or rejected together”(p.47).

William E (Ted) James, Dec 21 1951- May 19 2010, friend & collaborator: How we made a little bit of history together

May 31, 2011 — drsubrotoroy

“Professor Roy?”, a smooth baritone asked me on the phone, within a week or so of my entering my Manoa office in the Fall of 1986. “Yes?”, I said, “My name is Ted James, and I was wondering if we could have lunch; I wanted to talk to you about working together on India”. “I thought I’d met everyone in the Department”, said I. “We at the East West Center are a bit of a mysterious bunch”, he joked. Oh so this is the US Govt calling, I said to myself, better watch out. “Well, I’ve published on India already”, I said referring to my IEA monograph which had attracted the leader of the London Times a year and a half earlier, and trying to indicate that I felt I had done my bit for India and did not see myself doing much more. “I know you have, your reputation precedes you, that’s why I thought we should meet”, he said.

So we met at a nondescript campus café for some stir-fry. Ted was an excessively handsome Southern Californian straight out of Hollywood central casting, and the most unlikely-looking American economist I have ever met. I am 6’ and I think he was perhaps 5’9” but slimmer and more muscular with long blond hair, bright blue eyes, a fabulous magnetic smile, someone who might easily have been a hero in a TV serial or an afternoon soap-opera.

He wasn’t a film-star though but an economist, though not a nerdy one like myself at the time, and he had a tremendous almost evangelical keenness to not merely comprehend the economic policy-making process of so-called developing countries, especially in Asia, but also change them for the better.

I was 31, Ted must have been about 34 when we first met for that stir-fry lunch. He did indeed know my 1984 work which was enough to win me over as London and Cambridge, or for that matter Blacksburg and Provo from where I had come, seemed very far away from Manoa at the time. Not only did he know my work, he had already referred to it in the references and index and perhaps the notes of a new book he had co-edited on Asian Development, which was remarkable as lags in publication and research were long.

Ted proposed at the lunch that he and I work together on “South Asia”, and that he would get funding from the East West Center. I suggested there was no such place, that “South Asia” was a State Department abstraction, but there were individual and complex countries, India, Pakistan, Sri Lanka, Bangladesh – and Afghanistan and Nepal too…. He agreed. We would start with working together on the theory of economic policy reform as applied to India and Pakistan first…

And so it began…

Legally speaking the funding came from the State of Hawaii and not the United States Government, from funds owed to the former by the latter. Of the total budget of some $100,000 I was very miserly and returned 25% of it unspent, an unheard of thing. Milton Friedman commanded a speaking fee at the time of $10,000, and agreed to our nominal $1,000 for a two-day visit on condition we told no one.:) A Pakistani author was among several Pakistani scholars who thanked me for putting the volume together, as the first time Pakistan had been taken seriously in American academia; he asked me how much it cost, when I said $35,000 for the Pakistan book, he said the IMF would spend that over a weekend at Bretton Woods and get nothing ….

As described elsewhere, the manuscript of the India-volume contributed to the origins of India’s 1991 economic reform during my encounter with Rajiv Gandhi in his last months; the Pakistan-volume came to contribute to the origins of the Pakistan-India peace process. (“In 2004 from Britain, I wrote to the 9/11 Commission stating that it was possible that had the vicious illegalities against me not occurred at Manoa starting in 1989, we may have gone on after India and Pakistan to study Afghanistan, and come up with a pre-emptive academic analysis a decade before September 11 2001.”)

I came to know from Ted’s wife Tess in June that Ted had died of cancer in Manila on May 19 2010 aged 58.

I said to her and her family that I do not weep for many but do weep for Ted.

(More to come… this will be a technology-consistent ongoing obituary for my friend and collaborator, which he would have found amusing for sure…)…

Memo to the PM

May 30, 2011 — drsubrotoroy

see https://independentindian.com/2013/05/19/cambridge-economics-the-disputation-in-indias-economic-policy/

From Facebook May 29 2011:

Subroto Roy hears Dr Manmohan Singh said yesterday (to journalists “on board Air India One” returning with him from Africa) “I think industrialisation is essential for the country to solve the problems of unemployment and poverty”. Nonsense Prime Minister! That is obsolescent or, at the very least, rather quaint Stalinist chatter. Try to provide public goods properly, which means getting the judiciary etc to work well. Try to get the public finances & public decision-making processes right, which means getting govt accounting & audit right and legislatures to work across the country. Try to drastically raise the productivity of public investments and expenditures. And try not to debauch India’s money any further than you have done. All that may make a good start. (And only when you have done all that do you really need to travel abroad again on “Air India One”; that thing the telephone really is a great invention…)

Subroto Roy is scolded by Ms Siddiqui: “Out of all the corrupt money grabbing racist ministers and governors and politicians you could find only Manmohan Singh to attack? Truly discerning arent you?”,

to which I have to say Hello Ms Siddiqi, Thank you for your comment. It is I am afraid ill-informed. There is nothing personal in my critical assessment of Dr Singh’s economics and politics. To the contrary, he has been in decades past a friend or at least a colleague of my father’s, and in the autumn of 1973 visited our then-home in Paris at the request of my father to advise me, then aged 18, before I embarked on my undergraduate studies at the London School of Economics. My assessments in recent years like “The Politics of Dr Singh” https://www.facebook.com/note.php?note_id=177565501125“Assessing Manmohan”https://www.facebook.com/note.php?note_id=177600651125, “The Dream Team: A Critique” https://www.facebook.com/note.php?note_id=184178641125 “Mistaken Macroeconomics” https://www.facebook.com/note.php?note_id=179676656125 etc need to be seen along with my “Assessing Vajpayee: Hindutva True and False”, “The Hypocrisy of the CPI-M”, “Against Quackery”, “Our Dismal Politics”, “Political Paralysis” etc.

Nothing personal is intended in any of these; the purpose at hand has been to contribute to a full and vigorous discussion of the public interest in India.

Posted in Economic Policy, India's currency history, India's Economic History, India's Economy, India's Industry, India's Macroeconomics, India's Monetary & Fiscal Policy, Manmohan Singh. 1 Comment »

Silver Jubilee of “Pricing, Planning & Politics: A Study of Economic Distortions in India”

May 29, 2011 — drsubrotoroy

May 29 2009:

It is a quarter century precisely today since my monograph Pricing, Planning and Politics: A Study of Economic Distortions in India was first published in London by the Institute of Economic Affairs.

ppp1984

Its text is now available (in slightly rough form) at this site here.

Now in May 1984, Indira Gandhi ruled in Delhi, and the ghost of Brezhnev was still fresh in Moscow. The era of Margaret Thatcher in Britain and Ronald Reagan in America was at its height. Pricing, Planning & Politics emerged from my 1976-1982 doctoral thesis at Cambridge though it came to be written in Blacksburg and Ithaca in 1982-1983. It was the first critique after BR Shenoy of India’s Sovietesque economics since Jawaharlal Nehru’s time.

The Times, London’s most eminent paper at the time, wrote its lead editorial comment about it on the day it was published, May 29 1984.

londonti

It used to take several days for the library at Virginia Tech in Blacksburg to receive its copy of The Times of London and other British newspapers. I had not been told of the date of publication and did not know of what had happened in London on May 29 until perhaps June 2 — when a friend, Vasant Dave of a children’s charity, who was on campus, phoned me and congratulated me for being featured in The Times which he had just read in the University Library. “You mean they’ve reviewed it?” I asked him, “No, it’s the lead editorial.” “What?” I exclaimed. There was worse. Vasant was very soft-spoken and said “Yes, it’s titled ‘India’s Bad Example'” — which I misheard on the phone as “India’s Mad Example” 😀

Drat! I thought (or words to that effect), they must have lambasted me, as I rushed down to the Library to take a look.

The Times had said

“When Mr. Dennis Healey in the Commons recently stated that Hongkong, with one per cent of the population of India has twice India’s trade, he was making an important point about Hongkong but an equally important point about India. If Hongkong with one per cent of its population and less than 0.03 per cert of India’s land area (without even water as a natural resource) can so outpace India, there must be something terribly wrong with the way Indian governments have managed their affairs, and there is. A paper by an Indian economist published today (Pricing, Planning and Politics: A Study of Economic Distortions in India by Subroto Roy, IEA £1.80) shows how Asia’s largest democracy is gradually being stifled by the imposition of economic policies whose woeful effect and rhetorical unreality find their echo all over the Third World. As with many of Britain’s former imperial possessions, the rot set in long before independence. But as with most of the other former dependencies, the instrument of economic regulation and bureaucratic control set up by the British has been used decisively and expansively to consolidate a statist regime which inhibits free enterprise, minimizes economic success and consolidates the power of government in all spheres of the economy. We hear little of this side of things when India rattles the borrowing bowl or denigrates her creditors for want of further munificence. How could Indian officials explain their poor performance relative to Hongkong? Dr Roy has the answers for them. He lists the causes as a large and heavily subsidized public sector, labyrinthine control over private enterprise, forcibly depressed agricultural prices, massive import substitution, government monopoly of foreign exchange transactions, artificially overvalued currency and the extensive politicization of the labour market, not to mention the corruption which is an inevitable side effect of an economy which depends on the arbitrament of bureaucrats. The first Indian government under Nehru took its cue from Nehru’s admiration of the Soviet economy, which led him to believe that the only policy for India was socialism in which there would be “no private property except in a restricted sense and the replacement of the private profit system by a higher ideal of cooperative service.” Consequently, the Indian government has now either a full monopoly or is one of a few oligipolists in banking, insurance, railways, airlines, cement, steel, chemicals, fertilizers, ship-building, breweries, telephones and wrist-watches. No businessman can expand his operation while there is any surplus capacity anywhere in that sector. He needs government approval to modernize, alter his price-structure, or change his labour shift. It is not surprising that a recent study of those developing countries which account for most manufactured exports from the Third World shows that India’s share fell from 65 percent in 1953 to 10 per cent in 1973; nor, with the numerous restrictions on inter-state movement of grains, that India has over the years suffered more from an inability to cope with famine than during the Raj when famine drill was centrally organized and skillfully executed without restriction. Nehru’s attraction for the Soviet model has been inherited by his daughter, Mrs. Gandhi. Her policies have clearly positioned India more towards the Soviet Union than the West. The consequences of this, as Dr Roy states, is that a bias can be seen in “the antipathy and pessimism towards market institutions found among the urban public, and sympathy and optimism to be found for collectivist or statist ones.” All that India has to show for it is the delivery of thousands of tanks in exchange for bartered goods, and the erection of steel mills and other heavy industry which help to perpetuate the unfortunate obsession with industrial performance at the expense of agricultural growth and the relief of rural poverty.”…..

I felt this may have been intended to be laudatory but it was also inaccurate and had to be corrected. I replied dated June 4 which The Times published in their edition of June 16 1984:

timesletter-11

I was 29 when Pricing, Planning and Politics was published, I am 54 now. I do not agree with everything I said in it and find the tone a little puffed up as young men tend to be; it was also five years before my main “theoretical” work Philosophy of Economics would be published. My experience of life in the years since has also made me far less sanguine both about human nature and about America than I was then. But I am glad to find I am not embarrassed by what I said then, indeed I am pleased I said what I did in favour of classical liberalism and against statism and totalitarianism well before it became popular to do so after the Berlin Wall fell. (In India as elsewhere, former communist apparatchiks and fellow-travellers became pseudo-liberals overnight.)

The editorial itself may have been due to a conversation between Peter Bauer and William Rees-Mogg, so I later heard. The work sold 700 copies in its first month, a record for the publisher. The wife of one prominent Indian bureaucrat told me in Delhi in December 1988 it had affected her husband’s thinking drastically. A senior public finance economist told me he had been deputed at the Finance Ministry when the editorial appeared, and the Indian High Commission in London had urgently sent a copy of the editorial to the Ministry where it caused a stir. An IMF official told me years later that he saw the editorial on board a flight to India from the USA on the same day, and stopped in London to make a trip to the LSE’s bookshop to purchase a copy. Professor Jagdish Bhagwati of Columbia University had been a critic of aspects of Indian policy; he received a copy in draft just before it was published and was kind enough to write I had “done an excellent job of setting out the problems afflicting our economic policies, unfortunately government-made problems!”

Siddhartha Shankar Ray told me when we first met that he had been in London when the editorial appeared and had seen it there; it affected his decision to introduce me to Rajiv Gandhi as warmly as he came to do a half dozen years later.

Within a few months though, by the Fall of 1984, I was under attack by the “gang of inert game theorists” who had come to Blacksburg following the departure of James Buchanan. By mid 1985 I had moved to Provo, Utah, really rather wishing, as I recall, to have left my India-work behind me. But by late 1986, I was at the University of Hawaii, Manoa, where the perestroika-for-India and Pakistan projects that I and WE James led, had come to be sponsored by the University and the East West Center.

The unpublished results of the India-project reached Rajiv Gandhi by my hand on September 18 1990 as has been told elsewhere. A week later, on September 25 1990, Rajiv appointed a small group that included myself, to advise him. It was that encounter with Rajiv Gandhi that sparked the origins of the 1991 economic reform. Yet in 2007 one member of the group, declaring himself close to Sonia Gandhi, brazenly lied in public saying it was Manmohan Singh and not I who had been part of the group — a group of which I had been in fact the first member! Manmohan Singh himself has never claimed to have been present and in fact was not even in India at the time it was formed.

I have explained elsewhere here why I believe this specific lie came to be told by this specific liar who shared membership with me in the group that Rajiv had formed: because I had also pleaded with many and especially within this group that Rajiv had seemed, to my layman’s eyes, very vulnerable to assassination, and none of them had lifted a finger to do anything about it! Such is how duplicity, envy and greed for power make people mendacious and venal in politics!

As for Pricing, Planning and Politics, Dr Manmohan Singh received a personal copy from my father whom he had long known through the Kaul brothers, Brahma and Madan, both of whom were dear friends of my father since the War and Independence. From a letter Dr Singh wrote to my father, he would have received his copy in late 1986 when he was heading the Planning Commission in his penultimate appointment before retirement from the bureaucracy.

Readers of Pricing, Planning and Politics today, 25 years after it was published, may judge for themselves what if any part of it may be still relevant to the new government that Dr Singh is now prime minister of. The work was mostly one of applied microeconomics or the theory of value; in recent years I have written much also of applied macroeconomics or the theory of money as it relates to India. My great professor at Cambridge, Frank Hahn, was kind enough to say in 1985 that he thought my “critique of Development Economics was powerful not only on methodological but also on economic theory grounds”; that to me has been a special source of delight.

Subroto Roy

Posted in BR Shenoy, Economic Policy, Economic Theory, Economic Theory of Growth, Economic Theory of Value, Economics of education, Economics of exchange controls, Economics of Public Finance, Economics of Unemployment, India's 1991 Economic Reform, India's agriculture, India's Agriculture & Food, India's balance of payments, India's Banking, India's Budget, India's bureaucracy, India's Capital Markets, India's Caste/Ethnic Problems, India's Democracy, India's Diplomacy, India's Economic History, India's Economy, India's emigrants to the West, India's farmers, India's Foreign Policy, India's Foreign Trade, India's Industry, India's Labour Markets, India's Monetary & Fiscal Policy, India's pork-barrel politics, India-Pakistan peace process, Indira Gandhi, Institute of Economic Affairs, Jawaharlal Nehru, Liberalism/Libertarianism, Manmohan Singh, Margaret Thatcher, Mendacity in politics, Peter Bauer, Political mendacity, Rajiv Gandhi, Rajiv Gandhi's assassination, Ronald Reagan, Siddhartha Shankar Ray, The Times (London), Transparency, University of Hawaii. Leave a Comment »

How to be a Finance Minister (Florence Nightingale Might Have Liked)

April 27, 2011 — drsubrotoroy

From Facebook, April 27 2011:

Subroto Roy reflects on what the role is of a Finance Minister/Treasury/Exchequer head: it is to be, at least, the Chief Financial Officer of the country.

And what does a good CFO do?

Preserve, if not enhance or at least not worsen, the “financial condition” of the entity in his charge, namely, the asset/liability, income/expenditure, and cashflow positions, plus the goodwill etc.

Of course the financial condition of a country’s Exchequer depends on the financial condition of each and every public entity that adds up to the whole (and less directly on the financial condition of private entities).

Good Finance Ministers should definitely stay away from TV (waffling on endlessly on TV trying to explain one’s economic model is a sure sign of an incompetent FM), probably stay away from most conferences, their favourite word has to be “No” or perhaps “No, I’m sorry”, their resignations need to be typed, signed & ready in their desk-drawer, only needing to be dated at the top. The same a fortiori for Central Bank heads (except for the ready-resignation part).

Florence Nightingale (1820-1910) revolutionized nursing by implementing her slogan “Whatever else hospitals do, they should not spread disease”.

Economists and Finance Ministers should seek, at least, at a minimum, to do no harm.

Posted in Economic Policy, Economic quackery, Financial Management, Florence Nightingale. Leave a Comment »

Maynard Keynes on How to Be a Good Economist

April 11, 2011 — drsubrotoroy

From Facebook, April 11, 2011

Since the name of Keynes is back to being used somewhat in vain around the world, it may be appropriate to recall Maynard Keynes’s description of his own role-model as an economist, his master Alfred Marshall.

“The study of economics does not seem to require any specialised gifts of an unusually high order. Is it not, intellectually regarded, a very easy subject compared with the higher branches of philosophy and pure science? Yet good, or even competent, economists are the rarest of birds. An easy subject , at which very few excel! The paradox finds its explanation, perhaps, in that the master-economist must possess a rare combination of gifts. He must reach a high standard in several different directions and must combine talents not often found together. He must be mathematician, historian, statesman and philosopher — in some degree. He must understand symbols and speak in words. He must contemplate the particular in terms of the general, and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purposes of the future. No part of man’s nature or his institutions must lie entirely outside his regard. He must be purposeful and disinterested in a simultaneous mood: as aloof and incorruptible as an artist, yet sometimes as near the earth as a politician.”

JM Keynes “Alfred Marshall, 1842-1924” in Memorials of Alfred Marshal, edited by AC Pigou, 1925, p. 12.

Keynes himself was trained as and always thought like a mathematician, though he invariably spoke in words about practical realities. Marshall was his master, and so too, to a lesser extent, was his father, Neville Keynes.

I came to quote Keynes’s statement in Chapter 9 “Mathematical Economics and Reality” of my 1989 book Philosophy of Economics...

Posted in Academic economics, Academic research, Alfred Marshall, Cambridge Univ Economics, Economic Policy, Economic Theory, John Maynard Keynes, John Neville Keynes, Microeconomic foundations of macroeconomics, Philosophy of Economics, Political Economy. Leave a Comment »

Two Different Models for India’s Political Economy: Mine & Dr Manmohan Singh’s (Updated 2013)

January 11, 2011 — drsubrotoroy

see

https://independentindian.com/2013/05/19/cambridge-economics-the-disputation-in-indias-economic-policy/

https://independentindian.com/2013/08/23/did-jagdish-bhagwati-originate-pioneer-intellectually-father-indias-1991-economic-reform-did-manmohan-singh-or-did-i-through-my-encounter-with-rajiv-gandhi-just-as-siddhartha-shan/

https://independentindian.com/2009/06/12/mistaken-macroeconomics-an-open-letter-to-prime-minister-dr-manmohan-singh/

From Facebook

February 24 2011

Subroto Roy does not know if he just heard Manmohan Singh say “inflation will soon come down” — excuse me Dr Singh, but how was it you and all your acolytes uniformly said back in July 2010 that inflation would be down to 6% by Dec 2010? 6%?! 16% more likely! I said. Until he explains his previous error, we may suppose he will repeat it.

January 11 2011:

Subroto Roy can stop the Indian inflation and bring integrity to the currency over time, and Manmohan Singh and his advisers cannot (because they have the wrong economic models/theories/data etc and refuse to change), but then they would have to make me a Minister and I keep getting reminded of what Groucho Marx said about clubs that would have him.

Subroto Roy does not think Dr Manmohan Singh or his acolytes and advisers, or his Finance Minister and his acolytes and advisers, understand Indian inflation. If you do not understand something, you are not likely to change it.

March 6 2010:

Subroto Roy says the central difference between the Subroto Roy Model for India as described in 1990-1991 to Rajiv Gandhi in his last months, and the Manmohan Singh Model for India that has developed since Rajiv’s assassination, is that by my model, India’s money and public finances would have acquired integrity enough for the Indian Rupee to have become a hard currency of the world economy by now, allowing all one billion Indians access to foreign exchange and precious metals freely, whereas by the model of Dr Singh and his countless supporters, India’s money and public finance remain subject to government misuse and abuse, and access to foreign exchange remains available principally to politicians, bureaucrats, big business and its influential lobbyists, the military, as well as perhaps ten or twenty million nomenclatura in the metropolitan cities.

April 8 2010:

Subroto Roy notes a different way of stating his cardinal difference with the economics of Dr Manmohan Singh’s Govt: in their economics, foreign exchange is “made available” by the GoI for “business and personal uses”. That is different from my economics of aiming for all one billion Indians to have a money that has some integrity, i.e., a rupee that becomes a hard currency of the world economy. (Ditto incidentally with the PRC.)

Updates:

From Facebook:

Subroto Roy reads in Newsweek today (Aug 19) Manmohan Singh “engineered the transition from stagnant socialism to a spectacular takeoff”. This contradicts my experience with Rajiv Gandhi at 10 Janpath in 1990-91. Dr Singh had not returned to India from his years with Julius Nyerere in his final assignment before retiring from the bureaucracy when Rajiv and I first met on 18 September 1990.

“After (Rajiv Gandhi’s) assassination, the comprador business press credited Narasimha Rao and Manmohan Singh with having originated the 1991 economic reform. In May 2002, however, the Congress Party itself passed a resolution proposed by Digvijay Singh explicitly stating Rajiv and not either of them was to be so credited… There is no evidence Dr Singh or his acolytes were committed to any economic liberalism prior to 1991 and scant evidence they have originated liberal economic ideas for India afterwards. Precisely because they represented the decrepit old intellectual order of statist ”Ma-Bap Sarkari” policy-making, they were not asked in the mid-1980s to be part of a “perestroika-for-India” project done at a foreign university ~ the results of which were received…by Rajiv Gandhi in hand at 10 Janpath on 18 September 1990 and specifically sparked the change in the direction of his economic thinking…”

Subroto Roy notes that current Indian public policy discussion has thus far failed to realise that the rise in money prices of real goods and services is the same as the fall in the real value of money.

Subroto Roy is interested to hear Mr Jaitley say in Parliament today the credibility of Government economists is at stake. Of course it is. There has been far too much greed and mendacity all around, besides sheer ignorance. (When I taught for a year or so at the Delhi School of Economics as a 22 year old Visiting Assistant Professor in 1977-78, I was told Mr Jaitley was in the law school and a student leader of note. I though was more interested in teaching the usefulness of Roy Radner’s “information structures” in a course on “advanced economic theory”.)

July 31 2010

Subroto Roy reads in today’s pink business newspaper the GoI’s debt level at Rs 38 trillion & three large states (WB, MH, UP) is at Rs 6 trillion, add another 18 for all other large states together, another 5 for all small states & 3 for errors and omissions, making my One Minute Estimate of India’s Public Debt Stock Rs 70 trillion (70 lakh crores). Interest payments at, say, 9%, keep the banking system afloat, extracting oxygen from the public finances like a cyanide capsule.

July 28 2010

Subroto Roy observes Parliament to be discussing Indian inflation but expects a solution will not be found until the problem has been comprehended.

July 27 2010:

Subroto Roy continues to weep at New Delhi’s continual debauching of the rupee.

July 25 2010:

Subroto Roy has no idea why Dr Manmohan Singh has himself (along with all his acolytes and flatterers in the Government and media and big business), gone about predicting Indian inflation will fall to 6% by December. 16% may be a more likely figure given a public debt at Rs 40 trillion perhaps plus money supply growth above 20%! (Of course, the higher the figure the Government admits, the more it has to pay in dearness allowance to those poor unionized unfortunates known as Government employees, so perhaps the official misunderestimation (sic) of Indian inflation is a strategy of public finance!)

July 12 2010:

Subroto Roy is amused to read Dr Manmohan Singh’s Chief Acolyte say in today’s pink business newspaper how important accounting is in project-appraisal — does the sinner repent after almost single-handedly helping to ruin project-appraisal & government accounting & macroeconomic planning over decades? I rather doubt it. For myself, I am amused to see chastity now being suddenly preached from within you-know-where.

July 4 2010:

Subroto Roy does not think the Rs 90 billion (mostly in foreign exchange) spent by the Manmohan Singh Government on New Delhi’s “Indira Gandhi International Airport Terminal 3” is conducive to the welfare of the common man (“aam admi”) who travels, if at all, mostly within India and by rail.

Subroto Roy hears Dr Manmohan Singh say yesterday “Global economic recession did not have much impact on us as it had on other countries”. Of course it didn’t. I had said India was hardly affected but for a collapse of exports & some fall in foreign investment. Why did he & his acolytes then waste vast public resources claiming they were rescuing India using a purported Keynesian fiscal “stimulus” (aka corporate/lobbyist pork)?

May 26 2010:

Subroto Roy would like to know how & when Dr Manmohan Singh will assess he has finished the task/assignment he thinks has been assigned to him & finally retire from his post-retirement career: when his Chief Acolyte declares on TV that 10% real GDP growth has been reached? (Excuse me, but is that per capita? And about those inequalities….?)

Posted in Academic economics, Academic research, Banking, Congress Party, Economic Policy, Economic Theory, Economic Theory of Growth, Economic Theory of Interest, Economic Theory of Value, Economics of exchange controls, Economics of Exchange Rates, Economics of Public Finance, Governance, Government Budget Constraint, Government of India, Growth rates (economic), India's Big Business, India's Cabinet Government, India's credit markets, India's Government economists, India's 1991 Economic Reform, India's Banking, India's Budget, India's bureaucracy, India's Capital Markets, India's corruption, India's currency history, India's Economic History, India's Economy, India's Foreign Exchange Reserves, India's Foreign Trade, India's Government Budget Constraint, India's Government Expenditure, India's inflation, India's Macroeconomics, India's Monetary & Fiscal Policy, India's Parliament, India's political lobbyists, India's pork-barrel politics, India's poverty, India's Public Finance, India's Reserve Bank, Interest group politics, Manmohan Singh, Rajiv Gandhi, Rajiv Gandhi's assassination, Sonia Gandhi. Leave a Comment »

Did the GoI’s MoF’s CEA certify India’s fiscal health yesterday? If so, it is a mistaken certificate

June 15, 2010 — drsubrotoroy

From Facebook:

Subroto Roy reads that Dr Kaushik Basu, Chief Economic Adviser to the Finance Ministry of the Manmohan Singh Government, has “expressed great confidence in the fiscal health of the economy” and says to Kaushik:

You are unaware of that of which you wish to speak.

Posted in Academic research, Economic Policy, Economic quackery, Economic Theory, Government accounting, Government Budget Constraint, Government of India, India's Government economists, India's bureaucracy, India's Macroeconomics, India's Monetary & Fiscal Policy, India's Public Finance, Manmohan Singh, Microeconomic foundations of macroeconomics. 2 Comments »

(Yet Another) Memo to Dr Kaushik Basu

May 17, 2010 — drsubrotoroy

Dear Kaushik,

Apropos your reported predictions, I have had to say at Facebook:

Subroto Roy is appalled the GoI’s Chief Economic Adviser has declared (as the PM and the PM’s Chief Acolyte had declared in earlier months) that prices are trending downwards stochastically but amused that at least a stochastic (“fluctuating”) trend got mentioned.

Governor Subbarao has been set a small challenge the other day to release asap for public scrutiny the comprehensive macroeconomic model he says he believes the RBI has — which may be hard if no such model may exist at the RBI. Nor does your Ministry or anyone else in New Delhi have such a model. So what is the Government’s precise scientific basis for predicting a slowing of inflation? Nothing at all?

The Government needs to begin to try to understand that inflation does not slow down in circumstances where real public debt per capita and money supply have been growing exponentially for decades — to the contrary, inflation tends to rise to dangerous heights! Debauching of fiat money would hardly have been allowed if the rupee was a hard currency because we would have seen an honest exchange-rate crashing through the floor with this kind of inflationary finance the Government has given us over the decades. There is, sad to say, zero chance of the rupee becoming a hard currency that all one billion Indians may feel confident about so long as such inflationary finance continues unabated.

Cordially yours

Suby

A New Drachma? Thinking further on the need for a new Greek domestic currency to revive trade: Is the Greek/German Eurozone problem the mathematical dual of Gresham’s Law?

March 24, 2010 — drsubrotoroy

from Twitter 2015 June July

What is my argument against € in #Greece= #grexit? It’s that Greeks didn’t need a hard world currency to turnover their real transactions… Eg suppose everyone in India was compelled to use grains of gold to buy fish or veg in the mkt or to get a haircut: mightn’t trade slow down? even if a barber gives you a haircut and accepts a grain or two of gold in exchange, he may then hoard that, not use it in further trade… would you use grains of gold in India to get a haircut or buy fish? if forced to,Velocityof Circulation would slow…

People would tend to hoard the gold, liquidate assets to acquire it, wait to see how things went…rather than actually trade as they used to..

My surmise has been Greeks who had assets & could liquidate did so, gaining windfall profits, then leaving/emigrating…hedging their bets..

The public debt left for those w/o assets…meanwhile velocity of circulation of the currency slowed, domestic trade& hence income collapsed.

What is my argument against € in #Greece= #grexit? It's that Greeks didn't need a hard world currency to turnover their real transactions 1/

— Dr Subroto Roy (@subyroy) July 11, 2015

From Facebook discussions:

March 2010: …My view on Greece appears different. In my view, a transition to a new Drachma will be drastic but will not be any more catastrophic than the present trap Greece has put itself in.

The current path makes a fetish of the fiscal side when the problem at root has been monetary, arising from a purported monetary union, a superficial monetary union being created, when there were wildly different underlying fiscal histories and fiscal propensities and preferences.

Money has two main functions, being a medium of exchange and a store of value; the Euro has become too (implicitly) expensive for Greeks to be an effective medium of exchange, while the threat of a Greek default makes the Euro a risky store of value for Germans, Dutch et al. Greeks would have been hoarding Euros, reducing the velocity of circulation, and causing domestic trade to turnover more slowly and hence damaging national income; at the same time, others would have been wondering about a flight to safety outside the Euro. Introducing a soft inconvertible domestic money in Greece would allow the medium of exchange function to be fulfilled and revive domestic trade and income; it would have to be accompanied by exchange and import controls, leaving the Euro as a hard currency for external transactions. The present route being followed of trying to improve Greece’s fiscal situation by compulsion may worsen the situation without any new equilibrium path being anywhere near to be found.

The aim is to have a soft flexible inconvertible domestic currency which facilitates, indeed stimulates, the turnover of domestic trade, and allows equilibrium domestic relative prices to be found and adjusted towards. There would have to be a

(a) clamping down overnight on capital exports followed by forex rationing;
(b) closing the trade borders and imposing import controls (smuggling is inevitable);
(c) deciding a new price for the Drachma, say something like 500 or 1000 to the Euro (the aim is for equilibrium domestic relative prices to be adjusted towards and for domestic trade to turnover properly and expeditiously and indeed stop its collapse);
(d) exchanging all forex/Euro-denominated financial assets held by domestic residents to New Drachma-denominations at the new rate automatically;
(e) Euro-denominated liabilities incurred by domestic residents remain Euro-denominated: if it is the Government, they can negotiate how much or all if it they will repay over time; if it is private, private assets may be converted to pay it and/or there will be individual defaults or delays (restructuring) or write-offs.
(f) Exchanging all cash forex/Euro held by domestic residents to New Drachmas, through “licensed authorised dealers” as well as e.g. by ordering all commercial establishments to give New Drachma change in transactions.

Would Greece have “left the Euro”? Yes and No. It would not be part of the Euro Area but the New Drachma would be a Euro-standard currency where the Government guaranteed to buy up all Euro held by domestic residents at the fixed price in exchange for New Drachmas and held its forex reserves in Euros.

**I have spent decades arguing against all this in the Indian case but have to say it is what Greece may need now, for a period of adjustment of half a dozen or so years.**

Is the Greek/German Eurozone problem the mathematical dual of Gresham’s Law?
17 October 2011

Money according to economic theory has two main functions, namely, being a medium of exchange and a store of value; I have been saying that I think the Euro has become too (implicitly) expensive for Greeks to be an effective medium of exchange, while the threat of a Greek default would make the Euro a risky store of value for Germans, Danes et al. If I am right, Greeks would have been hoarding Euros, reducing the velocity of circulation, and causing domestic trade to turnover more slowly and hence damaging national income; at the same time, the Germans, Danes et al would have been wondering about a flight to safety outside the Euro. Some young mathematical economist may take my idea and develop it it intelligently as the dual problem to Gresham’s law http://en.wikipedia.org/wiki/Gresham%27s_law inasmuch as weak fiscal positions are causing, through a common money, stronger fiscal positions to weaken…

Addendum Oct 25 2011
My guess has been the Euro has become a de facto hard currency for Greeks, who will then hoard it and slow the velocity of circulation, damaging the turnover of normal domestic trade and hence damaging national income; i.e. it has become too expensive as a currency to properly fulfill the medium of exchange function of money in Greece; at the same time, Germans, Dutch and others in fiscally strong economies relatively have to account for the added risk of Greek infirmity and hence find the Euro less of a store of value than otherwise, causing incentives to flee to other denominations. Introducing a soft inconvertible domestic money in Greece would allow the medium of exchange function to be fulfilled and revive domestic trade and income; it would have to be accompanied by exchange and import controls, leaving the Euro as a hard currency for external transactions. The present route being followed of trying to improve Greece’s fiscal situation by compulsion may well worsen the situation without any new equilibrium path being anywhere near to be found.

Thinking further on the need for a new Greek domestic currency to revive trade
16 September 2011

Subroto Roy: Re “it is still not clear what will actually happen”, what will happen is there will be an inevitable recognition that the introduction of the Euro was premature, probably irreversible, and likely to be catastrophic as it unwinds.

Edward Hugh Yes, well…. and apart from that little detail Suby, what else do you forsee. I absolutely agree, by the way, that these madmen (and women) have taken the global economy to the brink of disaster through their inability to listen.

Maria Tadd When words like catastrophic are used, they obviously send fear into the hearts of many. Suby and Ed, how do you envision the fall out to look like?

Subroto Roy There has to be a clear way out for a currency to exit; that has never been thought out beforehand; creating a monetary union is the final step from a free trade area to a customs union to an economic union to a monetary union. A purported monetary union, or rather a superficial monetary union was created, when there were wildly different underlying fiscal histories and fiscal propensities and preferences. Now Greece needs, as I have said over two years, an inexpensive inconvertible domestic money which allows domestic trade and savings to take place normally; the Euro would have to become a hard currency for external use.

Edward Hugh Do you mean like what has been happening in Croatia Suby?
Subroto Roy I am afraid I have to admit ignorance of Europe’s facts, what I am working on is my (quite sound) knowledge of monetary economics acquired from Hahn, Friedman, Walters, ACL Day, Griffths, Hicks via Miller, etc. Thinking about Greece overnight: if the Euro has become a de facto hard currency there, its velocity of circulation will fall as people tend to hoard it, causing domestic transactions & trade and hence national income to fall too; hence further the need for an inexpensive domestic currency (under capital controls) for domestic trade and transactions to be revived.

(Capital controls imply import restrictions and the rationing of foreign exchange so Greeks will not be big tourists in the rest of the world for a while but what the heck they have so much to see in their own country.)

Oct 3 2011:

“What I have said for two years now is that Greece needs to introduce a soft inconvertible domestic money to facilitate domestic trade and revive growth; it would have to be accompanied by import controls and forex rationing with the Euro becoming a hard currency in Greece for external transactions. Why? Because the Euro has probably become a de facto hard currency for Greeks who would then tend to hoard it, slowing velocity of circulation and causing domestic transactions to be reduced. (At the same time, Germans, Danes and others have an incentive to leave the Euro for the safety of some other hard currency in view of a possible Greek default.) Money has two main functions, being a store of value and a medium of exchange. In present circumstances, the Euro is becoming a dubious store of value for the Germans et al while becoming too scarce to be a proper medium of exchange for the Greeks. All this is good standard monetary economics, which no one in the ECB, IMF, financial journalism etc somehow seems to be able to recall. Instead they have made a fetish of the fiscal side, and that is destined to neither address the root problem nor to bring civil peace….”

My “Reverse Euro” Model of June 1998, and my writings on a new money for Greece: letter to the Wolfson Economics Prize donors by Subroto Roy on Thursday, 20 October 2011 at 18:51 ·

Hello,
In June 1998, I gave an invited lecture at the Institute of Economic Affairs on a “Reverse Euro” model for India, i.e., on how India could and should consider creating (under certain conditions) more than a dozen state-monies to coexist with a national currency too in the interests of a better fisc and some slight pretence to monetary integrity. In doing so, I also expressed my very grave foreboding about what the Euro was intended to be doing the following year in actual practice in Europe; I remember visiting a prominent British Euro-optimist too and making my argument in contrast about the Euro’s arrival.

Subsequently, Milton Friedman and I corresponded too about my idea, and he found merit in it in describing an exit route for, he said, Italy for example, if that country needed such an exit route given its fiscal condition to depart from the Euro in due course. I also talked briefly about the subject at an invited lecture at the Reserve Bank of India in April 2000, as well as elsewhere.

Over the last two years, I have (and I think was the first to do so) suggested Greece needs a New Drachma, and how this should be gone about. This has been outlined by me with many economists informally by email, as well as discussed at Facebook at some length.

I have little doubt what I am saying is broadly right — in the sense that it is the most consistent with the formal body of economic theory known as monetary economics. I was taught monetary economics very well in the mid 1970s at the LSE by, for example, ACL Day, Alan Walters, Brian Griffiths, Marcus Miller (a student of JR Hicks) and others which came to be followed by my doctoral dissertation at Cambridge under Frank Hahn, and postdoctoral work in America with Jim Buchanan. Plus Milton Friedman became a friend and stood for me as an expert witness in a US federal court (the only time he ever did that)! My most recent work is a book edited with John Clark titled Margaret Thatcher’s Revolution: How it Happened and What it Meant published by Continuum in 2005 — that has an essay relevant to this subject commissioned by us and done by Patrick Minford of Cardiff.

So I do plan to write something for your prize but whatever I do write will not be worth the vast sum of money you are offering — in fact, I would say you need to break it up into little bits in due course and parcel it out to the most fruitful ideas. The fox knows many things but the hedgehog knows one big thing… This is a fox problem, not a hedgehog one. Perhaps you should commission a journal or a multi-essay volume or a set of volumes or monographs rather than hand out one big cheque to someone who will not deserve it. (And please say no more about the moneys the Bank of Sweden gives away every year in the name of the advancement of knowledge in economics…)

The problem you have raised is a fundamental one and should have been raised decades ago, not merely by Eurosceptics in the occasional lecture or newspaper article but in many formal academic doctoral theses and journals all over Europe, long before the Euro came to be introduced — and note that the jump from the unification of Germany (with the 1:1 DM:Ostmark problem) was less than a decade before that. That did not happen. So now your belated initiative is most welcome, better late than never, better something than nothing.

Do let me know please what else I need to know to send in my theoretical thoughts on this.

Cordially

Suby Roy

February 21 2012:

My idea has been far better (because it is based on standard monetary economics which the ECB, IMF etc bureaucrats appear to have all forgotten or never learnt) …

[Devaluation refers to exchange-rates. There are no exchange-rates, that is precisely the problem; exchange-rates are prices, and as such market signals. By getting rid of them, market signals were lost. The point I am making in my notes is that there is still an implicit shadow exchange-rate if you like, so the Euro being used in Greece actually has a different local price in terms of real goods and services than the same Euro being used in Germany!]

Hans Suter: A Drachma at a discount of 40% would certainly push tourism by a 20% ? That would be a 3 to 4% jump of GDP.)

Subroto Roy: A New Drachma can be at 0.1 of a Euro, or less. But at least local trade and business will be revived and slowly national income will grow. The Greeks will feel free and self-confident and sovereign. Yes they cannot buy any more BMWs or tour Paris or Italy any more. But they can go and visit the Taj Mahal and the Pyramids perhaps. [And they can take 100 years to repay their Euro debts instead of 50 years…]

Subroto Roy hears “If the Baltics can, then why not Greece?”, and says the Baltics are the Baltics, God Bless them, Greece is Greece… I have no idea about the Baltics. The closest I got to them was an Estonian friend in Helsinki many years ago. In Greece what I am saying is that the money that is being used, the Euro, is no longer a natural money, and for that matter, it never was a natural money — money and banking evolve naturally out of trade and commerce, and to truck, barter and exchange are natural human propensities. Creating a monetary union is the final step from a free trade area to a customs union to an economic union to a monetary union. A purported monetary union, or rather a superficial monetary union was created, when there were wildly different underlying fiscal histories and fiscal propensities and preferences. The Euro has been an artificial money that eradicated the vital market signalling function that exchange-rates played (since exchange-rates are prices). A new inconvertible soft domestic money for Greece would allow domestic transactions to turnover properly once more and hence revive trade and national income. Greece could still be “in” the Eurozone nominally in the sense of having a fixed exchange-rate with the Euro which would be used for external trade. But there would have to be capital controls and import controls and foreign exchange rationing. At least for a while, probably a long while. Greece’s Euro debt would take 100 years instead of 50 years to repay. But at least the Greeks would feel free and sovereign and self-confident again, and adjust to their domestic economic realities in peace.

From Facebook May 14 2012
Diran Majarian
“The big issue here is how to deal with the debt overhang after the drachma transition since this must apply to both assets and liabilities.”

Subroto Roy The New Drachma has to be an inconvertible soft currency and Greece has to have import controls and capital export controls. Euro denominated assets held by domestic residents become Drachma-denominated (at a fixed, not a market-determined rate, e.g. 1:500 or 1:1000); Euro-denominated liabilities incurred by domestic residents remain Euro-denominated: if it is the Government, they can negotiate how much or all if it they will repay over time; if it is private, private assets may be converted to pay it and/or there will be individual defaults or delays (restructuring) or write-offs.

May 14 2012
The famous Professor Wilhelm Buiter (Cambridge BA 1971, Yale PhD 1975) has said this? “The instant before Greece exits it (somehow) introduces a new currency (the New Drachma or ND, say). Assume for simplicity that at the moment of its introduction the exchange rate between the ND and the euro is 1 for 1. This currency then immediately depreciates sharply vis-à-vis the euro (by 40 percent seems a reasonable point estimate). All pre-existing financial instruments and contracts under Greek law are redenominated into ND at the 1 for 1 exchange rate. What this means is that, as soon as the possibility of a Greek exit becomes known, there will be a bank run in Greece and denial of further funding to any and all entities, private or public, through instruments and contracts under Greek law. Holders of existing euro-denominated contracts under Greek law want to avoid their conversion into ND and the subsequent sharp depreciation of the ND. The Greek banking system would be destroyed even before Greece had left the euro area”…

Excuse me? This from the Chief Economist at Citi bank and “Professor of European Political Economy” at my alma mater, the London School of Economics and Political Science? What a load of rubbish Professor Buiter! Whom did you learn your monetary economics from? OK, ok, I should be polite: what makes you think a 1:1 exchange-rate should be fixed? Why not 1:500? Or 1:1000? The aim is to have a soft flexible inconvertible domestic currency which facilitates, indeed stimulates, the turnover of domestic trade, and allows equilibrium domestic relative prices to be found and adjusted towards. And why should Greece default on its Euro debt?! It might merely take a little longer to repay it. The change in currency is a conceptually distinct problem from that of credit-worthiness. Here is what I have said instead over two years, and for free:

Reintroducing the New Drachma would require

(a) clamping down overnight on capital exports followed by forex rationing;
(b) closing the trade borders and imposing import controls;
(c) deciding a new price for the Drachma, I would say something like 500 or 1000 to the Euro (the aim is for equilibrium domestic relative prices to be adjusted towards and for domestic trade to turnover properly and expeditiously and indeed stop its collapse);
(d) exchanging all forex/Euro-denominated financial assets held by domestic residents to New Drachma-denominations at the new rate automatically;
(e) exchanging all cash forex/Euro held by domestic residents to New Drachmas, through “licensed authorised dealers” as well as e.g. by ordering all commercial establishments to give New Drachma change in transactions. Would Greece have “left the Euro”? Yes and No. It would not be part of the Euro Area but the New Drachma would be a Euro-standard currency where the Government guaranteed to buy up all Euro held by domestic residents at the fixed price in exchange for New Drachmas and held its forex reserves in Euros.

A New Drachma?
Facebook April 29 2010:
Subroto Roy thinks a New Drachma is inevitable sooner or later but remains deeply puzzled at the possible ways it may get reintroduced. The examples of such monetary reforms are all long gone from memory, in the immediate aftermath of WWII. It seems clear the Euro will become an increasingly scarce currency not suitable for fulfilling the normal medium of exchange function in domestic Greek transactions and will become a rationed hard currency under capital controls for external transactions only. It may already be hard or impossible to restrain a capital flight, perhaps underway. How will the actual transition be made? Perhaps by allowing Greek government debt denominated in a new local money, call it the New Drachma, to become tradeable? I said in my Reverse Euro model for India lecture in June 1998 at London’s IEA that the Eurozone could end up looking less like America’s monetary union than India’s.

April 8 2010:
Subroto Roy, reading “It is hard to know how to interpret this large decline in deposits”, says “Not really. The Euro is becoming a scarce hard currency in Greece, i.e., it is becoming too expensive to use Euros to satisfy Greece’s transactions demand for money, the medium of exchange function, hence Greece has an increasing need for a new local currency which will satisfy that function while the Euro is retained for use in Greece’s international transactions”.

Subroto Roy thinks the only sustainable long-term solution may be the reintroduction of a New Drachma, which will need time to stabilize behind a period of foreign exchange controls and rationing. The DM/FFr-based Euro would become a hard currency relative to a New Drachma.

March 24 2010:
Subroto Roy expects the US, Britain, ANZ and everyone else in the IMF who is not in the Eurozone may legitimately ask why the effective subsidy of Greece by its Eurozone partners should be transferred to the rest of the world.
Subroto Roy thinks the Europeans have enough clout in the IMF to, say, insist some of their own IMF-directed resources be directed towards Greece specifically, which would spell the unravelling of the IMF if it became a general habit.

Subroto Roy says “I had a very productive few months in 1993 as a high-level consultant working for Hubert Neiss at the IMF (consultants are, or at least were, very rare at the IMF unlike at the World Bank etc) when I came to understand a little of how the place works (leaving aside all the theory). The French Managing Director is a politician and not an economist or even a central banker, and I am sure France and Germany can swing some IMF money towards Greece. But of course, the IMF can by definition give no monetary or exchange-rate advice to Greece because there is no sovereign monetary authority in Greece any more. Hence all it can do is add the same fiscal (and political) advice and conditions as the rest of the Eurozone countries have done plus make the piggy bank larger with some IMF money. It may work once, but if France and Germany then say, right, Portugal, Spain, Italy are next in line, that is the end of the IMF, because its European members may as well be asked to pull out altogether. On the other hand, my radical advice to the IMF might have been to propose to help Greece to reintroduce the drachma and re-establish a sovereign monetary authority of its own, which would take IMF advice and expertise as a New Drachma would take time to stabilize and there would be a period of capital controls on foreign exchange transactions.”

Subroto Roy gave a Jun ’98 lecture at London’s IEA on why India should have a Reverse-Euro model: eg 16 major states have their own (domestic) monies with a national rupee coexisting too & free currency markets everywhere. I said I feared a Eurozone may end up looking like India rather than the US in this. India has papered over wild fiscal mismanagement by the States by even wilder fiscal mismanagement by the Union!

Subroto Roy says Europe could have been a confederation & an economic union for practical purposes without individual monetary sovereignties being lost. E.g., the drachma or peso or escudo or punt or lira could each have chosen to appropriately link to some combination of the DM, FFR, sterling etc. And a Europe-wide Euro from an ECB could have coexisted as well.

Subroto Roy finds Mr Constanzo mention Gresham’s Law, and says, “Certainly there might have been currency competition in Europe, and some of the smaller currencies may have chosen to go to that Euro — but DM would not have done, and would have been an alternative to it.”

Subroto Roy thought imposing a single newly invented money on different economies a bit like imposing a single newly invented language (like Esperanto) on different peoples.

Subroto Roy says India has papered over the wild fiscal mismanagement by the States by even wilder fiscal mismanagement by the Union!

Subroto Roy thinks the effective subsidy French farmers et al were getting from Germany in pre-Euro days all came to be subsumed within Euro-economics; an alternative would have been to leave DM as it was, & perhaps FFR too, & to have introduced a Euro for smaller economies to use (presumably to save transactions costs);that Euro could have been linked to the DM etc. The Germans would have been happy & the problems avoided.

Subroto Roy says German unification hit the Germans badly enough and they seem hardly in any mood to keep on playing Sugar-Daddy to everyone else while still having to defer to the putative victors of WWII (France and Britain) for political leadership.

Notes on Macroeconomics and India

February 28, 2010 — drsubrotoroy

Dr Kaushik Basu, Chief Economic Adviser, Ministry of Finance

Hello Kaushik,

Long time no see. Happy Holi 2010.

**I was glad to see the phrase “the relatively neglected subject of the micro-foundations of macroeconomic policy” mentioned in Chapter 2 of your document for the GoI a few days ago.**

But I am unable to see what you could mean by it because your chapter seems devoid of any reference or allusion to the vast discussion over decades of the subject known as the “microeconomic foundations of macroeconomics”. Namely, the attempt to integrate the theory of value (microeconomics) with the theory of money (macroeconomics); or alternatively, the attempt to comprehend aggregate variables like Consumption, Savings, Investment, the Demand for & Supply of Money etc in conceptual terms rooted in theories of constrained optimization by masses of individual people.

It is not an easy task. Keynes made no explicit attempt at it (recall Joan Robinson’s famous quip) and probably did not have time or patience to try. Hicks and Patinkin failed, though after valiant efforts. The modern period on this work began with Clower and Leijonhufvud, followed by the French (like Grandmont), and especially Frank Hahn. Hahn’s 1976 IMSSS paper “Keynesian Economics and General Equilibrium Theory” is the survey to read, viz., Equilibrium and Macroeconomics and Money, Stability and Growth as well as of course Arrow & Hahn’s General Competitive Analysis. You may agree that the general theory of value culminated in an important sense in the Arrow-Debreu model of the 1950s — yet that is something in which no money, and hence no macroeconomics, needs to or can really appear. The hard part is to develop macroeconomic models for policy-discussion which allow for money and public finance while still making some pretence of being rooted in a theory of constrained optimization by individuals, i.e., in microeconomic behaviour. (E Roy Weintraub wrote a textbook with “Microfoundations” in its title.)

In the Indian case, I tried to do a little in my Cambridge PhD thesis thirty years ago: “a full frontal assault from the point of view of microeconomic theory on the ‘development planning’ to which everyone routinely declared their fidelity, from New Delhi’s bureaucrats and Oxford’s ‘development’ school to McNamara’s World Bank with its Indian staffers”. Frank Hahn was very kind to say he thought my “critique of Development Economics was powerful not only on methodological but also on economic theory grounds”. Some of the results appeared in my December 1982 talk to the AEA’s NYC meetings “Economic Theory & Development Economics” (World Development 1983), and in my 1984 monograph with London’s IEA. Dr Manmohan Singh received a copy of the latter work in 1986, as well as, in 1993, a published copy of a work presented to Rajiv Gandhi in 1990, Foundations of India’s Political Economy: Towards an Agenda for the 1990s.

I am glad to see from your Chapter 2 that the GoI now seems to agree with what I had said in 1984 of the need for systems that “locally include direct subsidies to those (whether in rural or urban areas) who are unable to provide any income for themselves…” Your material on the “enabling State” would also find much support in what I said there about the functions of civil government and the need for better, not necessarily more, government. On the other hand, your reliance on the very expensive (Rs.19 billion this year!) Nandan Nilekani Numbering idea is odd as there seem to me to be insurmountable “incentive-compatibility” problems with that project no matter how much gets spent on it.

Returning to possible “microfoundations of macroeconomics” relevant to the Indian case, you may find of interest

“India’s Macroeconomics” (2007)

“Fiscal Instability” (2007)

“Fallacious Finance” (2007)

“Monetary Integrity and the Rupee” (2008)

“Growth and Government Delusion” (2008)

“India in World Trade & Payments” (2007)

“Our Policy Process” (2007)

“Indian Money and Credit” (2006)

“Indian Money and Banking” (2006)

“Indian Inflation” (2008)

“Growth of Real Income, Money & Prices in India 1869-2004” (2005)

“How to Budget” (2008)

“The Dream Team: A Critique” (2006)

“Against Quackery” (2007)

“Mistaken Macroeconomics” (2009)

These together outline an idea that the link between macroeconomic policy in India and individual microeconomic budgets of our one billion citizens arises via the “Government Budget Constraint”. More specifically, the continual deficit-finance indulged in by the GoI for decades has been paid for by invisible taxation of nominal assets, causing the general money-price of real goods and services to rise. I.e., the GoI’s wild deficit spending over the decades has been paid for by debauching money through inflation.

(The unrecorded untaxed “black economy” needs a separate chapter altogether, and it seems to me possible it provides enough real income and transactions to be absorbing some of the wilder money supply growth into its hoards.)

India cannot be a major economy of the world until and unless the Rupee some day becomes a hard currency — for the first time in many decades, indeed perhaps for the first time since the start of fiat money. It is going to take much more than the GoI inventing a trading symbol for the Rupee! The appalling state of our government accounting, public finance and monetary policy, caused by the GoI over decades, disallows this from happening any time soon as domestic bank assets (mostly GoI debt, and mostly held by government banks) would inevitably be re-evaluated at world prices foreshadowing a monetary crisis. Perhaps you will help slow the rot — I trust you will not add to it.

Cordially yours

Suby Roy

Postscript March 1 2010: I recalled it as Joan Robinson’s quip, had forgotten it was in fact her quoting Gerald Shove’s quip: “Keynes was not interested in the theory of relative prices. Gerald Shove used to say that Maynard had never spent the twenty minutes necessary to understand the theory of value.” (1963)

see also

My Recent Works, Interviews etc on India’s Money, Public Finance, Banking, Trade, BoP, etc (an incomplete list)

“Climate Change” Alarmism (2008/9): The real battle is against corruption, pollution, deforestation, energy waste etc

December 18, 2009 — drsubrotoroy

Last year I wrote but happened not to publish this brief article which may be relevant today.

Climate Change Alarmism: The real battle is against corruption, pollution, deforestation, energy waste etc

Subroto Roy
May 28 2008

Like the AIDS epidemic that never was, “climate change” is on its way to becoming the new myth sold by paternalist governments and their bureaucrat/scientist busybodies to ordinary people coping with their normal lives. E.g., someone says, without any trace of irony: “Everyone in the world should have the same emissions quota. Since Trotsky’s permanent revolution is unfortunately on hold at the moment, and the world still happens to be partitioned into nations, once the per capita quotas are determined they would have to be grouped on a nationwide basis”.

Trotskyism will have to be made of sterner stuff. Canada’s Lorne Gunter (National Post 20 May 2008) reports that Noel Keenlyside, the principal scientist who suggested that man-made global warming exists, has now led a team from the Leibniz Institute of Marine Science and Max Planck Institute of Meteorology which “for the first time entered verifiable data on ocean circulation cycles into one of the UN’s climate supercomputers, and the machine spit out a projection that there will be no more warming for the foreseeable future.…” Oops! So much for impending catastrophe. Rajendra Pachauri himself has in January “reluctantly admitted to Reuters… that there has been no warming so far in the 21st Century”.

Mr Pachauri had earlier gone on Indian television comparing himself to CV Raman and Mother Theresa as an Indian Nobel Prize winner — in fact, Al Gore and the 2500 member “UN Intergovernmental Panel on Climate Change” chaired by Mr Pachauri shared the Nobel Peace Prize last year. Now the prediction from that UN “Panel” of “a 0.3 deg C rise in temperature in the coming decade” has been contradicted by Noel Keenlyside’s own scientific results. Gunter reports further that 2007 “saw a drop in the global average temperature of nearly 0.7 deg C (the largest single-year movement up or down since global temperature averages have been calculated). Despite advanced predictions that 2007 would be the warmest year on record, made by such UN associates as Britain’s Hadley Centre, a government climate research agency, 2007 was the coolest year since at least 1993. According to the U. S. National Climatic Data Centre, the average temperature of the global land surface in January 2008 was below the 20th-Century mean for the first time since 1982. Also in January, Southern Hemisphere sea ice coverage was at its greatest summer level (January is summer in the Southern Hemisphere) in the past 30 years. Neither the 3,000 temperature buoys that float throughout the world’s oceans nor the eight NASA satellites that float above our atmosphere have recorded appreciable warming in the past six to eight years. Climate alarmists the world over were quick to add that they had known all along there would be periods when the Earth’s climate would cool even as the overall trend was toward dangerous climate change.”

Honest government doctors know that the myth that HIV/AIDS can spread at Western rates in a society as conservative and sexless as India’s has diverted vast public resources away from India’s numerous real killer diseases: filariasis, dysentery, leprosy, influenza, malaria, gastroenteritis, TB, whooping cough, enteric fever, infectious hepatitis, gonococcal infection, syphilis, measles, tetanus, chicken-pox, cholera, rabies, diptheria, meningococcal infection, poliomelitis, dengue and haemmorrhagic fever and encephalitis. Candid environmentalists similarly know that obsessing about climate change distracts from what is significant and within our power to do, namely, the prevention or at least regulation of the pollution of our air and water and prevention of the waste of energy using policies appropriate for a myriad of local communities and neighbourhoods.

The pollution of India’s atmosphere, rivers, lakes, roads and public property is an unending disgrace. Pollution and corruption are mirror images of each other: corruption is to steal something valuable that belongs to the public; pollution is to dispose private waste into the public domain. Both occur conspicuously where property rights between public and private domains are vague or fuzzy, where pricing of public and private goods and services is distorted, and where judicial and legal processes enforcing contracts are for whatever reason weak or inoperable.

Walk into any government office in India and lights, fans, ACs may be found working at top speed whether or not any living being can be seen. A few rare individual bureaucrats may be concerned but India’s Government as a whole cares not a hoot if public electricity or for that matter any public funds and resources are being wasted, stolen or abused.
At the same time, private motorists face little disincentive from pouring untaxed “black money” into imported gas-guzzling heavy automobiles regardless of India’s narrow roads and congestion. There are no incentives whatsoever for anyone who does not have to do so to want to bicycle or walk to work. The “nuclear deal” involves importing “six to eight lightwater reactors” on a turnkey basis; like the Enron-Dabhol deal a decade ago, it makes no financial sense at all and will make even less if the rupee depreciates anytime in future. Our government policy is in general invented and carried out regardless of technical or financial feasibility; the waste of energy and pollution of the environment are merely examples of the waste of resources and abuse of public property in general.

Someone says “The North”, mainly the USA, “is primarily responsible for climate change”. He may mean Western countries have contributed relatively more pollutants and effluents into the world’s waters and air which is probably a good guess since the West has also contributed more to the world’s scientific, industrial and agricultural progress in general over the centuries.

But to think human beings today understand the complexities of climate and its changes adequately enough to be able to control it is a fatal conceit. Philip Stott, emeritus professor of biogeography at the University of London, is among many scientists who have challenged “the key contradiction at the heart of the Kyoto Protocol, the global climate agreement – that climate is one of the most complex systems known, yet that we can manage it by trying to control a small set of factors, namely greenhouse gas emissions. Scientifically, this is not mere uncertainty: it is a lie…The problem with a chaotic coupled non-linear system as complex as climate is that you can no more predict successfully the outcome of doing something as of not doing something. Kyoto will not halt climate change. Full stop.” (BBC 25 February 2002). For Indian foreign or economic policy to waffle on about climate change is as ineffectual and irrelevant as for the Indian Finance Minister to waffle on about AIDS.

Where are the Reserve Bank’s Macroeconomic Models?

December 11, 2009 — drsubrotoroy

“On the blissful innocence of the RBI” (2009) From Facebook:

Subroto Roy can only sigh at the fact that while he has had to struggle for 35 years trying to grasp and then apply serious monetary economics to India’s circumstances, the RBI Governor & his four Deputy Governors appear blissfully innocent of all Hicks, Tobin, Friedman, Cagan et al yet exude confidence enough to “Waffle Away!”

A Small Challenge to the RBI’s Governor Subbarao
April 21, 2010

The Hon’ble Gov of the Reserve Bank of India Shri D Subbarao

Dear Governor Subbarao,

You said yesterday, April 20 2010, that the Reserve Bank of India has a macroeconomic model which it uses but which you had personally not seen.

I have given two lectures at your august offices, one by invitation of Governor Jalan and Deputy Governor Reddy on April 29, 2000 to address the Conference of State Finance Secretaries, the other on May 5, 2005 to address the Chief Economist’s Monetary Economics Seminar. On both occasions, I had inquired of the RBI’s own models by which I could contrast my own but came to understand there were none.

If since then the RBI has now constructed a macroeconomic model of India’s economy, it is splendid news.

May I request the model be released publicly on the Internet at once, so its specifications of endogenous and exogenous variables, assumed coefficients, and sources of time-series data all may be seen by everyone in the country and abroad? Scientific scrutiny and replication of results would thus come to be permitted.

I would be especially interested to know the demand for money function that you have used. I well remember my meeting with the late great Sukhamoy Chakravarty on July 14 1987 at his Planning Commission offices, when he signed and gifted me his last personal copy of the famous Reserve Bank report by the committee he had chaired and of which he told me personally Dr Rangarajan had been the key author – that report may have contained the first official discussion of the demand for money function in India.

With cordial regards

Subroto Roy

Posted in Academic economics, Academic research, Banking, Deposit multiplication, Economic Policy, Economic quackery, Economic Theory, Economic Theory of Growth, Economic Theory of Interest, Economic Theory of Value, Foreign exchange controls, General equilbrium theory, Government of India, India's Government economists, India's interest rates, India's savings rate, India's stock and debt markets, India's Banking, India's Capital Markets, India's Foreign Exchange Reserves, India's Government Budget Constraint, India's Government Expenditure, India's inflation, India's Macroeconomics, India's Monetary & Fiscal Policy, India's Reserve Bank, India's State Finances, India's Union-State relations, Inflation, Inflation targeting, Interest rates, Macroeconomics, Monetary Theory, Money and banking, Paper money and deposits, Power-elites and nomenclatura, Public Choice/Public Finance, Public property waste fraud, Redeposits, Unorganised capital markets. Leave a Comment »

Reflections on Mr Zoellick’s reported claim

December 5, 2009 — drsubrotoroy

From Facebook:

Subroto Roy says that there are no viable macroeconomic models or time series data in the possession of the World Bank, IMF, the Govt of India’s Finance Ministry, Planning Commission, Reserve Bank etc, or any professor from Oxford, Cambridge, LSE, Harvard, Yale, MIT, Stanford to the University of Timbuctoo to justify the reported claim yesterday of World Bank President Robert Zoellick that India is headed to “8-9% growth”. Growth may be higher, may be lower or something else altogether, no one knows because national income measurements have yet to reach SNA standards (in any case it should be *per capita real GDP*… and *even then*, there is no adjustment for inequality...)…

What *is* clear though is that Indian public finance at Union and State level is a mess and paper money has been growing at more than 20% per annum…. (And if you happen to believe the Government of India’s apologists and propagandists about Indian inflation being in single digits, might I interest you in a marble structure in Agra, or a steel bridge over the Hooghly perhaps? Very nice, just like Brooklyn Bridge itself….)

Finance Minister Mukherjee deserves a cheer for connecting with economics (though half a cheer gets subtracted)

November 15, 2009 — drsubrotoroy

From Facebook today

Independent India’s Finance Ministers have never in 62 years referred to economic theory or the history of economic thought until Mr Mukherjee delivered the 4th Kadirgamar Memorial Lecture in Colombo yesterday, making the following academic claim:
“As students of economics would understand, economic theory is an evolutionary process and undergoes change with every major crisis. The classical theory gave way to Keynesian economics after the Great Depression of 1930s. Thereafter, there were post-Keynesian and monetarist approaches to economic problems during 1960s to 90s. The present crisis, which has also been called Great Recession, would be another watershed in the evolution of economics and is expected to bring about radical retooling of the theory. The crisis has, in the first place, conclusively established that the pursuit of individual goals do not necessarily lead to public good. Adam Smith’s ‘invisible hand’ cannot guarantee allocation of resources efficiently.”

I might rather count this as intellectual progress to the extent that it at least allows the Government of India’s economists the possibility of moving away from politically-induced dissimulation and instead begin to connect with where I was 25 years ago in my May 1984 monograph published by London’s Institute of Economic Affairs (leave aside my 1976-82 doctoral thesis under Professor Frank Hahn at Cambridge “On liberty and economic growth: preface to a philosophy for India”). As for the Finance Minister saying “The Indian economy has shown remarkable resilience to the crisis because the financial system had no exposure to the toxic assets”, I am afraid he has left unsaid that this is because (a) the rupee is not a hard currency; and (b) India’s banks hold plenty of domestic assets that are “toxic”.

Subroto Roy

Posted in Academic economics, Academic research, America's mortgage crisis, Economic Policy, Economic Theory, India's Government economists, India's 1991 Economic Reform, India's Banking, India's currency history, India's Economic History, India's Economy, India's Macroeconomics, India's Monetary & Fiscal Policy, India's Public Finance, Institute of Economic Affairs, Macroeconomics, Monetary Theory, Money and banking. Leave a Comment »

An observation about official economic thought in India

November 14, 2009 — drsubrotoroy

From Facebook:

Subroto Roy wonders if India’s most eminent academic economist and India’s most eminent government economist have either of them ever said anything that any member of any audience could ever have found at all disagreeable….

(let aside falsifiable in the sense of Karl Popper)

(… except that I have of course disagreed with both…)

Posted in Academic economics, Economic Policy, Economic quackery, Economic Theory, India's Government economists, India's nomenclatura, Karl Popper. Leave a Comment »

Has business-cycle theory become easy for the dimwitted?

November 13, 2009 — drsubrotoroy

From Facebook:

Subroto Roy is amazed that business-cycle theory and history — always a most difficult, subtle and confusing part of economics — has now become child’s play for everyone except himself, and even the most dimwitted commentator claims to know that China and India were down last month but now seem up and similar profound truths….

Posted in Academic economics, China's macroeconomics, China's savings rate, China's Economy, Economic Policy, Economic quackery, India's Government economists, India's savings rate, India's Macroeconomics, Macroeconomics. Leave a Comment »

My choices dated Oct 11 for the 2009 “Economics Nobel Prize”

October 11, 2009 — drsubrotoroy

From Facebook:

Subroto Roy announces that if he was awarding the 2009 “Economics Nobel” it would go to Frank Horace Hahn and Anna Jacobson Schwartz: each for a lifetime of contributions to economic theory and monetary economics specifically relevant to the macroeconomic crises of recent years….Hahn’s Non-Walrasian theory provides a logic to what has happened; Schwartz predicted it and has diagnosed it better than anyone else.

Certainly the appalling state of academic economics is manifest in the self-written self-serving Wikipedia entries of the many Elmer & Mrs Fudd Professors of Gobbledygook at Ivy U…. all in the hope of getting noticed by the bookies in England quoting odds… and thereby considering themselves Nobel hopefuls…. (“has been mentioned as a possible winner…”)…

Posted in Academic economics, Anna Schwartz, Economic Policy, Economic Theory, Frank Hahn, General equilbrium theory, Macroeconomics, Monetary Theory, Nobel Prizes. Leave a Comment »

My book “Philosophy of Economics” on the Internet

October 8, 2009 — drsubrotoroy

I find on the Internet today my 1989 book (in its 1991 paperback edition) Philosophy of Economics: On the Scope of Reason in Economic Inquiry, the first economics book in Routledge’s International Library of Philosophy.

See https://independentindian.com/thoughts-words-deeds-my-work-1973-2010/philosophy-of-economics-on-the-scope-of-reason-in-economic-inquiry-1989/

Posted in Economic Policy, Economic Theory, Epistemology of Economics, Philosophy of Economics. Leave a Comment »

America has yet to play the demographic card: a few million new immigrants would happily buy up all those bad mortgages

October 3, 2009 — drsubrotoroy

From Facebook:

Mr Tim Cavanaugh’s clear-headed criticism of a principal government economist’s waffle seems to me apt and exactly on target. E.g. he says: “The real purpose here is Panglossian: to convince you that whatever Power does is the right thing to do, and to discredit the idea that government should ever again reduce its presence in the private sector.”

In an article dated Sep 18 2008 titled “October 1929? Not!”, I argued “that the American economy and the world economy are both incomparably larger today in the value of their capital stock, and there has also been enormous technological progress over eight decades. Accordingly, it would take a much vaster event than the present turbulence — say, something like an exchange of multiple nuclear warheads with Russia causing Manhattan and the City of London to be destroyed — before there was a return to something comparable to the 1929 Crash and the Great Depression that followed.” A few weeks later in “America’s divided economists” I said

“Beyond the short run, the US may play the demographic card by inviting in a few million new immigrants (if nativist feelings hostile to the outsider or newcomer can be controlled, especially in employment). Bad mortgages and foreclosures would vanish as people from around the world who long to live in America buy up all those empty houses and apartments, even in the most desolate or dismal locations. If the US’s housing supply curve has moved so far to the right that the equilibrium price has gone to near zero, the surest way to raise the equilibrium price would be by causing a new wave of immigration leading to a new demand curve arising at a higher level. Such proposals seek to address the problem at its source. They might have been expected from the Fed’s economists. Instead, ESSA speaks of massive government purchase and control of bad assets “downriver”, without any attempt to face the problem at its source. This makes it merely wishful to think such assets can be sold for a profit at a later date so taxpayers will eventually gain. It is as likely as not the bad assets remain bad assets.”

Restoring a worldwide idea of an American dream fuelled by mass immigration may be the surest way for the American economy to restore itself. America was at its best when it was open to mass immigration, and America is at its worst when it treats immigrants with racism and worse.

Posted in America's housing market, America's mortgage crisis, American financial crises, Crash of 1929, Credit markets, Economic Policy, Economic Theory, Economics of housing markets, Economics of real estate valuation, Great Depression, Great Tremor of 2008, Microeconomics. 1 Comment »

Finally, a dozen years late, the Sonia-Manmohan Congress takes a small Rajivist step: Yes Prime Minister, our Judiciary is indeed a premier public good (or example of “infrastructure” to use that dreadful bureaucratic term)

August 18, 2009 — drsubrotoroy

I was very harsh and did not beat about the bush in my Sep 23-24 2007 article in The Statesman “Against Quackery” when I said in its subtitle

“Manmohan and Sonia have violated Rajiv Gandhi’s intended reforms”.

I said inter alia

“WASTE, fraud and abuse are inevitable in the use and allocation of public property and resources in India as elsewhere, but Government is supposed to fight and resist such tendencies. The Sonia-Manmohan Government have done the opposite, aiding and abetting a wasteful anti-economics ~ i.e., an economic quackery. Vajpayee-Advani and other Governments, including Narasimha-Manmohan in 1991-1996, were just as complicit in the perverse policy-making. So have been State Governments of all regional parties like the CPI-M in West Bengal, DMK/ AIADMK in Tamil Nadu, Congress/NCP/ BJP/Sena in Maharashtra, TDP /Congress in Andhra Pradesh, SP/BJP/BSP in Uttar Pradesh etc. Our dismal politics merely has the pot calling the kettle black while national self-delusion and superstition reign in the absence of reason. The general pattern is one of well-informed, moneyed, mostly city-based special interest groups (especially including organised capital and organised labour) dominating government agendas at the cost of ill-informed, diffused anonymous individual citizens ~ peasants, small businessmen, non-unionized workers, old people, housewives, medical students etc….Rajiv Gandhi had a sense of noblesse oblige out of remembrance of his father and maternal grandfather. After his assassination, the comprador business press credited Narasimha Rao and Manmohan Singh with having originated the 1991 economic reform. In May 2002, however, the Congress Party itself passed a resolution proposed by Digvijay Singh explicitly stating Rajiv and not either of them was to be so credited. The resolution was intended to flatter Sonia Gandhi but there was truth in it too. Rajiv, a pilot who knew no political economy, was a quick learner with intelligence to know a good idea when he saw one and enough grace to acknowledge it. …Rajiv was entirely convinced when the suggestion was made to him in September 1990 that an enormous infusion of public resources was needed into the judicial system for promotion and improvement of the Rule of Law in the country, a pre-requisite almost for a new market orientation. Capitalism without the Rule of Law can quickly degenerate into an illiberal hell of cronyism and anarchy which is what has tended to happen since 1991. The resources put since Independence to the proper working of our judiciary from the Supreme Court and High Courts downwards have been abysmal, while the state of prisons, borstals, mental asylums and other institutions of involuntary detention is nothing short of pathetic. Only police forces, like the military, paramilitary and bureaucracies, have bloated in size….Neither Sonia-Manmohan nor the BJP or Communists have thought promotion of the Rule of Law in India to be worth much serious thought ~ certainly less important than attending bogus international conclaves and summits to sign expensive deals for arms, aircraft, reactors etc. Yet Rajiv Gandhi, at a 10 Janpath meeting on 23 March 1991 when he received the liberalisation proposals he had authorized, explicitly avowed the importance of greater resources towards the Judiciary. Dr Singh and his acolytes were not in that loop, indeed they precisely represented the bureaucratic ancien regime intended to be changed, and hence have seemed quite uncomprehending of the roots of the intended reforms ever since 1991.”

Days after the article appeared there were press reports Dr Singh was murmuring about quitting, and then came a fierce speech in Hindi from the Congress President saying “enemies” would receive their dues or whatever – only to be retracted a few days later saying that no more had been meant than a local critique of the BJP in Haryana politics! (Phew! I said to myself in relief…)

Today I am very happy to learn that Dr Manmohan Singh spoke on Sunday of the importance of the Rule of Law and an effective and efficient judiciary. The new Law Minister in the second Sonia-Manmohan Government has been eagerly saying the same.

All this is constructive and positive, late as it is since Sonia Gandhi and Manmohan Singh both became heavy-duty Congress Party politicians for the first time a dozen years ago.

I was privileged to advise a previous Congress President in his last months from September 1990 as has been told elsewhere. And six years before that I had said:

“….….The most serious examples of the malfunctioning of civil government in India are probably the failure to take feasible public precautions against the monsoons and the disarray of the judicial system. …The Statesman lamented in July 1980:`The simplest matter takes an inordinate amount of time, remedies seldom being available to those without means or influence. Of the more than 16,000 cases pending in the Supreme Court, about 5,000 were introduced more than five years ago; while nearly 16,000 of the backlog of more than 600,000 cases in our high courts have been hanging fire for over a decade. Allahabad is the worst offender but there are about 75,000 uncleared cases in the Calcutta High Court in addition to well over a million in West Bengal’s lower courts.” Such a state of affairs has been caused not only by lazy and corrupt policemen, court clerks and lawyers, but also by the paucity of judges and magistrates. . . . a vast volume of laws provokes endless litigation as much because of poor drafting which leads to disputes over interpretation as because they appear to violate particular rights and privileges…. When governments determinedly do what they need not or should not do, it may be expected that they will fail to do what civil government positively should be doing.” A few months ago was the 25th anniversary of this statement… ! 🙂

Yes Prime Minister, having an effective and efficient judiciary is indeed a premier public good and one that has failed to be provided to India’s people from Nehru’s time and through Indira’s. I managed to persuade Rajiv about it completely. Might I next be so bold as to draw attention as well to the paragraphs of the 2007 article that followed?

“Similarly, Rajiv comprehended when it was said to him that the primary fiscal problem faced by India is the vast and uncontrolled public debt, interest payments on which suck dry all public budgets leaving no room for provision of public goods. Government accounts: Government has been routinely “rolling over” its domestic debt in the asset-portfolios of the nationalised banks while displaying and highlighting only its new additional borrowing in a year as the “Fiscal Deficit”. More than two dozen States have been doing the same and their liabilities ultimately accrue to the Union too. The stock of public debt in India is Rs 30 trillion (Rs 30 lakh crore) at least, and portends a hyperinflation in the future. There has been no serious recognition of this since it is political and bureaucratic actions that have been causing the problem. Proper recognition would entail systematically cleaning up the budgets and accounts of every single governmental entity in the country: the Union, every State, every district and municipality, every publicly funded entity or organisation, and at the same time improving public decision-making capacity so that once budgets and accounts recover from grave sickness over decades, functioning institutions exist for their proper future management. All this would also stop corruption in its tracks, and release resources for valuable public goods and services like the Judiciary, School Education and Basic Health. Institutions for improved political and administrative decision-making are needed throughout the country if public preferences with respect to raising and allocating common resources are to be elicited and then translated into actual delivery of public goods and services. Our dysfunctional legislatures will have to do at least a little of what they are supposed to. When public budgets and accounts are healthy and we have functioning public goods and services, macroeconomic conditions would have been created for the paper-rupee to once more become a money as good as gold ~ a convertible world currency for all of India’s people, not merely the metropolitan special interest groups that have been controlling our governments and their agendas.”

Subroto Roy

Kolkata

Q: What is common to swine flu, a weak monsoon, climate change, America’s financial crisis and Pakistani terrorism?

August 11, 2009 — drsubrotoroy

A: They are all external or exogenous factors that the Government of India’s leaders, spokesmen and other apologists adduce to explain away endogenous economic outcomes arising from bad fiscal and monetary policies, pork-barrel politics, lobbying by organised Big Business and Big Labour, political and bureaucratic corruption etc. (And the Parliamentary Opposition is hardly any better, probably worse…)

More to come…

Subroto Roy

Posted in Economic Policy, Economic quackery, Economic Theory, Economic Theory of Value, Economics of Public Finance, Government of India, India's bureaucracy, India's Monetary & Fiscal Policy, India's nomenclatura, India's political lobbyists, India's political parties, India's Politics, India's pork-barrel politics. Leave a Comment »

Thoughts, words, deeds: My work 1973-2020

August 3, 2009 — drsubrotoroy

This is an incomplete bibliography of my writings, public lectures etc 1973-2020 including citations, reviews, comments. I have been mostly an academic economist who by choice or circumstance over 47 years has had to venture also into science, philosophy, public policy, law, jurisprudence, practical politics, history, international relations, military strategy, financial theory, accounting, management, journalism, literary criticism, psychology, psychoanalysis, theology, aesthetics, biography, children’s fables, etc. If anything unites the seemingly diverse work recorded below it is that I have tried to acquire a grasp of the nature of human reason and then apply this comprehension in practical contexts as simply and clearly as possible. Hence I have ended up following the path of Aristotle, as described in modern times (via Wittgenstein and John Wisdom) by Renford Bambrough. The 2004 public lecture in England, “Science, Religion, Art & the Necessity of Freedom”, also my 2017 “Is ‘Cambridge Philosophy’ dead, in Cambridge? Can it be resurrected, there? Case Study: Renford Bambrough (& Subroto Roy) preceded by decades Cheryl Misak’s thesis on Wittgenstein being linked with Peirce via Ramsey…”

may explain and illustrate all this best. A friend has been kind enough to call me an Academician, which I probably am, though one who really needs his own Academy because the incompetence, greed and mendacity encountered too often in the modern professoriat is dispiriting.

Besides writings and publications printed on paper, there are writings or items not printed on paper — as new media break space, cost and other constraints of traditional publishing. A little repetition and overlap has occurred too. Also in a few cases, e.g., Aldous Huxley’s essay on DH Lawrence, nothing has been done except discover and republish. Several databases have been created and released in the public interest, as have been some rare maps. There is also some biographical and autobiographical material. Several inconsequential errors remain in the text, which shall take time to be rectified as documents come to be rediscovered and collated.

1973

1. “Behavioural study of mus musculus”, Haileybury College, Supervised by J de C Ford-Robertson MA (Oxon). (Due to be published here 2010).

2. “Chemistry at Advanced & Special Level: Student Notes 1972-73” (Due to be published here 2010).

3. “Biology at Advanced & Special Level: Student Notes 1972-73”, (Due to be published here 2010).

4. “Physics at Advanced Level: Student Notes 1972-73”, (Due to be published here 2010).

5. “Revolution: theoria and praxis”, London, mimeo (Due to be published here 2010).

6. “Gandhi vs Marx”, London, mimeo (Due to be published here 2010).

1974

7. “Relevance of downward money-wage rigidity to the problem of maintaining full-employment in the classical and Keynesian models of income determination”, London School of Economics, mimeo (Due to be published here 2010).

8. “Testing aircraft fuels at Shell Finland”.

1975

9. “Oxford Street experiences: down and out in London town”.

10. “SE Region Bulk Distribution Survey”, Unilever, Basingstoke.

11. “Four London poems”, in JCM Paton (ed) New Writing (London, Great Portland Street: International Students House). (Due to be republished here 2010)

12. “On economic growth models and modellers”, London School of Economics, mimeo. (Due to be published here 2010).

1976

13. “World money: system or anarchy?”, lecture to Professor ACL Day’s seminar, London School of Economics, Economics Department, April. (Due to be published here 2010).

14. “A beginner’s guide to some recent developments in monetary theory”, lecture to Professor FH Hahn’s seminar, Cambridge University Economics Department, November 17 (Due to be published here 2010). See also “Announcement of My “Hahn Seminar”, published here June 14 2008.

1977

15. “Inflation and unemployment: a survey”, mimeo, Fitzwilliam College, Cambridge. (Due to be published here 2010).

16. “On short run theories of dual economies”, Cambridge University Economics Department “substantial piece of work” required of first year Research Students. Examiner: DMG Newbery, FBA. (Due to be published here 2010).

1978

17. “Pure theory of developing economies 1 and 2”, Delhi School of Economics mimeo (Due to be published here 2010).

18. “Introduction to some market outcomes under uncertainty”, Delhi School of Economics mimeo (Due to be published here 2010).

19. “On money and development”, Corpus Christi College, Cambridge, mimeo, September. (Due to be published here 2010)

20. “Notes on the Newbery-Stiglitz model of sharecropping”, Corpus Christi College, Cambridge, mimeo November. (Due to be published here 2010).

1979

21. “A theory of rights and economic justice”, Corpus Christi College Cambridge mimeo. (Due to be published here 2010).

22. “Monetary theory and economic development”, Corpus Christi College Cambridge, mimeo (Due to be published here 2010).

23. “Foundations of the case against ‘development planning’”, Corpus Christi College Cambridge, mimeo, November. (Due to be published here 2010).

1979-1989

24. Correspondence with Renford Bambrough (1926-1999), philosopher of St John’s College, Cambridge (Due to be published here 2010).

1980

25. “Models before the monetarist storm”, New Statesman letters

26. “Disciplining rulers and experts”, Corpus Christi College, Cambridge, mimeo. (Due to be published here 2010).

1981

27. “On liberty & economic growth: preface to a philosophy for India”, Cambridge University doctoral thesis, supervisor FH Hahn, FBA; examiners CJ Bliss, FBA; TW Hutchison, FBA (Due to be published here 2010). 27a Response of FA Hayek on a partial draft February 18 1981. 27b Response of Peter Bauer, 1982. 27c Response of Theodore W Schultz, 1983. 27d. Response of Frank Hahn 1985.

1982

28. “Knowledge and freedom in economic theory Parts 1 and 2”, Centre for Study of Public Choice, Virginia Polytechnic Institute & State University, Working Papers.

29. “Economic Theory and Development Economics”. Lecture to American Economic Association, New York, Dec 1982. Panel: RM Solow, HB Chenery, T Weisskopf, P Streeten, G Rosen, S Roy. Published in 29a.

1983

29a “Economic Theory and Development Economics: A Comment”. World Development, 1983. [Citation: Stavros Thefanides “Metamorphosis of Development Economics”, World Development 1988.]

30. “The Political Economy of Trade Policy (Comment on J. Michael Finger)”, Washington DC: Cato Journal, Winter 1983/84. See also 000 “Risk-aversion explains resistance to freer trade”, 2008.

1984

31. “Considerations on Utility, Benevolence and Taxation”, History of Political Economy, 1984. 31a Response of Professor Sir John Hicks May 1 1984.

[Citations: P. Hennipman, “A Tale of Two Schools”, De Economist 1987, “A New Look at the Ordinalist Revolution”, J. Econ. Lit. Mar 1988; P. Rappoport, “Reply to Professor Hennipman”, J. Econ. Lit. Mar 1988; Eugene Smolensky et al “An Application of A Dynamic Cost-of-Living Index to the Evaluation of Changes in Social Welfare”, J. Post-Keynesian Econ.IX.3. 1987.]

32. Pricing, Planning and Politics: A Study of Economic Distortions in India, London: Institute of Economic Affairs, London 1984.

[Citations: Lead editorial of The Times of London May 29 1984, “India’s economy”, Times letters June 16 1984. John Toye “Political Economy & Analysis of Indian Development”, Modern Asian Studies, 22, 1, 1988; John Toye, Dilemmas of Development; D. Wilson, “Privatization of Asia”, The Banker Sep. 1984 etc]. See also 370 “Silver Jubilee of ‘Pricing, Planning and Politics: A Study of Economic Distortions in India’” 2009.

33. Review of Utilitarianism and Beyond, Amartya Sen & Bernard Williams (eds) Public Choice.

34. Review of Limits of Utilitarianism, HB Miller & WH Williams (eds.), Public Choice.

35. Deendayal Upadhyaya lecture “On Government and the Individual in India” (one of four invited lecturers), Washington DC, October 1984.

1987

36. (with one other) “Does the Theory of Logical Types Inform the Theory of Communication?”, Journal of Genetic Psychology., 148 (4), Dec. 1987 [Citation:

37. “Irrelevance of Foreign Aid”, India International Centre Quarterly, Winter 1987.

38. Review of Development Planning by Sukhamoy Chakravarty for Economic Affairs, London 1987.

1988

39. (with Seiji Naya and Pearl Imada) “Introduction” to Lessons in Development: A Comparative Study of Asia and Latin America. San Francisco: Inst. of Economic Growth.

40. “A note on the welfare economics of regional cooperation”, lecture to Asia-Latin America conference, East West Center Honolulu, published 2009.

1989

41. Philosophy of Economics: On the Scope of Reason in Economic Inquiry, London & New York: Routledge (International Library of Philosophy) 1989, paperback 1991. Internet edition 2007. [Reviews & Citations: Research in Economics, 1992; De Economist 1991 & 1992; Manch.Sch. Econ.Studs. 59, 1991; Ethics 101.88 Jul. 1991; Kyklos 43.4 1990; Soc. Science Q. 71.880. Dec.1990; Can. Phil. Rev. 1990; J. Econ. Hist. Sep. 1990; Econ. & Phil. Fall 1990; Econ. Affairs June-July 1990; TLS May 1990; Choice March 1990; J. App.Phil. 1994, M. Blaug: Methodology of Economics, 2nd ed., Cambridge, 1992; Hist. Methods. 27.3, 1994; J. of Inst. & Theoretical Econ.,1994; Jahrbucker fur Nationaleconomie 1994, 573:574. Mark A Lutz in Economics for the Common Good, London: Routledge, 1999, et al]. See also 339 “Apropos Philosophy of Economics”, Comments of Sidney Hook, KJ Arrow, Milton Friedman, TW Schultz, SS Alexander, Max Black, Renford Bambrough, John Gray et al.

42. Foreword to Essays on the Political Economy by James M. Buchanan, Honolulu: University of Hawaii Press 1989.

43. “Modern Political Economy of India”, edited by Subroto Roy & William E James, Hawaii mimeo May 21 1989. This published for the first time a November 1955 memorandum to the Government of India by Milton Friedman. See also 43a, 53.

43a. Preface to “Milton Friedman’s extempore comments at the 1989 Hawaii conference: on India, Israel, Palestine, the USA, Debt and its uses, Erhardt abolishing exchange controls, Etc”, May 22 1989, published here for the first time October 31 2008.

44. Milton Friedman’s defence of my work in 1989.

45. Theodore W. Schultz’s defence of Philosophy of Economics

1990

46. “Letter to Judge Evelyn Lance: On A Case Study in Private International Law” (Due to be published here in 2010).

47-49. Selections from advisory work on economic policy etc for Rajiv Gandhi, Leader of the Opposition in the Parliament of India, published in 47a-49a.

1991

41b Philosophy of Economics: On the Scope of Reason in Economic Inquiry, Paperback edition.

50. “Conversations and correspondence with Rajiv Gandhi during the Gulf war, January 1991” (Due to be published here 2010).

47a. A Memo to Rajiv I: Stronger Secular Middle”, The Statesman, Jul 31 1991.

48a “A Memo to Rajiv II: Saving India’s Prestige”, The Statesman, Aug 1 1991.

49a “A Memo to Rajiv III: Salvation in Penny Capitalism”, The Statesman, Aug 2 1991 47b-49b “Three Memoranda to Rajiv Gandhi 1990-91”, 2007 republication here.

51. “Constitution for a Second Indian Republic”, The Saturday Statesman, April 20 1991. Republished here 2009.

52. “On the Art of Government: Experts, Party, Cabinet and Bureaucracy”, New Delhi mimeo March 25 1991, published here July 00 2009.

1992

53. Foundations of India’s Political Economy: Towards an Agenda for the 1990s Edited and with an Introduction by Subroto Roy & William E. James New Delhi, London, Newbury Park: Sage: 1992. Citation: Milton and Rose Friedman Two Lucky People (Chicago 1998), pp. 268-269.

54. Foundations of Pakistan’s Political Economy: Towards an Agenda for the 1990s Edited and with an Introduction by William E. James & Subroto Roy, Hawaii MS 1989, Sage: 1992, Karachi: Oxford 1993.

Reviews of 53 & 54 include: Bus. Today, Mar-Apr 1992; Political Studies March 1995; Econ Times 21 March 1993; Pakistan Development Review 1992. Hindustan Times 11 July 1992. Pacific Affairs 1993; Hindu 21 March 1993, 15 June 1993; Pakistan News International 12 June 1993. Book Reviews March 1993; Deccan Herald 2 May 1993; Pol.Econ.J. Ind. 1992. Fin Express 13 September 1992; Statesman 16 Jan. 1993. J. Royal Soc Asian Aff. 1994, J. Contemporary Asia, 1994 etc.

55. “Fundamental Problems of the Economies of India and Pakistan”, World Bank, Washington, mimeo (Due to be published here 2010).

56.“The Road to Stagflation: The Coming Dirigisme in America, or, America, beware thy economists!, or Zen and Clintonomics,” Washington DC, Broad Branch Terrace, mimeo, November 17.

1993

57. “Exchange-rates and manufactured exports of South Asia”, IMF Washington DC mimeo. Published in part in 2007-2008 as 58-62:

58. “Path of the Indian Rupee 1947-1993”, 2008.

59. “Path of the Pakistan Rupee 1947-1993”, 2008.

60. “Path of the Sri Lankan Rupee 1948-1993”, 2008.

61. “Path of the Bangladesh Taka 1972-1993”, 2008.

62. “India, Pakistan, Sri Lanka, Bangladesh Manufactured Exports, IMF Washington DC mimeo”, published 2007.

63. “Economic Assessment of US-India Merchandise Trade”, Arlington, Virginia, mimeo, published in slight part in Indo-US Trade & Economic Cooperation, ICRIER New Delhi, 1995, and in whole 2007.

64. “Towards an Economic Solution for Kashmir”, mimeo, Arlington, Virginia, circulated in Washington DC 1993-1995, cf 82, 111 infra. Comment of Selig Harrison.

1994

65. “Comment on Indonesia”, in The Political Economy of Policy Reform edited by John Williamson, Washington, DC: Institute for International Economics.

66a “Gold reserves & the gold price in anticipation of Central Bank behaviour”, Greenwich, Connecticut, mimeo. 67b. “Portfolio optimization and foreign currency exposure hedging” Greenwich, Connecticut mimeo.

1995

68. “On the logic and commonsense of debt and payments crises: How to avoid another Mexico in India and Pakistan”, Scarsdale, NY, mimeo, May 1.

69. “Policies for Young India”, Scarsdale, NY, pp. 350, manuscript.

1996

70. US Supreme Court documents, published in part in 2008 as “Become a US Supreme Court Justice!” 70a, 70b (Due to be published in full here in 2010 as Roy vs University of Hawaii, 1989- including the expert testimonies of Milton Friedman and Theodore W Schultz.).

71. “Key problems of macroeconomic management facing the new Indian Government”, May 17. Scarsdale, New York, mimeo. (Due to be published here 2010).

72. “Preventing a collapse of the rupee”, IIT Kharagpur lecture July 16 1996.

73. “The Economist’s Representation of Technological Knowledge”, Vishvesvaraya lecture to the Institution of Engineers, September 15 1996, IIT Kharagpur.

1997

74. “Union and State Budgets in India”, lecture at the World Bank, Washington DC, May 00.

75. “State Budgets in India”, IIT Kharagpur mimeo, June 6.

1998

76. “Transparency and Economic Policy-Making: An address to the Asia-Pacific Public Relations Conference” (panel on Transparency chaired by CR Irani) Jan 30 1998, published here 2008.

77. Theodore W. Schultz 1902-1998, Feb 25.

78. “The Economic View of Human Resources”, address to a regional conference on human resources, IIT Kharagpur.

79. “Management accounting”, lecture at Lal Bahadur Shastri Academy, Mussourie,

80a “The Original Reformer”, Outlook letters, Jan 23 1998

81. “Recent Developments in Modern Finance”, IIM Bangalore Review, 10, 1 & 2, Jan.-Jun 1998. Reprinted as “From the Management Guru’s Classroom”: 81a “An introduction to derivatives”, Business Standard/Financial Times, Bombay 18 Apr 1999; 81b “Options in the future, Apr 25 1999; 81c “What is hedging?”, May 2 1999; 81d “Teaching computers to think”, May 9 1999.

82. “Towards an Economic Solution for Kashmir”, Jun 22 1998, lecture at Heritage Foundation, Washington DC. Cf 111 Dec 2005.

83. “Sixteen Currencies for India: A Reverse Euro Model for Monetary & Fiscal Efficacy”, Lecture at the Institute of Economic Affairs, London, June 29 1998. Due to be published here 2010.

84. “Fable of the Fox, the Farmer, and the Would-Be Tailors”, October (Published here July 27 2009).

85. “A Common Man’s Guide to Pricing Financial Derivatives”, Lecture to “National Seminar on Derivatives”, Xavier Labour Research Institute, Jamshedpur, Dec. 16 1998. See 98.

1999

86. “An Analysis of Pakistan’s War-Winning Strategy: Are We Ready for This?”, IIT Kharagpur mimeo, published in part as 86a.“Was a Pakistani Grand Strategy Discerned in Time by India?” New Delhi: Security & Political Risk Analysis Bulletin, July 1999, Kargil issue. See also 000

80b. “The Original Reformer”, Outlook letters, Sep 13 1999.

2000

87. “On Freedom & the Scientific Point of View”, SN Bose National Centre for Basic Sciences, Feb 17 2000. Cf 100 below.

88. “Liberalism and Indian economic policy”, lecture at IIM Calcutta, Indian Liberal Group Meetings Devlali, Hyderabad; also Keynote address to UGC Seminar Guntur, March 30 2002. (Due to be published here 2010).

89. “Towards a Highly Transparent Fiscal & Monetary Framework for India’s Union & State Governments”, Invited address to Conference of State Finance Secretaries, Reserve Bank of India, Bombay, April 29, 2000. Published 2008.

90. “On the Economics of Information Technology”, two lectures at the Indian Institute of Information Technology, Bangalore, Nov 10-11, 2000.

91. Review of A New World by Amit Chaudhuri in Literary Criterion, Mysore.

2001

92. Review of AD Shroff: Titan of Finance and Free Enterprise by Sucheta Dalal, Freedom First., January.

93. “Encounter with Rajiv Gandhi: On the Origins of the 1991 Economic Reform”, Freedom First, October. See also 93a in 2005 and 93b in 2007.

94. “A General Theory of Globalization & Modern Terrorism with Special Reference to September 11”, a keynote address to the Council for Asian Liberals & Democrats, Manila, Philippines, 16 Nov. 2001. Published as 91a.

95. “The Case for and against The Satanic Verses: Diatribe and Dialectic as Art”, Dec 22 republished in print 95a The Statesman Festival Volume, 2006.

2002

94a “A General Theory of Globalization & Modern Terrorism with Special Reference to September 11”, in September 11 & Political Freedom in Asia, eds. Johannen, Smith & Gomez, Singapore 2002.

2002-2010

96. “Recording vivid dreams: Freud’s advice in exploring the Unconscious Mind” (Due to be published here in 2010).

2003

97. “Key principles of government accounting and audit”, IIT Kharagpur mimeo.

98. “Derivative pricing & other topics in financial theory: a student’s complete lecture notes” (Due to be published here in 2010).

2004

99. TV Interview by BBC, Oxford, after May 2004 General Election in India.

100. “Collapse of the Global Conversation”, International Institute for Asian Studies, Leiden, Netherlands, Jul 2004.

101. “Science, Religion, Art & the Necessity of Freedom”, a public lecture, University of Buckingham, UK, August 24 2004. Published here 2007.

2005

93a Rajiv Gandhi and the Origins of India’s 1991 Economic Reform (this was the full story; it appeared in print for the first time in The Statesman Festival Volume 2007).

102. “Can India become an economic superpower (or will there be a monetary meltdown)?” Cardiff University Institute of Applied Macroeconomics Monetary Economics Seminar, April 13, Institute of Economic Affairs, London, April 27, Reserve Bank of India, Bombay, Chief Economist’s Seminar on Monetary Economics, May 5.

103. Margaret Thatcher’s Revolution: How it Happened and What it Meant, Edited and with an Introduction by Subroto Roy & John Clarke, London & New York: Continuum, 2005; paperback 2006; French translation by Florian Bay, 2007.

104. “Iqbal & Jinnah vs Rahmat Ali in Pakistan’s Creation”, Dawn, Karachi, Sep 3.

105. “The Mitrokhin Archives II from an Indian Perspective: A Review Article”, The Statesman, Perspective Page, Oct 11 .

106. “After the Verdict”, The Statesman, Editorial Page, Oct 20.

107. “US Espionage Failures”, The Statesman, Perspective Page, Oct 26

108. “Waffle But No Models of Monetary Policy”, The Statesman, Perspective Page, Oct 30.

109. “On Hindus and Muslims”, The Statesman, Perspective Page, Nov 6.

110. “Assessing Vajpayee: Hindutva True and False”, The Statesman, Editorial Page, Nov 13-14″.

111. “Fiction from the India Economic Summit”, The Statesman, Front Page, Nov 29.

112. “Solving Kashmir: On an Application of Reason”, The Statesman Editorial Page

I. “Give the Hurriyat et al Indian Green Cards”, Dec 1

II. “Choice of Nationality under Full Information”, Dec 2

III. “Of Flags and Consulates in Gilgit etc”, Dec 3.

2006

113. “The Dream Team: A Critique”, The Statesman Editorial Page

I : New Delhi’s Consensus (Manmohantekidambaromics), Jan 6

II: Money, Convertibility, Inflationary Deficit Financing, Jan 7

III: Rule of Law, Transparency, Government Accounting, Jan 8.

114. “Unaccountable Delhi: India’s Separation of Powers’ Doctrine”, The Statesman, Jan 13.

115. “Communists and Constitutions”, The Statesman, Editorial Page, Jan 22.

116. “Diplomatic Wisdom”, The Statesman, Editorial Page, Jan 31.

117. “Mendacity & the Government Budget Constraint”, The Statesman, Front Page Feb 3.

118. “Of Graven Images”, The Statesman, Editorial Page, Feb5.

119. “Separation of Powers, Parts 1-2”, The Statesman, Editorial Pages Feb 12-13.

120. “Public Debt, Government Fantasy”, The Statesman, Front Page Editorial Comment, Feb 22.

121. “War or Peace Parts 1-2”, The Statesman, Editorial Page, Feb 23-24.

122. “Can You Handle This Brief, Mr Chidambaram?” The Statesman, Front Page Feb 26.

123. “A Downpayment On the Taj Mahal Anyone?”, The Statesman, Front Page Comment on the Budget 2006-2007, Mar 1.

124. “Atoms for Peace (or War)”, The Sunday Statesman, Editorial Page Mar 5.

125. “Imperialism Redux: Business, Energy, Weapons & Foreign Policy”, The Statesman, Editorial Page, Mar 14.

126. “Logic of Democracy”, The Statesman, Editorial Page, Mar 30.

127. “Towards an Energy Policy”, The Sunday Statesman, Editorial Page, Apr 2.

128. “Iran’s Nationalism”, The Statesman, Editorial Page, Apr 6.

129. “A Modern Military”, The Sunday Statesman, Editorial Page, Apr 16.

130. “On Money & Banking”, The Sunday Statesman, Editorial Page, Apr 23.

131. “Lessons for India from Nepal’s Revolution”, The Statesman, Front Page Apr 26.

132. “Revisionist Flattery (Inder Malhotra’s Indira Gandhi: A Review Article)”, The Sunday Statesman, May 7.

133. “Modern World History”, The Sunday Statesman Editorial Page, May 7.

134. “Argumentative Indians: A Conversation with Professor Amartya Sen on Philosophy, Identity and Islam,” The Sunday Statesman, May 14 2006. “A Philosophical Conversation between Professor Sen and Dr Roy”, 2008. Translated into Bengali by AA and published in 00.

135. “The Politics of Dr Singh”, The Sunday Statesman, Editorial Page, May 21.

136. “Corporate Governance & the Principal-Agent Problem”, lecture at a conference on corporate governance, Kolkata May 31. Published here 2008.

137. “Pakistan’s Allies Parts 1-2”, The Sunday Statesman, Editorial Page, Jun 4-5.

138. “Law, Justice and J&K Parts 1-2”, The Sunday Statesman, Editorial Page, Jul 2, The Statesman Editorial Page Jul 3.

139. “The Greatest Pashtun (Khan Abdul Ghaffar Khan)”, The Sunday Statesman, Editorial Page, Jul 16.

140. “Understanding Pakistan Parts 1-2”, The Sunday Statesman, Editorial Page, Jul 30, The Statesman Editorial Page Jul 31.

141. “Indian Money and Credit”, The Sunday Statesman, Editorial Page, Aug 6.

142. “India’s Moon Mission”, The Sunday Statesman, Editorial Page, Aug 13.

143. “Jaswant’s Journeyings: A Review Article”, The Sunday Statesman Magazine, Aug 27.

144. “Our Energy Interests, Parts 1-2”, The Sunday Statesman, Editorial Page, Aug 27, The Statesman Editorial Page Aug 28.

145. “Is Balochistan Doomed?”, The Sunday Statesman, Editorial Page, Sep 3 2006.

146. “Racism New and Old”, The Statesman, Editorial Page, Sep 8 2006

147. “Political Economy of India’s Energy Policy”, address to KAF-TERI conference, Goa Oct 7, published in 147a.

148. “New Foreign Policy? Seven phases of Indian foreign policy may be identifiable since Nehru”, Parts 1-2, The Sunday Statesman, Oct 8, The Statesman Oct 9.

149. “Justice & Afzal: There is a difference between law and equity (or natural justice). The power of pardon is an equitable power. Commuting a death-sentence is a partial pardon”, The Sunday Statesman Editorial Page Oct 14

150. “Non-existent liberals (On a Liberal Party for India)”, The Sunday Statesman Editorial Page Oct 22.

151. “History of Jammu & Kashmir Parts 1-2”, The Sunday Statesman, Oct 29, The Statesman Oct 30, Editorial Page.

152. “American Democracy: Does America need a Prime Minister and a longer-lived Legislature?”, The Sunday Statesman Nov 5.

153. “Milton Friedman A Man of Reason 1912-2006”, The Statesman Perspective Page, Nov 22.

154. “Postscript to Milton Friedman Mahalanobis’s Plan (The Mahalanobis-Nehru “Second Plan”) The Statesman Front Page Nov 22.

155. “Mob Violence and Psychology”, Dec 10, The Statesman, Editorial Page.

156. “What To Tell Musharraf: Peace Is Impossible Without Non-Aggressive Pakistani Intentions”, The Statesman Editorial Page Dec 15.

157. “Land, Liberty and Value: Government must act in good faith treating all citizens equally – not favouring organised business lobbies and organised labour over an unorganised peasantry”, The Sunday Statesman Editorial Page Dec 31.

2007

158. “Hypocrisy of the CPI-M: Political Collapse In Bengal: A Mid-Term Election/Referendum Is Necessary”, The Statesman, Editorial Page, Jan 9.

159. “On Land-Grabbing: Dr Singh’s India, Buddhadeb’s Bengal, Modi’s Gujarat have notorious US, Soviet and Chinese examples to follow ~ distracting from the country’s real economic problems,” The Sunday Statesman, Editorial Page Jan 14.

160. “India’s Macroeconomics: Real growth has steadily occurred because India has shared the world’s technological progress. But bad fiscal, monetary policies over decades have led to monetary weakness and capital flight” The Statesman Editorial Page Jan 20.

161. “Fiscal Instability: Interest payments quickly suck dry every year’s Budget. And rolling over old public debt means that Government Borrowing in fact much exceeds the Fiscal Deficit”, The Sunday Statesman, Editorial Page, Feb 4.

162. “Our trade and payments Parts 1-2” (“India in World Trade and Payments”),The Sunday Statesman, Feb 11 2007, The Statesman, Feb 12 2007.

163. “Our Policy Process: Self-Styled “Planners” Have Controlled India’s Paper Money For Decades,” The Statesman, Editorial Page, Feb 20.

164. “Bengal’s Finances”, The Sunday Statesman Editorial Page, Feb 25.

165. “Fallacious Finance: Congress, BJP, CPI-M may be leading India to Hyperinflation” The Statesman Editorial Page Mar 5.

166. “Uttar Pradesh Polity and Finance: A Responsible New Govt May Want To Declare A Financial Emergency” The Statesman Editorial Page, Mar 24

167. “A scam in the making” in The Sunday Statesman Front Page Apr 1 2007, published here in full as “Swindling India”.

168. “Maharashtra’s Money: Those Who Are Part Of The Problem Are Unlikely To Be A Part Of Its Solution”, The Statesman Editorial Page Apr 24.

147a. “Political Economy of Energy Policy” in India and Energy Security edited by Anant Sudarshan and Ligia Noronha, Konrad Adenauer Stiftung, New Delhi 2007.

169. “Presidential Qualities: Simplicity, Genuine Achievement Are Desirable; Political Ambition Is Not”, The Statesman, Editorial Page, May 8.

170. “We & Our Neighbours: Pakistanis And Bangladeshis Would Do Well To Learn From Sheikh Abdullah”, The Statesman, Editorial Page May 15.

171. “On Indian Nationhood: From Tamils To Kashmiris And Assamese And Mizos To Sikhs And Goans”, The Statesman, Editorial Page, May 25.

172. A Current Example of the Working of the Unconscious Mind, May 26.

173. Where I would have gone if I was Osama Bin Laden, May 31.

174. “US election ’08:America’s Presidential Campaign Seems Destined To Be Focussed On Iraq”, The Statesman, Editorial Page, June 1.

175. “Home Team Advantage: On US-Iran talks and Sunni-Shia subtleties: Tehran must transcend its revolution and endorse the principle that the House of Islam has many mansions”, The Sunday Statesman Editorial Page, June 3

176. “Unhealthy Delhi: When will normal political philosophy replace personality cults?”, The Statesman, Editorial Page, June 11.

177. “American Turmoil: A Vice-Presidential Coup – And Now a Grassroots Counterrevolution?”, The Statesman, Editorial Page, June 18

178. “Political Paralysis: India has yet to develop normal conservative, liberal and socialist parties. The Nice-Housing-Effect and a little game-theory may explain the current stagnation”, The Sunday Statesman, Editorial Page, June 24.

179. “Has America Lost? War Doctrines Of Kutusov vs Clausewitz May Help Explain Iraq War”, The Statesman, Editorial Page, July 3.

180. “Lal Masjid ≠ Golden Temple: Wide differences are revealed between contemporary Pakistan and India by these two superficially similar military assaults on armed religious civilians”, The Sunday Statesman, Editorial Page July 15

181. “Political Stonewalling: Only Transparency Can Improve Institutions”, The Statesman, Editorial Page July 20.

182. “Gold standard etc: Fixed versus flexible exchange rates”, July 21.

183. “US Pakistan-India Policy: Delhi & Islamabad Still Look West In Defining Their Relationship”, The Statesman, Editorial Page, July 27.

184. “Works of DH Lawrence” July 30

185. “An Open Letter to Professor Amartya Sen about Singur etc”, The Statesman, Editorial Page, July 31.

186. “Martin Buber on Palestine and Israel (with Postscript)”, Aug 4.

187. “Auguste Rodin on Nature, Art, Beauty, Women and Love”, Aug 7.

188. “Saving Pakistan: A Physicist/Political Philosopher May Represent Iqbal’s “Spirit of Modern Times”, The Statesman, Editorial Page, Aug 13.

189. Letter to Forbes.com 16 Aug.

190. “Need for Clarity: A poorly drafted treaty driven by business motives is a recipe for international misunderstanding”, The Sunday Statesman, Editorial Page, Aug 19.

191. “No Marxist MBAs? An amicus curiae brief for the Hon’ble High Court”, The Statesman, FrontPage, Aug 29.

192. On Lawrence, Sep 4.

193. Dalai Lama’s Return: In the tradition of Gandhi, King, Mandela, Sep 11.

194. Of JC Bose, Patrick Geddes & the Leaf-World, Sep 12.

195. “Against Quackery: Manmohan and Sonia have violated Rajiv Gandhi’s intended reforms; the Communists have been appeased or bought; the BJP is incompetent Parts 1-2”, in The Sunday Statesman and The Statesman, Editorial Pages of Sep 23-24.

196. Karl Georg Zinn’s 1994 Review of Philosophy of Economics, Sep 26.

197. DH Lawrence’s Phoenix, Oct 3.

93b. “Rajiv Gandhi and the Origins of India’s 1991 Economic Reform”, Statesman Festival Volume.

198. “Iran, America, Iraq: Bush’s post-Saddam Saddamism — one flip-flop too many?”, The Statesman, Editorial Page, Oct 16.

199. “Understanding China: The World Needs to Ask China to Find Her True Higher Self”, The Statesman, Editorial Page, Oct 22.

200. “India-USA interests: Elements of a serious Indian foreign policy”, The Statesman, Editorial Page, Oct 30.

201. “China’s India Aggression : German Historians Discover Logic Behind Communist Military Strategy”, The Statesman, Editorial Page Special Article, Nov 5.

202. Sonia’s Lying Courtier (with Postscript), Nov 25. See also 2014

203. “Surrender or Fight? War is not a cricket match or Bollywood movie. Can India fight China if it must?” The Statesman, Dec 4, Editorial Page.

204. Hutton and Desai: United in Error Dec 14

205. “China’s Commonwealth: Freedom is the Road to Resolving Taiwan, Tibet, Sinkiang”, The Statesman, Dec 17.

2008

206. “Nixon & Mao vs India: How American foreign policy did a U-turn about Communist China’s India aggression. The Government of India should publish its official history of the 1962 war.” The Sunday Statesman, Jan 6, The Statesman Jan 7 Editorial Page.

207. “Lessons from the 1962 War: Beginnings of a solution to the long-standing border problem: there are distinct Tibetan, Chinese and Indian points of view that need to be mutually comprehended”, The Sunday Statesman, January 13 2008.

208. “Our Dismal Politics: Will Independent India Survive Until 2047?”, The Statesman Editorial Page, Feb 1.

209. Median Voter Model of India’s Electorate Feb 7.

210. “Anarchy in Bengal: Intra-Left bandh marks the final unravelling of “Brand Buddha””, The Sunday Statesman, Editorial Page, Feb 10.

211. Fifty years since my third birthday: on life and death.

212. “Pakistan’s Kashmir obsession: Sheikh Abdullah Relied In Politics On The French Constitution, Not Islam”, The Statesman, Editorial Page, Feb 16.

213. A Note on the Indian Policy Process Feb 21.

214. “Growth & Government Delusion: Progress Comes From Learning, Enterprise, Exchange, Not The Parasitic State”, The Statesman, Editorial Page, Feb 22.

215. “How to Budget: Thrift, Not Theft, Needs to Guide Our Public Finances”, The Statesman, Editorial Page, Feb 26.

216. “India’s Budget Process (in Theory)”, The Statesman, Front Page Feb 29.

217. “Irresponsible Governance: Congress, BJP, Communists, BSP, Sena Etc Reveal Equally Bad Traits”, The Statesman, Editorial Page, March 4.

218. “American Politics: Contest Between Obama And Clinton Affects The World”, The Statesman, Editorial Page, March 11.

219. “China’s India Example: Tibet, Xinjiang May Not Be Assimilated Like Inner Mongolia And Manchuria”, The Statesman, Editorial Page, March 25.

220. “Taxation of India’s Professional Cricket: A Proposal”, The Statesman, Editorial Page, April 1.

221. “Two cheers for Pakistan!”, The Statesman, Editorial Page, April 7.

222. “Indian Inflation: Upside Down Economics From The New Delhi Establishment Parts 1-2”, The Statesman, Editorial Page, April 15-16.

223. “Assessing Manmohan: The Doctor of Deficit Finance should realise the currency is at stake”, The Statesman, Editorial Page Apr 25.

224. John Wisdom, Renford Bambrough: Main Philosophical Works, May 8.

225. “All India wept”: On the death of Rajiv Gandhi, May 21.

226. “China’s force and diplomacy: The need for realism in India” The Statesman, Editorial Page May 31.

227. Serendipity and the China-Tibet-India border problem June 6

228. “Leadership vacuum: Time & Tide Wait For No One In Politics: India Trails Pakistan & Nepal!”, The Statesman Editorial Page June 7.

229. My meeting Jawaharlal Nehru Oct13 1962

230. Manindranath Roy 1891-1958

231. Surendranath Roy 1860-1929

232. The Roys of Behala 1928.

233. Sarat Chandra visits Surendranath Roy 1927

234. Nuksaan-Faida Analysis = Cost-Benefit Analysis in Hindi/Urdu Jun 30

235. One of many reasons John R Hicks was a great economist July 3

236. My father, Indian diplomat, in the Shah’s Tehran 1954-57 July 8

237 Distribution of Govt of India Expenditure (Net of Operational Income) 1995 July 27

238. Growth of Real Income, Money & Prices in India 1869-2008, July 28.

239. Communism from Social Democracy? But not in India or China! July 29

240. Death of Solzhenitsyn, Aug. 3

240a. Tolstoy on Science and Art, Aug 4.

241. “Reddy’s reckoning: Where should India’s real interest rate be relative to the world?” Business Standard Aug 10

242. “Rangarajan Effect”, Business Standard Aug 24

243. My grandfather’s death in Ottawa 50 years ago today Sep 3

244. My books in the Library of Congress and British Library Sep 12

245. On Jimmy Carter & the “India-US Nuclear Deal”, Sep 12

246. My father after presenting his credentials to President Kekkonen of Finland Sep 14 1973.

247. “October 1929? Not!”, Business Standard, Sep 18.

248. “MK Gandhi, SN Roy, MA Jinnah in March 1919: Primary education legislation in a time of protest”

249. 122 sensible American economists Sept 26

250. Govt of India: Please call in the BBC and ask them a question Sep 27

251. “Monetary Integrity and the Rupee: Three British Raj relics have dominated our macroeconomic policy-making” Business Standard Sep 28.

252a. Rabindranath’s daughter writes to her friend my grandmother Oct 5

252b. A Literary Find: Modern Poetry in Bengal, Oct 6.

253. Sarat writes to Manindranath 1931, Oct 12

254. Origins of India’s Constitutional Politics 1913

255. Indira Gandhi in Paris, 1971

256. How the Liabilities/Assets Ratio of Indian Banks Changed from 84% in 1970 to 108% in 1998, October 20

257a. My Subjective Probabilities on India’s Moon Mission Oct 21

258. Complete History of Mankind’s Moon Missions: An Indian Citizen’s Letter to ISRO’s Chairman, Oct 22.

259. Would not a few million new immigrants solve America’s mortgage crisis? Oct 26

260. “America’s divided economists”, Business Standard Oct 26

261. One tiny prediction about the Obama Administration, Nov 5

262. Rai Bahadur Umbika Churn Rai, 1827-1902, Nov 7 2008

263. Jawaharlal Nehru invites my father to the Mountbatten Farewell Nov 7 2008

70a. “Become a US Supreme Court Justice! (Explorations in the Rule of Law in America) Preface” Nov 9

70b. “Become a US Supreme Court Justice! (Explorations in the Rule of Law in America)” Nov 9.

257b. Neglecting technological progress was the basis of my pessimism about Chandrayaan, Nov 9.

264. Of a new New Delhi myth and the success of the University of Hawaii 1986-1992 Pakistan project Nov 15

265. Pre-Partition Indian Secularism Case-Study: Fuzlul Huq and Manindranath Roy Nov 16

266. Do President-elect Obama’s Pakistan specialists suppose Maulana Azad, Dr Zakir Hussain, Sheikh Abdullah were Pakistanis (or that Sheikh Mujib wanted to remain one)? Nov 18

267. Jews have never been killed in India for being Jews until this sad day, Nov 28.

268. In international law, Pakistan has been the perpetrator, India the victim of aggression in Mumbai, Nov 30.

269. The Indian Revolution, Dec 1.

270. Habeas Corpus: a captured terrorist mass-murderer tells a magistrate he has not been mistreated by Mumbai’s police Dec 3

271. India’s Muslim Voices (Or, Let us be clear the Pakistan-India or Kashmir conflicts have not been Muslim-Hindu conflicts so much as intra-Muslim conflicts about Muslim identity and self-knowledge on the Indian subcontinent), Dec 4

272. “Anger Management” needed? An Oxford DPhil recommends Pakistan launch a nuclear first strike against India within minutes of war, Dec 5.

273. A Quick Comparison Between the September 11 2001 NYC-Washington attacks and the November 26-28 2008 Mumbai Massacres (An Application of the Case-by-Case Philosophical Technique of Wittgenstein, Wisdom and Bambrough), Dec 6

274. Dr Rice finally gets it right (and maybe Mrs Clinton will too) Dec 7

275. Will the Government of India’s new macroeconomic policy dampen or worsen the business-cycle (if such a cycle exists at all)? No one knows! “Where ignorance is bliss, ‘Tis folly to be wise.” Dec 7

276. Pump-priming for car-dealers: Keynes groans in his grave (If evidence was needed of the intellectual dishonesty of New Delhi’s new macroeconomic policy, here it is) Dec 9.

277. Congratulations to Mumbai’s Police: capturing a terrorist, affording him his Habeas Corpus rights, getting him to confess within the Rule of Law, sets a new world standard Dec 10

278. Two cheers — wait, let’s make that one cheer — for America’s Justice Department, Dec 10

279. Will Pakistan accept the bodies of nine dead terrorists who came from Pakistan to Mumbai? If so, let there be a hand-over at the Wagah border, Dec 11.

280. Kasab was a stupid, ignorant, misguided youth, manufactured by Pakistan’s terrorist masterminds into becoming a mass-murdering robot: Mahatma Gandhi’s India should punish him, get him to repent if he wishes, then perhaps rehabilitate him as a potent weapon against Pakistani terrorism Dec 12.

281. Pakistan’s New Delhi Embassy should ask for “Consular Access” to nine dead terrorists in a Mumbai morgue before asking to meet Kasab, Dec 13

282. An Indian Reply to President Zardari: Rewarding Pakistan for bad behaviour leads to schizophrenic relationships Dec 19

283. Is my prediction about Caroline Kennedy becoming US Ambassador to Britain going to be correct? Dec 27

284. Chandrayaan adds a little good cheer! Well done, ISRO!, Dec 28

285. How sad that “Slumdog millionaire” is SO disappointing! Dec 31

289. (with Claude Arpi) “Transparency & history: India’s archives must be opened to world standards” Business Standard New Delhi Dec 31, 2008, published here Jan 1 .

2009

290. A basis of India-Pakistan cooperation on the Mumbai massacres: the ten Pakistani terrorists started off as pirates and the Al-Huseini is a pirate ship Jan 1.

291. India’s “pork-barrel politics” needs a nice (vegetarian) Hindi name! “Teli/oily politics” perhaps? (And are we next going to see a Bill of Rights for Lobbyists?) Jan 3

292. My (armchair) experience of the 1999 Kargil war (Or, “Actionable Intelligence” in the Internet age: How the Kargil effort got a little help from a desktop) Jan 5

293. How Jammu & Kashmir’s Chief Minister Omar Abdullah can become a worthy winner of the Nobel Peace Prize: An Open Letter, Jan 7

294. Could the Satyam/PwC fraud be the visible part of an iceberg? Where are India’s “Generally Accepted Accounting Principles”? Isn’t governance rather poor all over corporate India? Bad public finance may be a root cause Jan 8

295. Satyam does not exist: it is bankrupt, broke, kaput. Which part of this does the new “management team” not get? The assets belong to Satyam’s creditors. Jan 8

296. Jews are massacred in Mumbai and now Jews commit a massacre in Gaza! Jan 9

297. And now for the Great Satyam Whitewash/Cover-Up/Public Subsidy! The wrong Minister appoints the wrong new Board who, probably, will choose the wrong policy Jan 12

298. Letter to Wei Jingsheng Jan 14

299. Memo to the Hon’ble Attorneys General of Pakistan & India: How to jointly prosecute the Mumbai massacre perpetrators most expeditiously Jan 16

300. Satyam and IT-firms in general may be good candidates to become “Labour-Managed” firms Jan 18

301. “Yes we might be able to do that. Perhaps we ought to. But again, perhaps we ought not to, let me think about it…. Most important is Cromwell’s advice: Think it possible we may be mistaken!” Jan 20.

302. RAND’s study of the Mumbai attacks Jan 25

303. Didn’t Dr Obama (the new American President’s late father) once publish an article in Harvard’s Quarterly Journal of Economics? (Or did he?) Jan 25.

304. “A Dialogue in Macroeconomics” 1989 etc: sundry thoughts on US economic policy discourse Jan 30

305. American Voices: A Brief Popular History of the United States in 20 You-Tube Music Videos Feb 5

306. Jaladhar Sen writes to Manindranath at Surendranath’s death, Feb 23

307. Pakistani expansionism: India and the world need to beware of “Non-Resident Pakistanis” ruled by Rahmat Ali’s ghost, Feb 9

308. My American years Part One 1980-90: battles for academic integrity & freedom Feb 11.

309. Thanks and well done Minister Rehman Malik and the Govt of Pakistan Feb 12

310. Can President Obama resist the financial zombies (let alone slay them)? His economists need to consult Dr Anna J Schwartz Feb 14

311. A Brief History of Gilgit, Feb 18

312. Memo to UCLA Geographers: Commonsense suggests Mr Bin Laden is far away from the subcontinent Feb 20

313. The BBC gets its history and geography deliberately wrong again Feb 21

314. Bengal Legislative Council 1921, Feb 28

315. Carmichael visits Surendranath, 1916, Mar 1

316. Memo to GoI CLB: India discovered the Zero, and 51% of Zero is still Zero Mar 10

317. An Academic Database of Doctoral & Other Postgraduate Research Done at UK Universities on India, Pakistan, Sri Lanka, Bangladesh and Other Asian Countries Over 100 Years, Mar 13

318. Pakistan’s progress, Mar 18

319. Risk-aversion explains resistance to free trade, Mar 19

320. India’s incredibly volatile inflation rate! Mar 20

321. Is “Vicky, Cristina, Barcelona” referring to an emasculation of (elite) American society?, Mar 21

322. Just how much intellectual fraud can Delhi produce? Mar 26

323. India is not a monarchy! We urgently need to universalize the French concept of “citoyen”! Mar 28

324. Could this be the real state of some of our higher education institutions? Mar 29

325. Progress! The BBC retracts its prevarication! Mar 30

326. Aldous Huxley’s Essay “DH Lawrence” Mar 31

327. Waffle not institutional reform is what (I predict) the “G-20 summit” will produce, April 1

328. Did a full cricket team of Indian bureaucrats follow our PM into 10 Downing Street? Count for yourself! April 3

329. Will someone please teach the BJP’s gerontocracy some Economics 101 on an emergency basis? April 5

330. The BBC needs to determine exactly where it thinks Pakistan is!, April 5

331. Alfred Lyall on Christians, Muslims, India, China, Etc, 1908, April 6

332. An eminent economist of India passes away April 9

333. Democracy Database for the Largest Electorate Ever Seen in World History, April 12

334. Memo to the Election Commission of India April 14 2009, 9 AM, April 14

335. Caveat emptor! Satyam is taken over, April 14

336. India’s 2009 General Elections: Candidates, Parties, Symbols for Polls on 16-30 April Phases 1,2,3, April 15

337. On the general theory of expertise in democracy: reflections on what emerges from the American “torture memos” today, April 18

338. India’s 2009 General Elections: 467 constituencies (out of 543) for which candidates have been announced as of 1700hrs April 21, April 21

339. Apropos Philosophy of Economics, Comments of Sidney Hook, KJ Arrow, Milton Friedman, TW Schultz, SS Alexander, Max Black, Renford Bambrough, John Gray et al., April 22.

340. India’s 2009 General Elections: Names of all 543 Constituencies of the 15th Lok Sabha, April 22.

341. India’s 2009 General Elections: How 4125 State Assembly Constituencies comprise the 543 new Lok Sabha Constituencies, April 23.

342. Why has America’s “torture debate” yet to mention the obvious? Viz., sadism and racism, April 24

343. India’s 2009 General Elections: the advice of the late “George Eliot” (Mary Ann Evans, 1819-1880) to India’s voting public, April 24.

344. India’s 2009 General Elections: Delimitation and the Different Lists of 543 Lok Sabha Constituencies in 2009 and 2004, April 25

345. Is “Slumdog Millionaire” the single worst Best Picture ever?

346. India’s 2009 General Elections: Result of Delimitation — Old (2004) and New (2009) Lok Sabha and Assembly Constituencies, April 26

347. India’s 2009 General Elections: 7019 Candidates in 485 (out of 543) Constituencies announced as of April 26 noon April 26

348. What is Christine Fair referring to? Would the MEA kindly seek to address what she has claimed asap? April 27

349. Politics can be so entertaining Manmohan versus Sonia on the poor old CPI(M)!, April 28

350. A Dozen Grown-Up Questions for Sonia Gandhi, Manmohan Singh, LK Advani, Sharad Pawar, Km Mayawati and Anyone Else Dreaming of Becoming/Deciding India’s PM After the 2009 General Elections, April 28

351. India’s 2009 General Elections: How drastically will the vote-share of political parties change from 2004? May 2

352. India’s 2009 General Elections: And now finally, all 8,070 Candidates across all 543 Lok Sabha Constituencies, May 5

353. India’s 2009 General Elections: The Mapping of Votes into Assembly Segments Won into Parliamentary Seats Won in the 2004 Election, May 7

354. Will Messrs Advani, Rajnath Singh & Modi ride into the sunset if the BJP comes to be trounced? (Corrected), May 10

355. India’s 2009 General Elections: 543 Matrices to Help Ordinary Citizens Audit the Election Commission’s Vote-Tallies May 12

356. Well done Sonia-Rahul! Two hours before polls close today, I am willing to predict a big victory for you (but, please, try to get your economics right, and also, you must get Dr Singh a Lok Sabha seat if he is to be PM) May 13

357. Buddhadeb Bhattacharjee must dissolve the West Bengal Assembly if he is an honest democrat: Please try to follow Gerard Schröder’s example even slightly! May 16

358. India’s 2009 General Elections: Provisional Results from the EC as of 1400 hours Indian Standard Time May 16

359. Memo to the Hon’ble President of India: It is Sonia Gandhi, not Manmohan Singh, who should be invited to our equivalent of the “Kissing Hands” Ceremony May 16

360. Time for heads to roll in the BJP/RSS and CPI(M)!, May 17.

361. Inviting a new Prime Minister of India to form a Government: Procedure Right and Wrong May 18

362. Starting with Procedural Error: Why has the “Cabinet” of the 14th Lok Sabha been meeting today AFTER the results of the Elections to the 15th Lok Sabha have been declared?! May 18

363. Why has the Sonia Congress done something that the Congress under Nehru-Indira-Rajiv would not have done, namely, exaggerate the power of the Rajya Sabha and diminish the power of the Lok Sabha? May 21

364. Shouldn’t Dr Singh’s Cabinet begin with a small apology to the President of India for discourtesy? May we have reviews and reforms of protocols and practices to be followed at Rashtrapati Bhavan and elsewhere? May 23

365. Parliament’s sovereignty has been diminished by the Executive: A record for future generations to know May 25

366. How tightly will organised Big Business be able to control economic policies this time? May 26

367. Why does India not have a Parliament ten days after the 15th Lok Sabha was elected? Nehru and Rajiv would both have been appalled May 27

368. Eleven days and counting after the 15th Lok Sabha was elected and still no Parliament of India! (But we do have 79 Ministers — might that be a world record?) May 28

369. Note to Posterity: 79 Ministers in office but no 15th Lok Sabha until June 1 2009! May 29

370. Silver Jubilee of Pricing, Planning & Politics: A Study of Economic Distortions in India May 29

371. How to Design a Better Cabinet for the Government of India May 29

372. Parliament is supposed to control the Government, not be bullied or intimidated by it: Will Rahul Gandhi be able to lead the Backbenches in the 15th Lok Sabha? June 1

373. Mistaken Macroeconomics: An Open Letter to Prime Minister Dr Manmohan Singh, June 12

374. Why did Manmohan Singh and LK Advani apologise to one another? Is Indian politics essentially collusive, not competitive, aiming only to preserve and promote the post-1947 Dilli Raj at the expense of the whole of India? We seem to have no Churchillian repartee (except perhaps from Bihar occasionally) June 18

375. Are Iran’s Revolutionaries now Reactionaries? George Orwell would have understood. A fresh poll may be the only answer Are Iran’s Revolutionaries now Reactionaries? George Orwell would have understood. A fresh poll may be the only answer June 22

376. My March 25 1991 memo to Rajiv (which never reached him) is something the present Government seems to have followed: all for the best of course! July 12

377. Disquietude about France’s behaviour towards India on July 14 2009 July 14

378. Does the Govt. of India assume “foreign investors and analysts” are a key constituency for Indian economic policy-making? If so, why so? Have Govt. economists “learnt nothing, forgotten everything”? Some Bastille Day thoughts July 14

379. Letter to the GoI’s seniormost technical economist, May 21.July 19

380. Excuse me but young Kasab in fact confessed many months ago, immediately after he was captured – he deserves 20 or 30 years in an Indian prison, and a chance to become a model prisoner who will stand against the very terrorists who sent him on his vile mission July 20

381. Finally, three months late, the GoI responds to American and Pakistani allegations about Balochistan July 24

382. Thoughts, words, deeds: My work 1973-2010

2012

383. Life of my father 1915-2012

384. India’s Money” in the Cayman Financial Review, July 2012

385. Towards Making the Indian Rupee a Hard Currency of the World Economy: An analysis from British times until the present day, lecture at India International Centre, Delhi, 3 Dec 2012

386. 5 December 2012 interview by Mr Paranjoy Guha Thakurta, on Lok Sabha TV, the channel of India’s Lower House of Parliament, broadcast for the first time on 9 December 2012 on Lok Sabha TV, is here and here in two parts.

387. Interview by GDI Impuls banking quarterly of Zürich published on 6 Dec 2012 is here.

388. My interview by Ragini Bhuyan of Delhi’s Sunday Guardian published on 16 Dec 2012 is here.

2013

389. “I have a student called Suby Roy…”: Reflections on Frank Hahn (1925-2013), my master in economic theory

390. Cambridge Economics & the Disputation in India’s Economic Policy, Revised 15 July 2013

391. Critical assessment dated 19 August 2013 of Raghuram Rajan is here (Live Mint 19 Aug) and here

392. “Did Jagdish Bhagwati “originate”, “pioneer”, “intellectually father” India’s 1991 economic reform? Did Manmohan Singh? Or did I, through my encounter with Rajiv Gandhi, just as Siddhartha Shankar Ray told Manmohan & his aides in Sep 1993 in Washington? Judge the evidence for yourself. And why has Amartya Sen misdescribed his work? India’s right path forward today remains what I said in my 3 Dec 2012 Delhi lecture! 23 August 2013 here

393. My Recent Works, Interviews etc on India’s Money, Public Finance, Banking, Trade, BoP, Land, etc (an incomplete list) Nov 23, 2013

2014

394. 1) My 13 Sep 2019 Advice to PM Modi’s Adviser: Let PM address each State Legislature, get all India Govt Accounting & Public Decision Making to have integrity (2) 16 May 2014 Advice from Rajiv Gandhi’s Adviser to Narendra Modi: Do not populate the “Planning Commission” with worthies, scrap it, integrate its assets with the Treasury. And get the nationalised banks & RBI out of the Treasury. Tell them to read my 3 Dec 2012 Delhi lecture with care. Clean Government Accounting & Audit is the Key to Clean Public Finances & a Proper Indian Currency for the First Time Ever May 16, 2014.

395. “On India’s Education Policy”, published as “Mrs Irani’s New Job”/”Task Cut Out For Smriti Irani” June 16, 2014 http://www.newindianexpress.com/opinion/Task-Cut-Out-for-Smriti-Irani/2014/06/16/article2282316.ece

396. Much as I might love Russia, England, France, America, I despise their spies & local agents affecting poor India’s policies: Memo to PM Modi, Mr Jaitley, Mr Doval & the new Govt. of India: Beware of Delhi’s sleeper agents, lobbyists & other dalals

397. “Haksar, Manmohan and Sonia” August 7, 2014 New Indian Express http://t.co/bRnQI1hrwy

2015

398. Free India’s Foreign Policy & Economy in One Chart: Weapons Imports 1950-2013 by Country of Origin

399. Delhi can never be improved — until the rest of India improves! February 13, 2015

400. Pakistan’s & India’s Illusions of Power (Psychosis vs Vanity) March 3, 2015

401. How the India-Bangladesh Enclaves Problem Was Jump-Started in 2007 Towards its 2015 Solution: A Case Study of Academic Impact on Policy June 8, 2015

402. On being reunited with Arrow Hahn after a dozen years July 3, 2015

403. Fixing Washington: On Improving Institutional Design in the United States November 24, 2016

404. Modi & Monetary Theory: Economic Consequences of the Prime Minister of India December 9, 2016.

405. Physics & Reasoning (An Ongoing Tract) by Subroto Roy DRAFT 01.12.2017 September 26, 2017

406. Is “Cambridge Philosophy” dead, in Cambridge? Can it be resurrected, there? Case Study: Renford Bambrough (& Subroto Roy) preceded by decades Cheryl Misak’s thesis on Wittgenstein being linked with Peirce via Ramsey… October 27, 2017

407. S N Roy hears from Lytton: A 1922 case of British imperial racism in Indian governance (with lessons for today) [Draft text 12 August 2018] February 8, 2018

408. Solving a Problem of State Tyranny: Director General Siddhanta Das: Have Forest Service Officers been threatening ordinary citizens, seizing their property, then threatening them with arrest if they complain? If so, how many cases of wrongful seizure and wrongful imprisonment have WCCB caused among India’s villagers and forest dwellers since 1994? There is immediate need for an Ombudsman to independently review all cases in each of your Five Zones! May 4,

409. Critique of Monetary Ideas of Manmohan & Modi: the Roy Model explaining to Bimal Jalan, Nirmala Sitharaman, RBI etc what it is they are doing (Drafts 4 August, 7 August 2019; 27 August, 28 August, 30 August, 31 August, 1 September 2019) August 4, 2019

410. 1 May 2020 Statement of Dr. Subroto Roy, Economist & Citizen, Proposing PM Narendra Modi & Home Minister Amit Shah Apologize to India’s People, Create Remedy, and Resign to Do Prayaschit/Atonement; 9 May: A New Cabinet for President Kovind May 1, 2020

My Recent Works, Interviews etc on India’s Money, Public Finance, Banking, Trade, BoP, etc (an incomplete list)

My Seventy-One Articles, Notes Etc on Kashmir, Pakistan, & of course, India (plus my undelivered Lahore lectures)

My Ten Articles on China, Tibet, Xinjiang, Taiwan in relation to India

M1. Map of Asia c. 1900

M2. Map of Chinese Empire c. 1900

M3. Map of Sinkiang, Tibet and Neighbours 1944

M4. China’s Secretly Built 1957 Road Through India’s Aksai Chin

M5. Map of Kashmir to Sinkiang 1944

M6. Map of India-Tibet-China-Mongolia 1959

M7. Map of India, Afghanistan, Russia, China, 1897

M8. Map of Xinjiang/Sinkiang/E Turkestan

M9. Map of Bombay/Mumbai 1909

M10-M13. Himalayan Expedition, West Sikkim 1970 – 1,2,3,4

Thoughts, words, deeds

My work 1973-2014

Subroto Roy

This is an incomplete bibliography of my writings, public lectures etc 1973-2014 including citations, reviews, comments. I have been mostly an academic economist who by choice or circumstance over 41 years has had to venture also into science, philosophy, public policy, law, jurisprudence, practical politics, history, international relations, military strategy, financial theory, accounting, management, journalism, literary criticism, psychology, psychoanalysis, theology, aesthetics, biography, children’s fables, etc. If anything unites the seemingly diverse work recorded below it is that I have tried to acquire a grasp of the nature of human reason and then apply this comprehension in practical contexts as simply and clearly as possible. Hence I have ended up following the path of Aristotle, as described in modern times (via Wittgenstein and John Wisdom) by Renford Bambrough. The 2004 public lecture in England, “Science, Religion, Art & the Necessity of Freedom”, may explain and illustrate all this best. A friend has been kind enough to call me an Academician, which I probably am, though one who really needs his own Academy because the incompetence, greed and mendacity encountered too often in the modern professoriat is dispiriting.
Besides writings and publications printed on paper, there are writings or items not printed on paper — as new media break space, cost and other constraints of traditional publishing. A little repetition and overlap has occurred too. Also in a few cases, e.g., Aldous Huxley’s essay on DH Lawrence, nothing has been done except discover and republish. Several databases have been created and released in the public interest, as have been some rare maps. There is also some biographical and autobiographical material. Several inconsequential errors remain in the text, which shall take time to be rectified as documents come to be rediscovered and collated.
1973
1. “Behavioural study of mus musculus”, Haileybury College, Supervised by J de C Ford-Robertson MA (Oxon). (Due to be published here 2010).
2. “Chemistry at Advanced & Special Level: Student Notes 1972-73” (Due to be published here 2010).
3. “Biology at Advanced & Special Level: Student Notes 1972-73”, (Due to be published here 2010).
4. “Physics at Advanced Level: Student Notes 1972-73”, (Due to be published here 2010).
5. “Revolution: theoria and praxis”, London, mimeo (Due to be published here 2010).
6. “Gandhi vs Marx”, London, mimeo (Due to be published here 2010).
1974
7. “Relevance of downward money-wage rigidity to the problem of maintaining full-employment in the classical and Keynesian models of income determination”, London School of Economics, mimeo (Due to be published here 2010).
8. “Testing aircraft fuels at Shell Finland”.
1975
9. “Oxford Street experiences: down and out in London town”.
10. “SE Region Bulk Distribution Survey”, Unilever, Basingstoke.
11. “Four London poems”, in JCM Paton (ed) New Writing (London, Great Portland Street: International Students House). (Due to be republished here 2010)
12. “On economic growth models and modellers”, London School of Economics, mimeo. (Due to be published here 2010).
1976
13. “World money: system or anarchy?”, lecture to Professor ACL Day’s seminar, London School of Economics, Economics Department, April. (Due to be published here 2010).
14. “A beginner’s guide to some recent developments in monetary theory”, lecture to Professor FH Hahn’s seminar, Cambridge University Economics Department, November 17 (Due to be published here 2010). See also “Announcement of My “Hahn Seminar”, published here June 14 2008.
1977
15. “Inflation and unemployment: a survey”, mimeo, Fitzwilliam College, Cambridge. (Due to be published here 2010).
16. “On short run theories of dual economies”, Cambridge University Economics Department “substantial piece of work” required of first year Research Students. Examiner: DMG Newbery, FBA. (Due to be published here 2010).
1978
17. “Pure theory of developing economies 1 and 2”, Delhi School of Economics mimeo (Due to be published here 2010).
18. “Introduction to some market outcomes under uncertainty”, Delhi School of Economics mimeo (Due to be published here 2010).
19. “On money and development”, Corpus Christi College, Cambridge, mimeo, September. (Due to be published here 2010)
20. “Notes on the Newbery-Stiglitz model of sharecropping”, Corpus Christi College, Cambridge, mimeo November. (Due to be published here 2010).
1979
21. “A theory of rights and economic justice”, Corpus Christi College Cambridge mimeo. (Due to be published here 2010).
22. “Monetary theory and economic development”, Corpus Christi College Cambridge, mimeo (Due to be published here 2010).
23. “Foundations of the case against ‘development planning’”, Corpus Christi College Cambridge, mimeo, November. (Due to be published here 2010).
1979-1989
24. Correspondence with Renford Bambrough (1926-1999), philosopher of St John’s College, Cambridge (Due to be published here 2010).
1980
25. “Models before the monetarist storm”, New Statesman letters
26. “Disciplining rulers and experts”, Corpus Christi College, Cambridge, mimeo. (Due to be published here 2010).
1981
27. “On liberty & economic growth: preface to a philosophy for India”, Cambridge University doctoral thesis, supervisor FH Hahn, FBA; examiners CJ Bliss, FBA; TW Hutchison, FBA (Due to be published here 2010). 27a Response of FA Hayek on a partial draft February 18 1981. 27b Response of Peter Bauer, 1982. 27c Response of Theodore W Schultz, 1983. 27d. Response of Frank Hahn 1985.
1982
28. “Knowledge and freedom in economic theory Parts 1 and 2”, Centre for Study of Public Choice, Virginia Polytechnic Institute & State University, Working Papers.
29. “Economic Theory and Development Economics”. Lecture to American Economic Association, New York, Dec 1982. Panel: RM Solow, HB Chenery, T Weisskopf, P Streeten, G Rosen, S Roy. Published in 29a.
1983
29a “Economic Theory and Development Economics: A Comment”. World Development, 1983. [Citation: Stavros Thefanides “Metamorphosis of Development Economics”, World Development 1988.]
30. “The Political Economy of Trade Policy (Comment on J. Michael Finger)”, Washington DC: Cato Journal, Winter 1983/84. See also “Did Donald Trump & Bernie Sanders get their Trade Policy from my 1983 Cato talk?” 2009/2017.
1984
31. “Considerations on Utility, Benevolence and Taxation”, History of Political Economy, 1984. 31a Response of Professor Sir John Hicks May 1 1984.
[Citations: P. Hennipman, “A Tale of Two Schools”, De Economist 1987, “A New Look at the Ordinalist Revolution”, J. Econ. Lit. Mar 1988; P. Rappoport, “Reply to Professor Hennipman”, J. Econ. Lit. Mar 1988; Eugene Smolensky et al “An Application of A Dynamic Cost-of-Living Index to the Evaluation of Changes in Social Welfare”, J. Post-Keynesian Econ.IX.3. 1987.]
32. Pricing, Planning and Politics: A Study of Economic Distortions in India, London: Institute of Economic Affairs, London 1984.
[Citations: Lead editorial of The Times of London May 29 1984, “India’s economy”, Times letters June 16 1984. John Toye “Political Economy & Analysis of Indian Development”, Modern Asian Studies, 22, 1, 1988; John Toye, Dilemmas of Development; D. Wilson, “Privatization of Asia”, The Banker Sep. 1984 etc]. See also 370 “Silver Jubilee of ‘Pricing, Planning and Politics: A Study of Economic Distortions in India’” 2009.
33. Review of Utilitarianism and Beyond, Amartya Sen & Bernard Williams (eds) Public Choice.
34. Review of Limits of Utilitarianism, HB Miller & WH Williams (eds.), Public Choice.
35. Deendayal lecture (one of four invited lecturers), Washington DC, ~~May~~ October “On Government and the Individual in India”

1987
36. (with one other) “Does the Theory of Logical Types Inform the Theory of Communication?”, Journal of Genetic Psychology., 148 (4), Dec. 1987 [Citation:
37. “Irrelevance of Foreign Aid”, India International Centre Quarterly, Winter 1987.
38. Review of Development Planning by Sukhamoy Chakravarty for Economic Affairs, London 1987.
1988
39. (with Seiji Naya and Pearl Imada) “Introduction” to Lessons in Development: A Comparative Study of Asia and Latin America. San Francisco: Inst. of Economic Growth.
40. “A note on the welfare economics of regional cooperation”, lecture to Asia-Latin America conference, East West Center Honolulu, published 2009.
1989
41. Philosophy of Economics: On the Scope of Reason in Economic Inquiry, London & New York: Routledge (International Library of Philosophy) 1989, paperback 1991. Internet edition 2007. [Reviews & Citations: Research in Economics, 1992; De Economist 1991 & 1992; Manch.Sch. Econ.Studs. 59, 1991; Ethics 101.88 Jul. 1991; Kyklos 43.4 1990; Soc. Science Q. 71.880. Dec.1990; Can. Phil. Rev. 1990; J. Econ. Hist. Sep. 1990; Econ. & Phil. Fall 1990; Econ. Affairs June-July 1990; TLS May 1990; Choice March 1990; J. App.Phil. 1994, M. Blaug: Methodology of Economics, 2nd ed., Cambridge, 1992; Hist. Methods. 27.3, 1994; J. of Inst. & Theoretical Econ.,1994; Jahrbucker fur Nationaleconomie 1994, 573:574. Mark A Lutz in Economics for the Common Good, London: Routledge, 1999, et al]. See also 339 “Apropos Philosophy of Economics”, Comments of Sidney Hook, KJ Arrow, Milton Friedman, TW Schultz, SS Alexander, Max Black, Renford Bambrough, John Gray et al.
42. Foreword to Essays on the Political Economy by James M. Buchanan, Honolulu: University of Hawaii Press 1989.
43. “Modern Political Economy of India”, edited by Subroto Roy & William E James, Hawaii mimeo May 21 1989. This published for the first time a November 1955 memorandum to the Government of India by Milton Friedman. See also 43a, 53.
43a. Preface to “Milton Friedman’s extempore comments at the 1989 Hawaii conference: on India, Israel, Palestine, the USA, Debt and its uses, Erhardt abolishing exchange controls, Etc”, May 22 1989, published here for the first time October 31 2008.
44. Milton Friedman’s defence of my work in 1989.
45. Theodore W. Schultz’s defence of Philosophy of Economics
1990
46. “Letter to Judge Evelyn Lance: On A Case Study in Private International Law” (Due to be published here in 2010).
47-49. Selections from advisory work on economic policy etc for Rajiv Gandhi, Leader of the Opposition in the Parliament of India, published in 47a-49a.
1991
41b Philosophy of Economics: On the Scope of Reason in Economic Inquiry, Paperback edition.
50. “Conversations and correspondence with Rajiv Gandhi during the Gulf war, January 1991” (Due to be published here 2010).
47a. A Memo to Rajiv I: Stronger Secular Middle”, The Statesman, Jul 31 1991.
48a “A Memo to Rajiv II: Saving India’s Prestige”, The Statesman, Aug 1 1991.
49a “A Memo to Rajiv III: Salvation in Penny Capitalism”, The Statesman, Aug 2 1991 47b-49b “Three Memoranda to Rajiv Gandhi 1990-91”, 2007 republication here.
51. “Constitution for a Second Indian Republic”, The Saturday Statesman, April 20 1991. Republished here 2009.
52. “On the Art of Government: Experts, Party, Cabinet and Bureaucracy”, New Delhi mimeo March 25 1991, published here July 00 2009.
1992
53. Foundations of India’s Political Economy: Towards an Agenda for the 1990s Edited and with an Introduction by Subroto Roy & William E. James New Delhi, London, Newbury Park: Sage: 1992. Citation: Milton and Rose Friedman Two Lucky People (Chicago 1998), pp. 268-269.
54. Foundations of Pakistan’s Political Economy: Towards an Agenda for the 1990s Edited and with an Introduction by William E. James & Subroto Roy, Hawaii MS 1989, Sage: 1992, Karachi: Oxford 1993.
Reviews of 53 & 54 include: Bus. Today, Mar-Apr 1992; Political Studies March 1995; Econ Times 21 March 1993; Pakistan Development Review 1992. Hindustan Times 11 July 1992. Pacific Affairs 1993; Hindu 21 March 1993, 15 June 1993; Pakistan News International 12 June 1993. Book Reviews March 1993; Deccan Herald 2 May 1993; Pol.Econ.J. Ind. 1992. Fin Express 13 September 1992; Statesman 16 Jan. 1993. J. Royal Soc Asian Aff. 1994, J. Contemporary Asia, 1994 etc.
55. “Fundamental Problems of the Economies of India and Pakistan”, World Bank, Washington, mimeo (Due to be published here 2010).
56.“The Road to Stagflation: The Coming Dirigisme in America, or, America, beware thy economists!, or Zen and Clintonomics,” Washington DC, Broad Branch Terrace, mimeo, November 17.
1993
57. “Exchange-rates and manufactured exports of South Asia”, IMF Washington DC mimeo. Published in part in 2007-2008 as 58-62:
58. “Path of the Indian Rupee 1947-1993”, 2008.
59. “Path of the Pakistan Rupee 1947-1993”, 2008.
60. “Path of the Sri Lankan Rupee 1948-1993”, 2008.
61. “Path of the Bangladesh Taka 1972-1993”, 2008.
62. “India, Pakistan, Sri Lanka, Bangladesh Manufactured Exports, IMF Washington DC mimeo”, published 2007.
63. “Economic Assessment of US-India Merchandise Trade”, Arlington, Virginia, mimeo, published in slight part in Indo-US Trade & Economic Cooperation, ICRIER New Delhi, 1995, and in whole 2007.
64. “Towards an Economic Solution for Kashmir”, mimeo, Arlington, Virginia, circulated in Washington DC 1993-1995, cf 82, 111 infra. Comment of Selig Harrison.
1994
65. “Comment on Indonesia”, in The Political Economy of Policy Reform edited by John Williamson, Washington, DC: Institute for International Economics.
66a “Gold reserves & the gold price in anticipation of Central Bank behaviour”, Greenwich, Connecticut, mimeo. 67b. “Portfolio optimization and foreign currency exposure hedging” Greenwich, Connecticut mimeo.
1995
68. “On the logic and commonsense of debt and payments crises: How to avoid another Mexico in India and Pakistan”, Scarsdale, NY, mimeo, May 1.
69. “Policies for Young India”, Scarsdale, NY, pp. 350, manuscript.
1996
70. US Supreme Court documents, published in part in 2008 as “Become a US Supreme Court Justice!” 70a, 70b (Due to be published in full here in 2010 as Roy vs University of Hawaii, 1989- including the expert testimonies of Milton Friedman and Theodore W Schultz.).
71. “Key problems of macroeconomic management facing the new Indian Government”, May 17. Scarsdale, New York, mimeo. (Due to be published here 2010).
72. “Preventing a collapse of the rupee”, IIT Kharagpur lecture July 16 1996.
73. “The Economist’s Representation of Technological Knowledge”, Vishvesvaraya lecture to the Institution of Engineers, September 15 1996, IIT Kharagpur.
1997
74. “Union and State Budgets in India”, lecture at the World Bank, Washington DC, May 00.
75. “State Budgets in India”, IIT Kharagpur mimeo, June 6.
1998
76. “Transparency and Economic Policy-Making: An address to the Asia-Pacific Public Relations Conference” (panel on Transparency chaired by CR Irani) Jan 30 1998, published here 2008.
77. Theodore W. Schultz 1902-1998, Feb 25.
78. “The Economic View of Human Resources”, address to a regional conference on human resources, IIT Kharagpur.
79. “Management accounting”, lecture at Lal Bahadur Shastri Academy, Mussourie,
80a “The Original Reformer”, Outlook letters, Jan 23 1998
81. “Recent Developments in Modern Finance”, IIM Bangalore Review, 10, 1 & 2, Jan.-Jun 1998. Reprinted as “From the Management Guru’s Classroom”: 81a “An introduction to derivatives”, Business Standard/Financial Times, Bombay 18 Apr 1999; 81b “Options in the future, Apr 25 1999; 81c “What is hedging?”, May 2 1999; 81d “Teaching computers to think”, May 9 1999.
82. “Towards an Economic Solution for Kashmir”, Jun 22 1998, lecture at Heritage Foundation, Washington DC. Cf 111 Dec 2005.
83. “Sixteen Currencies for India: A Reverse Euro Model for Monetary & Fiscal Efficacy”, Lecture at the Institute of Economic Affairs, London, June 29 1998. Due to be published here 2010.
84. “Fable of the Fox, the Farmer, and the Would-Be Tailors”, October (Published here July 27 2009).
85. “A Common Man’s Guide to Pricing Financial Derivatives”, Lecture to “National Seminar on Derivatives”, Xavier Labour Research Institute, Jamshedpur, Dec. 16 1998. See 98.
1999
86. “An Analysis of Pakistan’s War-Winning Strategy: Are We Ready for This?”, IIT Kharagpur mimeo, published in part as 86a.“Was a Pakistani Grand Strategy Discerned in Time by India?” New Delhi: Security & Political Risk Analysis Bulletin, July 1999, Kargil issue. See also 000
80b. “The Original Reformer”, Outlook letters, Sep 13 1999.
2000
87. “On Freedom & the Scientific Point of View”, SN Bose National Centre for Basic Sciences, Feb 17 2000. Cf 100 below.
88. “Liberalism and Indian economic policy”, lecture at IIM Calcutta, Indian Liberal Group Meetings Devlali, Hyderabad; also Keynote address to UGC Seminar Guntur, March 30 2002. (Due to be published here 2010).
89. “Towards a Highly Transparent Fiscal & Monetary Framework for India’s Union & State Governments”, Invited address to Conference of State Finance Secretaries, Reserve Bank of India, Bombay, April 29, 2000. Published 2008.
90. “On the Economics of Information Technology”, two lectures at the Indian Institute of Information Technology, Bangalore, Nov 10-11, 2000.
91. Review of A New World by Amit Chaudhuri in Literary Criterion, Mysore.
2001
92. Review of AD Shroff: Titan of Finance and Free Enterprise by Sucheta Dalal, Freedom First., January.
93. “Encounter with Rajiv Gandhi: On the Origins of the 1991 Economic Reform”, Freedom First, October. See also 93a in 2005 and 93b in 2007.
94. “A General Theory of Globalization & Modern Terrorism with Special Reference to September 11”, a keynote address to the Council for Asian Liberals & Democrats, Manila, Philippines, 16 Nov. 2001. Published as 91a.
95. “The Case for and against The Satanic Verses: Diatribe and Dialectic as Art”, Dec 22 republished in print 95a The Statesman Festival Volume, 2006.
2002
94a “A General Theory of Globalization & Modern Terrorism with Special Reference to September 11”, in September 11 & Political Freedom in Asia, eds. Johannen, Smith & Gomez, Singapore 2002.
2002-2010
96. “Recording vivid dreams: Freud’s advice in exploring the Unconscious Mind” (Due to be published here in 2010).
2003
97. “Key principles of government accounting and audit”, IIT Kharagpur mimeo.
98. “Derivative pricing & other topics in financial theory: a student’s complete lecture notes” (Due to be published here in 2010).
2004
99. TV Interview by BBC, Oxford, after May 2004 General Election in India.
100. “Collapse of the Global Conversation”, International Institute for Asian Studies, Leiden, Netherlands, Jul 2004.
101. “Science, Religion, Art & the Necessity of Freedom”, a public lecture, University of Buckingham, UK, August 24 2004. Published here 2007.
2005
93a Rajiv Gandhi and the Origins of India’s 1991 Economic Reform (this was the full story; it appeared in print for the first time in The Statesman Festival Volume 2007).
102. “Can India become an economic superpower (or will there be a monetary meltdown)?” Cardiff University Institute of Applied Macroeconomics Monetary Economics Seminar, April 13, Institute of Economic Affairs, London, April 27, Reserve Bank of India, Bombay, Chief Economist’s Seminar on Monetary Economics, May 5.
103. Margaret Thatcher’s Revolution: How it Happened and What it Meant, Edited and with an Introduction by Subroto Roy & John Clarke, London & New York: Continuum, 2005; paperback 2006; French translation by Florian Bay, 2007.
104. “Iqbal & Jinnah vs Rahmat Ali in Pakistan’s Creation”, Dawn, Karachi, Sep 3.
105. “The Mitrokhin Archives II from an Indian Perspective: A Review Article”, The Statesman, Perspective Page, Oct 11 .
106. “After the Verdict”, The Statesman, Editorial Page, Oct 20.
107. “US Espionage Failures”, The Statesman, Perspective Page, Oct 26
108. “Waffle But No Models of Monetary Policy”, The Statesman, Perspective Page, Oct 30.
109. “On Hindus and Muslims”, The Statesman, Perspective Page, Nov 6.
110. “Assessing Vajpayee: Hindutva True and False”, The Statesman, Editorial Page, Nov 13-14″.
111. “Fiction from the India Economic Summit”, The Statesman, Front Page, Nov 29.
112. “Solving Kashmir: On an Application of Reason”, The Statesman Editorial Page
I. “Give the Hurriyat et al Indian Green Cards”, Dec 1
II. “Choice of Nationality under Full Information”, Dec 2
III. “Of Flags and Consulates in Gilgit etc”, Dec 3.
2006
113. “The Dream Team: A Critique”, The Statesman Editorial Page
I : New Delhi’s Consensus (Manmohantekidambaromics), Jan 6
II: Money, Convertibility, Inflationary Deficit Financing, Jan 7
III: Rule of Law, Transparency, Government Accounting, Jan 8.
114. “Unaccountable Delhi: India’s Separation of Powers’ Doctrine”, The Statesman, Jan 13.
115. “Communists and Constitutions”, The Statesman, Editorial Page, Jan 22.
116. “Diplomatic Wisdom”, The Statesman, Editorial Page, Jan 31.
117. “Mendacity & the Government Budget Constraint”, The Statesman, Front Page Feb 3.
118. “Of Graven Images”, The Statesman, Editorial Page, Feb5.
119. “Separation of Powers, Parts 1-2”, The Statesman, Editorial Pages Feb 12-13.
120. “Public Debt, Government Fantasy”, The Statesman, Front Page Editorial Comment, Feb 22.
121. “War or Peace Parts 1-2”, The Statesman, Editorial Page, Feb 23-24.
122. “Can You Handle This Brief, Mr Chidambaram?” The Statesman, Front Page Feb 26.
123. “A Downpayment On the Taj Mahal Anyone?”, The Statesman, Front Page Comment on the Budget 2006-2007, Mar 1.
124. “Atoms for Peace (or War)”, The Sunday Statesman, Editorial Page Mar 5.
125. “Imperialism Redux: Business, Energy, Weapons & Foreign Policy”, The Statesman, Editorial Page, Mar 14.
126. “Logic of Democracy”, The Statesman, Editorial Page, Mar 30.
127. “Towards an Energy Policy”, The Sunday Statesman, Editorial Page, Apr 2.
128. “Iran’s Nationalism”, The Statesman, Editorial Page, Apr 6.
129. “A Modern Military”, The Sunday Statesman, Editorial Page, Apr 16.
130. “On Money & Banking”, The Sunday Statesman, Editorial Page, Apr 23.
131. “Lessons for India from Nepal’s Revolution”, The Statesman, Front Page Apr 26.
132. “Revisionist Flattery (Inder Malhotra’s Indira Gandhi: A Review Article)”, The Sunday Statesman, May 7.
133. “Modern World History”, The Sunday Statesman Editorial Page, May 7.
134. “Argumentative Indians: A Conversation with Professor Amartya Sen on Philosophy, Identity and Islam,” The Sunday Statesman, May 14 2006. “A Philosophical Conversation between Professor Sen and Dr Roy”, 2008. Translated into Bengali by AA and published in 00.
135. “The Politics of Dr Singh”, The Sunday Statesman, Editorial Page, May 21.
136. “Corporate Governance & the Principal-Agent Problem”, lecture at a conference on corporate governance, Kolkata May 31. Published here 2008.
137. “Pakistan’s Allies Parts 1-2”, The Sunday Statesman, Editorial Page, Jun 4-5.
138. “Law, Justice and J&K Parts 1-2”, The Sunday Statesman, Editorial Page, Jul 2, The Statesman Editorial Page Jul 3.
139. “The Greatest Pashtun (Khan Abdul Ghaffar Khan)”, The Sunday Statesman, Editorial Page, Jul 16.
140. “Understanding Pakistan Parts 1-2”, The Sunday Statesman, Editorial Page, Jul 30, The Statesman Editorial Page Jul 31.
141. “Indian Money and Credit”, The Sunday Statesman, Editorial Page, Aug 6.
142. “India’s Moon Mission”, The Sunday Statesman, Editorial Page, Aug 13.
143. “Jaswant’s Journeyings: A Review Article”, The Sunday Statesman Magazine, Aug 27.
144. “Our Energy Interests, Parts 1-2”, The Sunday Statesman, Editorial Page, Aug 27, The Statesman Editorial Page Aug 28.
145. “Is Balochistan Doomed?”, The Sunday Statesman, Editorial Page, Sep 3 2006.
146. “Racism New and Old”, The Statesman, Editorial Page, Sep 8 2006
147. “Political Economy of India’s Energy Policy”, address to KAF-TERI conference, Goa Oct 7, published in 147a.
148. “New Foreign Policy? Seven phases of Indian foreign policy may be identifiable since Nehru”, Parts 1-2, The Sunday Statesman, Oct 8, The Statesman Oct 9.
149. “Justice & Afzal: There is a difference between law and equity (or natural justice). The power of pardon is an equitable power. Commuting a death-sentence is a partial pardon”, The Sunday Statesman Editorial Page Oct 14
150. “Non-existent liberals (On a Liberal Party for India)”, The Sunday Statesman Editorial Page Oct 22.
151. “History of Jammu & Kashmir Parts 1-2”, The Sunday Statesman, Oct 29, The Statesman Oct 30, Editorial Page.
152. “American Democracy: Does America need a Prime Minister and a longer-lived Legislature?”, The Sunday Statesman Nov 5.
153. “Milton Friedman A Man of Reason 1912-2006”, The Statesman Perspective Page, Nov 22.
154. “Postscript to Milton Friedman Mahalanobis’s Plan (The Mahalanobis-Nehru “Second Plan”) The Statesman Front Page Nov 22.
155. “Mob Violence and Psychology”, Dec 10, The Statesman, Editorial Page.
156. “What To Tell Musharraf: Peace Is Impossible Without Non-Aggressive Pakistani Intentions”, The Statesman Editorial Page Dec 15.
157. “Land, Liberty and Value: Government must act in good faith treating all citizens equally – not favouring organised business lobbies and organised labour over an unorganised peasantry”, The Sunday Statesman Editorial Page Dec 31.
2007
158. “Hypocrisy of the CPI-M: Political Collapse In Bengal: A Mid-Term Election/Referendum Is Necessary”, The Statesman, Editorial Page, Jan 9.
159. “On Land-Grabbing: Dr Singh’s India, Buddhadeb’s Bengal, Modi’s Gujarat have notorious US, Soviet and Chinese examples to follow ~ distracting from the country’s real economic problems,” The Sunday Statesman, Editorial Page Jan 14.
160. “India’s Macroeconomics: Real growth has steadily occurred because India has shared the world’s technological progress. But bad fiscal, monetary policies over decades have led to monetary weakness and capital flight” The Statesman Editorial Page Jan 20.
161. “Fiscal Instability: Interest payments quickly suck dry every year’s Budget. And rolling over old public debt means that Government Borrowing in fact much exceeds the Fiscal Deficit”, The Sunday Statesman, Editorial Page, Feb 4.
162. “Our trade and payments Parts 1-2” (“India in World Trade and Payments”),The Sunday Statesman, Feb 11 2007, The Statesman, Feb 12 2007.
163. “Our Policy Process: Self-Styled “Planners” Have Controlled India’s Paper Money For Decades,” The Statesman, Editorial Page, Feb 20.
164. “Bengal’s Finances”, The Sunday Statesman Editorial Page, Feb 25.
165. “Fallacious Finance: Congress, BJP, CPI-M may be leading India to Hyperinflation” The Statesman Editorial Page Mar 5.
166. “Uttar Pradesh Polity and Finance: A Responsible New Govt May Want To Declare A Financial Emergency” The Statesman Editorial Page, Mar 24
167. “A scam in the making” in The Sunday Statesman Front Page Apr 1 2007, published here in full as “Swindling India”.
168. “Maharashtra’s Money: Those Who Are Part Of The Problem Are Unlikely To Be A Part Of Its Solution”, The Statesman Editorial Page Apr 24.
147a. “Political Economy of Energy Policy” in India and Energy Security edited by Anant Sudarshan and Ligia Noronha, Konrad Adenauer Stiftung, New Delhi 2007.
169. “Presidential Qualities: Simplicity, Genuine Achievement Are Desirable; Political Ambition Is Not”, The Statesman, Editorial Page, May 8.
170. “We & Our Neighbours: Pakistanis And Bangladeshis Would Do Well To Learn From Sheikh Abdullah”, The Statesman, Editorial Page May 15.
171. “On Indian Nationhood: From Tamils To Kashmiris And Assamese And Mizos To Sikhs And Goans”, The Statesman, Editorial Page, May 25.
172. A Current Example of the Working of the Unconscious Mind, May 26.
173. Where I would have gone if I was Osama Bin Laden, May 31.
174. “US election ’08:America’s Presidential Campaign Seems Destined To Be Focussed On Iraq”, The Statesman, Editorial Page, June 1.
175. “Home Team Advantage: On US-Iran talks and Sunni-Shia subtleties: Tehran must transcend its revolution and endorse the principle that the House of Islam has many mansions”, The Sunday Statesman Editorial Page, June 3
176. “Unhealthy Delhi: When will normal political philosophy replace personality cults?”, The Statesman, Editorial Page, June 11.
177. “American Turmoil: A Vice-Presidential Coup – And Now a Grassroots Counterrevolution?”, The Statesman, Editorial Page, June 18
178. “Political Paralysis: India has yet to develop normal conservative, liberal and socialist parties. The Nice-Housing-Effect and a little game-theory may explain the current stagnation”, The Sunday Statesman, Editorial Page, June 24.
179. “Has America Lost? War Doctrines Of Kutusov vs Clausewitz May Help Explain Iraq War”, The Statesman, Editorial Page, July 3.
180. “Lal Masjid ≠ Golden Temple: Wide differences are revealed between contemporary Pakistan and India by these two superficially similar military assaults on armed religious civilians”, The Sunday Statesman, Editorial Page July 15
181. “Political Stonewalling: Only Transparency Can Improve Institutions”, The Statesman, Editorial Page July 20.
182. “Gold standard etc: Fixed versus flexible exchange rates”, July 21.
183. “US Pakistan-India Policy: Delhi & Islamabad Still Look West In Defining Their Relationship”, The Statesman, Editorial Page, July 27.
184. “Works of DH Lawrence” July 30
185. “An Open Letter to Professor Amartya Sen about Singur etc”, The Statesman, Editorial Page, July 31.
186. “Martin Buber on Palestine and Israel (with Postscript)”, Aug 4.
187. “Auguste Rodin on Nature, Art, Beauty, Women and Love”, Aug 7.
188. “Saving Pakistan: A Physicist/Political Philosopher May Represent Iqbal’s “Spirit of Modern Times”, The Statesman, Editorial Page, Aug 13.
189. Letter to Forbes.com 16 Aug.
190. “Need for Clarity: A poorly drafted treaty driven by business motives is a recipe for international misunderstanding”, The Sunday Statesman, Editorial Page, Aug 19.
191. “No Marxist MBAs? An amicus curiae brief for the Hon’ble High Court”, The Statesman, FrontPage, Aug 29.
192. On Lawrence, Sep 4.
193. Dalai Lama’s Return: In the tradition of Gandhi, King, Mandela, Sep 11.
194. Of JC Bose, Patrick Geddes & the Leaf-World, Sep 12.
195. “Against Quackery: Manmohan and Sonia have violated Rajiv Gandhi’s intended reforms; the Communists have been appeased or bought; the BJP is incompetent Parts 1-2”, in The Sunday Statesman and The Statesman, Editorial Pages of Sep 23-24.
196. Karl Georg Zinn’s 1994 Review of Philosophy of Economics, Sep 26.
197. DH Lawrence’s Phoenix, Oct 3.
93b. “Rajiv Gandhi and the Origins of India’s 1991 Economic Reform”, Statesman Festival Volume.
198. “Iran, America, Iraq: Bush’s post-Saddam Saddamism — one flip-flop too many?”, The Statesman, Editorial Page, Oct 16.
199. “Understanding China: The World Needs to Ask China to Find Her True Higher Self”, The Statesman, Editorial Page, Oct 22.
200. “India-USA interests: Elements of a serious Indian foreign policy”, The Statesman, Editorial Page, Oct 30.
201. “China’s India Aggression : German Historians Discover Logic Behind Communist Military Strategy”, The Statesman, Editorial Page Special Article, Nov 5.
202. Sonia’s Lying Courtier (with Postscript), Nov 25. See also 2014
203. “Surrender or Fight? War is not a cricket match or Bollywood movie. Can India fight China if it must?” The Statesman, Dec 4, Editorial Page.
204. Hutton and Desai: United in Error Dec 14
205. “China’s Commonwealth: Freedom is the Road to Resolving Taiwan, Tibet, Sinkiang”, The Statesman, Dec 17.
2008
206. “Nixon & Mao vs India: How American foreign policy did a U-turn about Communist China’s India aggression. The Government of India should publish its official history of the 1962 war.” The Sunday Statesman, Jan 6, The Statesman Jan 7 Editorial Page.
207. “Lessons from the 1962 War: Beginnings of a solution to the long-standing border problem: there are distinct Tibetan, Chinese and Indian points of view that need to be mutually comprehended”, The Sunday Statesman, January 13 2008.
208. “Our Dismal Politics: Will Independent India Survive Until 2047?”, The Statesman Editorial Page, Feb 1.
209. Median Voter Model of India’s Electorate Feb 7.
210. “Anarchy in Bengal: Intra-Left bandh marks the final unravelling of “Brand Buddha””, The Sunday Statesman, Editorial Page, Feb 10.
211. Fifty years since my third birthday: on life and death.
212. “Pakistan’s Kashmir obsession: Sheikh Abdullah Relied In Politics On The French Constitution, Not Islam”, The Statesman, Editorial Page, Feb 16.
213. A Note on the Indian Policy Process Feb 21.
214. “Growth & Government Delusion: Progress Comes From Learning, Enterprise, Exchange, Not The Parasitic State”, The Statesman, Editorial Page, Feb 22.
215. “How to Budget: Thrift, Not Theft, Needs to Guide Our Public Finances”, The Statesman, Editorial Page, Feb 26.
216. “India’s Budget Process (in Theory)”, The Statesman, Front Page Feb 29.
217. “Irresponsible Governance: Congress, BJP, Communists, BSP, Sena Etc Reveal Equally Bad Traits”, The Statesman, Editorial Page, March 4.
218. “American Politics: Contest Between Obama And Clinton Affects The World”, The Statesman, Editorial Page, March 11.
219. “China’s India Example: Tibet, Xinjiang May Not Be Assimilated Like Inner Mongolia And Manchuria”, The Statesman, Editorial Page, March 25.
220. “Taxation of India’s Professional Cricket: A Proposal”, The Statesman, Editorial Page, April 1.
221. “Two cheers for Pakistan!”, The Statesman, Editorial Page, April 7.
222. “Indian Inflation: Upside Down Economics From The New Delhi Establishment Parts 1-2”, The Statesman, Editorial Page, April 15-16.
223. “Assessing Manmohan: The Doctor of Deficit Finance should realise the currency is at stake”, The Statesman, Editorial Page Apr 25.
224. John Wisdom, Renford Bambrough: Main Philosophical Works, May 8.
225. “All India wept”: On the death of Rajiv Gandhi, May 21.
226. “China’s force and diplomacy: The need for realism in India” The Statesman, Editorial Page May 31.
227. Serendipity and the China-Tibet-India border problem June 6
228. “Leadership vacuum: Time & Tide Wait For No One In Politics: India Trails Pakistan & Nepal!”, The Statesman Editorial Page June 7.
229. My meeting Jawaharlal Nehru Oct13 1962
230. Manindranath Roy 1891-1958
231. Surendranath Roy 1860-1929
232. The Roys of Behala 1928.
233. Sarat Chandra visits Surendranath Roy 1927
234. Nuksaan-Faida Analysis = Cost-Benefit Analysis in Hindi/Urdu Jun 30
235. One of many reasons John R Hicks was a great economist July 3
236. My father, Indian diplomat, in the Shah’s Tehran 1954-57 July 8
237 Distribution of Govt of India Expenditure (Net of Operational Income) 1995 July 27
238. Growth of Real Income, Money & Prices in India 1869-2008, July 28.
239. Communism from Social Democracy? But not in India or China! July 29
240. Death of Solzhenitsyn, Aug. 3
240a. Tolstoy on Science and Art, Aug 4.
241. “Reddy’s reckoning: Where should India’s real interest rate be relative to the world?” Business Standard Aug 10
242. “Rangarajan Effect”, Business Standard Aug 24
243. My grandfather’s death in Ottawa 50 years ago today Sep 3
244. My books in the Library of Congress and British Library Sep 12
245. On Jimmy Carter & the “India-US Nuclear Deal”, Sep 12
246. My father after presenting his credentials to President Kekkonen of Finland Sep 14 1973.
247. “October 1929? Not!”, Business Standard, Sep 18.
248. “MK Gandhi, SN Roy, MA Jinnah in March 1919: Primary education legislation in a time of protest”
249. 122 sensible American economists Sept 26
250. Govt of India: Please call in the BBC and ask them a question Sep 27
251. “Monetary Integrity and the Rupee: Three British Raj relics have dominated our macroeconomic policy-making” Business Standard Sep 28.
252a. Rabindranath’s daughter writes to her friend my grandmother Oct 5
252b. A Literary Find: Modern Poetry in Bengal, Oct 6.
253. Sarat writes to Manindranath 1931, Oct 12
254. Origins of India’s Constitutional Politics 1913
255. Indira Gandhi in Paris, 1971
256. How the Liabilities/Assets Ratio of Indian Banks Changed from 84% in 1970 to 108% in 1998, October 20
257a. My Subjective Probabilities on India’s Moon Mission Oct 21
258. Complete History of Mankind’s Moon Missions: An Indian Citizen’s Letter to ISRO’s Chairman, Oct 22.
259. Would not a few million new immigrants solve America’s mortgage crisis? Oct 26
260. “America’s divided economists”, Business Standard Oct 26
261. One tiny prediction about the Obama Administration, Nov 5
262. Rai Bahadur Umbika Churn Rai, 1827-1902, Nov 7 2008
263. Jawaharlal Nehru invites my father to the Mountbatten Farewell Nov 7 2008
70a. “Become a US Supreme Court Justice! (Explorations in the Rule of Law in America) Preface” Nov 9
70b. “Become a US Supreme Court Justice! (Explorations in the Rule of Law in America)” Nov 9.
257b. Neglecting technological progress was the basis of my pessimism about Chandrayaan, Nov 9.
264. Of a new New Delhi myth and the success of the University of Hawaii 1986-1992 Pakistan project Nov 15
265. Pre-Partition Indian Secularism Case-Study: Fuzlul Huq and Manindranath Roy Nov 16
266. Do President-elect Obama’s Pakistan specialists suppose Maulana Azad, Dr Zakir Hussain, Sheikh Abdullah were Pakistanis (or that Sheikh Mujib wanted to remain one)? Nov 18
267. Jews have never been killed in India for being Jews until this sad day, Nov 28.
268. In international law, Pakistan has been the perpetrator, India the victim of aggression in Mumbai, Nov 30.
269. The Indian Revolution, Dec 1.
270. Habeas Corpus: a captured terrorist mass-murderer tells a magistrate he has not been mistreated by Mumbai’s police Dec 3
271. India’s Muslim Voices (Or, Let us be clear the Pakistan-India or Kashmir conflicts have not been Muslim-Hindu conflicts so much as intra-Muslim conflicts about Muslim identity and self-knowledge on the Indian subcontinent), Dec 4
272. “Anger Management” needed? An Oxford DPhil recommends Pakistan launch a nuclear first strike against India within minutes of war, Dec 5.
273. A Quick Comparison Between the September 11 2001 NYC-Washington attacks and the November 26-28 2008 Mumbai Massacres (An Application of the Case-by-Case Philosophical Technique of Wittgenstein, Wisdom and Bambrough), Dec 6
274. Dr Rice finally gets it right (and maybe Mrs Clinton will too) Dec 7
275. Will the Government of India’s new macroeconomic policy dampen or worsen the business-cycle (if such a cycle exists at all)? No one knows! “Where ignorance is bliss, ‘Tis folly to be wise.” Dec 7
276. Pump-priming for car-dealers: Keynes groans in his grave (If evidence was needed of the intellectual dishonesty of New Delhi’s new macroeconomic policy, here it is) Dec 9.
277. Congratulations to Mumbai’s Police: capturing a terrorist, affording him his Habeas Corpus rights, getting him to confess within the Rule of Law, sets a new world standard Dec 10
278. Two cheers — wait, let’s make that one cheer — for America’s Justice Department, Dec 10
279. Will Pakistan accept the bodies of nine dead terrorists who came from Pakistan to Mumbai? If so, let there be a hand-over at the Wagah border, Dec 11.
280. Kasab was a stupid, ignorant, misguided youth, manufactured by Pakistan’s terrorist masterminds into becoming a mass-murdering robot: Mahatma Gandhi’s India should punish him, get him to repent if he wishes, then perhaps rehabilitate him as a potent weapon against Pakistani terrorism Dec 12.
281. Pakistan’s New Delhi Embassy should ask for “Consular Access” to nine dead terrorists in a Mumbai morgue before asking to meet Kasab, Dec 13
282. An Indian Reply to President Zardari: Rewarding Pakistan for bad behaviour leads to schizophrenic relationships Dec 19
283. Is my prediction about Caroline Kennedy becoming US Ambassador to Britain going to be correct? Dec 27
284. Chandrayaan adds a little good cheer! Well done, ISRO!, Dec 28
285. How sad that “Slumdog millionaire” is SO disappointing! Dec 31
289. (with Claude Arpi) “Transparency & history: India’s archives must be opened to world standards” Business Standard New Delhi Dec 31, 2008, published here Jan 1 .
2009
290. A basis of India-Pakistan cooperation on the Mumbai massacres: the ten Pakistani terrorists started off as pirates and the Al-Huseini is a pirate ship Jan 1.
291. India’s “pork-barrel politics” needs a nice (vegetarian) Hindi name! “Teli/oily politics” perhaps? (And are we next going to see a Bill of Rights for Lobbyists?) Jan 3
292. My (armchair) experience of the 1999 Kargil war (Or, “Actionable Intelligence” in the Internet age: How the Kargil effort got a little help from a desktop) Jan 5
293. How Jammu & Kashmir’s Chief Minister Omar Abdullah can become a worthy winner of the Nobel Peace Prize: An Open Letter, Jan 7
294. Could the Satyam/PwC fraud be the visible part of an iceberg? Where are India’s “Generally Accepted Accounting Principles”? Isn’t governance rather poor all over corporate India? Bad public finance may be a root cause Jan 8
295. Satyam does not exist: it is bankrupt, broke, kaput. Which part of this does the new “management team” not get? The assets belong to Satyam’s creditors. Jan 8
296. Jews are massacred in Mumbai and now Jews commit a massacre in Gaza! Jan 9
297. And now for the Great Satyam Whitewash/Cover-Up/Public Subsidy! The wrong Minister appoints the wrong new Board who, probably, will choose the wrong policy Jan 12
298. Letter to Wei Jingsheng Jan 14
299. Memo to the Hon’ble Attorneys General of Pakistan & India: How to jointly prosecute the Mumbai massacre perpetrators most expeditiously Jan 16
300. Satyam and IT-firms in general may be good candidates to become “Labour-Managed” firms Jan 18
301. “Yes we might be able to do that. Perhaps we ought to. But again, perhaps we ought not to, let me think about it…. Most important is Cromwell’s advice: Think it possible we may be mistaken!” Jan 20.
302. RAND’s study of the Mumbai attacks Jan 25
303. Didn’t Dr Obama (the new American President’s late father) once publish an article in Harvard’s Quarterly Journal of Economics? (Or did he?) Jan 25.
304. “A Dialogue in Macroeconomics” 1989 etc: sundry thoughts on US economic policy discourse Jan 30
305. American Voices: A Brief Popular History of the United States in 20 You-Tube Music Videos Feb 5
306. Jaladhar Sen writes to Manindranath at Surendranath’s death, Feb 23
307. Pakistani expansionism: India and the world need to beware of “Non-Resident Pakistanis” ruled by Rahmat Ali’s ghost, Feb 9
308. My American years Part One 1980-90: battles for academic integrity & freedom Feb 11.
309. Thanks and well done Minister Rehman Malik and the Govt of Pakistan Feb 12
310. Can President Obama resist the financial zombies (let alone slay them)? His economists need to consult Dr Anna J Schwartz Feb 14
311. A Brief History of Gilgit, Feb 18
312. Memo to UCLA Geographers: Commonsense suggests Mr Bin Laden is far away from the subcontinent Feb 20
313. The BBC gets its history and geography deliberately wrong again Feb 21
314. Bengal Legislative Council 1921, Feb 28
315. Carmichael visits Surendranath, 1916, Mar 1
316. Memo to GoI CLB: India discovered the Zero, and 51% of Zero is still Zero Mar 10
317. An Academic Database of Doctoral & Other Postgraduate Research Done at UK Universities on India, Pakistan, Sri Lanka, Bangladesh and Other Asian Countries Over 100 Years, Mar 13
318. Pakistan’s progress, Mar 18
319. Risk-aversion explains resistance to free trade, Mar 19
320. India’s incredibly volatile inflation rate! Mar 20
321. Is “Vicky, Cristina, Barcelona” referring to an emasculation of (elite) American society?, Mar 21
322. Just how much intellectual fraud can Delhi produce? Mar 26
323. India is not a monarchy! We urgently need to universalize the French concept of “citoyen”! Mar 28
324. Could this be the real state of some of our higher education institutions? Mar 29
325. Progress! The BBC retracts its prevarication! Mar 30
326. Aldous Huxley’s Essay “DH Lawrence” Mar 31
327. Waffle not institutional reform is what (I predict) the “G-20 summit” will produce, April 1
328. Did a full cricket team of Indian bureaucrats follow our PM into 10 Downing Street? Count for yourself! April 3
329. Will someone please teach the BJP’s gerontocracy some Economics 101 on an emergency basis? April 5
330. The BBC needs to determine exactly where it thinks Pakistan is!, April 5
331. Alfred Lyall on Christians, Muslims, India, China, Etc, 1908, April 6
332. An eminent economist of India passes away April 9
333. Democracy Database for the Largest Electorate Ever Seen in World History, April 12
334. Memo to the Election Commission of India April 14 2009, 9 AM, April 14
335. Caveat emptor! Satyam is taken over, April 14
336. India’s 2009 General Elections: Candidates, Parties, Symbols for Polls on 16-30 April Phases 1,2,3, April 15
337. On the general theory of expertise in democracy: reflections on what emerges from the American “torture memos” today, April 18
338. India’s 2009 General Elections: 467 constituencies (out of 543) for which candidates have been announced as of 1700hrs April 21, April 21
339. Apropos Philosophy of Economics, Comments of Sidney Hook, KJ Arrow, Milton Friedman, TW Schultz, SS Alexander, Max Black, Renford Bambrough, John Gray et al., April 22.
340. India’s 2009 General Elections: Names of all 543 Constituencies of the 15th Lok Sabha, April 22.
341. India’s 2009 General Elections: How 4125 State Assembly Constituencies comprise the 543 new Lok Sabha Constituencies, April 23.
342. Why has America’s “torture debate” yet to mention the obvious? Viz., sadism and racism, April 24
343. India’s 2009 General Elections: the advice of the late “George Eliot” (Mary Ann Evans, 1819-1880) to India’s voting public, April 24.
344. India’s 2009 General Elections: Delimitation and the Different Lists of 543 Lok Sabha Constituencies in 2009 and 2004, April 25
345. Is “Slumdog Millionaire” the single worst Best Picture ever?
346. India’s 2009 General Elections: Result of Delimitation — Old (2004) and New (2009) Lok Sabha and Assembly Constituencies, April 26
347. India’s 2009 General Elections: 7019 Candidates in 485 (out of 543) Constituencies announced as of April 26 noon April 26
348. What is Christine Fair referring to? Would the MEA kindly seek to address what she has claimed asap? April 27
349. Politics can be so entertaining 🙂 Manmohan versus Sonia on the poor old CPI(M)!, April 28
350. A Dozen Grown-Up Questions for Sonia Gandhi, Manmohan Singh, LK Advani, Sharad Pawar, Km Mayawati and Anyone Else Dreaming of Becoming/Deciding India’s PM After the 2009 General Elections, April 28
351. India’s 2009 General Elections: How drastically will the vote-share of political parties change from 2004? May 2
352. India’s 2009 General Elections: And now finally, all 8,070 Candidates across all 543 Lok Sabha Constituencies, May 5
353. India’s 2009 General Elections: The Mapping of Votes into Assembly Segments Won into Parliamentary Seats Won in the 2004 Election, May 7
354. Will Messrs Advani, Rajnath Singh & Modi ride into the sunset if the BJP comes to be trounced? (Corrected), May 10
355. India’s 2009 General Elections: 543 Matrices to Help Ordinary Citizens Audit the Election Commission’s Vote-Tallies May 12
356. Well done Sonia-Rahul! Two hours before polls close today, I am willing to predict a big victory for you (but, please, try to get your economics right, and also, you must get Dr Singh a Lok Sabha seat if he is to be PM) May 13
357. Buddhadeb Bhattacharjee must dissolve the West Bengal Assembly if he is an honest democrat: Please try to follow Gerard Schröder’s example even slightly! May 16
358. India’s 2009 General Elections: Provisional Results from the EC as of 1400 hours Indian Standard Time May 16
359. Memo to the Hon’ble President of India: It is Sonia Gandhi, not Manmohan Singh, who should be invited to our equivalent of the “Kissing Hands” Ceremony May 16
360. Time for heads to roll in the BJP/RSS and CPI(M)!, May 17.
361. Inviting a new Prime Minister of India to form a Government: Procedure Right and Wrong May 18
362. Starting with Procedural Error: Why has the “Cabinet” of the 14th Lok Sabha been meeting today AFTER the results of the Elections to the 15th Lok Sabha have been declared?! May 18
363. Why has the Sonia Congress done something that the Congress under Nehru-Indira-Rajiv would not have done, namely, exaggerate the power of the Rajya Sabha and diminish the power of the Lok Sabha? May 21
364. Shouldn’t Dr Singh’s Cabinet begin with a small apology to the President of India for discourtesy? May we have reviews and reforms of protocols and practices to be followed at Rashtrapati Bhavan and elsewhere? May 23
365. Parliament’s sovereignty has been diminished by the Executive: A record for future generations to know May 25
366. How tightly will organised Big Business be able to control economic policies this time? May 26
367. Why does India not have a Parliament ten days after the 15th Lok Sabha was elected? Nehru and Rajiv would both have been appalled May 27
368. Eleven days and counting after the 15th Lok Sabha was elected and still no Parliament of India! (But we do have 79 Ministers — might that be a world record?) May 28
369. Note to Posterity: 79 Ministers in office but no 15th Lok Sabha until June 1 2009! May 29
370. Silver Jubilee of Pricing, Planning & Politics: A Study of Economic Distortions in India May 29
371. How to Design a Better Cabinet for the Government of India May 29
372. Parliament is supposed to control the Government, not be bullied or intimidated by it: Will Rahul Gandhi be able to lead the Backbenches in the 15th Lok Sabha? June 1
373. Mistaken Macroeconomics: An Open Letter to Prime Minister Dr Manmohan Singh, June 12
374. Why did Manmohan Singh and LK Advani apologise to one another? Is Indian politics essentially collusive, not competitive, aiming only to preserve and promote the post-1947 Dilli Raj at the expense of the whole of India? We seem to have no Churchillian repartee (except perhaps from Bihar occasionally) June 18
375. Are Iran’s Revolutionaries now Reactionaries? George Orwell would have understood. A fresh poll may be the only answer Are Iran’s Revolutionaries now Reactionaries? George Orwell would have understood. A fresh poll may be the only answer June 22
376. My March 25 1991 memo to Rajiv (which never reached him) is something the present Government seems to have followed: all for the best of course! July 12
377. Disquietude about France’s behaviour towards India on July 14 2009 July 14
378. Does the Govt. of India assume “foreign investors and analysts” are a key constituency for Indian economic policy-making? If so, why so? Have Govt. economists “learnt nothing, forgotten everything”? Some Bastille Day thoughts July 14
379. Letter to the GoI’s seniormost technical economist, May 21.July 19
380. Excuse me but young Kasab in fact confessed many months ago, immediately after he was captured – he deserves 20 or 30 years in an Indian prison, and a chance to become a model prisoner who will stand against the very terrorists who sent him on his vile mission July 20
381. Finally, three months late, the GoI responds to American and Pakistani allegations about Balochistan July 24
382. Thoughts, words, deeds: My work 1973-2010
2012
383. Life of my father 1915-2012
384. India’s Money” in the Cayman Financial Review, July 2012
385. Towards Making the Indian Rupee a Hard Currency of the World Economy: An analysis from British times until the present day, lecture at India International Centre, Delhi, 3 Dec 2012
386. 5 December 2012 interview by Mr Paranjoy Guha Thakurta, on Lok Sabha TV, the channel of India’s Lower House of Parliament, broadcast for the first time on 9 December 2012 on Lok Sabha TV, is here and here in two parts.
387. Interview by GDI Impuls banking quarterly of Zürich published on 6 Dec 2012 is here.
388. My interview by Ragini Bhuyan of Delhi’s Sunday Guardian published on 16 Dec 2012 is here.
2013
389. “I have a student called Suby Roy…”: Reflections on Frank Hahn (1925-2013), my master in economic theory
390. Cambridge Economics & the Disputation in India’s Economic Policy, Revised 15 July 2013
391. Critical assessment dated 19 August 2013 of Raghuram Rajan is here (Live Mint 19 Aug) and here
392. 23 August 2013 of Professors Jagdish Bhagwati & Amartya Sen and Dr Manmohan Singh is here…
2014
393. “Mrs Irani’s New Job”/”Task Cut Out For Smriti Irani” June 16, 2014http://www.newindianexpress.com/opinion/Task-Cut-Out-for-Smriti-Irani/2014/06/16/article2282316.ece
394. Much as I might love Russia, England, France, America, I despise their spies & local agents affecting poor India’s policies: Memo to PM Modi, Mr Jaitley, Mr Doval & the new Govt. of India: Beware of Delhi’s sleeper agents, lobbyists & other dalals
395. “Haksar, Manmohan and Sonia” August 7, 2014 New Indian Express http://t.co/bRnQI1hrwy
396. Free India’s Foreign Policy & Economy in One Chart: Weapons Imports 1950-2013 by Country of Origin
See also:
My Recent Works, Interviews etc on India’s Money, Public Finance, Banking, Trade, BoP, etc (an incomplete list)
My Seventy-One Articles, Notes Etc on Kashmir, Pakistan, & of course, India (plus my undelivered Lahore lectures)
My Ten Articles on China, Tibet, Xinjiang, Taiwan in relation to India
M1. Map of Asia c. 1900
M2. Map of Chinese Empire c. 1900
M3. Map of Sinkiang, Tibet and Neighbours 1944
M4. China’s Secretly Built 1957 Road Through India’s Aksai Chin
M5. Map of Kashmir to Sinkiang 1944
M6. Map of India-Tibet-China-Mongolia 1959
M7. Map of India, Afghanistan, Russia, China, 1897
M8. Map of Xinjiang/Sinkiang/E Turkestan
M9. Map of Bombay/Mumbai 1909
M10-M13. Himalayan Expedition, West Sikkim 1970 – 1,2,3,4

2010 version:

This an incomplete bibliography of my writings, public lectures etc 1973-2010 including citations, reviews, comments. I have been mostly an academic economist who by choice or circumstance over 36 years has had to venture also into science, philosophy, public policy, law, jurisprudence, practical politics, history, international relations, military strategy, financial theory, accounting, management, journalism, literary criticism, psychology, psychoanalysis, theology, aesthetics, biography, children’s fables, etc. If anything unites the seemingly diverse work recorded below it is that I have tried to acquire a grasp of the nature of human reason and then apply this comprehension in practical contexts as simply and clearly as possible. Hence I have ended up following the path of Aristotle, as described in modern times (via Wittgenstein and John Wisdom) by Renford Bambrough. The 2004 public lecture in England, “Science, Religion, Art & the Necessity of Freedom”, may explain and illustrate all this best. A friend has been kind enough to call me an Academician, which I probably am, though one who really needs his own Academy because the incompetence, greed and mendacity encountered too often in the modern professoriat is dispiriting.

1-289 refer mostly to writings and publications printed on paper; 290-382 refer to writings or items not printed on paper — as new media break space, cost and other constraints of traditional publishing, a little repetition and overlap has occurred too. Also in a few cases, e.g., Aldous Huxley’s essay on DH Lawrence, nothing has been done except discover and republish. Several databases have been created and released in the public interest, as have been some rare maps. There is also some biographical and autobiographical material. Several inconsequential errors remain in the text, which shall take time to be rectified as documents come to be rediscovered and collated.

1973

1. “Behavioural study of mus musculus”, Haileybury College, Supervised by J de C Ford-Robertson MA (Oxon). (Due to be published here 2010).

2. “Chemistry at Advanced & Special Level: Student Notes 1972-73” (Due to be published here 2010).

3. “Biology at Advanced & Special Level: Student Notes 1972-73”, (Due to be published here 2010).

4. “Physics at Advanced Level: Student Notes 1972-73”, (Due to be published here 2010).

5. “Revolution: theoria and praxis”, London, mimeo (Due to be published here 2010).

6. “Gandhi vs Marx”, London, mimeo (Due to be published here 2010).

1974

7. “Relevance of downward money-wage rigidity to the problem of maintaining full-employment in the classical and Keynesian models of income determination”, London School of Economics, mimeo (Due to be published here 2010).

8. “Testing aircraft fuels at Shell Finland”.

1975

9. “Oxford Street experiences: down and out in London town”.

10. “SE Region Bulk Distribution Survey”, Unilever, Basingstoke.

11. “Four London poems”, in JCM Paton (ed) New Writing (London, Great Portland Street: International Students House). (Due to be republished here 2010)

12. “On economic growth models and modellers”, London School of Economics, mimeo. (Due to be published here 2010).

1976

13. “World money: system or anarchy?”, lecture to Professor ACL Day’s seminar, London School of Economics, Economics Department, April. (Due to be published here 2010).

14. “A beginner’s guide to some recent developments in monetary theory”, lecture to Professor FH Hahn’s seminar, Cambridge University Economics Department, November 17 (Due to be published here 2010). See also “Announcement of My “Hahn Seminar”, published here June 14 2008.

1977

15. “Inflation and unemployment: a survey”, mimeo, Fitzwilliam College, Cambridge. (Due to be published here 2010).

16. “On short run theories of dual economies”, Cambridge University Economics Department “substantial piece of work” required of first year Research Students. Examiner: DMG Newbery, FBA. (Due to be published here 2010).

1978

17. “Pure theory of developing economies 1 and 2”, Delhi School of Economics mimeo (Due to be published here 2010).

18. “Introduction to some market outcomes under uncertainty”, Delhi School of Economics mimeo (Due to be published here 2010).

19. “On money and development”, Corpus Christi College, Cambridge, mimeo, September. (Due to be published here 2010)

20. “Notes on the Newbery-Stiglitz model of sharecropping”, Corpus Christi College, Cambridge, mimeo November. (Due to be published here 2010).

1979

21. “A theory of rights and economic justice”, Corpus Christi College Cambridge mimeo. (Due to be published here 2010).

22. “Monetary theory and economic development”, Corpus Christi College Cambridge, mimeo (Due to be published here 2010).

23. “Foundations of the case against ‘development planning’”, Corpus Christi College Cambridge, mimeo, November. (Due to be published here 2010).

1979-1989

24. Correspondence with Renford Bambrough (1926-1999), philosopher of St John’s College, Cambridge (Due to be published here 2010).

1980

25. “Models before the monetarist storm”, New Statesman letters

26. “Disciplining rulers and experts”, Corpus Christi College, Cambridge, mimeo. (Due to be published here 2010).

1981

27. “On liberty & economic growth: preface to a philosophy for India”, Cambridge University doctoral thesis, supervisor FH Hahn, FBA; examiners CJ Bliss, FBA; TW Hutchison, FBA (Due to be published here 2010). 27a Response of FA Hayek on a partial draft February 18 1981. 27b Response of Peter Bauer, 1982. 27c Response of Theodore W Schultz, 1983. 27d. Response of Frank Hahn 1985.

1982

28. “Knowledge and freedom in economic theory Parts 1 and 2”, Centre for Study of Public Choice, Virginia Polytechnic Institute & State University, Working Papers.

29. “Economic Theory and Development Economics”. Lecture to American Economic Association, New York, Dec 1982. Panel: RM Solow, HB Chenery, T Weisskopf, P Streeten, G Rosen, S Roy. Published in 29a.

1983

29a “Economic Theory and Development Economics: A Comment”. World Development, 1983. [Citation: Stavros Thefanides “Metamorphosis of Development Economics”, World Development 1988.]

30. “The Political Economy of Trade Policy (Comment on J. Michael Finger)”, Washington DC: Cato Journal, Winter 1983/84. See also 000 “Risk-aversion explains resistance to freer trade”, 2008.

1984

31. “Considerations on Utility, Benevolence and Taxation”, History of Political Economy, 1984. 31a Response of Professor Sir John Hicks May 1 1984.

[Citations: P. Hennipman, “A Tale of Two Schools”, De Economist 1987, “A New Look at the Ordinalist Revolution”, J. Econ. Lit. Mar 1988; P. Rappoport, “Reply to Professor Hennipman”, J. Econ. Lit. Mar 1988; Eugene Smolensky et al “An Application of A Dynamic Cost-of-Living Index to the Evaluation of Changes in Social Welfare”, J. Post-Keynesian Econ.IX.3. 1987.]

32. Pricing, Planning and Politics: A Study of Economic Distortions in India, London: Institute of Economic Affairs, London 1984.

[Citations: Lead editorial of The Times of London May 29 1984, “India’s economy”, Times letters June 16 1984. John Toye “Political Economy & Analysis of Indian Development”, Modern Asian Studies, 22, 1, 1988; John Toye, Dilemmas of Development; D. Wilson, “Privatization of Asia”, The Banker Sep. 1984 etc]. See also 370 “Silver Jubilee of ‘Pricing, Planning and Politics: A Study of Economic Distortions in India’” 2009.

33. Review of Utilitarianism and Beyond, Amartya Sen & Bernard Williams (eds) Public Choice.

34. Review of Limits of Utilitarianism, HB Miller & WH Williams (eds.), Public Choice.

35. Deendayal lecture (one of four invited lecturers), Washington DC, May.

1987

36. (with one other) “Does the Theory of Logical Types Inform the Theory of Communication?”, Journal of Genetic Psychology., 148 (4), Dec. 1987 [Citation:

37. “Irrelevance of Foreign Aid”, India International Centre Quarterly, Winter 1987.

38. Review of Development Planning by Sukhamoy Chakravarty for Economic Affairs, London 1987.

1988

39. (with two others) “Introduction” to Lessons in Development: A Comparative Study of Asia and Latin America. San Francisco: Inst. of Economic Growth.

40. “A note on the welfare economics of regional cooperation”, lecture to Asia-Latin America conference, East West Center Honolulu, published 2009.

1989

41. Philosophy of Economics: On the Scope of Reason in Economic Inquiry, London & New York: Routledge (International Library of Philosophy) 1989, paperback 1991. Internet edition 2007. [Reviews & Citations: Research in Economics, 1992; De Economist 1991 & 1992; Manch.Sch. Econ.Studs. 59, 1991; Ethics 101.88 Jul. 1991; Kyklos 43.4 1990; Soc. Science Q. 71.880. Dec.1990; Can. Phil. Rev. 1990; J. Econ. Hist. Sep. 1990; Econ. & Phil. Fall 1990; Econ. Affairs June-July 1990; TLS May 1990; Choice March 1990; J. App.Phil. 1994, M. Blaug: Methodology of Economics, 2nd ed., Cambridge, 1992; Hist. Methods. 27.3, 1994; J. of Inst. & Theoretical Econ.,1994; Jahrbucker fur Nationaleconomie 1994, 573:574. Mark A Lutz in Economics for the Common Good, London: Routledge, 1999, et al]. See also 339 “Apropos Philosophy of Economics”, Comments of Sidney Hook, KJ Arrow, Milton Friedman, TW Schultz, SS Alexander, Max Black, Renford Bambrough, John Gray et al.

42. Foreword to Essays on the Political Economy by James M. Buchanan, Honolulu: University of Hawaii Press 1989.

43. “Modern Political Economy of India”, edited by Subroto Roy & William E James, Hawaii mimeo May 21 1989. This published for the first time a November 1955 memorandum to the Government of India by Milton Friedman. See also 43a, 53.

43a. Preface to “Milton Friedman’s extempore comments at the 1989 Hawaii conference: on India, Israel, Palestine, the USA, Debt and its uses, Erhardt abolishing exchange controls, Etc”, May 22 1989, published here for the first time October 31 2008.

44. Milton Friedman’s defence of my work in 1989.

45. Theodore W. Schultz’s defence of Philosophy of Economics

1990

46. “Letter to Judge Evelyn Lance: On A Case Study in Private International Law” (Due to be published here in 2010).

47-49. Selections from advisory work on economic policy etc for Rajiv Gandhi, Leader of the Opposition in the Parliament of India, published in 47a-49a.

1991

41b Philosophy of Economics: On the Scope of Reason in Economic Inquiry, Paperback edition.

50. “Conversations and correspondence with Rajiv Gandhi during the Gulf war, January 1991” (Due to be published here 2010).

47a. A Memo to Rajiv I: Stronger Secular Middle”, The Statesman, Jul 31 1991.

48a “A Memo to Rajiv II: Saving India’s Prestige”, The Statesman, Aug 1 1991.

49a “A Memo to Rajiv III: Salvation in Penny Capitalism”, The Statesman, Aug 2 1991 47b-49b “Three Memoranda to Rajiv Gandhi 1990-91”, 2007 republication here.

51. “Constitution for a Second Indian Republic”, The Saturday Statesman, April 20 1991. Republished here 2009.

52. “On the Art of Government: Experts, Party, Cabinet and Bureaucracy”, New Delhi mimeo March 25 1991, published here July 00 2009.

1992

53. Foundations of India’s Political Economy: Towards an Agenda for the 1990s Edited and with an Introduction by Subroto Roy & William E. James New Delhi, London, Newbury Park: Sage: 1992. Citation: Milton and Rose Friedman Two Lucky People (Chicago 1998), pp. 268-269.

54. Foundations of Pakistan’s Political Economy: Towards an Agenda for the 1990s Edited and with an Introduction by William E. James & Subroto Roy, Hawaii MS 1989, Sage: 1992, Karachi: Oxford 1993.

Reviews of 53 & 54 include: Bus. Today, Mar-Apr 1992; Political Studies March 1995; Econ Times 21 March 1993; Pakistan Development Review 1992. Hindustan Times 11 July 1992. Pacific Affairs 1993; Hindu 21 March 1993, 15 June 1993; Pakistan News International 12 June 1993. Book Reviews March 1993; Deccan Herald 2 May 1993; Pol.Econ.J. Ind. 1992. Fin Express 13 September 1992; Statesman 16 Jan. 1993. J. Royal Soc Asian Aff. 1994, J. Contemporary Asia, 1994 etc.

55. “Fundamental Problems of the Economies of India and Pakistan”, World Bank, Washington, mimeo (Due to be published here 2010).

56.“The Road to Stagflation: The Coming Dirigisme in America, or, America, beware thy economists!, or Zen and Clintonomics,” Washington DC, Broad Branch Terrace, mimeo, November 17.

1993

57. “Exchange-rates and manufactured exports of South Asia”, IMF Washington DC mimeo. Published in part in 2007-2008 as 58-62:

58. “Path of the Indian Rupee 1947-1993”, 2008.

59. “Path of the Pakistan Rupee 1947-1993”, 2008.

60. “Path of the Sri Lankan Rupee 1948-1993”, 2008.

61. “Path of the Bangladesh Taka 1972-1993”, 2008.

62. “India, Pakistan, Sri Lanka, Bangladesh Manufactured Exports, IMF Washington DC mimeo”, published 2007.

63. “Economic Assessment of US-India Merchandise Trade”, Arlington, Virginia, mimeo, published in slight part in Indo-US Trade & Economic Cooperation, ICRIER New Delhi, 1995, and in whole 2007.

64. “Towards an Economic Solution for Kashmir”, mimeo, Arlington, Virginia, circulated in Washington DC 1993-1995, cf 82, 111 infra. Comment of Selig Harrison.

1994

65. “Comment on Indonesia”, in The Political Economy of Policy Reform edited by John Williamson, Washington, DC: Institute for International Economics.

66a “Gold reserves & the gold price in anticipation of Central Bank behaviour”, Greenwich, Connecticut, mimeo. 67b. “Portfolio optimization and foreign currency exposure hedging” Greenwich, Connecticut mimeo.

1995

68. “On the logic and commonsense of debt and payments crises: How to avoid another Mexico in India and Pakistan”, Scarsdale, NY, mimeo, May 1.

69. “Policies for Young India”, Scarsdale, NY, pp. 350, manuscript.

1996

70. US Supreme Court documents, published in part in 2008 as “Become a US Supreme Court Justice!” 70a, 70b (Due to be published in full here in 2010 as Roy vs University of Hawaii, 1989- including the expert testimonies of Milton Friedman and Theodore W Schultz.).

71. “Key problems of macroeconomic management facing the new Indian Government”, May 17. Scarsdale, New York, mimeo. (Due to be published here 2010).

72. “Preventing a collapse of the rupee”, IIT Kharagpur lecture July 16 1996.

73. “The Economist’s Representation of Technological Knowledge”, Vishleshlaya lecture to the Institution of Engineers, September 15 1996, IIT Kharagpur.

1997

74. “Union and State Budgets in India”, lecture at the World Bank, Washington DC, May 00.

75. “State Budgets in India”, IIT Kharagpur mimeo, June 6.

1998

76. “Transparency and Economic Policy-Making: An address to the Asia-Pacific Public Relations Conference” (panel on Transparency chaired by CR Irani) Jan 30 1998, published here 2008.

77. Theodore W. Schultz 1902-1998, Feb 25.

78. “The Economic View of Human Resources”, address to a regional conference on human resources, IIT Kharagpur.

79. “Management accounting”, lecture at Lal Bahadur Shastri Academy, Mussourie,

80a “The Original Reformer”, Outlook letters, Jan 23 1998

81. “Recent Developments in Modern Finance”, IIM Bangalore Review, 10, 1 & 2, Jan.-Jun 1998. Reprinted as “From the Management Guru’s Classroom”: 81a “An introduction to derivatives”, Business Standard/Financial Times, Bombay 18 Apr 1999; 81b “Options in the future, Apr 25 1999; 81c “What is hedging?”, May 2 1999; 81d “Teaching computers to think”, May 9 1999.

82. “Towards an Economic Solution for Kashmir”, Jun 22 1998, lecture at Heritage Foundation, Washington DC. Cf 111 Dec 2005.

83. “Sixteen Currencies for India: A Reverse Euro Model for Monetary & Fiscal Efficacy”, Lecture at the Institute of Economic Affairs, London, June 29 1998. Due to be published here 2010.

84. “Fable of the Fox, the Farmer, and the Would-Be Tailors”, October (Published here July 27 2009).

85. “A Common Man’s Guide to Pricing Financial Derivatives”, Lecture to “National Seminar on Derivatives”, Xavier Labour Research Institute, Jamshedpur, Dec. 16 1998. See 98.

1999

86. “An Analysis of Pakistan’s War-Winning Strategy: Are We Ready for This?”, IIT Kharagpur mimeo, published in part as 86a.“Was a Pakistani Grand Strategy Discerned in Time by India?” New Delhi: Security & Political Risk Analysis Bulletin, July 1999, Kargil issue. See also 000

80b. “The Original Reformer”, Outlook letters, Sep 13 1999.

2000

87. “On Freedom & the Scientific Point of View”, SN Bose National Centre for Basic Sciences, Feb 17 2000. Cf 100 below.

88. “Liberalism and Indian economic policy”, lecture at IIM Calcutta, Indian Liberal Group Meetings Devlali, Hyderabad; also Keynote address to UGC Seminar Guntur, March 30 2002. (Due to be published here 2010).

89. “Towards a Highly Transparent Fiscal & Monetary Framework for India’s Union & State Governments”, Invited address to Conference of State Finance Secretaries, Reserve Bank of India, Bombay, April 29, 2000. Published 2008.

90. “On the Economics of Information Technology”, two lectures at the Indian Institute of Information Technology, Bangalore, Nov 10-11, 2000.

91. Review of A New World by Amit Chaudhuri in Literary Criterion, Mysore.

2001

92. Review of AD Shroff: Titan of Finance and Free Enterprise by Sucheta Dalal, Freedom First., January.

93. “Encounter with Rajiv Gandhi: On the Origins of the 1991 Economic Reform”, Freedom First, October. See also 93a in 2005 and 93b in 2007.

94. “A General Theory of Globalization & Modern Terrorism with Special Reference to September 11”, a keynote address to the Council for Asian Liberals & Democrats, Manila, Philippines, 16 Nov. 2001. Published as 91a.

95. “The Case for and against The Satanic Verses: Diatribe and Dialectic as Art”, Dec 22 republished in print 95a The Statesman Festival Volume, 2006.

2002

94a “A General Theory of Globalization & Modern Terrorism with Special Reference to September 11”, in September 11 & Political Freedom in Asia, eds. Johannen, Smith & Gomez, Singapore 2002.

2002-2010

96. “Recording vivid dreams: Freud’s advice in exploring the Unconscious Mind” (Due to be published here in 2010).

2003

97. “Key principles of government accounting and audit”, IIT Kharagpur mimeo.

98. “Derivative pricing & other topics in financial theory: a student’s complete lecture notes” (Due to be published here in 2010).

2004

99. “Collapse of the Global Conversation”, International Institute for Asian Studies, Leiden, Netherlands, Jul 2004.

100. “Science, Religion, Art & the Necessity of Freedom”, a public lecture, University of Buckingham, UK, August 24 2004. Published here 2007.

2005

93a Rajiv Gandhi and the Origins of India’s 1991 Economic Reform (this was the full story; it appeared in print for the first time in The Statesman Festival Volume 2007).

101. “Can India become an economic superpower (or will there be a monetary meltdown)?” Cardiff University Institute of Applied Macroeconomics Monetary Economics Seminar, April 13, Institute of Economic Affairs, London, April 27, Reserve Bank of India, Bombay, Chief Economist’s Seminar on Monetary Economics, May 5.

102. Margaret Thatcher’s Revolution: How it Happened and What it Meant, Edited and with an Introduction by Subroto Roy & John Clarke, London & New York: Continuum, 2005; paperback 2006; French translation by Florian Bay, 2007.

103. “Iqbal & Jinnah vs Rahmat Ali in Pakistan’s Creation”, Dawn, Karachi, Sep 3.

104. “The Mitrokhin Archives II from an Indian Perspective: A Review Article”, The Statesman, Perspective Page, Oct 11 .

105. “After the Verdict”, The Statesman, Editorial Page, Oct 20.

106. “US Espionage Failures”, The Statesman, Perspective Page, Oct 26

107. “Waffle But No Models of Monetary Policy”, The Statesman, Perspective Page, Oct 30.

108. “On Hindus and Muslims”, The Statesman, Perspective Page, Nov 6.

109. “Assessing Vajpayee: Hindutva True and False”, The Statesman, Editorial Page, Nov 13-14″.

110. “Fiction from the India Economic Summit”, The Statesman, Front Page, Nov 29.

111. “Solving Kashmir: On an Application of Reason”, The Statesman Editorial Page

I. “Give the Hurriyat et al Indian Green Cards”, Dec 1

II. “Choice of Nationality under Full Information”, Dec 2

III. “Of Flags and Consulates in Gilgit etc”, Dec 3.

2006

112. “The Dream Team: A Critique”, The Statesman Editorial Page

I : New Delhi’s Consensus (Manmohantekidambaromics), Jan 6

II: Money, Convertibility, Inflationary Deficit Financing, Jan 7

III: Rule of Law, Transparency, Government Accounting, Jan 8.

113. “Unaccountable Delhi: India’s Separation of Powers’ Doctrine”, The Statesman, Jan 13.

114. “Communists and Constitutions”, The Statesman, Editorial Page, Jan 22.

115. “Diplomatic Wisdom”, The Statesman, Editorial Page, Jan 31.

116. “Mendacity & the Government Budget Constraint”, The Statesman, Front Page Feb 3.

117. “Of Graven Images”, The Statesman, Editorial Page, Feb5.

118. “Separation of Powers, Parts 1-2”, The Statesman, Editorial Pages Feb 12-13.

119. “Public Debt, Government Fantasy”, The Statesman, Front Page Editorial Comment, Feb 22.

120. “War or Peace Parts 1-2”, The Statesman, Editorial Page, Feb 23-24.

121. “Can You Handle This Brief, Mr Chidambaram?” The Statesman, Front Page Feb 26.

122. “A Downpayment On the Taj Mahal Anyone?”, The Statesman, Front Page Comment on the Budget 2006-2007, Mar 1.

123. “Atoms for Peace (or War)”, The Sunday Statesman, Editorial Page Mar 5.

124. “Imperialism Redux: Business, Energy, Weapons & Foreign Policy”, The Statesman, Editorial Page, Mar 14.

125. “Logic of Democracy”, The Statesman, Editorial Page, Mar 30.

126. “Towards an Energy Policy”, The Sunday Statesman, Editorial Page, Apr 2.

127. “Iran’s Nationalism”, The Statesman, Editorial Page, Apr 6.

128. “A Modern Military”, The Sunday Statesman, Editorial Page, Apr 16.

129. “On Money & Banking”, The Sunday Statesman, Editorial Page, Apr 23.

130. “Lessons for India from Nepal’s Revolution”, The Statesman, Front Page Apr 26.

131. “Revisionist Flattery (Inder Malhotra’s Indira Gandhi: A Review Article)”, The Sunday Statesman, May 7.

132. “Modern World History”, The Sunday Statesman Editorial Page, May 7.

133. “Argumentative Indians: A Conversation with Professor Amartya Sen on Philosophy, Identity and Islam,” The Sunday Statesman, May 14 2006. “A Philosophical Conversation between Professor Sen and Dr Roy”, 2008. Translated into Bengali by AA and published in 00.

134. “The Politics of Dr Singh”, The Sunday Statesman, Editorial Page, May 21.

135. “Corporate Governance & the Principal-Agent Problem”, lecture at a conference on corporate governance, Kolkata May 31. Published here 2008.

136. “Pakistan’s Allies Parts 1-2”, The Sunday Statesman, Editorial Page, Jun 4-5.

137. “Law, Justice and J&K Parts 1-2”, The Sunday Statesman, Editorial Page, Jul 2, The Statesman Editorial Page Jul 3.

138. “The Greatest Pashtun (Khan Abdul Ghaffar Khan)”, The Sunday Statesman, Editorial Page, Jul 16.

139. “Understanding Pakistan Parts 1-2”, The Sunday Statesman, Editorial Page, Jul 30, The Statesman Editorial Page Jul 31.

140. “Indian Money and Credit”, The Sunday Statesman, Editorial Page, Aug 6.

141. “India’s Moon Mission”, The Sunday Statesman, Editorial Page, Aug 13.

142. “Jaswant’s Journeyings: A Review Article”, The Sunday Statesman Magazine, Aug 27.

143. “Our Energy Interests, Parts 1-2”, The Sunday Statesman, Editorial Page, Aug 27, The Statesman Editorial Page Aug 28.

144. “Is Balochistan Doomed?”, The Sunday Statesman, Editorial Page, Sep 3 2006.

145. “Racism New and Old”, The Statesman, Editorial Page, Sep 8 2006

146. “Political Economy of India’s Energy Policy”, address to KAF-TERI conference, Goa Oct 7, published in 146a.

147. “New Foreign Policy? Seven phases of Indian foreign policy may be identifiable since Nehru”, Parts 1-2, The Sunday Statesman, Oct 8, The Statesman Oct 9.

148. “Justice & Afzal: There is a difference between law and equity (or natural justice). The power of pardon is an equitable power. Commuting a death-sentence is a partial pardon”, The Sunday Statesman Editorial Page Oct 14

149. “Non-existent liberals (On a Liberal Party for India)”, The Sunday Statesman Editorial Page Oct 22.

150. “History of Jammu & Kashmir Parts 1-2”, The Sunday Statesman, Oct 29, The Statesman Oct 30, Editorial Page.

151. “American Democracy: Does America need a Prime Minister and a longer-lived Legislature?”, The Sunday Statesman Nov 5.

152. “Milton Friedman A Man of Reason 1912-2006”, The Statesman Perspective Page, Nov 22.

153. “Postscript to Milton Friedman Mahalanobis’s Plan (The Mahalanobis-Nehru “Second Plan”) The Statesman Front Page Nov 22.

154. “Mob Violence and Psychology”, Dec 10, The Statesman, Editorial Page.

155. “What To Tell Musharraf: Peace Is Impossible Without Non-Aggressive Pakistani Intentions”, The Statesman Editorial Page Dec 15.

156. “Land, Liberty and Value: Government must act in good faith treating all citizens equally – not favouring organised business lobbies and organised labour over an unorganised peasantry”, The Sunday Statesman Editorial Page Dec 31.

2007

157. “Hypocrisy of the CPI-M: Political Collapse In Bengal: A Mid-Term Election/Referendum Is Necessary”, The Statesman, Editorial Page, Jan 9.

158. “On Land-Grabbing: Dr Singh’s India, Buddhadeb’s Bengal, Modi’s Gujarat have notorious US, Soviet and Chinese examples to follow ~ distracting from the country’s real economic problems,” The Sunday Statesman, Editorial Page Jan 14.

159. “India’s Macroeconomics: Real growth has steadily occurred because India has shared the world’s technological progress. But bad fiscal, monetary policies over decades have led to monetary weakness and capital flight” The Statesman Editorial Page Jan 20.

160. “Fiscal Instability: Interest payments quickly suck dry every year’s Budget. And rolling over old public debt means that Government Borrowing in fact much exceeds the Fiscal Deficit”, The Sunday Statesman, Editorial Page, Feb 4.

161. “Our trade and payments Parts 1-2” (“India in World Trade and Payments”),The Sunday Statesman, Feb 11 2007, The Statesman, Feb 12 2007.

162. “Our Policy Process: Self-Styled “Planners” Have Controlled India’s Paper Money For Decades,” The Statesman, Editorial Page, Feb 20.

163. “Bengal’s Finances”, The Sunday Statesman Editorial Page, Feb 25.

164. “Fallacious Finance: Congress, BJP, CPI-M may be leading India to Hyperinflation” The Statesman Editorial Page Mar 5.

165. “Uttar Pradesh Polity and Finance: A Responsible New Govt May Want To Declare A Financial Emergency” The Statesman Editorial Page, Mar 24

166. “A scam in the making” in The Sunday Statesman Front Page Apr 1 2007, published here in full as “Swindling India”.

167. “Maharashtra’s Money: Those Who Are Part Of The Problem Are Unlikely To Be A Part Of Its Solution”, The Statesman Editorial Page Apr 24.

146a. “Political Economy of Energy Policy” in India and Energy Security edited by Anant Sudarshan and Ligia Noronha, Konrad Adenauer Stiftung, New Delhi 2007.

168. “Presidential Qualities: Simplicity, Genuine Achievement Are Desirable; Political Ambition Is Not”, The Statesman, Editorial Page, May 8.

169. “We & Our Neighbours: Pakistanis And Bangladeshis Would Do Well To Learn From Sheikh Abdullah”, The Statesman, Editorial Page May 15.

170. “On Indian Nationhood: From Tamils To Kashmiris And Assamese And Mizos To Sikhs And Goans”, The Statesman, Editorial Page, May 25.

171. A Current Example of the Working of the Unconscious Mind, May 26.

172. Where I would have gone if I was Osama Bin Laden, May 31.

173. “US election ’08:America’s Presidential Campaign Seems Destined To Be Focussed On Iraq”, The Statesman, Editorial Page, June 1.

174. “Home Team Advantage: On US-Iran talks and Sunni-Shia subtleties: Tehran must transcend its revolution and endorse the principle that the House of Islam has many mansions”, The Sunday Statesman Editorial Page, June 3

175. “Unhealthy Delhi: When will normal political philosophy replace personality cults?”, The Statesman, Editorial Page, June 11.

176. “American Turmoil: A Vice-Presidential Coup – And Now a Grassroots Counterrevolution?”, The Statesman, Editorial Page, June 18

177. “Political Paralysis: India has yet to develop normal conservative, liberal and socialist parties. The Nice-Housing-Effect and a little game-theory may explain the current stagnation”, The Sunday Statesman, Editorial Page, June 24.

177. “Has America Lost? War Doctrines Of Kutusov vs Clausewitz May Help Explain Iraq War”, The Statesman, Editorial Page, July 3.

178. “Lal Masjid ≠ Golden Temple: Wide differences are revealed between contemporary Pakistan and India by these two superficially similar military assaults on armed religious civilians”, The Sunday Statesman, Editorial Page July 15

179 “Political Stonewalling: Only Transparency Can Improve Institutions”, The Statesman, Editorial Page July 20.

180. “Gold standard etc: Fixed versus flexible exchange rates”, July 21.

181. “US Pakistan-India Policy: Delhi & Islamabad Still Look West In Defining Their Relationship”, The Statesman, Editorial Page, July 27.

182. “Works of DH Lawrence” July 30

183. “An Open Letter to Professor Amartya Sen about Singur etc”, The Statesman, Editorial Page, July 31.

184. “Martin Buber on Palestine and Israel (with Postscript)”, Aug 4.

185. “Auguste Rodin on Nature, Art, Beauty, Women and Love”, Aug 7.

186. “Saving Pakistan: A Physicist/Political Philosopher May Represent Iqbal’s “Spirit of Modern Times”, The Statesman, Editorial Page, Aug 13.

187. Letter to Forbes.com 16 Aug.

188. “Need for Clarity: A poorly drafted treaty driven by business motives is a recipe for international misunderstanding”, The Sunday Statesman, Editorial Page, Aug 19.

189. “No Marxist MBAs? An amicus curiae brief for the Hon’ble High Court”, The Statesman, FrontPage, Aug 29.

190. On Lawrence, Sep 4.

191. Dalai Lama’s Return: In the tradition of Gandhi, King, Mandela, Sep 11.

192. Of JC Bose, Patrick Geddes & the Leaf-World, Sep 12.

193. “Against Quackery: Manmohan and Sonia have violated Rajiv Gandhi’s intended reforms; the Communists have been appeased or bought; the BJP is incompetent Parts 1-2”, in The Sunday Statesman and The Statesman, Editorial Pages of Sep 23-24.

194. Karl Georg Zinn’s 1994 Review of Philosophy of Economics, Sep 26.

195. DH Lawrence’s Phoenix, Oct 3.

93b. “Rajiv Gandhi and the Origins of India’s 1991 Economic Reform”, Statesman Festival Volume.

196. “Iran, America, Iraq: Bush’s post-Saddam Saddamism — one flip-flop too many?”, The Statesman, Editorial Page, Oct 16.

197. “Understanding China: The World Needs to Ask China to Find Her True Higher Self”, The Statesman, Editorial Page, Oct 22.

198. “India-USA interests: Elements of a serious Indian foreign policy”, The Statesman, Editorial Page, Oct 30.

199. “China’s India Aggression : German Historians Discover Logic Behind Communist Military Strategy”, The Statesman, Editorial Page Special Article, Nov 5.

200. Sonia’s Lying Courtier (with Postscript), Nov 25.

201. “Surrender or Fight? War is not a cricket match or Bollywood movie. Can India fight China if it must?” The Statesman, Dec 4, Editorial Page.

202. Hutton and Desai: United in Error Dec 14

203. “China’s Commonwealth: Freedom is the Road to Resolving Taiwan, Tibet, Sinkiang”, The Statesman, Dec 17.

2008

204. “Nixon & Mao vs India: How American foreign policy did a U-turn about Communist China’s India aggression. The Government of India should publish its official history of the 1962 war.” The Sunday Statesman, Jan 6, The Statesman Jan 7 Editorial Page.

205. “Lessons from the 1962 War: Beginnings of a solution to the long-standing border problem: there are distinct Tibetan, Chinese and Indian points of view that need to be mutually comprehended”, The Sunday Statesman, January 13 2008.

206. “Our Dismal Politics: Will Independent India Survive Until 2047?”, The Statesman Editorial Page, Feb 1.

207. Median Voter Model of India’s Electorate Feb 7.

208. “Anarchy in Bengal: Intra-Left bandh marks the final unravelling of “Brand Buddha””, The Sunday Statesman, Editorial Page, Feb 10.

209. Fifty years since my third birthday: on life and death.

210. “Pakistan’s Kashmir obsession: Sheikh Abdullah Relied In Politics On The French Constitution, Not Islam”, The Statesman, Editorial Page, Feb 16.

211. A Note on the Indian Policy Process Feb 21.

212. “Growth & Government Delusion: Progress Comes From Learning, Enterprise, Exchange, Not The Parasitic State”, The Statesman, Editorial Page, Feb 22.

213. “How to Budget: Thrift, Not Theft, Needs to Guide Our Public Finances”, The Statesman, Editorial Page, Feb 26.

214. “India’s Budget Process (in Theory)”, The Statesman, Front Page Feb 29.

215. “Irresponsible Governance: Congress, BJP, Communists, BSP, Sena Etc Reveal Equally Bad Traits”, The Statesman, Editorial Page, March 4.

216. “American Politics: Contest Between Obama And Clinton Affects The World”, The Statesman, Editorial Page, March 11.

217. “China’s India Example: Tibet, Xinjiang May Not Be Assimilated Like Inner Mongolia And Manchuria”, The Statesman, Editorial Page, March 25.

218. “Taxation of India’s Professional Cricket: A Proposal”, The Statesman, Editorial Page, April 1.

219. “Two cheers for Pakistan!”, The Statesman, Editorial Page, April 7.

220. “Indian Inflation: Upside Down Economics From The New Delhi Establishment Parts 1-2”, The Statesman, Editorial Page, April 15-16.

221. “Assessing Manmohan: The Doctor of Deficit Finance should realise the currency is at stake”, The Statesman, Editorial Page Apr 25.

222. John Wisdom, Renford Bambrough: Main Philosophical Works, May 8.

223. “All India wept”: On the death of Rajiv Gandhi, May 21.

224. “China’s force and diplomacy: The need for realism in India” The Statesman, Editorial Page May 31.

226. Serendipity and the China-Tibet-India border problem June 6

227. “Leadership vacuum: Time & Tide Wait For No One In Politics: India Trails Pakistan & Nepal!”, The Statesman Editorial Page June 7.

228. My meeting Jawaharlal Nehru Oct13 1962

229. Manindranath Roy 1891-1958

230. Surendranath Roy 1860-1929

231. The Roys of Behala 1928.

232. Sarat Chandra visits Surendranath Roy 1927

233. Nuksaan-Faida Analysis = Cost-Benefit Analysis in Hindi/Urdu Jun 30

234. One of many reasons John R Hicks was a great economist July 3

236. My father, Indian diplomat, in the Shah’s Tehran 1954-57 July 8

237 Distribution of Govt of India Expenditure (Net of Operational Income) 1995 July 27

238. Growth of Real Income, Money & Prices in India 1869-2008, July 28.

239. Communism from Social Democracy? But not in India or China! July 29

240. Death of Solzhenitsyn, Aug. 3

240a. Tolstoy on Science and Art, Aug 4.

241. “Reddy`s reckoning: Where should India’s real interest rate be relative to the world?” Business Standard Aug 10

242. “Rangarajan Effect”, Business Standard Aug 24

243. My grandfather’s death in Ottawa 50 years ago today Sep 3

244. My books in the Library of Congress and British Library Sep 12

245. On Jimmy Carter & the “India-US Nuclear Deal”, Sep 12

246. My father after presenting his credentials to President Kekkonen of Finland Sep 14 1973.

247. “October 1929? Not!”, Business Standard, Sep 18.

248. “MK Gandhi, SN Roy, MA Jinnah in March 1919: Primary education legislation in a time of protest”

249. 122 sensible American economists Sept 26

250. Govt of India: Please call in the BBC and ask them a question Sep 27

251. “Monetary Integrity and the Rupee: Three British Raj relics have dominated our macroeconomic policy-making” Business Standard Sep 28.

252a. Rabindranath’s daughter writes to her friend my grandmother Oct 5

252b. A Literary Find: Modern Poetry in Bengal, Oct 6.

253. Sarat writes to Manindranath 1931, Oct 12

254. Origins of India’s Constitutional Politics 1913

255. Indira Gandhi in Paris, 1971

256. How the Liabilities/Assets Ratio of Indian Banks Changed from 84% in 1970 to 108% in 1998, October 20

257a. My Subjective Probabilities on India’s Moon Mission Oct 21

258. Complete History of Mankind’s Moon Missions: An Indian Citizen’s Letter to ISRO’s Chairman, Oct 22.

259. Would not a few million new immigrants solve America’s mortgage crisis? Oct 26

260. “America’s divided economists”, Business Standard Oct 26

261. One tiny prediction about the Obama Administration, Nov 5

262. Rai Bahadur Umbika Churn Rai, 1827-1902, Nov 7 2008

263. Jawaharlal Nehru invites my father to the Mountbatten Farewell Nov 7 2008

70a. “Become a US Supreme Court Justice! (Explorations in the Rule of Law in America) Preface” Nov 9

70b. “Become a US Supreme Court Justice! (Explorations in the Rule of Law in America) Password protected.” Nov 9.

257b. Neglecting technological progress was the basis of my pessimism about Chandrayaan, Nov 9.

264. Of a new New Delhi myth and the success of the University of Hawaii 1986-1992 Pakistan project Nov 15

265. Pre-Partition Indian Secularism Case-Study: Fuzlul Huq and Manindranath Roy Nov 16

266. Do President-elect Obama’s Pakistan specialists suppose Maulana Azad, Dr Zakir Hussain, Sheikh Abdullah were Pakistanis (or that Sheikh Mujib wanted to remain one)? Nov 18

267. Jews have never been killed in India for being Jews until this sad day, Nov 28.

268. In international law, Pakistan has been the perpetrator, India the victim of aggression in Mumbai, Nov 30.

269. The Indian Revolution, Dec 1.

270. Habeas Corpus: a captured terrorist mass-murderer tells a magistrate he has not been mistreated by Mumbai’s police Dec 3

271. India’s Muslim Voices (Or, Let us be clear the Pakistan-India or Kashmir conflicts have not been Muslim-Hindu conflicts so much as intra-Muslim conflicts about Muslim identity and self-knowledge on the Indian subcontinent), Dec 4

272. “Anger Management” needed? An Oxford DPhil recommends Pakistan launch a nuclear first strike against India within minutes of war, Dec 5.

273. A Quick Comparison Between the September 11 2001 NYC-Washington attacks and the November 26-28 2008 Mumbai Massacres (An Application of the Case-by-Case Philosophical Technique of Wittgenstein, Wisdom and Bambrough), Dec 6

274. Dr Rice finally gets it right (and maybe Mrs Clinton will too) Dec 7

275. Will the Government of India’s new macroeconomic policy dampen or worsen the business-cycle (if such a cycle exists at all)? No one knows! “Where ignorance is bliss, ‘Tis folly to be wise.” Dec 7

276. Pump-priming for car-dealers: Keynes groans in his grave (If evidence was needed of the intellectual dishonesty of New Delhi’s new macroeconomic policy, here it is) Dec 9.

277. Congratulations to Mumbai’s Police: capturing a terrorist, affording him his Habeas Corpus rights, getting him to confess within the Rule of Law, sets a new world standard Dec 10

278. Two cheers — wait, let’s make that one cheer — for America’s Justice Department, Dec 10

279. Will Pakistan accept the bodies of nine dead terrorists who came from Pakistan to Mumbai? If so, let there be a hand-over at the Wagah border, Dec 11.

280. Kasab was a stupid, ignorant, misguided youth, manufactured by Pakistan’s terrorist masterminds into becoming a mass-murdering robot: Mahatma Gandhi’s India should punish him, get him to repent if he wishes, then perhaps rehabilitate him as a potent weapon against Pakistani terrorism Dec 12.

281. Pakistan’s New Delhi Embassy should ask for “Consular Access” to nine dead terrorists in a Mumbai morgue before asking to meet Kasab, Dec 13

282. An Indian Reply to President Zardari: Rewarding Pakistan for bad behaviour leads to schizophrenic relationships Dec 19

283. Is my prediction about Caroline Kennedy becoming US Ambassador to Britain going to be correct? Dec 27

284. Chandrayaan adds a little good cheer! Well done, ISRO!, Dec 28

285. How sad that “Slumdog millionaire” is SO disappointing! Dec 31

289. (with Claude Arpi) “Transparency & history: India’s archives must be opened to world standards” Business Standard New Delhi Dec 31, 2008, published here Jan 1 .

2009

290. A basis of India-Pakistan cooperation on the Mumbai massacres: the ten Pakistani terrorists started off as pirates and the Al-Huseini is a pirate ship Jan 1.

291. India’s “pork-barrel politics” needs a nice (vegetarian) Hindi name! “Teli/oily politics” perhaps? (And are we next going to see a Bill of Rights for Lobbyists?) Jan 3

292. My (armchair) experience of the 1999 Kargil war (Or, “Actionable Intelligence” in the Internet age: How the Kargil effort got a little help from a desktop) Jan 5

293. How Jammu & Kashmir’s Chief Minister Omar Abdullah can become a worthy winner of the Nobel Peace Prize: An Open Letter, Jan 7

294. Could the Satyam/PwC fraud be the visible part of an iceberg? Where are India’s “Generally Accepted Accounting Principles”? Isn’t governance rather poor all over corporate India? Bad public finance may be a root cause Jan 8

295. Satyam does not exist: it is bankrupt, broke, kaput. Which part of this does the new “management team” not get? The assets belong to Satyam’s creditors. Jan 8

296. Jews are massacred in Mumbai and now Jews commit a massacre in Gaza! Jan 9

297. And now for the Great Satyam Whitewash/Cover-Up/Public Subsidy! The wrong Minister appoints the wrong new Board who, probably, will choose the wrong policy Jan 12

298. Letter to Wei Jingsheng Jan 14

299. Memo to the Hon’ble Attorneys General of Pakistan & India: How to jointly prosecute the Mumbai massacre perpetrators most expeditiously Jan 16

300. Satyam and IT-firms in general may be good candidates to become “Labour-Managed” firms Jan 18

301. “Yes we might be able to do that. Perhaps we ought to. But again, perhaps we ought not to, let me think about it…. Most important is Cromwell’s advice: Think it possible we may be mistaken!” Jan 20.

302. RAND’s study of the Mumbai attacks Jan 25

303. Didn’t Dr Obama (the new American President’s late father) once publish an article in Harvard’s Quarterly Journal of Economics? (Or did he?) Jan 25.

304. “A Dialogue in Macroeconomics” 1989 etc: sundry thoughts on US economic policy discourse Jan 30

305. American Voices: A Brief Popular History of the United States in 20 You-Tube Music Videos Feb 5

306. Jaladhar Sen writes to Manindranath at Surendranath’s death, Feb 23

307. Pakistani expansionism: India and the world need to beware of “Non-Resident Pakistanis” ruled by Rahmat Ali’s ghost, Feb 9

308. My American years Part One 1980-90: battles for academic integrity & freedom Feb 11.

309. Thanks and well done Minister Rehman Malik and the Govt of Pakistan Feb 12

310. Can President Obama resist the financial zombies (let alone slay them)? His economists need to consult Dr Anna J Schwartz Feb 14

311. A Brief History of Gilgit, Feb 18

312. Memo to UCLA Geographers: Commonsense suggests Mr Bin Laden is far away from the subcontinent Feb 20

313. The BBC gets its history and geography deliberately wrong again Feb 21

314. Bengal Legislative Council 1921, Feb 28

315. Carmichael visits Surendranath, 1916, Mar 1

316. Memo to GoI CLB: India discovered the Zero, and 51% of Zero is still Zero Mar 10

317. An Academic Database of Doctoral & Other Postgraduate Research Done at UK Universities on India, Pakistan, Sri Lanka, Bangladesh and Other Asian Countries Over 100 Years, Mar 13

318. Pakistan’s progress, Mar 18

319. Risk-aversion explains resistance to free trade, Mar 19

320. India’s incredibly volatile inflation rate! Mar 20

321. Is “Vicky, Cristina, Barcelona” referring to an emasculation of (elite) American society?, Mar 21

322. Just how much intellectual fraud can Delhi produce? Mar 26

323. India is not a monarchy! We urgently need to universalize the French concept of “citoyen”! Mar 28

324. Could this be the real state of some of our higher education institutions? Mar 29

325. Progress! The BBC retracts its prevarication! Mar 30

326. Aldous Huxley’s Essay “DH Lawrence” Mar 31

327. Waffle not institutional reform is what (I predict) the “G-20 summit” will produce, April 1

328. Did a full cricket team of Indian bureaucrats follow our PM into 10 Downing Street? Count for yourself! April 3

329. Will someone please teach the BJP’s gerontocracy some Economics 101 on an emergency basis? April 5

330. The BBC needs to determine exactly where it thinks Pakistan is!, April 5

331. Alfred Lyall on Christians, Muslims, India, China, Etc, 1908, April 6

332. An eminent economist of India passes away April 9

333. Democracy Database for the Largest Electorate Ever Seen in World History, April 12

334. Memo to the Election Commission of India April 14 2009, 9 AM, April 14

335. Caveat emptor! Satyam is taken over, April 14

336. India’s 2009 General Elections: Candidates, Parties, Symbols for Polls on 16-30 April Phases 1,2,3, April 15

337. On the general theory of expertise in democracy: reflections on what emerges from the American “torture memos” today, April 18

338. India’s 2009 General Elections: 467 constituencies (out of 543) for which candidates have been announced as of 1700hrs April 21, April 21

339. Apropos Philosophy of Economics, Comments of Sidney Hook, KJ Arrow, Milton Friedman, TW Schultz, SS Alexander, Max Black, Renford Bambrough, John Gray et al., April 22.

340. India’s 2009 General Elections: Names of all 543 Constituencies of the 15th Lok Sabha, April 22.

341. India’s 2009 General Elections: How 4125 State Assembly Constituencies comprise the 543 new Lok Sabha Constituencies, April 23.

342. Why has America’s “torture debate” yet to mention the obvious? Viz., sadism and racism, April 24

343. India’s 2009 General Elections: the advice of the late “George Eliot” (Mary Ann Evans, 1819-1880) to India’s voting public, April 24.

344. India’s 2009 General Elections: Delimitation and the Different Lists of 543 Lok Sabha Constituencies in 2009 and 2004, April 25

345. Is “Slumdog Millionaire” the single worst Best Picture ever?

346. India’s 2009 General Elections: Result of Delimitation — Old (2004) and New (2009) Lok Sabha and Assembly Constituencies, April 26

347. India’s 2009 General Elections: 7019 Candidates in 485 (out of 543) Constituencies announced as of April 26 noon April 26

348. What is Christine Fair referring to? Would the MEA kindly seek to address what she has claimed asap? April 27

349. Politics can be so entertaining 🙂 Manmohan versus Sonia on the poor old CPI(M)!, April 28

350. A Dozen Grown-Up Questions for Sonia Gandhi, Manmohan Singh, LK Advani, Sharad Pawar, Km Mayawati and Anyone Else Dreaming of Becoming/Deciding India’s PM After the 2009 General Elections, April 28

351. India’s 2009 General Elections: How drastically will the vote-share of political parties change from 2004? May 2

352. India’s 2009 General Elections: And now finally, all 8,070 Candidates across all 543 Lok Sabha Constituencies, May 5

353. India’s 2009 General Elections: The Mapping of Votes into Assembly Segments Won into Parliamentary Seats Won in the 2004 Election, May 7

354. Will Messrs Advani, Rajnath Singh & Modi ride into the sunset if the BJP comes to be trounced? (Corrected), May 10

355. India’s 2009 General Elections: 543 Matrices to Help Ordinary Citizens Audit the Election Commission’s Vote-Tallies May 12

356. Well done Sonia-Rahul! Two hours before polls close today, I am willing to predict a big victory for you (but, please, try to get your economics right, and also, you must get Dr Singh a Lok Sabha seat if he is to be PM) May 13

357. Buddhadeb Bhattacharjee must dissolve the West Bengal Assembly if he is an honest democrat: Please try to follow Gerard Schröder’s example even slightly! May 16

358. India’s 2009 General Elections: Provisional Results from the EC as of 1400 hours Indian Standard Time May 16

359. Memo to the Hon’ble President of India: It is Sonia Gandhi, not Manmohan Singh, who should be invited to our equivalent of the “Kissing Hands” Ceremony May 16

360. Time for heads to roll in the BJP/RSS and CPI(M)!, May 17.

361. Inviting a new Prime Minister of India to form a Government: Procedure Right and Wrong May 18

362. Starting with Procedural Error: Why has the “Cabinet” of the 14th Lok Sabha been meeting today AFTER the results of the Elections to the 15th Lok Sabha have been declared?! May 18

363. Why has the Sonia Congress done something that the Congress under Nehru-Indira-Rajiv would not have done, namely, exaggerate the power of the Rajya Sabha and diminish the power of the Lok Sabha? May 21

364. Shouldn’t Dr Singh’s Cabinet begin with a small apology to the President of India for discourtesy? May we have reviews and reforms of protocols and practices to be followed at Rashtrapati Bhavan and elsewhere? May 23

365. Parliament’s sovereignty has been diminished by the Executive: A record for future generations to know May 25

366. How tightly will organised Big Business be able to control economic policies this time? May 26

367. Why does India not have a Parliament ten days after the 15th Lok Sabha was elected? Nehru and Rajiv would both have been appalled May 27

368. Eleven days and counting after the 15th Lok Sabha was elected and still no Parliament of India! (But we do have 79 Ministers — might that be a world record?) May 28

369. Note to Posterity: 79 Ministers in office but no 15th Lok Sabha until June 1 2009! May 29

370. Silver Jubilee of Pricing, Planning & Politics: A Study of Economic Distortions in India May 29

371. How to Design a Better Cabinet for the Government of India May 29

372. Parliament is supposed to control the Government, not be bullied or intimidated by it: Will Rahul Gandhi be able to lead the Backbenches in the 15th Lok Sabha? June 1

373. Mistaken Macroeconomics: An Open Letter to Prime Minister Dr Manmohan Singh, June 12

374. Why did Manmohan Singh and LK Advani apologise to one another? Is Indian politics essentially collusive, not competitive, aiming only to preserve and promote the post-1947 Dilli Raj at the expense of the whole of India? We seem to have no Churchillian repartee (except perhaps from Bihar occasionally) June 18

375. Are Iran’s Revolutionaries now Reactionaries? George Orwell would have understood. A fresh poll may be the only answer Are Iran’s Revolutionaries now Reactionaries? George Orwell would have understood. A fresh poll may be the only answer June 22

376. My March 25 1991 memo to Rajiv (which never reached him) is something the present Government seems to have followed: all for the best of course! July 12

377. Disquietude about France’s behaviour towards India on July 14 2009 July 14

378. Does the Govt. of India assume “foreign investors and analysts” are a key constituency for Indian economic policy-making? If so, why so? Have Govt. economists “learnt nothing, forgotten everything”? Some Bastille Day thoughts July 14

379. Letter to the GoI’s seniormost technical economist, May 21.July 19

380. Excuse me but young Kasab in fact confessed many months ago, immediately after he was captured – he deserves 20 or 30 years in an Indian prison, and a chance to become a model prisoner who will stand against the very terrorists who sent him on his vile mission July 20

381. Finally, three months late, the GoI responds to American and Pakistani allegations about Balochistan July 24

382. Thoughts, words, deeds: My work 1973-2010

M1. Map of Asia c. 1900

M2. Map of Chinese Empire c. 1900

M3. Map of Sinkiang, Tibet and Neighbours 1944

M4. China’s Secretly Built 1957 Road Through India’s Aksai Chin

M5. Map of Kashmir to Sinkiang 1944

M6. Map of India-Tibet-China-Mongolia 1959

M7. Map of India, Afghanistan, Russia, China, 1897

M8. Map of Xinjiang/Sinkiang/E Turkestan

M9. Map of Bombay/Mumbai 1909

M10-M13. Himalayan Expedition, West Sikkim 1970 – 1,2,3,4

Mistaken Macroeconomics: An Open Letter to Prime Minister Dr Manmohan Singh 12 June 2009

June 12, 2009 — drsubrotoroy

12 June 2009

The Hon’ble Dr Manmohan Singh, MP, Rajya Sabha

Prime Minister of India

Respected Pradhan Mantriji:

In September 1993 at the residence of the Indian Ambassador to Washington, I had the privilege of being introduced to you by our Ambassador the Hon’ble Siddhartha Shankar Ray, Bar-at-Law. Ambassador Ray was kind enough to introduce me saying the 1991 “Congress manifesto had been written on (my laptop) computer” – a reference to my work as adviser on economic and other policy to the late Rajiv Gandhi in his last months. I presented you a book Foundations of India’s Political Economy: Towards an Agenda for the 1990s created and edited by myself and WE James at the University of Hawaii since 1986 — the unpublished manuscript of that book had reached Rajivji by my hand when he and I first met on September 18 1990. Tragically, my pleadings in subsequent months to those around him that he seemed to my layman’s eyes vulnerable to the assassin went unheeded.

When you and I met in 1993, we had both forgotten another meeting twenty years earlier in Paris. My father had been a long-time friend of the late Brahma Kaul, ICS, and the late MG Kaul, ICS, who knew you in your early days in the Government of India. In the late summer of 1973, you had acceded to my father’s request to advise me about economics before I embarked for the London School of Economics as a freshman undergraduate. You visited our then-home in Paris for about 40 minutes despite your busy schedule as part of an Indian delegation to the Aid-India Consortium. We ended up having a tense debate about the merits (as you saw them) and demerits (as I saw them) of the Soviet influence on Indian economic “planning”. You had not expected such controversy from a lad of 18 but you were kindly disposed and offered when departing to write a letter of introduction to Amartya Sen, then teaching at the LSE, which you later sent me and which I was delighted to carry to Professor Sen.

I may add my father, back in 1973 in Paris, had predicted to me that you would become Prime Minister of India one day, and he, now in his 90s, is joined by myself in sending our warm congratulations at the start of your second term in that high office.

The controversy though that you and I had entered that Paris day in 1973 about scientific economics as applied to India, must be renewed afresh!

This is because of your categorical statement on June 9 2009 to the new 15^th Lok Sabha:

“I am convinced, since our savings rate is as high as 35%, given the collective will, if all of us work together, we can achieve a growth-rate of 8%-9%, even if the world economy does not do well.” (Statement of Dr Manmohan Singh to the Lok Sabha, June 9 2009)

I am afraid there may be multiple reasons why such a statement is gravely and incorrigibly in error within scientific economics. From your high office as Prime Minister in a second term, faced perhaps with no significant opposition from either within or without your party, it is possible the effects of such an error may spell macroeconomic catastrophe for India.

As it happens, the British Labour Party politician Dr Meghnad Desai made an analogous statement to yours about India when he claimed in 2006 that China

“now has 10.4% growth on a 44 % savings rate… ”

Indeed the idea that China and India have had extremely high economic growth-rates based on purportedly astronomical savings rates has become a commonplace in recent years, repeated endlessly in international and domestic policy circles though perhaps without adequate basis.

1. Germany & Japan

What, at the outset, is supposed to be measured when we speak of “growth”? Indian businessmen and their media friends seem to think “growth” refers to something like nominal earnings before tax for the organised corporate sector, or any unspecified number that can be sold to visiting foreigners to induce them to park their funds in India: “You will get a 10% return if you invest in India” to which the visitor says “Oh that must mean India has 10% growth going on”. Of such nonsense are expensive international conferences in Davos and Delhi often made.

You will doubtless agree the economist at least must define economic growth properly and with care — what is referred to must be annual growth of per capita inflation-adjusted Gross Domestic Product. (Per capita National Income or Net National Product would be even better if available).

West Germany and Japan had the highest annual per capita real GDP growth-rates in the world economy starting from devastated post-World War II initial conditions. What were their measured rates?

West Germany: 6.6% in 1950-1960, falling to 3.5% by 1960-1970 falling to 2.4% by 1970-1978.

Japan: 6.8 % in 1952-1960 rising to 9.4% in 1960-1970 falling to 3.8 % in 1970-1978.

Thus in recent decadesonly Japan measured a spike in the 1960s of more than 9% annual growth of real per capita GDP. Now India and China are said to be achieving 8%-10 % and more year after year routinely!

Perhaps we are observing an incredible phenomenon of world economic history. Or perhaps it is just something incredible, something false and misleading, like a mirage in the desert.

You may agree that processes of measurement of real income in India both at federal and provincial levels, still remain well short of the world standards described by the UN’s System of National Accounts 1993. The actuality of our real GDP growth may be better than what is being measured or it may be worse than what is being measured – from the point of view of public decision-making we at present simply do not know which it is, and to overly rely on such numbers in national decisions may be unwise. In any event, India’s population is growing at near 2% so even if your Government’s measured number of 8% or 9% is taken at face-value, we have to subtract 2% population growth to get per capita figures.

2. Growth of the aam admi’s consumption-basket

The late Professor Milton Friedman had been an invited adviser in 1955 to the Government of India during the Second Five Year Plan’s formulation. The Government of India suppressed what he had to say and I had to publish it 34 years later in May 1989 during the 1986-1992 perestroika-for-India project that I led at the University of Hawaii in the United States. His November 1955 Memorandum to the Government of India is a chapter in the book Foundations of India’s Political Economy: Towards an Agenda for the 1990s that I and WE James created.

At the 1989 project-conference itself, Professor Friedman made the following astute observation about all GNP, GDP etc growth-numbers that speaks for itself:

“I don’t believe the term GNP ought to be used unless it is supplemented by a different statistic: the rate of growth of the average consumption basket consumed by the ordinary individual in the country. I think GNP rates of growth can give very misleading information. For example, you have rapid rates of growth of GNP in the Soviet Union with a declining standard of life for the people. Because GNP includes monuments and includes also other things. I’m not saying that that is the case with India; I’m just saying I would like to see the two figures together.”

You may perhaps agree upon reflection that not only may our national income growth measurements be less robust than we want, it may be better to be measuring something else instead, or as well, as a measure of the economic welfare of India’s people, namely, “the rate of growth of the average consumption basket consumed by the ordinary individual in the country”, i.e., the rate of growth of the average consumption basket consumed by the aam admi.

It would be excellent indeed if you were to instruct your Government’s economists and other spokesmen to do so this as it may be something more reliable as an indicator of our economic realities than all the waffle generated by crude aggregate growth-rates.

3. Logic of your model

Thirdly, the logic needs to be spelled out of the economic model that underlies such statements as yours or Meghnad Desai’s that seek to operationally relate savings rates to aggregate growth rates in India or China. This seems not to have been done publicly in living memory by the Planning Commission or other Government economists. I have had to refer, therefore, to pages 251-253 of my own Cambridge doctoral thesis under Professor Frank Hahn thirty years ago, titled “On liberty and economic growth: preface to a philosophy for India”, where the logic of such models as yours was spelled out briefly as follows:

Let

K_t be capital stock

Y_t be national output

I_t be the level of real investment

S_t be the level of real savings

By definition

I_t = K _t+1 – K_t

By assumption

K_t = k Y_t 0 < k < 1

S_t = sY_t 0 < s <1

In equilibrium ex ante investment equals ex ante savings

I_t = S_t

Hence in equilibrium

sY_t = K _t+1 – K_t

Or

s/k = g

where g is defined to be the rate of growth (Y _t+1-Y_t)/Y_{t .}

The left hand side then defines the “warranted rate of growth” which must maintain the famous “knife-edge” with the right hand side “natural rate of growth”.

Your June 9 2009 Lok Sabha statement that a 35% rate of savings in India may lead to an 8%-9% rate of economic growth in India, or Meghnad Desai’s statement that a 44% rate of savings in China led to a 10.4% growth there, can only be made meaningful in the context of a logical economic model like the one I have given above.

[In the open-economy version of the model, let M_tbe imports, E_t be exports, F_t net capital inflows.

Assume

M_t= aI_t + bY_t 0 < a, b < 1

E_t= E for all t

Balance of payments is

B_t = M_t – E_t– F_t

In equilibrium I_t = S_t + B_t

Or

F_t = (s+b) Y_t – (1-a) I_t – E is a kind of “warranted” level of net capital inflow.]

You may perhaps agree upon reflection that building the entire macroeconomic policy of the Government of India merely upon a piece of economic logic as simplistic as the

s/k = g

equation above, may spell an unacceptable risk to the future economic well-being of our vast population. An alternative procedural direction for macroeconomic policy, with more obviously positive and profound consequences, may have been that which I sought to persuade Rajiv Gandhi about with some success in 1990-1991. Namely, to systematically seek to improve towards normalcy the budgets, financial positions and decision-making capacities of the Union and all state and local governments as well as all public institutions, organisations, entities, and projects in general, with the aim of making our domestic money a genuine hard currency of the world again after seven decades, so that any ordinary resident of India may hold and trade precious metals and foreign exchange at his/her local bank just like all those glamorous privileged NRIs have been permitted to do. Such an alternative path has been described in “The Indian Revolution”, “Against Quackery”, “The Dream Team: A Critique”, “India’s Macroeconomics”, “Indian Inflation”, etc.

4. Gross exaggeration of real savings rate by misreading deposit multiplication

Specifically, I am afraid you may have been misled into thinking India’s real savings rate, s, is as high as 35% just as Meghnad Desai may have misled himself into thinking China’s real savings rate is as high as 44%.

Neither of you may have wanted to make such a claim if you had referred to the fact that over the last 25 years, the average savings rate across all OECD countries has been less than 10%. Economic theory always finds claims of discontinuous behaviour to be questionable. If the average OECD citizen has been trying to save 10% of disposable income at best, it appears prima facie odd that India’s PM claims a savings rate as high as 35% for India or a British politician has claimed a savings rate as high as 44% for China. Something may be wrong in the measurement of the allegedly astronomical savings rates of India and China. The late Professor Nicholas Kaldor himself, after all, suggested it was rich people who saved and poor people who did not for the simple reason the former had something left over to save which the latter did not!

And indeed something is wrong in the measurements. What has happened, I believe, is that there has been a misreading of the vast nominal expansion of bank deposits via deposit-multiplication in the Indian banking system, an expansion that has been caused by explosive deficit finance over the last four or five decades. That vast nominal expansion of bank-deposits has been misread as indicating growth of real savings behaviour instead. I have written and spoken about and shown this quite extensively in the last half dozen years since I first discovered it in the case of India. E.g., in a lecture titled “Can India become an economic superpower or will there be a monetary meltdown?” at Cardiff University’s Institute of Applied Macroeconomics and at London’s Institute of Economic Affairs in April 2005, as well as in May 2005 at a monetary economics seminar invited at the RBI by Dr Narendra Jadav. The same may be true of China though I have looked at it much less.

How I described this phenomenon in a 2007 article in The Statesman is this:

“Savings is indeed normally measured by adding financial and non-financial savings. Financial savings include bank-deposits. But India is not a normal country in this. Nor is China. Both have seen massive exponential growth of bank-deposits in the last few decades. Does this mean Indians and Chinese are saving phenomenally high fractions of their incomes by assiduously putting money away into their shaky nationalized banks? Sadly, it does not. What has happened is government deficit-financing has grown explosively in both countries over decades. In a “fractional reserve” banking system (i.e. a system where your bank does not keep the money you deposited there but lends out almost all of it immediately), government expenditure causes bank-lending, and bank-lending causes bank-deposits to expand. Yes there has been massive expansion of bank-deposits in India but it is a nominal paper phenomenon and does not signify superhuman savings behaviour. Indians keep their assets mostly in metals, land, property, cattle, etc., and as cash, not as bank deposits.”

An article of mine in 2008 in Business Standard put it like this:

“India has followed in peacetime over six decades what the US and Britain followed during war. Our vast growth of bank deposits in recent decades has been mostly a paper (or nominal) phenomenon caused by unlimited deficit finance in a fractional reserve banking system. Policy makers have widely misinterpreted it as indicating a real phenomenon of incredibly high savings behaviour. In an inflationary environment, people save their wealth less as paper deposits than as real assets like land, cattle, buildings, machinery, food stocks, jewellery etc.”

If you asked me “What then is India’s real savings rate?” I have little answer to give except to say I know what it is not – it is not what the Government of India says it is. It is certainly unlikely to be anywhere near the 35% you stated it to be in your June 9 2009 Lok Sabha statement. If the OECD’s real savings rate has been something like 10% out of disposable income, I might accept India’s is, say, 15% at a maximum when properly measured – far from the 35% being claimed. What I believe may have been mismeasured by you and Meghnad Desai and many others as indicating high real savings is actually the nominal or paper expansion of bank-deposits in a fractional reserve banking system induced by runaway government deficit-spending in both India and China over the last several decades.

5. Technological progress and the mainsprings of real economic growth

So much for the g and s variables in the s/k = g equation in your economic model. But the assumed constant k is a big problem too!

During the 1989 perestroika-for-India project-conference, Professor Friedman referred to his 1955 experience in India and said this about the assumption of a constant k:

“I think there was an enormously important point… That was the almost universal acceptance at that time of the view that there was a sort of technologically fixed capital output ratio. That if you wanted to develop, you just had to figure out how much capital you needed, used as a statistical technological capital output ratio, and by God the next day you could immediately tell what output you were going to achieve. That was a large part of the motivation behind some of the measures that were taken then.”

The crucial problem of the sort of growth-model from which your formulation relating savings to growth arises is that, with a constant k, you have necessarily neglected the real source of economic growth, which is technological progress!

I said in the 2007 article referred to above:

“Economic growth in India as elsewhere arises not because of what politicians and bureaucrats do in capital cities, but because of spontaneous technological progress, improved productivity and learning-by-doing on part of the general population. Technological progress is a very general notion, and applies to any and every production activity or commercial transaction that now can be accomplished more easily or using fewer inputs than before.”

In “Growth and Government Delusion” published in The Statesman last year, I described the growth process more fully like this:

“The mainsprings of real growth in the wealth of the individual, and so of the nation, are greater practical learning, increases in capital resources and improvements in technology. Deeper skills and improved dexterity cause output produced with fewer inputs than before, i.e. greater productivity. Adam Smith said there is “invention of a great number of machines which facilitate and abridge labour, and enable one man to do the work of many”. Consider a real life example. A fresh engineering graduate knows dynamometers are needed in testing and performance-certification of diesel engines. He strips open a meter, finds out how it works, asks engine manufacturers what design improvements they want to see, whether they will buy from him if he can make the improvement. He finds out prices and properties of machine tools needed and wages paid currently to skilled labour, calculates expected revenues and costs, and finally tries to persuade a bank of his production plans, promising to repay loans from his returns. Overcoming restrictions of religion or caste, the secular agent is spurred by expectation of future gains to approach various others with offers of contract, and so organize their efforts into one. If all his offers ~ to creditors, labour, suppliers ~ are accepted he is, for the moment, in business. He may not be for long ~ but if he succeeds his actions will have caused an improvement in design of dynamometers and a reduction in the cost of diesel engines, as well as an increase in the economy’s produced means of production (its capital stock) and in the value of contracts made. His creditors are more confident of his ability to repay, his buyers of his product quality, he himself knows more of his workers’ skills, etc. If these people enter a second and then a third and fourth set of contracts, the increase in mutual trust in coming to agreement will quickly decline in relation to the increased output of capital goods. The first source of increasing returns to scale in production, and hence the mainspring of real economic growth, arises from the successful completion of exchange. Transforming inputs into outputs necessarily takes time, and it is for that time the innovator or entrepreneur or “capitalist” or “adventurer” must persuade his creditors to trust him, whether bankers who have lent him capital or workers who have lent him labour. The essence of the enterprise (or “firm”) he tries to get underway consists of no more than the set of contracts he has entered into with the various others, his position being unique because he is the only one to know who all the others happen to be at the same time. In terms introduced by Professor Frank Hahn, the entrepreneur transforms himself from being “anonymous” to being “named” in the eyes of others, while also finding out qualities attaching to the names of those encountered in commerce. Profits earned are partly a measure of the entrepreneur’s success in this simultaneous process of discovery and advertisement. Another potential entrepreneur, fresh from engineering college, may soon pursue the pioneer’s success and start displacing his product in the market ~ eventually chasers become pioneers and then get chased themselves, and a process of dynamic competition would be underway. As it unfolds, anonymous and obscure graduates from engineering colleges become by dint of their efforts and a little luck, named and reputable firms and perhaps founders of industrial families. Multiply this simple story many times, with a few million different entrepreneurs and hundreds of thousands of different goods and services, and we shall be witnessing India’s actual Industrial Revolution, not the fake promise of it from self-seeking politicians and bureaucrats.”

Technological progress in a myriad of ways and discovery of new resources are important factors contributing to India’s growth today. But while India’s “real” economy does well, the “nominal” paper-money economy controlled by Government does not. Continuous deficit financing for half a century has led to exponential growth of public debt and broad money, and, as noted, the vast growth of nominal bank-deposits has been misinterpreted as indicating unusually high real savings behaviour when it in fact may just signal vast amounts of government debt being held by our nationalised banks. These bank assets may be liquid domestically but are illiquid internationally since our government debt is not held by domestic households as voluntary savings nor has it been a liquid asset held worldwide in foreign portfolios.

What politicians of all parties, especially your own and the BJP and CPI-M since they are the three largest, have been presiding over is exponential growth of our paper money supply, which has even reached 22% per annum. Parliament and the Government should be taking honest responsibility for this because it may certainly portend double-digit inflation (i.e., decline in the value of paper-money) perhaps as high as 14%-15% per annum, something that is certain to affect the aam admi’s economic welfare adversely.

6. Selling Government assets to Big Business is a bad idea in a potentially hyperinflationary economy

Respected PradhanMantriji, the record would show that I, and really I alone, 25 years ago, may have been the first among Indian economists to advocate the privatisation of the public sector. (Viz, “Silver Jubilee of Pricing, Planning and Politics: A Study of Economic Distortions in India”.) In spite of this, I have to say clearly now that in present circumstances of a potentially hyperinflationary economy created by your Government and its predecessors, I believe your Government’s present plans to sell Government assets may be an exceptionally unwise and imprudent idea. The reasoning is very simple from within monetary economics.

Government every year has produced paper rupees and bank deposits in practically unlimited amounts to pay for its practically unlimited deficit financing, and it has behaved thus over decades. Such has been the nature of the macroeconomic process that all Indian political parties have been part of, whether they are aware of it or not.

Indian Big Business has an acute sense of this long-term nominal/paper expansion of India’s economy, and acts towards converting wherever possible its own hoards of paper rupees and rupee-denominated assets into more valuable portfolios for itself of real or durable assets, most conspicuously including hard-currency denominated assets, farm-land and urban real-estate, and, now, the physical assets of the Indian public sector. Such a path of trying to transform local domestic paper assets – produced unlimitedly by Government monetary and fiscal policy and naturally destined to depreciate — into real durable assets, is a privately rational course of action to follow in an inflationary economy. It is not rocket-science to realise the long-term path of rupee-denominated assets is downwards in comparison to the hard-currencies of the world – just compare our money supply growth and inflation rates with those of the rest of the world.

The Statesman of November 16 2006 had a lead editorial titled Government’s land-fraud: Cheating peasants in a hyperinflation-prone economy which said:

“There is something fundamentally dishonourable about the way the Centre, the state of West Bengal and other state governments are treating the issue of expropriating peasants, farm-workers, petty shop-keepers etc of their small plots of land in the interests of promoters, industrialists and other businessmen. Singur may be but one example of a phenomenon being seen all over the country: Hyderabad, Karnataka, Kerala, Haryana, everywhere. So-called “Special Economic Zones” will merely exacerbate the problem many times over. India and its governments do not belong only to business and industrial lobbies, and what is good for private industrialists may or may not be good for India’s people as a whole. Economic development does not necessarily come to be defined by a few factories or high-rise housing complexes being built here or there on land that has been taken over by the Government, paying paper-money compensation to existing stakeholders, and then resold to promoters or industrialists backed by powerful political interest-groups on a promise that a few thousand new jobs will be created. One fundamental problem has to do with inadequate systems of land-description and definition, implementation and recording of property rights. An equally fundamental problem has to do with fair valuation of land owned by peasants etc. in terms of an inconvertible paper-money. Every serious economist knows that “land” is defined as that specific factor of production and real asset whose supply is fixed and does not increase in response to its price. Every serious economist also knows that paper-money is that nominal asset whose price can be made to catastrophically decline by a massive increase in its supply, i.e. by Government printing more of the paper it holds a monopoly to print. For Government to compensate people with paper-money it prints itself by valuing their land on the basis of an average of the price of the last few years, is for Government to cheat them of the fair present-value of the land. That present-value of land must be calculated in the way the present-value of any asset comes to be calculated, namely, by summing the likely discounted cash-flows of future values. And those future values should account for the likelihood of a massive future inflation causing decline in the value of paper-money in view of the fact we in India have a domestic public debt of some Rs. 30 trillion (Rs. 30 lakh crore) and counting, and money supply growth rates averaging 16-17% per annum. In fact, a responsible Government would, given the inconvertible nature of the rupee, have used foreign exchange or gold as the unit of account in calculating future-values of the land. India’s peasants are probably being cheated by their Government of real assets whose value is expected to rise, receiving nominal paper assets in compensation whose value is expected to fall.”

Shortly afterwards the Hon’ble MP for Kolkata Dakshin, Km Mamata Banerjee, started her protest fast, riveting the nation’s attention in the winter of 2006-2007. What goes for government buying land on behalf of its businessman friends also goes, mutatis mutandis, for the public sector’s real assets being bought up by the private sector using domestic paper money in a potentially hyperinflationary economy. If your new Government wishes to see real assets of the public sector being sold for paper money, let it seek to value these assets not in inconvertible rupees that Government itself has been producing in unlimited quantities but perhaps in forex or gold-units instead!

In the 2004-2005 volume Margaret Thatcher’s Revolution: How it Happened and What it Meant, edited by myself and Professor John Clarke, there is a chapter by Professor Patrick Minford on Margaret Thatcher’s fiscal and monetary policy (macroeconomics) that was placed ahead of the chapter by Professor Martin Ricketts on Margaret Thatcher’s privatisation (microeconomics). India’s fiscal and monetary or macroeconomic problems are far worse today than Britain’s were when Margaret Thatcher came to power. We need to get our macroeconomic problems sorted before we attempt the microeconomic privatisation of public assets.

It is wonderful that your young party colleague, the Hon’ble MP from Amethi, Shri Rahul Gandhi, has declined to join the present Government and instead wishes to reflect further on the “common man” and “common woman” about whom I had described his late father talking to me on September 18 1990. Certainly the aam admi is not someone to be found among India’s lobbyists of organised Big Business or organised Big Labour who have tended to control government agendas from the big cities.

With my warmest personal regards and respect, I remain,

Cordially yours

Subroto Roy, PhD (Cantab.), BScEcon (London)

How tightly will organised Big Business be able to control economic policies this time?

May 26, 2009 — drsubrotoroy

The power of organised Big Business over New Delhi’s economic policies (whether Congress-led or BJP-led) was signalled by the presence in the audience at Rashtrapati Bhavan last week of several prominent lobbyists when Dr Manmohan Singh and his senior-most Cabinet colleagues were being sworn-in by the President of India. Why were such witnesses needed at such an auspicious national occasion?

Organised Big Business (both private sector and public sector) along with organised Big Labour (whose interests are represented most ably by New Delhi’s official communist parties like the CPI-M and CPI), are astutely aware of how best to advance their own economic interests; this usually gets assisted nicely enough through clever use of our comprador English-language TV, newspaper and magazine media. Shortly after the election results, lobbyists were all over commercial TV proposing things like FDI in insurance and airports etc– as if that was the meaning of the Sonia-Rahul mandate or were issues of high national priority. A typical piece of such “pretend-economics” appears in today’s business-press from a formerly Leftist Indian bureaucrat: “With its decisive victory, the new Manmohan Singh government should at last be able to implement the required second generation reforms. Their lineaments (sic) are well known and with the removal of the Left’s veto, many of those stalled in the legislature as well as those which were forestalled can now be implemented. These should be able to put India back on a 9-10 per cent per annum growth rate…”

Today’s business-press also reports that the new Government is planning to create a fresh “Disinvestment Ministry” and Dr Singh’s chief economic policy aide is “a frontrunner among the names short-listed to head the new ministry” with Cabinet rank.

Now if any enterprising doctoral student was to investigate the question, I think the evidence would show that I, and I alone – not even BR Shenoy or AD Shroff or Jagdish Bhagwati — may have been the first among Indian economists to have argued in favour of the privatisation of India’s public sector. I did so precisely 25 years ago in Pricing, Planning and Politics: A Study of Economic Distortions in India, which was so unusual for its time that it attracted the lead editorial of The Times of London on the day it was published May 29 1984, and had its due impact on Indian economic policy then and since, as has been described elsewhere here. In 1990-1991 while with Rajiv Gandhi, I had floated an idea of literally giving away shares of the public sector to the public that owned it (as several other countries had been doing at that time), specifically perhaps giving them to the poorest panchayats in aid of their development. In 2004-2005, upon returning to Britain after many years, I helped create the book Margaret Thatcher’s Revolution: How it Happened and What it Meant, and Margaret Thatcher if anyone was a paragon of privatisation.

That being said, I have to say I think a new Indian policy of creating a Ministry to privatise India’s public sector is probably a very BAD idea indeed in present circumstances — mainly because it will be driven by the interests of the organised Big Business lobbies that have so profoundly and subtly been able to control the New Delhi Government’s behaviour in recent decades.

Such lobbyist control is exercised often without the Government even realising or comprehending its parameters. For example, ask yourself: Is there any record anywhere of Dr Manmohan Singh, in his long career as a Government economist and then as a Rajya Sabha MP, having ever proposed before 2004-2005 that nuclear reactors were something vitally important to India’s future? And why do you suppose the most prominent Indian business lobby spent a million dollars and registered itself as an official lobbyist in Washington DC to promote the nuclear deal among American legislators? Because Big Business was feeling generous and altruistic towards the “energy security” of the ordinary people of India? Hardly. Indian Big Business calculates and acts in its own interests, as is only to be expected under economic assumptions; those interests are frequently camouflaged by their lobbyist and media friends into seeming to be economic policy for the country as a whole.

Now our Government every year produces paper rupees and bank deposits in practically unlimited amounts to pay for its practically unlimited deficit financing, and it has behaved thus over decades. Why we do not hear about this at all is because the most prominent Government economists themselves remain clueless — sometimes by choice, mostly by sheer ignorance — about the nature of the macroeconomic process that they are or have been part of. (See my “India’s Macroeconomics”, “The Dream Team: A Critique” etc elsewhere here). As for the Opposition’s economists, the less said about the CPI-M’s economists the better while the BJP, poor thing, has absolutely no economists at all!

Briefly speaking, Indian Big Business has acquired an acute sense of this long-term nominal/paper expansion of India’s economy, and as a result acts towards converting wherever possible its own hoards of paper rupees and rupee-denominated assets into more valuable portfolios for itself of real or durable assets, most conspicuously including hard-currency denominated assets, farm-land and urban real-estate, and, now, the physical assets of the Indian public sector. Such a path of trying to transform local domestic paper assets – produced unlimitedly by Government monetary and fiscal policy and naturally destined to depreciate — into real durable assets, is a privately rational course of action to follow in an inflationary economy. It is not rocket-science to realise the long-term path of the Indian rupee is downwards in comparison to the hard-currencies of the world – just compare our money supply growth and inflation rates with those of the rest of the world.

The Statesman of November 15 2006 had a lead editorial titled Government’s land-fraud: Cheating peasants in a hyperinflation-prone economy. It said:

“There is something fundamentally dishonourable about the way the Centre, the state of West Bengal and other state governments are treating the issue of expropriating peasants, farm-workers, petty shop-keepers etc of their small plots of land in the interests of promoters, industrialists and other businessmen. Singur may be but one example of a phenomenon being seen all over the country: Hyderabad, Karnataka, Kerala, Haryana, everywhere. So-called “Special Economic Zones” will merely exacerbate the problem many times over. India and its governments do not belong only to business and industrial lobbies, and what is good for private industrialists may or may not be good for India’s people as a whole. Economic development does not necessarily come to be defined by a few factories or high-rise housing complexes being built here or there on land that has been taken over by the Government, paying paper-money compensation to existing stakeholders, and then resold to promoters or industrialists backed by powerful political interest-groups on a promise that a few thousand new jobs will be created. One fundamental problem has to do with inadequate systems of land-description and definition, implementation and recording of property rights. An equally fundamental problem has to do with fair valuation of land owned by peasants etc. in terms of an inconvertible paper-money. Every serious economist knows that “land” is defined as that specific factor of production and real asset whose supply is fixed and does not increase in response to its price. Every serious economist also knows that paper-money is that nominal asset whose price can be made to catastrophically decline by a massive increase in its supply, i.e. by Government printing more of the paper it holds a monopoly to print. For Government to compensate people with paper-money it prints itself by valuing their land on the basis of an average of the price of the last few years, is for Government to cheat them of the fair present-value of the land. That present-value of land must be calculated in the way the present-value of any asset comes to be calculated, namely, by summing the likely discounted cash-flows of future values. And those future values should account for the likelihood of a massive future inflation causing decline in the value of paper-money in view of the fact we in India have a domestic public debt of some Rs. 30 trillion (Rs. 30 lakh crore) and counting, and money supply growth rates averaging 16-17% per annum. In fact, a responsible Government would, given the inconvertible nature of the rupee, have used foreign exchange or gold as the unit of account in calculating future-values of the land. India’s peasants are probably being cheated by their Government of real assets whose value is expected to rise, receiving nominal paper assets in compensation whose value is expected to fall.”

Mamata Banerjee started her famous protest fast-unto-death in Kolkata not long afterwards, riveting the nation’s attention in the winter of 2006-2007.

What goes for the government buying land on behalf of its businessman friends also goes, mutatis mutandis, for the public sector’s real assets being bought up by the private sector using domestic paper money in a potentially hyperinflationary economy. If Dr Singh’s new Government wishes to see real public sector assets being sold, let the Government seek to value these assets not in inconvertible rupees which the Government itself has been producing in unlimited quantities but rather in forex or gold-units instead!

Today’s headline says “Short of cash, govt. plans to revive disinvestment ministry”. Big Business’s powerful lobbies will suggest that real public assets must be sold (to whom? to organised Big Business of course!) in order to solve the grave fiscal problems in an inflationary economy caused precisely by those grave fiscal problems! What I said in 2002 at IndiaSeminar may still be found to apply: I said the BJP’s privatisation ideas “deserve to be condemned…because they have made themselves believe that the proceeds of selling the public sector should merely go into patching up the bleeding haemorrhage which is India’s fiscal and monetary situation… (w)hile…Congress were largely responsible for that haemorrhage to have occurred in the first place.”

If the new Government would like to know how to proceed more wisely, they need to read and grasp, in the book edited by myself and Professor John Clarke in 2004-2005, the chapter by Professor Patrick Minford on Margaret Thatcher’s fiscal and monetary policy (macroeconomics) before they read the chapter by Professor Martin Ricketts on Margaret Thatcher’s privatisation (microeconomics). India’s fiscal and monetary or macroeconomic problems are far worse today than Britain’s were when Thatcher came in.

During the recent Election Campaign, I contrasted Dr Singh’s flattering praise in 2005 of the CPI-M’s Buddhadeb Bhattacharjee with Sonia Gandhi’s pro-Mamata line in 2009 saying the CPI-M had taken land away from the poor. This may soon signal a new fault-line in the new Cabinet too on economic policy with respect to not only land but also public sector privatisation – with Dr Singh’s pro-Big Business acolytes on one side and Mamata Banerjee’s stance in favour of small-scale unorganised business and labour on the other. Party heavyweights like Dr Singh himself and Sharad Pawar and Pranab Mukherjee will weigh in one side or the other with Sonia being asked in due course to referee.

I personally am delighted to see the New Rahul Gandhi deciding not to be in Government and to instead reflect further on the “common man” and “common woman” about whom I had described his father talking to me on September 18 1990 at his home. Certainly the “aam admi” is not someone to be found among India’s organised Big Business or organised Big Labour nor their paid lobbyists in the big cities.

Subroto Roy

Posted in Academic research, AD Shroff, Asia and the West, Big Business and Big Labour, BR Shenoy, Britain, Britain in India, British history, Economic Policy, Economic quackery, Economic Theory, Economics of exchange controls, Economics of Public Finance, Economics of real estate valuation, Financial Management, Financial markets, Foreign exchange controls, Government Budget Constraint, Government of India, India's Big Business, India's Banking, India's bureaucracy, India's Capital Markets, India's corporate finance, India's corporate governance, India's corruption, India's currency history, India's Economic History, India's Economy, India's Government Budget Constraint, India's Government Expenditure, India's Industry, India's inflation, India's Macroeconomics, India's Monetary & Fiscal Policy, India's nomenclatura, India's peasants, India's political lobbyists, India's Politics, India's pork-barrel politics, India's poverty, India's Public Finance, Inflation, Land and political economy, Macroeconomics, Mamata Banerjee, Manmohan Singh, Margaret Thatcher, Margaret Thatcher's Revolution, Martin Ricketts, Mendacity in politics, Microeconomics, Monetary Theory, Money and banking, Mumbai financial world, New Delhi, Patrick Minford, Political cynicism, Political Economy, Political mendacity, Political Science, Politics, Pork-barrel politics, Power-elites and nomenclatura, Practical wisdom, Principal-agent problem, Privatisation, Public Choice/Public Finance, Public property waste fraud, Rajiv Gandhi, Rational decisions, Singur and Nandigram, Sonia Gandhi, Statesmanship, The Statesman, The Times (London), University of Buckingham. Leave a Comment »

Letter to the GoI’s seniormost technical economist, May 21

May 21, 2009 — drsubrotoroy

“May 21 2009 It is wonderful to hear from you and I am honoured to find myself, perhaps accidentally, on the same list as so many of your distinguished colleagues among Government economists.

Your essay is most engaging. I am afraid I disagree with your assessment that the current problems “did not originate in the real sector of the economy” but were “triggered by the excesses of the financial system”. I have said to the contrary “There is no clear path to solving the great (alleged) economic and financial crisis because no one wants to admit its roots were the overvaluation (over decades) of American real-estate, and hence American assets in general.”

There is no more real sector than real-estate itself and American real-estate has tended to be overvalued as a result of government policy since the Carter Administration; the accumulated dangers along that path came to explode in the sub-prime crisis. Here as elsewhere in economics, the financial tail has not wagged the non-financial dog but vice versa.

I have also said “(i) foreign central banks might have been left holding more bad US debt than might be remembered, and dollar depreciation and an American inflation seem to be inevitable over the next several years; (ii) all those bad mortgages and foreclosures could vanish within a year or two by playing the demographic card and inviting in a few million new immigrants into the United States; restoring a worldwide idea of an American dream fueled by mass immigration may be the surest way for the American economy to restore itself.”

Re the comparison with the Great Depression, I believe

“there are overriding differences. Most important, the American economy and the world economy are both incomparably larger today in the value of their capital stock, and there has also been enormous technological progress over eight decades. Accordingly, it would take a much vaster event than the present turbulence — say, something like an exchange of multiple nuclear warheads with Russia causing Manhattan and the City of London to be destroyed — before there was a return to something comparable to the 1929 Crash and the Great Depression that followed. Besides, the roots of the crises are different. What happened back then? In 1922, the Genoa Currency Conference wanted to correct the main defect of the pre-1914 gold standard, which was freezing the price of gold while failing to stabilise the purchasing power of money. From 1922 until about 1927, Benjamin Strong of the Federal Reserve Bank of New York adopted price-stabilisation as the new American policy-objective. Britain was off the gold standard and the USA remained on it. The USA, as a major creditor nation, saw massive gold inflows which, by traditional gold standard principles, would have caused a massive inflation. Governor Strong invented the process of “sterilisation” of those gold inflows instead and thwarted the rise in domestic dollar prices of goods and services. Strong’s death in 1928 threw the Federal Reserve System into conflict and intellectual confusion. Dollar stabilisation ended as a policy. Surplus bank money was created on the release of gold that had been previously sterilised. The traditional balance between bulls and bears in the stock-market was upset. Normally, every seller of stock is a bear and every buyer a bull. Now, amateur investors appeared as bulls attracted by the sudden stock price rises, while bears, who sold securities, failed to place their money into deposit and were instead lured into lending it as call money to brokerages who then fuelled these speculative bulls. As of October 22, 1929 about $4 billion was the extent of such speculative lending when Chase National Bank’s customers called in their money. Chase National had to follow their instructions, as did other New York banks. New York’s Stock Exchange could hardly respond to a demand for $4 billion at a short notice and collapsed. Within a year, production had fallen by 26 per cent, prices by 14 per cent, personal income by 14 per cent, and the Greatest Depression of recorded history was in progress — involuntary unemployment levels in America reaching 25 per cent. That is not, by any reading, what we have today. Yes, there has been plenty of bad lending, plenty of duping shareholders and workers and plenty of excessive managerial payoffs. It will all take a large toll, and affect markets across the world. But it will be a toll relative to our plush comfortable modern standards, not those of 1929-1933. In fact, modern decision-makers have the obvious advantage that they can look back at history and know what is not to be done. The US and the world economy are resilient enough to ride over even the extra uncertainty arising from the ongoing presidential campaign, and then some.”

These quotes are from recent publications and may be found most easily under “America’s financial crises” at my site http://www.independentindian.com.

What may be of interest to the Government of India’s economists also may be a sample of my recent short articles on India’s monetary and fiscal economics based on my research beginning with my doctoral work under Frank Hahn at Cambridge in the 1970s and followed by my work with James Buchanan and Milton Friedman in America in the 1980s and 1990s and later. One of these is even named “The Rangarajan Effect” which I first defined at a seminar invited by Dr Jadav at the RBI in May 2005!

https://independentindian.com/2008/08/24/rangarajan-effect/

https://independentindian.com/2008/09/28/monetary-integrity-and-the-rupee/

https://independentindian.com/2007/01/20/indias-macroeconomics/

https://independentindian.com/2007/02/04/fiscal-instability/

https://independentindian.com/2008/07/16/india-in-world-trade-payments/

https://independentindian.com/2007/03/05/fallacious-finance-the-congress-bjp-cpi-m-et-al-may-be-leading-india-to-hyperinflation/

https://independentindian.com/2007/02/20/our-policy-process-self-styled-planners-have-controlled-indias-paper-money-for-decades/

https://independentindian.com/2008/07/28/growth-of-real-income-money-prices-in-india-1869-2004/

https://independentindian.com/2008/07/17/growth-government-delusion/

https://independentindian.com/2008/07/09/indian-inflation-upside-down-economics-from-new-delhis-establishment/

https://independentindian.com/2008/02/26/how-to-budget-thrift-not-theft-should-guide-our-public-finances/

https://independentindian.com/2008/02/21/a-note-on-the-indian-policy-process/

With warm regards,

Cordially,

Subroto Roy, PhD (Cantab.), BScEcon(London)

Sometime Adviser to the Late Rajiv Gandhi, 1990-1991

Posted in Academic economics, Academic research, America's housing market, America's mortgage crisis, American financial crises, Big Business and Big Labour, Crash of 1929, Credit markets, Economic Policy, Economic Theory, Economic Theory of Growth, Economic Theory of Interest, Economic Theory of Value, Economics of Public Finance, Government accounting, Government Budget Constraint, Government of India, India's Big Business, India's credit markets, India's Government economists, India's interest rates, India's savings rate, India's stock and debt markets, India's 1991 Economic Reform, India's balance of payments, India's Banking, India's Budget, India's Capital Markets, India's Economic History, India's Economy, India's Foreign Exchange Reserves, India's Foreign Trade, India's Government Budget Constraint, India's Government Expenditure, India's inflation, India's Macroeconomics, India's Monetary & Fiscal Policy, India's pork-barrel politics, India's Public Finance, Inflation, Inflation targeting, Unorganised capital markets. Leave a Comment »

India’s incredibly volatile inflation rate!

March 20, 2009 — drsubrotoroy

Some months ago India’s inflation rate was said to be the highest it has been for decades and now today, right on cue, it is said to be the lowest it has been for decades! Today’s business press says Dr Manmohan Singh’s chief economic policy aide has apparently immediately expressed his keenness to see an even further purported “fiscal stimulus package” (aka pork-barrel politics prior to an election).

For myself, I have long given up on the credibility of such stuff emanating from our capital’s supposed policy-makers — putting it down, generally speaking, to what I consider and what I have called “New Delhi’s intellectual and moral bankruptcy”.

Here are two simple crude alternative ways to measure India’s (long-term trend) inflation-rate:

1. Take the Money-Supply Growth Rate, say 22% per annum, subtract from it the Growth of Real National Income, say 7%, get, hmmmm, 15%.

2. Find C&AG data for a series of several years; read off nominal expenditure on a dozen major heads of government bureaucracy (like “Central Secretariat”); calculate an average rate of growth of nominal expenditure on bureaucratic departments. On an assumption that Government of India bureaucracies, especially useless unproductive ones in New Delhi, seek to maintain their real consumption-levels, that growth of nominal expenditure reflects their beliefs about the actual change in the cost of living or decline in the value of money. Oddly enough, quick calculations of that amount to, hmmmm, 15% again!

For those who prefer to believe what emanates from New Delhi’s pretentious economists wallowing in their own ignorance, I wonder, as I said a couple of years ago on The Statesman’s frontpage, might I interest you in a marble structure in Agra, or perhaps a steel bridge over the Hooghly River, very famous, like Brooklyn Bridge itself….?

Subroto Roy

Can President Obama resist the financial zombies (let alone slay them)? His economists need to consult Dr Anna J Schwartz

February 14, 2009 — drsubrotoroy

The wonders of the Internet continue to surprise (and yes Virginia, there was a world before SMS and before the Internet too). In early January, in context of India’s Satyam fraud (of a size of perhaps 1 or perhaps 2 billion dollars), I referred here to what seemed to me the likelihood of Satyam becoming a zombie company and I said “we in India have many such zombies walking around in the organised business sector”. I drew attention to Andrew Beattie’s astute definition of zombies and other such ghoulish phenomena in the financial world, and also referred to John Stepek’s excellent if brief November 2008 analysis “How zombie companies suck the life from an economy”. Today I find Ms Arianna Huffington has made reference to Mr Martin Wolf’s reference a couple of days ago to zombie companies and to his statement that President Obama needs to “Admit reality, restructure banks and, above all, slay zombie institutions at once.” Ms Huffington has agreed, though of course all this slaying may be easier said than done. (It is better that zombies not be created in the first place.)

Mr Wolf has pointedly asked a question that many around the world may have half-thought about but not articulated: “Has Barack Obama’s presidency already failed?” It would be a grave and appalling state of affairs if it has, within less than a month of entering office. I am grateful to find in Ms Huffington’s article a reference to an October 2008 Wall Stret Journal interview of Dr Anna Jacobson Schwartz, perhaps the most respected voice in monetary economics today. There have been numerous people claiming to have predicted America’s financial crisis but none may have as much credibility as Dr Schwartz. Six years ago, in a National Bureau of Economic Research study dated November 2002, “Asset Price Inflation and Monetary Policy”,Working Paper 9321 she had said with utmost clarity: “It is crucial that central banks and regulatory authorities be aware of effects of asset price inflation on the stability of the financial system. Lending activity based on asset collateral during the boom is hazardous to the health of lenders when the boom collapses. One way that authorities can curb the distortion of lenders’ portfolios during asset price booms is to have in place capital requirements that increase with the growth of credit extensions collateralized by assets whose prices have escalated. If financial institutions avoid this pitfall, their soundness will not be impaired when assets backing loans fall in value. Rather than trying to gauge the effects of asset prices on core inflation, central banks may be better advised to be alert to the weakening of financial balance sheets in the aftermath of a fall in value of asset collateral backing loans….”

Most poignantly too, Dr Schwartz was present when Ben Bernanke said in a 2002 speech honouring the late Milton Friedman “I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.” Dr Schwartz told the Wall Street Journal ‘”This was [his] claim to be worthy of running the Fed”. “He was ‘familiar with history. He knew what had been done.’ But perhaps this is actually Mr. Bernanke’s biggest problem. Today’s crisis isn’t a replay of the problem in the 1930s, but our central bankers have responded by using the tools they should have used then. They are fighting the last war. The result, she argues, has been failure. ‘I don’t see that they’ve achieved what they should have been trying to achieve. So my verdict on this present Fed leadership is that they have not really done their job.'”

President Obama’s economists need to urgently consult Anna J Schwartz.

Subroto Roy, Kolkata

Postscript: My own brief views on the subject are at “October 1929? Not!” dated September 18 2008, and “America’s divided economists” dated October 26 2008. The latter article suggested that playing the demographic card and inducing a wave of immigration into the United States may be the surest way to move the housing demand-curve firmly upwards.

Posted in Accounting and audit, America's housing market, America's mortgage crisis, American financial crises, American history, Anna Schwartz, asymmetric information, Banking, Bankruptcy, Barack Obama, Ben Bernanke, Benjamin Strong, Corporate Finance, Corporate fraud, Corporate Governance, Crash of 1929, Economic Policy, Economic Theory, Economic Theory of Interest, Economic Theory of Value, Economics of housing markets, Economics of real estate valuation, Economics of Unemployment, Federal Reserve Bank of New York, Federal Reserve Banks, Financial Management, Financial markets, Fraud, Inflation, Inflation targeting, Macroeconomics, Milton Friedman, Monetary Theory, Money and banking, Obama Administration, Public Choice/Public Finance, Public property waste fraud, US economy, US Monetary and Fiscal Policy, USA, United States, USA, United States polity, Wall Street financial crises, Zombie companies. Leave a Comment »

My American years Part One 1980-90: battles for academic integrity & freedom

February 11, 2009 — drsubrotoroy

see revised and expanded version

My American years: Part One 1980-90: battles for academic integrity & freedom

On the Blacksburg campus February 1982, my second year in America.

I had come to Blacksburg in August 1980 thanks to a letter Professor Frank Hahn had written on my behalf to Professor James M Buchanan in January 1980.

I was in an “All But Dissertation” stage at Cambridge when I got to Blacksburg; I completed the thesis while teaching in Blacksburg, sent it from there in September 1981, and went back to Cambridge for the viva voce examination in January 1982.

Professor Buchanan and his colleagues were welcoming and I came to learn much from them about the realities of public finance and democratic politics, which I very soon applied to my work on India.

Jim Buchanan had a reputation for running very tough conferences of scholars. He invited me to one such in the Spring of 1981. We were made to work very hard indeed. One of the books prescribed is still with me, In Search of a Monetary Constitution, ed. Leland Yeager, Harvard 1962, and something I still recommend to anyone wishing to understand the classical liberal position on monetary policy. The week-long 1981 conference had one rest-day; it was spent in part at an excellent theatre in a small rural town outside Blacksburg. This photo is of Jim Buchanan on the left and Gordon Tullock on the right; in between them is Ken Minogue of the London School of Economics — who, as it happened, had been Tutor for Admissions when I became a freshman there seven years earlier.

(I must have learnt something from Jim Buchanan about running conferences because nine years later in May-June 1989 at the University of Hawaii, I made the participants of the India-perestroika and Pakistan-perestroika conferences work very hard too.)

My first rooms in America in 1980 were in the attic of 703 Gracelyn Court, where I paid $160 or $170 per month to my marvellous landlady Betty Tillman. There were many family occasions I enjoyed with her family downstairs, and her cakes, bakes and puddings all remain with me today.

A borrowed electric typewriter may be seen in the photo: the age of the personal computer was still a few years away. The Department had a stand-alone “AB-Dic” word-processor which we considered a marvel of technology; the Internet did not exist but there was some kind of Intranet between geeks in computer science and engineering departments at different universities.

It was at Gracelyn Court that this letter reached me addressed by FA Hayek himself.

Professor Buchanan had moved to Blacksburg from Charlottesville some years earlier with the Centre for Study of Public Choice that he had founded. The Centre came to be housed at the President’s House of Virginia Tech (presumably the University President himself had another residence).

I was initially a Visiting Research Associate at the Centre and at the same time a Visiting Assistant Professor in the Economics Department. I was very kindly given a magnificent office at the Centre, on the upper floor, perhaps the one on the upper right hand side in the picture. It was undoubtedly the finest room I have ever had as an office. I may have had it for a whole year, either 1980-81 or 1981-82. When Professor Buchanan and the Centre left for George Mason University in 1983, the mansion returned to being the University President’s House and my old office presumably became a fine bedroom again.

I spent the summer of 1983 at a long libertarian conference in the Palo Alto/Menlo Park area in California. This is a photo from a barbecue during the conference with Professor Jean Baechler from France on the left; Leonard Liggio, who (along with Walter Grinder) had organised the conference, is at the right.

The first draft of the book that became Philosophy of Economics was written (in long hand) during that summer of 1983 in Palo Alto/Menlo Park. The initial title was “Principia Economica”, and the initial contracted publisher, the University of Chicago Press, had that title on the contract.

My principal supporter at the University of Chicago was that great American Theodore W. Schultz, then aged 81,

to whom the Press had initially sent the manuscript for review and who had recommended its prompt publication. Professor Schultz later told me to my face better what my book was about than I had realised myself, namely, it was about economics as knowledge, the epistemology of economics.

My parents came from India to visit me in California, and here we are at Yosemite.

Also to visit were Mr and Mrs Willis C Armstrong, our family friends who had known me from infancy. This is a photo of Bill and my mother on the left, and Louise and myself on the right, taken perhaps by my father. In the third week of January 1991, during the first Gulf War, Bill and I (acting on behalf of Rajiv Gandhi) came to form an extremely tenuous bridge between the US Administration and Saddam Hussain for about 24 hours, in an attempt to get a withdrawal of Iraq from Kuwait without further loss of life. In December 1991 I gave the widow of Rajiv Gandhi a small tape containing my long-distance phone conversations from America with Rajiv during that episode.

I had driven with my sheltie puppy from Blacksburg to Palo Alto — through Tennessee, Arkansas, Oklahoma, Texas, New Mexico and Arizona; my parents and I now drove with him back to Blacksburg from California, through Nevada, Arizona, Colorado, Kansas, Missouri, Illinois, Indiana, Kentucky, West Virginia. It may be a necessary though not sufficient condition to drive across America (or any other country) in order to understand it.

After a few days, we drove to New York via Pennsylvania where I became Visiting Assistant Professor in the Cornell Economics Department (on leave from being Assistant Professor at Virginia Tech). The few months at Cornell were noteworthy for the many long sessions I spent with Max Black. I shall add more about that here in due course. My parents returned to India (via Greece where my sister was) in the Autumn of 1983.

In May 1984, Indira Gandhi ruled in Delhi, and the ghost of Brezhnev was still fresh in Moscow. The era of Margaret Thatcher in Britain and Ronald Reagan in America was at its height. Pricing, Planning & Politics: A Study of Economic Distortions in India emerging from my doctoral thesis though written in Blacksburg and Ithaca in 1982-1983, came to be published by London’s Institute of Economic Affairs on May 29 as Occasional Paper No. 69, ISBN: 0-255 36169-6; its text is reproduced elsewhere here.

It was the first critique after BR Shenoy of India’s Sovietesque economics since Jawaharlal Nehru’s time. The Times, London’s most eminent paper at the time, wrote its lead editorial comment about it on the day it was published, May 29 1984.

londonti

It used to take several days for the library at Virginia Tech in Blacksburg to receive its copy of The Times of London and other British newspapers. I had not been told of the date of publication and did not know of what had happened in London on May 29 until perhaps June 2 — when a friend, Vasant Dave of a children’s charity, who was on campus, phoned me and congratulated me for being featured in The Times which he had just read in the University Library. “You mean they’ve reviewed it?” I asked him, “No, it’s the lead editorial.” “What?” I exclaimed. There was worse. Vasant was very soft-spoken and said “Yes, it’s titled ‘India’s Bad Example’” — which I misheard on the phone as “India’s Mad Example” 😀 Drat! I thought (or words to that effect), they must have lambasted me, as I rushed down to the Library to take a look.

The Times had said

“When Mr. Dennis Healey in the Commons recently stated that Hongkong, with one per cent of the population of India has twice India’s trade, he was making an important point about Hongkong but an equally important point about India. If Hongkong with one per cent of its population and less than 0.03 per cert of India’s land area (without even water as a natural resource) can so outpace India, there must be something terribly wrong with the way Indian governments have managed their affairs, and there is. A paper by an Indian economist published today (Pricing, Planning and Politics: A Study of Economic Distortions in India by Subroto Roy, IEA £1.80) shows how Asia’s largest democracy is gradually being stifled by the imposition of economic policies whose woeful effect and rhetorical unreality find their echo all over the Third World. As with many of Britain’s former imperial possessions, the rot set in long before independence. But as with most of the other former dependencies, the instrument of economic regulation and bureaucratic control set up by the British has been used decisively and expansively to consolidate a statist regime which inhibits free enterprise, minimizes economic success and consolidates the power of government in all spheres of the economy. We hear little of this side of things when India rattles the borrowing bowl or denigrates her creditors for want of further munificence. How could Indian officials explain their poor performance relative to Hongkong? Dr Roy has the answers for them. He lists the causes as a large and heavily subsidized public sector, labyrinthine control over private enterprise, forcibly depressed agricultural prices, massive import substitution, government monopoly of foreign exchange transactions, artificially overvalued currency and the extensive politicization of the labour market, not to mention the corruption which is an inevitable side effect of an economy which depends on the arbitrament of bureaucrats. The first Indian government under Nehru took its cue from Nehru’s admiration of the Soviet economy, which led him to believe that the only policy for India was socialism in which there would be “no private property except in a restricted sense and the replacement of the private profit system by a higher ideal of cooperative service.” Consequently, the Indian government has now either a full monopoly or is one of a few oligipolists in banking, insurance, railways, airlines, cement, steel, chemicals, fertilizers, ship-building, breweries, telephones and wrist-watches. No businessman can expand his operation while there is any surplus capacity anywhere in that sector. He needs government approval to modernize, alter his price-structure, or change his labour shift. It is not surprising that a recent study of those developing countries which account for most manufactured exports from the Third World shows that India’s share fell from 65 percent in 1953 to 10 per cent in 1973; nor, with the numerous restrictions on inter-state movement of grains, that India has over the years suffered more from an inability to cope with famine than during the Raj when famine drill was centrally organized and skillfully executed without restriction. Nehru’s attraction for the Soviet model has been inherited by his daughter, Mrs. Gandhi. Her policies have clearly positioned India more towards the Soviet Union than the West. The consequences of this, as Dr Roy states, is that a bias can be seen in “the antipathy and pessimism towards market institutions found among the urban public, and sympathy and optimism to be found for collectivist or statist ones.” All that India has to show for it is the delivery of thousands of tanks in exchange for bartered goods, and the erection of steel mills and other heavy industry which help to perpetuate the unfortunate obsession with industrial performance at the expense of agricultural growth and the relief of rural poverty.”…..

I felt this may have been intended to be laudatory but it was also inaccurate and had to be corrected. I replied dated June 4 which The Times published in their edition of June 16 1984:

timesletter-11

I was 29 when Pricing, Planning and Politics was published, I am 54 now. I do not agree with everything I said in it and find the tone a little puffed up as young men tend to be; it was also five years before my main “theoretical” work Philosophy of Economics would be published. My experience of life in the years since has also made me far less sanguine both about human nature and about America than I was then. But I am glad to find I am not embarrassed by what I said then, indeed I am pleased I said what I did in favour of classical liberalism and against statism and totalitarianism well before it became popular to do so after the Berlin Wall fell. (In India as elsewhere, former communist apparatchiks and fellow-travellers became pseudo-liberals overnight.)

The editorial itself may have been due to a conversation between Peter Bauer and William Rees-Mogg, so I later heard. The work sold 700 copies in its first month, a record for the publisher. The wife of one prominent Indian bureaucrat told me in Delhi in December 1988 it had affected her husband’s thinking drastically. A senior public finance economist told me he had been deputed at the Finance Ministry when the editorial appeared, and the Indian High Commission in London had urgently sent a copy of the editorial to the Ministry where it caused a stir. An IMF official told me years later that he saw the editorial on board a flight to India from the USA on the same day, and stopped in London to make a trip to the LSE’s bookshop to purchase a copy. Professor Jagdish Bhagwati of Columbia University had been a critic of aspects of Indian policy; he received a copy of the monograph in draft just before it was published and was kind enough to write I had “done an excellent job of setting out the problems afflicting our economic policies, unfortunately government-made problems!” My great professor at Cambridge, Frank Hahn, would be kind enough to say that he thought my “critique of Development Economics was powerful not only on methodological but also on economic theory grounds” — something that has been a source of delight to me.

Siddhartha Shankar Ray told me when we first met that he had been in London when the editorial appeared and had seen it there; it affected his decision to introduce me to Rajiv Gandhi as warmly as he came to do a half dozen years later.

In the Autumn of 1984, I went, thanks to Edwin Feulner Jr of the Heritage Foundation, to attend the Mont Pelerin Society Meetings being held at Cambridge (on “parole” from the US immigration authorities as my “green card” was being processed at the time). There I met for the first time Professor and Mrs Milton Friedman.

Milton Friedman’s November 1955 memorandum to the Government of India is referred to in my monograph as “unpublished” in note 1; when I met Milton and Rose, I gave them a copy of my monograph; and requested Milton for his unpublished document; when he returned to Stanford he sent to me in Blacksburg his original 1955-56 documents on Indian planning. I published the 1955 document for the first time in May 1989 during the University of Hawaii perestroika-for-India project I was then leading, it appeared later in the 1992 volume Foundations of India’s Political Economy: Towards an Agenda for the 1990s, edited by myself and WE James. (The results of the Hawaii project reached Rajiv Gandhi through my hand in September 1990, as told elsewhere here in “Rajiv Gandhi and the Origins of India’s 1991 Economic Reform”.) The 1956 document was published in November 2006 on the front page of The Statesman, the same day my obituary of Milton appeared in the inside pages.

Meanwhile, my main work within economic theory, the “Principia Economica” manuscript, was being read by the University of Chicago Press’s five or six anonymous referees. One of them pointed out my argument had been anticipated years earlier in the work of MIT’s Sidney Stuart Alexander. I had no idea of this and was surprised; of course I knew Professor Alexander’s work in balance of payments theory but not in this field. I went to visit Professor Alexander in Boston, where this photo came to be taken perhaps in late 1984:

Professor Alexander was extremely gracious, and immediately declared with great generosity that it was clear to him my arguments in “Principia Economica” had been developed entirely independently of his work. He had come at the problem from an American philosophical tradition of Dewey, I had done so from a British tradition of Wittgenstein. (CS Peirce was probably the bridge between the two.) He and I had arrived at some similar conclusions but we had done so completely independently.

Also, I was much honoured by this letter of May 1 1984 sent to Blacksburg by Professor Sir John Hicks (1904-1989), among the greatest of 20th Century economists at the time, where he acknowledged his departure in later life from the position he had taken in 1934 and 1939 on the foundations of demand theory.

He later sent me a copy of his Wealth and Welfare: Collected Essays on Economic Theory, Vol. I, MIT Press 1981, as a gift. The context of our correspondence had to do with my criticism of the young Hicks and support for the ghost of Alfred Marshall in an article “Considerations on Utility, Benevolence and Taxation” I was publishing in the journal History of Political Economy published then at Duke University. In Philosophy of Economics, I would come to say about Hicks’s letter to me “It may be a sign of the times that economists, great and small, rarely if ever disclaim their past opinions; it is therefore an especially splendid example to have a great economist like Hicks doing so in this matter.” It was reminiscent of Gottlob Frege’s response to Russell’s paradox; Philosophy of Economics described Frege’s “Letter to Russell”, 1902 (Heijenoort, From Frege to Gödel, pp. 126-128) as “a document which must remain one of the most noble in all of modern scholarship; a fact recorded in Russell’s letter to Heijenoort.”

In Blacksburg, by the Summer and Fall of 1984 I was under attack following the arrival of what I considered “a gang of inert game theorists” — my theoretical manuscript had blown a permanent hole through what passes by the name of “social choice theory”, and they did not like it. Nor did they like the fact that I seemed to them to be a “conservative”/classical liberal Indian and my applied work on India’s economy seemed to their academic agenda an irrelevance. This is myself at the height of that attack in January 1985:

Professor Schultz at the University of Chicago came to my rescue and at his recommendation I was appointed Visiting Associate Professor in the Economics Department at Brigham Young University in Provo, Utah.

I declined, without thanks, the offer of another year at Virginia Tech.

On my last day in Blacksburg, a graduate student whom I had helped when she had been assaulted by a senior professor, cooked a meal before I started the drive West across the country. This is a photo from that meal:

In Provo, I gratefully found refuge at the excellent Economics Department led at the time by Professor Larry Wimmer.

It was at Provo that I first had a personal computer on my desk (an IBM as may be seen) and what a delight that was (no matter the noises that it made). I recall being struck by the fact a colleague possessed the incredible luxury of a portable personal computer (no one else did) which he could take home with him. It looked like an enormous briefcase but was apparently the technology-leader at the time. (Laptops seem not to have been invented as of 1985).

In October 1985, Professor Frank Hahn very kindly wrote to Larry Wimmer revising his 1980 opinion of my work now that the PhD was done, the India-work had led to The Times editorial and the theoretical work was proceeding well.

I had applied for a permanent position at the University of Hawaii, Manoa, and had been interviewed positively at the American Economic Association meetings (in New York) in December 1985 by the department chairman Professor Fred C. Hung. At Provo, Dr James Moncur of the Manoa Department was visiting. Jim became a friend and recommended me to his colleagues in Manoa.

Professor Hung appointed me to that department as a “senior” Assistant Professor on tenure-track beginning September 1986. I had bargained for a rank of “Associate Professor” but was told the advertisement did not allow it; instead I was assured of being an early candidate for promotion and tenure subject to my book “Principia Economica” being accepted for publication. (The contract with the University of Chicago Press had become frayed.)

Hawaii was simply a superb place (though expensive).

Professor James Buchanan won the Economics “Nobel” in 1986 and I was asked by the Manoa Department to help raise its profile by inviting him to deliver a set of lectures, which he did excellently well in March 1988 to the University as well as the Honolulu community at large. Here he is at my 850 sq ft small condominium at Punahou Towers, 1621 Dole Street:

In August 1988, my manuscript “Principia Economica” was finally accepted for publication by Routledge of London and New York under the title Philosophy of Economics: On the Scope of Reason In Economic Inquiry. The contract with University of Chicago Press had fallen through and the manuscript was being read by Yale University Press and a few others but Routledge came through with the first concrete offer. I was delighted and these photos were taken in the Economics Department at Manoa by a colleague in September 1988 as the publisher needed them.

Milton and Rose Friedman came to Honolulu on a private holiday perhaps in January 1989; they had years earlier spent a sabbatical year at the Department.

Here is a luncheon that was arranged in their honour. They had in the Fall of 1988 been on their famous visit to China, and as I recall that was the main subject of discussion on the occasion.

Milton phoned me in my Manoa office and invited me to meet him and Rose at their hotel for a chat; we had met first at the 1984 Mont Pelerin meetings and he wished to know me better. I was honoured and turned up dutifully and we talked for perhaps an hour. I recall making a strong recommendation that he write his memoirs, especially so that the rumours and innuendo surrounding eg the Chile episode could be cleared up; I also said a “Collected Works” would be a great idea; when Milton and Rose published their memoirs Two Lucky People (Chicago 1998) I wondered if my first suggestion had come to be taken; as to the second, he wrote to me years later saying he felt no Collected Works were necessary.

From 1986 onwards, I had been requested by the University of Hawaii to lead a project with William E James on the political economy of “South Asia” .I had said there was no such place, that “South Asia” was a US State Department abstraction but there were India and Pakistan and Sri Lanka and Bangladesh and Afghanistan etc. Sister projects on India and Pakistan had been sponsored by the University, and in 1989 important conferences had been planned by myself and James in May for India and in June for Pakistan.

I was determined to publish for the first time Milton’s 1955 memorandum on India which the Government of India had suppressed or ignored at the time. At the hotel-meeting, I told Milton that and requested him to come to the India-conference in May; Milton and Rose said they would think about it, and later confirmed he would come for the first two days.

This is a photo of the initial luncheon at the home of the University President on May 21 1989. Milton and India’s Ambassador to the USA at the time were both garlanded with Hawaiian leis. The first photo was one of a joke from Milton as I recall which had everyone laughing.

There was no equivalent photo of the distinguished scholars who gathered for the Pakistan conference a month later.

The reason was that from February 1989 onwards I had become the victim of a most vicious racist defamation, engineered within the Economics Department at Manoa by a senior professor as a way to derail me before my expected Promotion and Tenure application in the Fall. All my extra time went to battling that though somehow I managed to teach some monetary economics well enough in 1989-1990 for a Japanese student to insist on being photographed with me and the book we had studied.

I was being seen by two or three temporarily powerful characters on the Manoa campus as an Uppity Indian who must be brought down. This time I decided to fight back — and what a saga came to unfold! It took me into the United States District Court for the District of Hawaii and then the Ninth Circuit and upto the United States Supreme Court, not once but twice.

Milton Friedman and Theodore Schultz stood valiantly among my witnesses — first writing to the University’s authorities and later deposing in federal court.

Unfortunately, government lawyers, far from wanting to uphold and respect the laws of the United States, chose to deliberately violate them — compromising a judge, suborning demonstrable perjury and then brazenly purchasing my hired attorney (and getting caught doing it). Since September 2007, the State of Hawaii’s attorneys have been invited by me to return to the federal court and apologise for their unlawful behaviour as they are required by law to do.

They had not expected me to survive their illegalities but I did: I kept going.

Philosophy of Economics was published in London and New York in September 1989

The hardback quickly sold out on its own steam and the book went into paperback in 1991, and I was delighted to learn from a friend that it had been prescribed for a course at Yale Law School and was strewn along an alley in the bookshop:

The sister-volumes on India and Pakistan emerging from the University of Hawaii project led by myself and James were published in 1992 and 1993 in India, Pakistan, Britain and the United States.

As described elsewhere, the manuscript of the India-volume contributed to the origins of India’s 1991 economic reform during my encounter with Rajiv Gandhi in his last months; the Pakistan-volume came to contribute to the origins of the Pakistan-India peace process. The Indian publisher who had promised paperback volumes of both books reneged under leftwing pressure in Delhi; he has since passed away and James and I still await the University of Hawaii’s permission to publish both volumes freely on the Internet as copyright rests with the University President.

In 2004 from Britain, I wrote to the 9/11 Commission stating that it was possible that had the vicious illegalities against me not occurred at Manoa starting in 1989, we may have gone on after India and Pakistan to study Afghanistan, and come up with a pre-emptive academic analysis a decade before September 11 2001.

To be continued in Part Two.

Posted in Academic freedom, American academia, Aristotle, Asia and the West, BR Shenoy, BYU, Cambridge Univ Economics, Cambridge University, Cornell University, Economic Policy, Economic Theory, Epistemology of Economics, Ethics, FA Hayek, Frank Hahn, Fraud on the Court, India's 1991 Economic Reform, India's Economic History, India's Economy, India-Pakistan peace process, Institute of Economic Affairs, Introduction and Contents, Iraq war, James M Buchanan, Knowledge and Scepticism, Law, London School of Economics, Max Black, Milton Friedman, Pakistan's economy, Perjury & Bribery in US Federal Court, Philosophy, Philosophy of Economics, Racism, Rajiv Gandhi, Roy vs University of Hawaii, September 11 attacks, Sidney Stuart Alexander, Theodore W Schultz, University of Chicago, University of Hawaii, US Court of Appeals for Ninth Circuit, US District Court District of Hawaii, US Supreme Court, USA Rule of Law, Virgnia Tech. 1 Comment »

“A Dialogue in Macroeconomics” 1989 etc: sundry thoughts on US economic policy discourse

January 30, 2009 — drsubrotoroy

I have said here recently that some of the wisest advice President Obama or any leader anywhere can receive is that contained in Oliver Cromwell’s famous words “Think it possible you may be mistaken”.

This seems especially significant in context of new American macroeconomic and financial policies. Mr Steve Clemons reports today there may be less intellectual diversity in the new President’s economic team than is possible or desirable; if so, conversation may become stifled and a greater propensity towards groupthink may arise, hence a greater likelihood of mistakes.

It is possible the directions that different people might like to see the conversation extended are different, and that would be a good sign of course! For example, someone might think a Barro or a Mishkin could be the right addition of intellectual diversity, whereas others might suppose that to be the wrong direction towards more “market fundamentalism”. But it would be a pity if the economic conversation within the new Administration came to be artificially or ideologically circumscribed in any direction.

Certainly I believe macroeconomic policy-discourse in the United States or elsewhere needs to proceed to a recognition of the existence of JM Keynes’s original concept of “involuntary unemployment” as well as to ask whether the actual unemployment happens to be or not be of this sort. (It may be “frictional” or “structural” or “voluntary” or “seasonal” etc, not the involuntary unemployment Keynes had meant.) Furthermore, even if significant involuntary unemployment is identified, it needs to be asked whether government policy can be expected to improve or worsen outcomes. The argument must be made either way, and, in John Wisdom’s phrase, “Argument must be heard”.

“A Dialogue in Macroeconomics” which was Chapter 8 of my 1989 book Philosophy of Economics (Routledge, Library of Congress HB 72.R69) may provide some useful ballast. The saga that followed the book’s publication left me unable to write about the US economy anymore, except briefly in 1992 and 1994-95 in Washington and New York, read only by a few friends. Now in late 2008, I have published “October 1929? Not!” and “America’s divided economists” which may be of interest too, and which are republished below as well.

I have also added a couple of sundry points from an international perspective that I pointed to last September-October, namely

(i) foreign central banks might have been left holding more bad US debt than might be remembered, and dollar depreciation and an American inflation seem to be inevitable over the next several years;

(ii) all those bad mortgages and foreclosures could vanish within a year or two by playing the demographic card and inviting in a few million new immigrants into the United States; restoring a worldwide idea of an American dream fueled by mass immigration may be the surest way for the American economy to restore itself.

Subroto Roy

from Philosophy of Economics Routledge 1989

“Chapter 8.
A Dialogue in Macroeconomics

OUR next example is of quite a different sort, namely, the academic debate which has occurred in macroeconomics and monetary theory since Keynes’s General Theory of Employment, Interest and Money. This has of course received a great amount of attention, with innumerable commentaries having been written by many scores of protagonists and moderators around the world. Only a brief and highly simplified summary of these many conversations can be attempted here, within our limited objective of illustrating once more how it may be possible for critical discussion to be seen to proceed freely and yet objectively in economics. In the previous chapter we were fortunate to have had an actual conversation to consider; here our method shall have to be one of constructing a model of a conversation. In honour of Plato, we might name our conversants Athenian and Stranger.

ATHENIAN Tell me, have you perhaps been following the discussions among macroeconomists? I shall be interested to know what you take their present state to be.

STRANGER Indeed I have, though of course it is not possible or worthwhile to follow all of what has been said. But yes I have followed some of it, and certainly we can make it a topic of conversation.

ATHENIAN Please begin.

STRANGER Very well. Shall we do so in ‘36 with the publication of Keynes’s book? Rightly or wrongly, this must be considered a watershed in the history of modern economics, if only because most economists since have had either to admit its arguments in some measure or define and explain their disagreement. You’ll remember at one time it was said by many that Keynes had fathered a revolution in economic science.

ATHENIAN Except Chicago and the Austrians.

STRANGER Quite so. Now more recently a renewal of neoclassical thought has been under way, and many doubts have been raised about the keynesian consensus, so much so that some of the main questions of the thirties seem in modern form to continue to be at issue today.

ATHENIAN The more things change, the more they stay the same! But when you say Keynes has been a central figure, I take it you mean only that he has been among the most influential and most discussed and nothing more. It is not to preclude judgement on the merits of his book, which is itself of very uneven clarity. Besides there has been too much idolatry and hagiography.

STRANGER Yes, there is so often a rush to belief and worship. There may have been less if Keynes had survived longer. Yet I should say the broad aim of the work is not hard to see. Keynes himself clearly believes that he is starting a revolution — going so far as to suggest a comparison with contemporary physics. The first chapter says the book aims to provide a “general” theory, which will explain the traditional model as a “limiting” case. The second chapter says the theory of value has been hitherto concerned with the allocation of given resources between competing ends; Keynes is going to explain how the actual level of employment comes to be what it is.

ATHENIAN And so begs the question?

STRANGER Or does traditional theory? That seems to be at the heart of it.

ATHENIAN Go on.

STRANGER The theory will be of the short run in Marshall’s sense of taking capital as a fixed factor. Traditional theory is said to postulate about the labour market (i) that the real wage equals the marginal product of labour, so there is an assumption of profit maximization by competitive producers giving rise to a short run demand curve for labour; and (ii) that the utility of the wage at a given level of employment equals the marginal disutility of that amount of employment; i.e., the real wage is just sufficient to induce the volume of labour which is actually forthcoming. So it can account for unemployment due to temporary miscalculations, or intermittent demand, or the refusal or inability of labour to accept a job at a given wage due to legislation or social practices or collective bargaining or obstinacy, or merely a rational choice of leisure — i.e., it can account for frictional and voluntary unemployment but not for what Keynes wants to call involuntary unemployment. What it can suggest is either such things as improvements in foresight, information, organization and productivity, or a lowering of the real wage. But Keynes’s critique will not have to do with such causes of the contemporary unemployment; instead the population is said to be seldom “doing as much work as it would like to do on the basis of the current wage…. More labour would, as a rule, be forthcoming at the existing money wage if it were demanded.” But it is not being demanded, and it is not being demanded because there has been a shortfall of “effective demand”. That is why there is as much unemployment as there is.

ATHENIAN Or so Keynes claims. And he would take it the neoclassical view would be that it must be the real wage is too high; it is only because the real wage has not fallen by enough that unemployment continues.

STRANGER Right. To which there are two observations. The first has to do with the actual attitude of workers towards the money wage and the real wage respectively. The traditional supply function of labour is a function of the latter; Keynes claims that at least within a certain range it must be workers are concerned more with the former.

ATHENIAN How so?

STRANGER By the interesting and perhaps plausible claim that workers are found to withdraw labour if the money wage falls but do not seem to do the same if the price level rises. A real wage reduction caused by a fall in the money wage and the same real wage reduction caused by an increase in prices seem to have different effects on labour supply. “Whether logical or illogical, experience shows that this is how labour in fact behaves.” And he cites U. S. data for ‘32 to say labour did not refuse reductions in the money wage nor did the physical productivity of labour fall yet the real wage fell and unemployment continued. “Labour is not more truculent in the depression than in the boom — far from it.”

ATHENIAN And the second observation?

STRANGER This may be of more interest. “Classical theory assumes that it is always open to labour to reduce its real wage by accepting a reduction in its money wage… [it] presumes that labour itself is in a position to decide the real wage for which it works…” Keynes does not find a traditional explanation why prices tend to follow wages, and suggests it could be because the price level is being supposed to be determined by the money supply according to the quantity theory. Keynes wants to dispute the proposition “that the general level of real wages is directly determined by the character of the wage bargain…. For there may be no method available to labour as a whole whereby…. [it] can reduce its real wage to a given figure by making revised money bargains with the entrepreneurs.” Hence he arrives at his central definition of involuntary unemployment: if the real wage falls marginally as a consequence of the price level rising with the money wage constant, and there is greater employment demanded and supplied in consequence, the initial state was one of involuntary unemployment.

ATHENIAN You are saying then that Keynes’s intent is to establish the existence of involuntary unemployment?

STRANGER At least a major part of the intent yes. To make the concept meaningful, to argue that it refers to a logical possibility, and also that much of the actual unemployment of the time may be falling under it, and is a result of lack of “effective demand”.

ATHENIAN The neoclassicals have been said to be cavalier about fluctuations in economic activity, when in fact Wicksell and Marshall and Thornton, let alone Hawtrey or Hayek as Keynes’s own critics, certainly had profound enough theories of the cycle. Before we go further, I think we should remind ourselves of what they actually said.

STRANGER Very well.

ATHENIAN Would you agree that can be summarized, then as now, as the quantity theory of money married to the theory of general equilibrium?

STRANGER Though it may be better to speak of divorce perhaps rather than marriage, in view of the dichotomy.

ATHENIAN From Smith to Mill, political economists broadly agree the role of government should extend and be restricted to such activities as defence, civil protection, the rule of law, the provision of public goods, education, the encouragement of competition, and so on. The traditional agenda does not as a rule include direct activity to restrain or otherwise change the natural course of trade, production, or consumption, and certainly no theory of what today is called macroeconomic policy. Underlying it is a broad belief that the competitive pursuit of private welfare within the necessary and minimal framework of the institutions of government, will result in tolerable social outcomes, and any further activity may be counterproductive. The State is after all endogenous to the economy, without any resources to its own name.

STRANGER The minimal state, though not so minimal perhaps as we sometimes think.

ATHENIAN The main function of money is seen to be that of facilitating real transactions. Hence the main component of the demand for money is the transactions demand, and the broad objective of monetary policy is the maintenance of the stability of the price of money. But this is recognized to be something elusive in practice, and fluctuations in economic activity are expected to occur in spite of the best intentions of the monetary authorities.

STRANGER How so?

ATHENIAN Well we might imagine two or three distinct but related markets: one for real investment and savings determined by intertemporal preferences, resources, and technologies; one a market for investment and savings defined in terms of money; one a short term credit market. The market for real investment and savings is, as it were, unobservable to the naked eye. Yet it drives the second and third markets for nominal savings and investment in which we actually participate. Monetary equilibrium requires the observable money rates of interest to equal the unobservable real rate of return on the market for physical capital. In particular, the real or natural rate of interest determined in the equilibrium of the first market is not, and perhaps ultimately cannot be, affected by nominal or monetary disturbances in the second or third markets.

STRANGER Why call it “natural”?

ATHENIAN In the sense it is a function of the real data of intertemporal preferences, resources, and technologies being what they are. If these data changed it should be expected to change too. But given these data, it would be the rate at which intertemporal constrained maximizations by individual agents resulted in planned present consumption equaling planned present production at the same time as planned future consumption equaled planned future production.

STRANGER In other words, real planned savings equal real planned investment.

ATHENIAN Exactly. It is the real interest rate, or rather the whole structure of own-rates and cross-rates at various terms, which is the key price signal for macroeconomic equilibrium.

STRANGER “Natural” seems to me to carry a physiocratic connotation. A better nomenclature would replace it with something else — perhaps “equilibrium real rate” or just “walrasian” rate.

ATHENIAN Very well, though I for one do not bias myself against the physiocrats! Now consider how a simple business cycle might occur on wicksellian lines. From a position of full real and monetary equilibrium, an expansion of credit has its first effect on the banks, increasing reserves and inducing more lending for reserve/deposit ratios to be restored, and so lowering the loan rate. But customers are only able to perceive a lowering of this nominal rate of interest and cannot know the equilibrium real rate has not changed. As far as households know, the relative price of present consumption has fallen and there is an incentive for greater consumption and lesser savings. As far as businesses know, the relative price of the future good has risen, and there is an incentive for greater investment. Inventories are run down, and markets for both consumer goods and capital goods are stimulated and show signs of excess demand. But if there was a walrasian equilibrium initially, then the economy will now show signs of inflation; with a gold standard, there would be increased demand for imports and an external drain of reserves, and even perhaps an internal drain if there was a panic and a run on the banks. The loan rate will have to rise once more to reign in reserves, but if the rate is now raised too high relative to the still unchanged real rate, there would be the makings of a recession.

STRANGER Your point being that economists before Keynes had recognized the decentralized economy may be fluctuating continually.

ATHENIAN Surely they had done so quite fully. A first set of causes such as wars, disasters, discoveries and migrations would change the real data of the economy, while a second set would be monetary disturbances like the failure of the authorities to adequately follow the dictates of the real data of the economy, i.e., failure to observe the equilibrium real rate of interest. It may even be intrinsic to the problem that they must fail in the attempt to observe, let aside compute, the equilibrium real rate warranted at a given time by the structure of the real data.

STRANGER Hence the conclusion that they cannot hope to do better than establish a climate of monetary and fiscal stability, such as by declaring a long term policy and staying with it.

ATHENIAN Exactly. Private economic agents already face endemic uncertainty with respect to changes in the real data, and must be assumed to not want more added by government policy. You appear to have seen my point nicely.

STRANGER Very well. But you have jumped ahead as this kind of a conclusion sounds very modern to me. You made me stop all the way back at Keynes’s notion of effective demand!

ATHENIAN As I said, the more things change, the more they stay the same.

STRANGER Let us go back a little. I think we may be able to rejoin our initial route at a point which may bring us close to where we seem to have come by the route you have taken. Specifically suppose we go back to the question of the money wage and the real wage, and of the real wage being “too high”.

ATHENIAN That has been interpreted a number of ways, has it not?

STRANGER Yes it has. One would be to say Keynes was merely simple minded and assumed money illusion on the part of workers. Another would be to say Keynes assumed a short run context of fixed prices, so it would not make a difference whether labour happened to be concerned with changes in the real or the money wage. Yet a third would be to say Keynes, whether he realized it or not, had come upon a recondite truth about the sort of complex monetary economy in which we live — namely, that when transactions are quoted and made in a monetary economy, it may become difficult ipso facto for the walrasian equilibrium to be achieved. Even workers might fully recognize the real wage to be too high and be prepared to work more at a lower wage, but be unable to signal this willingness to potential employers.

ATHENIAN So involuntary unemployment becomes another sort of equilibrium outcome.

STRANGER Exactly. Not only of labour but of machines too, along with the unintended holding of inventories. It is as if firms would have sold what they had planned to if only workers had the income to buy it, which they would have done if only they had been able to sell as much labour they had planned to, which they would have done if only there had been an effective demand for it, which there would have been if firms had not cut back on production because they found themselves unable to sell what they had planned to sell. A kind of vicious circle, due to pessimistic and self-fulfilling expectations all around.

ATHENIAN An unhappy solution to a non-cooperative game you might say.

STRANGER Quite so. Keynes does not deny there may be a monetary route out of the impasse. A wage deflation would eventually lead to price deflation, raising the real value of money holdings, so via liquidity preference lead to an increased demand for bonds, raising their price and lowering money interest rates, which through the investment function would lead eventually to increased effective demand. But the fiscal route may be more direct and quicker in its effect on expectations. Trying to deflate across the board in the face of what seem to be excess supplies of goods and labour might be counterproductive, causing unexpected transfers from debtors to creditors and precipitating bankruptcies. Instead: “Government investment will break the vicious circle. If you can do that for a couple of years, it will have the effect, if my diagnosis is right, of restoring business profits more nearly to normal, and if that can be achieved then private enterprise will be revived. I believe you have first of all to do something to restore profits and then rely on private enterprise to carry the thing along….”

ATHENIAN A shot in the arm for enterprise in the hope of breaking the pessimism. But Keynes was hardly alone in such thinking.

STRANGER Quite true.

ATHENIAN And he certainly seemed to treat the opinions of others without due respect, which is to say he may have exaggerated the significance of his own. Hinting that he was the Einstein of economics set an especially bad example. Only the other day one eminence was comparing himself to Newton, and another was calling his friend Shakespeare. It will be Joyce and Pasternak next!

STRANGER Flattery and nepotism are common weaknesses, my friend. Like the rush to belief and worship.

ATHENIAN Besides you would have to assume the government to be outside the game, and only so being able to see the problem which private agents could not from inside the game. That may be too large an assumption, don’t you think?

STRANGER Yes it may. Yet it seems to me pump-priming was a possible solution being offered to a temporary problem. Many of the controversies may have come about because it became institutionalized, because discretionary fiscal policy became a permanent part of the government agenda.

ATHENIAN And a more direct route out was available too, was it not? With wealth placed in the consumption function directly, a deflation would increase the real value and affect effective demand directly. We would not have to wait for the roundabout effects through so-called liquidity preference.

STRANGER Which in a way brings us back to a central pillar of traditional theory: with given real data and given velocity of circulation, desired holding of real money balances will roughly be constant. In particular the demand for real money balances should not be seen as a function of the interest rate.

ATHENIAN The real rate or the monetary rate?

STRANGER For neoclassicals certainly the real; Keynes does not seem clear.

ATHENIAN There may lie a problem.

STRANGER The title of the book says “Employment, Interest, and Money”. No question employment is real and money is money — interest is the bridge. If you ask me to bet I would say Keynes’s agents make real responses to signals expressed as they must be in a large economy in monetary terms.

ATHENIAN Perhaps we ought to move on. Tell me, if you think Keynes’s book rightly or wrongly ranks as the most influential document of the last fifty years, would you agree it is Friedman’s address on the role of monetary policy which must rank second to it if not on a par with it?

STRANGER Certainly there can be few competitors.

ATHENIAN Well then, it appears to me the net effect of Friedman’s critique has been a restoration of the wicksellian theory and a banishment of the keynesian theory.

STRANGER Friedman of course makes his approach via a critique of the Phillips’ Curve.

ATHENIAN Yes, but it is Wicksell whom he acknowledges in advancing the notion of a natural rate of unemployment, one which has been “ground out by the walrasian system of general equilibrium equations” — in other words, one which happens to be consistent with the structure of the real data of the economy at a particular time.

STRANGER Though again we may as well speak of walrasian instead of natural.

ATHENIAN A monetary policy which tried to peg unemployment at lower than such a rate (if such a rate could be determined, which it cannot) is likely to be counterproductive. The initial effect of an expansionary policy on a walrasian equilibrium may be to increase real output. Workers assume the increase to reflect an increase in the unobservable real demand for their services, and hence they expect a higher real wage. Businesses see the same and assume it to reflect an increase in the unobservable real demand for their goods. But given there was no real excess demand in the first place for either labour or goods, the effect outside anything but the short run will be a return to the initial structure of real wages, and the temporary decline in unemployment is reversed to the walrasian rate at higher prices. If the government tries to maintain unemployment at less than the walrasian rate, it will have to concede — indeed it will have caused — accelerating inflation without any real fall in unemployment.

STRANGER And vice versa perhaps, so there would be a kind of knife-edge.

ATHENIAN Now your remark about Friedman making his approach via the Phillips Curve seems to me interesting. We may have been too hasty to make a comparison with the debate in the thirties. For the world suffers a very real and severe shock between Keynes’s book and the keynesian consensus, which is the Second World War itself.

STRANGER I am not sure I follow.

ATHENIAN Well think of the consensus afterwards on the need for macroeconomic policy — it is actually Tinbergen’s notion of a “policy-maker” which is married to what seems to be Phillips’s finding of a trade-off between inflation and unemployment. It becomes the role of the macroeconomist to advise the politician on how to minimize social disutility from inflation and unemployment subject to the Phillips Curve. Macroeconomics becomes a so-called “policy science”. Give your expert economist your social utility function, and he will tell you where to slide to on your Phillips Curve.

STRANGER The available instruments being money supply and tax rates. That is what I meant in saying Keynes’s idea became institutionalized.

ATHENIAN It seems to me this consensus is born out of the War.

STRANGER How so?

ATHENIAN Well just think of the structural problems of the time: demobilization of large armies, reconstruction, all the displaced peoples, and so on. What are democratic governments to do? Say to their voters, right, thank you very much, now could you please go home quietly? What could have been expected except an Employment Act? Governments were going to help their returning citizens find work, or at least it would have seemed irresponsible if they had not said they were going to.

STRANGER You are saying then that Friedman may have been arguing against a new orthodoxy, grown out of what might have been a sensible idea.

ATHENIAN Exactly. The world is a very different place now than in 1945, in ‘45 than in ‘33, in ‘33 than in 1914. Real shocks every time. It may be a grave mistake for us to look for a unique and universal theory which is supposed to explain all particular circumstances, all of history.

STRANGER Reminds me of the historical school.

ATHENIAN Why not? Again I hold no prejudice against them! Anyhow, consider that Lucas and others have followed Friedman to argue it is a mistake to formulate the problem as Tinbergen had done, with unemployment as a target in a social utility function along with inflation. If it ought to be assumed that people will not continually make the same mistakes in predicting policy, then a systematic employment policy is going to be discovered quickly enough and rendered either ineffective or counterproductive. This idea too has its origins in Wicksell. Examining an opinion that inflation might stimulate enterprise and free debtors, Wicksell says: “It need only be said that if this fall in the value of money is the result of our own deliberate policy, or indeed can be anticipated and foreseen, then these supposed beneficial effects will never occur, since the approaching rise in prices will be taken into account in all transactions by reasonably intelligent people.”

STRANGER Wicksell said that?

ATHENIAN Precisely that.

STRANGER It does sound very modern.

ATHENIAN Now Lucas speaks of how the advice that economists give should be limited only to “the well understood and empirically substantiated propositions of monetary economics, discouragingly modest as these may be.” What can we take him to mean? It seems to me he is sharing Friedman’s scepticism of the possibilities which had been claimed for macroeconomics by the keynesian consensus. And that surely has been a healthy scepticism, befitting good economists.

STRANGER As I said, there is so often a rush to belief.

ATHENIAN Which is really disastrous when combined with the craving for power.

STRANGER But the question remains, does it not, as to which propositions of monetary economics are to be considered “well understood and empirically substantiated”. I cannot help think the propositions taken to be well understood and empirically substantiated in Chicago may be very different from those taken to be well understood and empirically substantiated in Cambridge, or for that matter, those in the U. S. from those in Europe.

ATHENIAN I don’t see any difficulty in this. For first, it would have been granted there are propositions in economics which can be well understood and empirically substantiated. And that must be counted as progress! For something cannot be well understood if it cannot be understood at all, and where there is the possibility of understanding there must be the possibility of objective knowledge as well. And second, why should we not say the most appropriate task of economic theory or analytical economics is simply one of clarification and elucidation of the conceptual basis of economic thinking and expression? All theory ultimately is, or ought to be, “Critique of Language”. When we are faced with a particular and concrete problematic situation, the theorist is to whom we turn for conceptual guidance and criticism. If instead you take the role of the theorist to be one of searching the universe for grand and general and absolute and abstract truths, which need to be discovered before we can say anything about some concrete set of particulars, then it seems to me you will be either struck dumb by a total and debilitating scepticism or become very shrill in your dogmatism or alternate wildly between the two. To me it seems unimportant ultimately to whose flag one shows allegiance, or indeed that allegiance to any flag must be shown.

STRANGER It seems again I will not disagree. But you have sketched the critique of Friedman and Lucas and indeed the ghost of Wicksell addressed to the dogmas of the keynesian orthodoxy. And I have agreed with you this has been a healthy criticism of the sort we should expect economists to provide. But there has been serious question too of the framework used by Friedman and Lucas, hasn’t there? I am thinking especially of Tobin and Hahn.

ATHENIAN Tobin has done much to add clear and reasonable thinking about Keynes — his suggestion that a certain amount of inflation may be the only way to bring down real wages towards their walrasian rates in complex monetary economics is especially interesting; it shows how wide the common ground can be upon which the debate may occur. But you will have to tell me what Hahn’s criticisms have been. I have always found them too abstract and too caustic.

STRANGER That they tend to be, but don’t let that deter you. As I see it, Hahn argues somewhat as follows. We should grant Friedman and Lucas two important points: first, the government is itself a large economic agent whose actions and announced plans enter the calculations of private agents; secondly, erratic changes in monetary policy away from a steady k% rule may have perverse effects “by confusing signals of relative scarcity with those that arose from the monetary policy”. Also, we may accept that the assumptions sufficient for a full walrasian equilibrium with rational expectations suffice for the absence of any persistent involuntary unemployment by Keynes’s definition. But Hahn would say this may not be the relevant empirical description.

ATHENIAN In what way?

STRANGER Well for one thing the pricing axiom or the recontracting assumption of stability theory remains unexplained. It is possible traders will face quantity constraints, and this often seems so in markets for labour and credit. We may simply find prices not moving in the direction of excess demand even when a quantity constraint happens to be binding. The structure of wages may be “neither fixed, nor arbritrary, nor inflexible; it is what it is because given conjectures, no agent finds it advantageous to change it.” Moreover, it may not be plausible to suppose there will be convergence after arbitrary displacements back towards a stable equilibrium, because the conditions for stability are very stringent and uniqueness of equilibrium may also need to be postulated. Furthermore, it may be quite unsatisfactory to treat money in models which are isomorphic to the Arrow-Debreu model, because in such a world there is no logical use for money, so there must be some essential features of reality which have failed to be features of the model.

ATHENIAN You don’t think Patinkin’s integration was adequate?

STRANGER For many practical purposes perhaps, but certainly not to full logical satisfaction. If you put real money balances into the utility function and treat money just about like any other good, you have to be prepared to accept a possible equilibrium in which the price of money is zero. Lastly, if there are internal debts denominated in money as there are in fact, you may not assume equiproportional changes in all prices will not have real effects, unless you are prepared to assume away redistributions between creditors and debtors, which you can do only under another assumption that all households have parallel and linear Engel curves through the origin. Hahn’s line of argument is admittedly abstract, but you will have to admit it raises some fundamental questions.

ATHENIAN Another example we might say of the healthy scepticism of the theorist. It seems my turn to agree with you. But we can imagine replies too can we not?

STRANGER What do you have in mind?

ATHENIAN Well to argue there can be unemployment which is involuntary is not to have argued that an employment policy can be expected to remove it. This seems a premise and conclusion too frequently confounded by both keynesians and their critics, with disastrous consequences. Then, Buchanan would argue that a more thorough characterization needs to be given of the making of government policy, especially when it is proposed to supplant the market outcome. Policies are after all proposed, enacted, and put into effect by actual people — all of whom may need to be assumed to be pursuing private rewards as well in the course of their public duties. The relevant description for the economist needs to be one including this further fact that actual proposals of public policy can embody the private interests of the proposers too.

STRANGER Making it that much more difficult to determine what is in the public interest in a given case.

ATHENIAN Exactly. And so reinforcing the case for predictability and an orderliness in the framework of government.

STRANGER But we have been talking now for quite long enough my friend. I seem to feel a fear too that we have not gained anything at all in our discussions.

ATHENIAN Don’t be so pessimistic! Surely the point of reconstructing such conversations as we have done is not to hold absolutely to the matters raised in them. You and I after all have been making summary and highly simplified and unauthorized interpretations. I take the point of it to have been clarifying our thoughts, and perhaps to show ourselves how discussion can proceed between economists of different schools of thought. Arguments might come to a halt for any of a number of reasons, but they needn’t be supposed to have any logical or necessary end. Too often we let people retreat into different dogmatic positions, fostering the belief that each is starting from some set of absolute axioms ultimately irreconcilable with those of the other. We may need to keep insisting instead that the pursuit of knowledge and understanding is an open-ended activity with potentially indefinite limits. It yields conclusive results but has no absolute end. You or I might call a halt and retire from it, but that will not mean it cannot or will not continue without us.

STRANGER Perhaps so. But you are younger than I, and I have become tired by all these thrusts and parries. Besides, there has been the enjoyment of conversation itself.”

October 1929? Not! by Subroto Roy / First published in Business Standard September 18, 2008

“Lehman Brothers filing for bankruptcy protection, Merrill Lynch taken over by Bank of America, Fannie Mae and Freddie Mac and now AIG being nationalised by the US Government, Bear Stearns getting a government bailout, many thousands of low-quality loans going bad … Does it all add up to an American financial crisis in the autumn of 2008 comparable to that in the autumn of 1929? Even Alan Greenspan himself has gone on record on TV saying it might.

But there are overriding differences. Most important, the American economy and the world economy are both incomparably larger today in the value of their capital stock, and there has also been enormous technological progress over eight decades. Accordingly, it would take a much vaster event than the present turbulence — say, something like an exchange of multiple nuclear warheads with Russia causing Manhattan and the City of London to be destroyed — before there was a return to something comparable to the 1929 Crash and the Great Depression that followed.

Besides, the roots of the crises are different. What happened back then? In 1922, the Genoa Currency Conference wanted to correct the main defect of the pre-1914 gold standard, which was freezing the price of gold while failing to stabilise the purchasing power of money. From 1922 until about 1927, Benjamin Strong of the Federal Reserve Bank of New York adopted price-stabilisation as the new American policy-objective. Britain was off the gold standard and the USA remained on it. The USA, as a major creditor nation, saw massive gold inflows which, by traditional gold standard principles, would have caused a massive inflation. Governor Strong invented the process of “sterilisation” of those gold inflows instead and thwarted the rise in domestic dollar prices of goods and services.

Strong’s death in 1928 threw the Federal Reserve System into conflict and intellectual confusion. Dollar stabilisation ended as a policy. Surplus bank money was created on the release of gold that had been previously sterilised.

The traditional balance between bulls and bears in the stock-market was upset. Normally, every seller of stock is a bear and every buyer a bull. Now, amateur investors appeared as bulls attracted by the sudden stock price rises, while bears, who sold securities, failed to place their money into deposit and were instead lured into lending it as call money to brokerages who then fuelled these speculative bulls. As of October 22, 1929 about $4 billion was the extent of such speculative lending when Chase National Bank’s customers called in their money.

Chase National had to follow their instructions, as did other New York banks. New York’s Stock Exchange could hardly respond to a demand for $4 billion at a short notice and collapsed. Within a year, production had fallen by 26 per cent, prices by 14 per cent, personal income by 14 per cent, and the Greatest Depression of recorded history was in progress — involuntary unemployment levels in America reaching 25 per cent.

That is not, by any reading, what we have today. Yes, there has been plenty of bad lending, plenty of duping shareholders and workers and plenty of excessive managerial payoffs. It will all take a large toll, and affect markets across the world.

But it will be a toll relative to our plush comfortable modern standards, not those of 1929-1933. In fact, modern decisionmakers have the obvious advantage that they can look back at history and know what is not to be done. The US and the world economy are resilient enough to ride over even the extra uncertainty arising from the ongoing presidential campaign, and then some.”

III

America’s divided economists by Subroto Roy First published in Business Standard October 26, 2008

“Future doctoral theses about the Great Tremor of 2008 will ask how it was that the Fed chief, who was an academic economist, came to back so wholeheartedly the proposals of the investment banker heading the US Treasury. If Herbert Hoover and FDR in the 1930s started something called fiscal policy for the first time, George W Bush’s lameduck year has marked the total subjugation of monetary policy.

In his 1945 classic, History of Banking Theory, the University of Chicago’s Lloyd Mints said: “No reorganisation of the Federal Reserve System, while preserving its independence from the Treasury, can offer a satisfactory agency for the implementation of monetary policy. The Reserve banks and their branches should be made agencies of the Treasury and all monetary powers delegated by Congress should be given to the Secretary of the Treasury…. It is not at all certain that Treasury control of the stock of money would always be reasonable… but Treasury influence cannot be excluded by the creation of a speciously independent monetary agency that cannot have adequate powers for the performance of its task…” Years later, Milton Friedman himself took a similar position suggesting legislation “to end the independence of the Fed by converting it into a bureau of the Treasury Department…”(see, for example, Essence of Friedman, p 416).

Ben Bernanke’s Fed has now ended any pretence of the monetary policy’s independence from the whims and exigencies of executive power. Yet Dr Bernanke’s fellow academic economists have been unanimous in advising caution, patience and more information and reflection upon the facts. The famous letter of 122 economists to the US Congress was a rare statement of sense and practical wisdom. It agreed the situation was difficult and needed bold action. But it said the Paulson-Bernanke plan was an unfair “subsidy to investors at taxpayers’ expense. Investors who took risks to earn profits must also bear the losses. Not every business failure carries systemic risk. The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise.”

Besides, the plan was unclear and too far-reaching. “Neither the mission of the new agency nor its oversight are clear. If taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards…. If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America’s dynamic and innovative private capital markets have brought the nation unparalleled prosperity. Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.”

The House’s initial bipartisan “backbench revolt” against “The Emergency Economic Stabilisation Act of 2008” (ESSA) followed this academic argument and rejected the Bernanke Fed’s advice. Is there an “emergency”, and if so what is its precise nature? Is this “economic stabilisation”, and if so, how is it going to work? The onus has been on Dr Bernanke and his staff to argue both, not merely to assert them. Even if the House “held its nose” and passed the measure for now, the American electorate is angry and it is anybody’s guess how a new President and Congress will alter all this in a few months.

Several academic economists have argued for specific price-stabilisation of the housing market being the keystone of any large, expensive and risky government intervention. (John McCain has also placed this in the political discussion now.) Roughly speaking, the housing supply-curve has shifted so far to the right that collapsed housing prices need to be dragged back upward by force. Columbia Business School economists Glenn Hubbard and Chris Mayer, both former Bush Administration officials, have proposed allowing “all residential mortgages on primary residences to be refinanced into 30-year fixed-rate mortgages at 5.25 per cent…. close to where mortgage rates would be today with normally functioning mortgage markets….Lower interest rates will mean higher overall house prices…” Yale’s Jonathan Koppell and William Goetzmann have argued very similarly the Treasury “could offer to refinance all mortgages issued in the past five years with a fixed-rate, 30-year mortgage at 6 per cent. No credit scores, no questions asked; just pay off the principal of the existing mortgage with a government check. If monthly payments are still too high, homeowners could reduce their indebtedness in exchange for a share of the future price appreciation of the house. That is, the government would take an ownership interest in the house just as it would take an ownership interest in the financial institutions that would be bailed out under the Treasury’s plan.”

Beyond the short run, the US may play the demographic card by inviting in a few million new immigrants (if nativist feelings hostile to the outsider or newcomer can be controlled, especially in employment). Bad mortgages and foreclosures would vanish as people from around the world who long to live in America buy up all those empty houses and apartments, even in the most desolate or dismal locations. If the US’s housing supply curve has moved so far to the right that the equilibrium price has gone to near zero, the surest way to raise the equilibrium price would be by causing a new wave of immigration leading to a new demand curve arising at a higher level.

Such proposals seek to address the problem at its source. They might have been expected from the Fed’s economists. Instead, ESSA speaks of massive government purchase and control of bad assets “downriver”, without any attempt to face the problem at its source. This makes it merely wishful to think such assets can be sold for a profit at a later date so taxpayers will eventually gain. It is as likely as not the bad assets remain bad assets.

Indeed the University of Chicago’s Casey Mulligan has argued there is a financial crisis involving the banking sector but not an economic one: “We’re not entering a second Great Depression.” The marginal product of capital remains high and increasing “far above the historical average. The third-quarter earnings reports from some companies already suggest that America’s non-financial companies are still making plenty of money…. So, if you are not employed by the financial industry (94 per cent of you are not), don’t worry. The current unemployment rate of 6.1 per cent is not alarming, and we should reconsider whether it is worth it to spend $700 billion to bring it down to 5.9 per cent.”

Dr Bernanke has been a close student of A Monetary History of the United States in which Milton Friedman and Anna J Schwartz argued that the Fed inadvertently worsened the Great Contraction of 1929-1933 by not responding to Congress. Let not future historians find that the Fed, at the behest of the Treasury Secretary, worsened the Great Tremor of 2008 by bamboozling Congress into hasty action.”

Would not a few million new immigrants solve America’s mortgage crisis?
October 10, 2008 — drsubrotoroy | Edit

America was at its best when it was open to mass immigration, and America is at its worst when it treats immigrants with racism and worse (for seeming “uppity”).

All those bad mortgages and foreclosures could vanish within a year or two by playing the demographic card and inviting in a few million new immigrants into the United States. They would pour in from China, Vietnam, Thailand, Philippines, Indonesia, Mexico, South America, South Africa, Nigeria, Egypt, Israel, Poland, Romania, Hungary, Belarus, Ukraine, Russia, Uzbekistan, Kazakhstan, India, Sri Lanka, Bangladesh, and yes, Pakistan too, and more. They would happily buy up all those empty houses and apartments, even in all those desolate dismal locations. If the USA’s housing supply curve has moved so far to the right that the equilibrium price has gone to near zero, the surest way to raise the equilibrium price would be by causing a new wave of immigration leading to a new demand curve arising at a higher level. But yes, nativist feelings of racism towards the outsider or the newcomer would have to be controlled especially in employment — racists after all are often rather “sub-prime” themselves and hence unable to accept characters who may be “prime” or at least less “sub-prime” from foreign immigrant communities. Restoring a worldwide idea of an American dream fuelled by mass immigration may be the surest way for the American economy to restore itself.

122 Sensible American economists

September 26, 2008 — drsubrotoroy | Edit

“$700 billion comes to more than, uhhhm, $6,000 per income taxpayer in the USA.

I was glad to see the sensible letter of 122 American economists to US legislators regarding the Paulson-Bernanke plan to address America’s financial crisis.

Somehow, I have an inkling that foreign central banks have been left holding more bad US debt than might be remembered — which would explain the embarrassment of Messrs Paulson and Bernanke vis-a-vis their foreign counterparts… Dollar depreciation and an American inflation seem to be inevitable over the next several years.”

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Could the Satyam/PwC fraud be the visible part of an iceberg? Where are India’s “Generally Accepted Accounting Principles”? Isn’t governance rather poor all over corporate India? Bad public finance may be a root cause

January 8, 2009 — drsubrotoroy

In a March 5 2007 article in The Statesman, I said:

“Our farmers are peaceful hardworking people who should be paying taxes and user-fees normally but should not be otherwise disturbed or needlessly provoked by outsiders. It is the businessmen wishing to attack our farm populations who need to look hard in the mirror – to improve their accounting, audit, corporate governance, to enforce anti-embezzlement and shareholder protection laws etc.”

In a September 23-24 2007 article in The Sunday Statesman I said:

“… Government, instead of hobnobbing with business chambers, needed to get Indian corporations to improve their accounting, audit and governance, and reduce managerial pilfering and embezzlement, which is possible only if Government first set an example.”

In a February 4 2007 article in The Statesman, I said:

“Financial control of India’s fiscal condition, and hence monetary expansion, vitally requires control of the growth of these kinds of dynamic processes and comprehension of their analytical underpinnings. Yet such understanding and control seem quite absent from all organs of our Government, including establishment economists and the docile financial press…. the actual difference between Government Expenditure and Income in India has been made to appear much smaller than it really is. Although neglected by the Cabinet, Finance Ministry, RBI and even (almost) the C&AG, the significance of this discrepancy in measurement will not be lost on anyone seriously concerned to address India’s fiscal and monetary problems.”

All three articles are available elsewhere here and are republished below together. I have published elsewhere today my brief 2006 lecture on corporate governance. (See also my “The Indian Revolution”, “Monetary Integrity & the Rupee”, “Indian Inflation”, “The Dream Team: A Critique”, “India’s Macroeconomics”, “Growth & Government Delusion”, etc).

The fraud at Satyam amounts to it having been long bankrupt but not seemingly so. The fact it was long bankrupt was apparently overlooked or condoned by its auditors Pricewaterhouse Coopers! This may be big news today but the response of corporate India and the Indian business media seems utterly insincere (and there has been a lot of fake pontificating on TV by some notorious frauds). Remember the head of Satyam received awards with all the other honchos at those fake ceremonies that businessmen and the business media keep holding at this or that hotel. (See my several articles here under the categories “Satyam corporate fraud”, “Corporate governance” etc.)

Government agencies, as enforcers of the law, must be seen in such circumstances to have greater credibility than the violators, but who can say that Government accounting and audit and corporate governance in India is not as bad as that of the private sector? It may be in fact far, far worse. Poor accounting, endless deficit finance, unlimited paper money creation, false convertibility of the rupee etc is what emerges from our supposedly wise economic policy-makers.

When was the last time some major businessman or top politician spoke publicly about the importance of “Generally Accepted Accounting Principles”? The answer is never. Government (of this party or that) has become well-oiled by political lobbyists and is hand-in-glove with organized business, especially in a few cities. Until Government gets its own accounts straight, stops its endless deficit finance, reins in unlimited paper money-creation, creates an honest currency domestically and externally, there is no proper example or standard set for the private sector, and such scandals will erupt along with insincere responses from the cartels of corporate India.

What emerges from New Delhi’s economists seems often to have as much to do with economics as Bollywood has to do with cinema.

Subroto Roy

Fallacious Finance: Congress, BJP, CPI-M et al may be leading India to hyperinflation

by

Subroto Roy

First published in The Statesman, March 5 2007 Editorial Page Special Article http://www.thestatesman.net

It seems the Dream Team of the PM, Finance Minister, Mr. Montek Ahluwalia and their acolytes may take India on a magical mystery tour of economic hallucinations, fantasies and perhaps nightmares. I hasten to add the BJP and CPI-M have nothing better to say, and criticism of the Government or of Mr Chidambaram’s Budget does not at all imply any sympathy for their political adversaries. It may be best to outline a few of the main fallacies permeating the entire Governing Class in Delhi, and their media and businessman friends:

1. “India’s Savings Rate is near 32%”. This is factual nonsense. Savings is indeed normally measured by adding financial and non-financial savings. Financial savings include bank-deposits. But India is not a normal country in this. Nor is China. Both have seen massive exponential growth of bank-deposits in the last few decades. Does this mean Indians and Chinese are saving phenomenally high fractions of their incomes by assiduously putting money away into their shaky nationalized banks? Sadly, it does not. What has happened is government deficit-financing has grown explosively in both countries over decades. In a “fractional reserve” banking system (i.e. a system where your bank does not keep the money you deposited there but lends out almost all of it immediately), government expenditure causes bank-lending, and bank-lending causes bank-deposits to expand. Yes there has been massive expansion of bank-deposits in India but it is a nominal paper phenomenon and does not signify superhuman savings behaviour. Indians keep their assets mostly in metals, land, property, cattle, etc., and as cash, not as bank deposits.

2. “High economic growth in India is being caused by high savings and intelligently planned government investment”. This too is nonsense. Economic growth in India as elsewhere arises not because of what politicians and bureaucrats do in capital cities, but because of spontaneous technological progress, improved productivity and learning-by-doing on part of the general population. Technological progress is a very general notion, and applies to any and every production activity or commercial transaction that now can be accomplished more easily or using fewer inputs than before. New Delhi still believes in antiquated Soviet-era savings-investment models without technological progress, and some non-sycophant must tell our top Soviet-era bureaucrat that such growth models have been long superceded and need to be scrapped from India’s policy-making too. Can politicians and bureaucrats assist India’s progress? Indeed they can: the telecom revolution in recent years was something in which they participated. But the general presumption is against them. Progress, productivity gains and hence economic growth arise from enterprise and effort of ordinary people — mostly despite not because of an exploitative, parasitic State.

3. “Agriculture is a backward sector that has been retarding India’s recent economic growth”. This is not merely nonsense it is dangerous nonsense, because it has led to land-grabbing by India’s rulers at behest of their businessman friends in so-called “SEZ” schemes. The great farm economist Theodore W. Schultz once quoted Andre and Jean Mayer: “Few scientists think of agriculture as the chief, or the model science. Many, indeed, do not consider it a science at all. Yet it was the first science – Mother of all science; it remains the science which makes human life possible”. Centuries before Europe’s Industrial Revolution, there was an Agricultural Revolution led by monks and abbots who were the scientists of the day. Thanks partly to American help, India has witnessed a Green Revolution since the 1960s, and our agriculture has been generally a calm, mature, stable and productive industry. Our farmers are peaceful hardworking people who should be paying taxes and user-fees normally but should not be otherwise disturbed or needlessly provoked by outsiders. It is the businessmen wishing to attack our farm populations who need to look hard in the mirror – to improve their accounting, audit, corporate governance, to enforce anti-embezzlement and shareholder protection laws etc.

4. “India’s foreign exchange reserves may be used for ‘infrastructure’ financing”. Mr Ahluwalia promoted this idea and now the Budget Speech mentioned how Mr Deepak Parekh and American banks may be planning to get Indian businesses to “borrow” India’s forex reserves from the RBI so they can purchase foreign assets. It is a fallacy arising among those either innocent of all economics or who have quite forgotten the little they might have been mistaught in their youth. Forex reserves are a residual in a country’s balance of payments and are not akin to tax revenues, and thus are not available to be borrowed or spent by politicians, bureaucrats or their businessman friends — no matter how tricky and shady a way comes to be devised for doing so. If anything, the Government and RBI’s priority should have been to free the Rupee so any Indian could hold gold or forex at his/her local bank. India’s vast sterling balances after the Second World War vanished quickly within a few years, and the country plunged into decades of balance of payments crisis – that may now get repeated. The idea of “infrastructure” is in any case vague and inferior to the “public goods” Adam Smith knew to be vital. Serious economists recommend transparent cost-benefit analyses before spending any public resources on any project. E.g., analysis of airport/airline industry expansion would have found the vast bulk of domestic airline costs to be forex-denominated but revenues rupee-denominated – implying an obvious massive currency-risk to the industry and all its “infrastructure”. All the PM’s men tell us nothing of any of this.

5. “HIV-AIDS is a major Indian health problem”. Government doctors privately know the scare of an AIDS epidemic is based on false assumptions and analysis. Few if any of us have met, seen or heard of an actual incontrovertible AIDS victim in India (as opposed to someone infected by hepatitis-contaminated blood supplies). Syringe-exchange by intravenous drug users is not something widely prevalent in Indian society, while the practise that caused HIV to spread in California’s Bay Area in the 1980s is not something depicted even at Khajuraho. Numerous real diseases do afflict Indians – e.g. 11 children died from encephalitis in one UP hospital on a single day in July 2006, while thousands of children suffer from “cleft lip” deformity that can be solved surgically for 20,000 rupees, allowing the child a normal life. Without any objective survey being done of India’s real health needs, Mr Chidamabaram has promised more than Rs 9.6 Billion (Rs 960 crore) to the AIDS cottage industry.

6. “Fiscal consolidation & stabilization has been underway since 1991”. There is extremely little reason to believe this. If you or I borrow Rs. 100,000 for a year, and one year later repay the sum only to borrow the same again along with another Rs 40,000, we would be said to have today a debt of Rs. 140,000 at least. Our Government has been routinely “rolling over” its domestic debt in this manner (in the asset-portfolios of the nationalised banking system) but displaying and highlighting only its new additional borrowing in a year as the “ Fiscal Deficit” (see graph, also “Fiscal Instability”, The Sunday Statesman, 4 February 2007). More than two dozen State Governments have been doing the same though, unlike the Government of India, they have no money-creating powers and their liabilities ultimately accrue to the Union as well. The stock of public debt in India may be Rs 30 trillion (Rs 30 lakh crore) at least, and portends a hyperinflation in the future. Mr Chidambaram’s announcement of a “Debt Management Office” yet to be created is hardly going to suffice to avert macroeconomic turmoil and a possible monetary collapse. The Congress, BJP, CPI-M and all their friends shall be responsible.

Against Quackery

First published in two parts in The Sunday Statesman, September 23 2007, The Statesman September 24 2007, http://www.thestatesman.net

By Subroto Roy

Manmohan and Sonia have violated Rajiv Gandhi’s intended reforms; the Communists have been appeased or bought; the BJP is incompetent

WASTE, fraud and abuse are inevitable in the use and allocation of public property and resources in India as elsewhere, but Government is supposed to fight and resist such tendencies. The Sonia-Manmohan Government have done the opposite, aiding and abetting a wasteful anti-economics ~ i.e., an economic quackery. Vajpayee-Advani and other Governments, including Narasimha-Manmohan in 1991-1996, were just as complicit in the perverse policy-making. So have been State Governments of all regional parties like the CPI-M in West Bengal, DMK/ AIADMK in Tamil Nadu, Congress/NCP/ BJP/Sena in Maharashtra, TDP /Congress in Andhra Pradesh, SP/BJP/BSP in Uttar Pradesh etc. Our dismal politics merely has the pot calling the kettle black while national self-delusion and superstition reign in the absence of reason.

The general pattern is one of well-informed, moneyed, mostly city-based special interest groups (especially including organised capital and organised labour) dominating government agendas at the cost of ill-informed, diffused anonymous individual citizens ~ peasants, small businessmen, non-unionized workers, old people, housewives, medical students etc. The extremely expensive “nuclear deal” with the USA is merely one example of such interest group politics.

Nuclear power is and shall always remain of tiny significance as a source of India’s electricity (compared to e.g. coal and hydro); hence the deal has practically nothing to do with the purported (and mendacious) aim of improving the country’s “energy security” in the long run. It has mostly to do with big business lobbies and senior bureaucrats and politicians making a grab, as they always have done, for India’s public purse, especially access to foreign currency assets. Some $300 million of India’s public money had to be paid to GE and Bechtel Corporation before any nuclear talks could begin in 2004-2005 ~ the reason was the Dabhol fiasco of the 1990s, a sheer waste for India’s ordinary people. Who was responsible for that loss? Pawar-Mahajan-Munde-Thackeray certainly but also India’s Finance Minister at the time, Manmohan Singh, and his top Finance Ministry bureaucrat, Montek Ahluwalia ~ who should never have let the fiasco get off the ground but instead actively promoted and approved it.

Cost-benefit analysis prior to any public project is textbook operating procedure for economists, and any half-competent economist would have accounted for the scenario of possible currency-depreciation which made Dabhol instantly unviable. Dr Singh and Mr Ahluwalia failed that test badly and it cost India dearly. The purchase of foreign nuclear reactors on a turnkey basis upon their recommendation now reflects similar financial dangers for the country on a vastly larger scale over decades.

Our Government seems to function most expeditiously in purchasing foreign arms, aircraft etc ~ not in improving the courts, prisons, police, public utilities, public debt. When the purchase of 43 Airbus aircraft surfaced, accusations of impropriety were made by Boeing ~ until the local Airbus representative said on TV that Boeing need not complain because they were going to be rewarded too and soon 68 aircraft were ordered from Boeing!

India imports all passenger and most military aircraft, besides spare parts and high-octane jet fuel. Domestic aviation generates near zero forex revenues and incurs large forex costs ~ a debit in India’s balance of payments. Domestic airline passengers act as importers subsidised by our meagre exporters of textiles, leather, handicrafts, tea, etc. What a managerially-minded PM and Aviation Minister needed to do before yielding to temptations of buying new aircraft was to get tough with the pampered managements and unions of the nationalized airlines and stand up on behalf of ordinary citizens and taxpayers, who, after all, are mostly rail or road-travellers not jet-setters.

The same pattern of negligent policy-behaviour led Finance Minister P. Chidambaram in an unprecedented step to mention in his 2007 Union Budget Speech the private American companies Blackstone and GE ~ endorsing the Ahluwalia/Deepak Parekh idea that India’s forex reserves may be made available to be lent out to favoured private businesses for purported “infrastructure” development. We may now see chunks of India’s foreign exchange reserves being “borrowed” and never returned ~ a monumental scam in front of the CBI’s noses.

The Reserve Bank’s highest echelons may have become complicit in all this, permitting and encouraging a large capital flight to take place among the few million Indians who read the English newspapers and have family-members abroad. Resident Indians have been officially permitted to open bank accounts of US $100,000 abroad, as well as transfer gifts of $50,000 per annum to their adult children already exported abroad ~ converting their largely untaxed paper rupees at an artificially favourable exchange-rate.

In particular, Mr Ratan Tata (under a misapprehension he may do whatever Lakshmi Mittal does) has been allowed to convert Indian rupees into some US$13,000,000,000 to make a cash purchase of a European steel company. The same has been allowed of the Birlas, Wipro, Dr Reddy’s and numerous other Indian corporations in the organised sector ~ three hundred million dollars here, five hundred million dollars there, etc. Western businessmen now know all they have to do is flatter the egos of Indian boxwallahs enough and they might have found a buyer for their otherwise bankrupt or sick local enterprise. Many newcomers to New York City have been sold the Brooklyn Bridge before. “There’s a sucker born every minute” is the classic saying of American capitalism.

The Sonia-Manmohan Government, instead of hobnobbing with business chambers, needed to get Indian corporations to improve their accounting, audit and governance, and reduce managerial pilfering and embezzlement, which is possible only if Government first set an example.

Why have Indian foreign currency reserves zoomed up in recent years? Not mainly because we are exporting more textiles, tea, software engineers, call centre services or new products to the world, but because Indian corporations have been allowed to borrow abroad, converting their hoards of paper rupees into foreign debt. Forex reserves are a residual in a country’s international balance of payments and are not like tax-resources available to be spent by Government; India’s reserves largely constitute foreign liabilities of Indian residents. This may bear endless repetition as the PM and his key acolytes seem impervious to normal postgraduate-level economics textbooks.

Other official fallacies include thinking India’s savings rate is near 32 per cent and that clever bureaucratic use of it can cause high growth. In fact, real growth arises not because of what politicians and bureaucrats do but because of spontaneous technological progress, improved productivity and learning-by-doing of the general population ~ mostly despite not because of an exploitative parasitic State. What has been mismeasured as high savings is actually expansion of bank-deposits in a fractional reserve banking system caused by runaway government deficit-spending.

Another fallacy has been that agriculture retards growth, leading to nationwide politically-backed attempts at land-grabbing by wily city industrialists and real estate developers. In a hyperinflation-prone economy with wild deficit-spending and runaway money-printing, cheating poor unorganised peasants of their land, when that land is an asset that is due to appreciate in value, has seemed like child’s play.

What of the Opposition? The BJP/RSS have no economists who are not quacks though opportunists were happy to say what pleased them to hear when they were in power; they also have much implicit support among organised business lobbies and the anti-Muslim senior bureaucracy. The official Communists have been appeased or bought, sometimes so cheaply as with a few airline tickets here and there. The nonsensical “Rural Employment Guarantee” is descending into the wasteland of corruption it was always going to be. The “Domestic Violence Act” as expected has started to destroy India’s families the way Western families have been destroyed. The Arjun-DMK OBC quota corrodes higher education further from its already dismal state. All these were schemes that Congress and Communist cabals created or wholeheartedly backed, and which the BJP were too scared or ignorant to resist.

And then came Singur and Nandigram ~ where the sheer greed driving the alliance between the Sonia-Manmohan-Pranab Congress and the CPI-M mask that is Buddhadeb, came to be exposed by a handful of brave women like Mamata and Medha.

2. A Fiscal U-Turn is Needed For India to Go in The Right Economic Direction

Rajiv Gandhi had a sense of noblesse oblige out of remembrance of his father and maternal grandfather. After his assassination, the comprador business press credited Narasimha Rao and Manmohan Singh with having originated the 1991 economic reform. In May 2002, however, the Congress Party itself passed a resolution proposed by Digvijay Singh explicitly stating Rajiv and not either of them was to be so credited. The resolution was intended to flatter Sonia Gandhi but there was truth in it too. Rajiv, a pilot who knew no political economy, was a quick learner with intelligence to know a good idea when he saw one and enough grace to acknowledge it.

Rule of Law

The first time Dr Manmohan Singh’s name arose in contemporary post-Indira politics was on 22 March 1991 when M K Rasgotra challenged the present author to answer how Dr Singh would respond to proposals being drafted for a planned economic liberalisation that had been authorised by Rajiv, as Congress President and Opposition Leader, since September 1990. It was replied that Dr Singh’s response was unknown and he had been heading the “South-South Commission” for Tanzania’s Julius Nyerere, while what needed to be done urgently was make a clear forceful statement to restore India’s credit-worthiness and the confidence of international markets, showing that the Congress at least knew its economics and was planning to take bold new steps in the direction of progress.

There is no evidence Dr Singh or his acolytes were committed to any economic liberalism prior to 1991 as that term is understood worldwide, and scant evidence they have originated liberal economic ideas for India afterwards. Precisely because they represented the decrepit old intellectual order of statist ”Ma-Bap Sarkari” policy-making, they were not asked in the mid-1980s to be part of a “perestroika-for-India” project done at a foreign university ~ the results of which were received, thanks to Siddhartha Shankar Ray, by Rajiv Gandhi in hand at 10 Janpath on 18 September 1990 and specifically sparked the change in the direction of his economic thinking.

India is a large, populous country with hundreds of millions of materially poor citizens, a weak tax-base, a vast internal and external public debt (i.e. debt owed by the Government to domestic and foreign creditors), massive annual fiscal deficits, an inconvertible currency, and runaway printing of paper-money. It is unsurprising Pakistan’s economy is similar, since it is born of the same land and people. Certainly there have been real political problems between India and Pakistan since the chaotic demobilisation and disintegration of the old British Indian Army caused the subcontinent to plunge into war-like or “cold peace” conditions for six decades beginning with a bloody Partition and civil war in J&K. High military expenditures have been necessitated due to mutual and foreign tensions, but this cannot be a permanent state if India and Pakistan wish for genuine mass economic well-being.

Even with the continuing mutual antagonism, there is vast scope for a critical review of Indian military expenditures towards greatly improving the “teeth-to-tail” ratio of its fighting forces. The abuse of public property and privilege by senior echelons of the armed forces (some of whom have been keen most of all to export their children preferably to America) is also no great secret.

On the domestic front, Rajiv was entirely convinced when the suggestion was made to him in September 1990 that an enormous infusion of public resources was needed into the judicial system for promotion and improvement of the Rule of Law in the country, a pre-requisite almost for a new market orientation. Capitalism without the Rule of Law can quickly degenerate into an illiberal hell of cronyism and anarchy which is what has tended to happen since 1991.

The Madhava Menon Committee on criminal justice policy in July proposed a Hong Kong model of “a single high-tech integrated Criminal Justice complex in every district headquarters which may be a multi-storied structure, devoting the ground floor for the police station including a video-installed interrogation room; the first floor for the police-lockups/sub-jail and the Magistrate’s Court; the second floor for the prosecutor’s office, witness rooms, crime laboratories and legal aid services; the third floor for the Sessions Court and the fourth for the administrative offices etc…. (Government of India) should take steps to evolve such an efficient model… and not only recommend it to the States but subsidize its construction…” The question arises: Why is this being proposed for the first time in 2007 after sixty years of Independence? Why was it not something designed and implemented starting in the 1950s?

The resources put since Independence to the proper working of our judiciary from the Supreme Court and High Courts downwards have been abysmal, while the state of prisons, borstals, mental asylums and other institutions of involuntary detention is nothing short of pathetic. Only police forces, like the military, paramilitary and bureaucracies, have bloated in size.

Neither Sonia-Manmohan nor the BJP or Communists have thought promotion of the Rule of Law in India to be worth much serious thought ~ certainly less important than attending bogus international conclaves and summits to sign expensive deals for arms, aircraft, reactors etc. Yet Rajiv Gandhi, at a 10 Janpath meeting on 23 March 1991 when he received the liberalisation proposals he had authorized, explicitly avowed the importance of greater resources towards the Judiciary. Dr Singh and his acolytes were not in that loop, indeed they precisely represented the bureaucratic ancien regime intended to be changed, and hence have seemed quite uncomprehending of the roots of the intended reforms ever since 1991.

Similarly, Rajiv comprehended when it was said to him that the primary fiscal problem faced by India is the vast and uncontrolled public debt, interest payments on which suck dry all public budgets leaving no room for provision of public goods.

Government accounts
Government has been routinely “rolling over” its domestic debt in the asset-portfolios of the nationalised banks while displaying and highlighting only its new additional borrowing in a year as the “Fiscal Deficit”. More than two dozen States have been doing the same and their liabilities ultimately accrue to the Union too. The stock of public debt in India is Rs 30 trillion (Rs 30 lakh crore) at least, and portends a hyperinflation in the future.

There has been no serious recognition of this since it is political and bureaucratic actions that have been causing the problem. Proper recognition would entail systematically cleaning up the budgets and accounts of every single governmental entity in the country: the Union, every State, every district and municipality, every publicly funded entity or organisation, and at the same time improving public decision-making capacity so that once budgets and accounts recover from grave sickness over decades, functioning institutions exist for their proper future management. All this would also stop corruption in its tracks, and release resources for valuable public goods and services like the Judiciary, School Education and Basic Health. Institutions for improved political and administrative decision-making are needed throughout the country if public preferences with respect to raising and allocating common resources are to be elicited and then translated into actual delivery of public goods and services. Our dysfunctional legislatures will have to do at least a little of what they are supposed to. When public budgets and accounts are healthy and we have functioning public goods and services, macroeconomic conditions would have been created for the paper-rupee to once more become a money as good as gold ~ a convertible world currency for all of India’s people, not merely the metropolitan special interest groups that have been controlling our governments and their agendas.

Fiscal Instabilty

Interest payments quickly suck dry every year’s Budget. And rolling over old public debt means that Government Borrowing in fact much exceeds the Fiscal Deficit

by Subroto Roy

First published in The Sunday Statesman, Editorial Page Special Article, February 4 2007, http://www.thestatesman.net

While releasing Mr Chidambaram’s book some days ago, our PM said that as Narasimha Rao’s Finance Minister in 1991 he had caused “fiscal stabilization” of the country. Unfortunately, Dr Manmohan Singh may have been believing the flattery of his sycophants, since the facts point differently.

The Fiscal Deficit is new borrowing by Government added for a given year. In 1994-1995 for example, the Union Government’s expenditure net of operational and other income was some Rs 1,295 billion (1 billion = 100 crore). Rs. 674 billion was generated for the Union Government by taxation that year (Rs 184 billion from direct taxes, Rs 653 billion from indirect and miscellaneous taxes, less Rs 163 billion as the States’ share). The difference between Rs 1,295 billion and Rs. 674 billion, that is Rs. 621 billion had to be borrowed by the Government of India in the name of future unborn generations of Indian citizens. That was the “Fiscal Deficit” that year. If the stock of Public Debt already accumulated has been B,this Fiscal Deficit, C, adds to the interest burden that will be faced next year since interest will have to be then paid on B + C.

Interest payments on Government debt have dominated all public finance in recent decades, quickly sucking dry the budgets every year both of the Union and each of our more than two dozen States. Some Rs. 440 billion was paid by the Union Government as interest in 1994-1995, and this had risen to some Rs. 1,281 billion by 2003-2004. As a percentage of tax revenue, interest expenditure by the Government of India on its own debt rose from 40% in 1991 to 68% in 2004 ~ through the Finance Ministerships of Manmohan Singh, P Chidambaram, Yashwant Sinha and Jaswant Singh.

Financial control of India’s fiscal condition, and hence monetary expansion, vitally requires control of the growth of these kinds of dynamic processes and comprehension of their analytical underpinnings. Yet such understanding and control seem quite absent from all organs of our Government, including establishment economists and the docile financial press.

For example, contrary to the impression created by the Finance Ministry, RBI and Union Cabinet (whether of the UPA or NDA, while the Communists would only be worse), the Fiscal Deficit has been in fact very far from being all that the Government of India borrows from financial markets in a given year. The stock of Public Debt at any given moment consists of numerous debt-instruments of various sorts at different terms. Some fraction of these come to maturity every year and hence their principal amounts (not merely their interest) must be repaid by Government. What our Government has been doing routinely over decades is to roll over these debts, i.e. issue fresh public debt of the same amount as that being extinguished and more. For example, some Rs. 720 billion, Rs. 1,180 billion, Rs.1,330 billion and Rs. 1,390 billion were amounts spent in extinguishing maturing public debt in 1993, 1994, 1995 and 1996 respectively. No special taxes were raised in those years specifically for that purpose. Instead the Government merely issued additional new debt or “rolled over” or “converted” the old debt in the same amounts and more in the portfolios of the captive nationalized banking system (see graph).

Plainly, the Government of India’s actual “Borrowing Requirement”, as the difference between its Income and Expenditure, when accounted for properly, will be the sum of this rolled over old debt and the Fiscal Deficit (which is merely the additional borrowing required by a single year’s Budget). In other words, the Government’s Borrowing Requirement is the Fiscal Deficit plus the much larger amount required to annually roll over maturing debt. Because the latter expenditure does not appear at all in calculation of the Fiscal Deficit by the subterfuge of having been routinely rolled over every year, the actual difference between Government Expenditure and Income in India has been made to appear much smaller than it really is. Although neglected by the Cabinet, Finance Ministry, RBI and even (almost) the C&AG, the significance of this discrepancy in measurement will not be lost on anyone seriously concerned to address India’s fiscal and monetary problems.

On the expenditure side, Current Expenditure (anachronistically named “Revenue Expenditure” in India as it is supposed to be met by current revenue) meets recurrent liabilities from one budget-date to the next, like salaries of school-staff or coupon payments on Government debt.

Investment Expenditure “of a capital nature” is supposed to increase “concrete assets of a material and permanent character” like spending on a new public library, or reducing “recurring liabilities” by setting aside a sinking fund to reduce Government debt. Some public resources need to be spent to yield benefits or reduce costs not immediately but in the future. Besides roads, bridges and libraries, these may include less tangible investments too like ensuring proper working of law-courts or training police-officers and school-teachers.

Also, there has been large outright direct lending by the Government of India bypassing normal capital markets on the pattern of old Soviet “central planning”, whereby “credit” is disbursed to chosen recipients.

“Current”, “Investment” and “Loan” expenditure decisions of this kind are made on the same activities. For example, in 1994-1995, the Government of India spent Rs. 2.7 billion as “Loans for Power Projects” in addition to Rs. 9.8 billion under Current Expenditure on “Power” and Rs. 15.5 billion as Investment Expenditure on “Power Projects”. By 2003-2004, these had grown to Rs. 50.94 billion, Rs. 31.02 billion, Rs. 28.5 billion respectively. Yet the opaqueness of Government accounts, finances and economic decision-making today is such that nowhere will such data be found in one table giving a full picture of public expenditure on the Power sector as a whole. On the revenue side, Government’s “Current Income” includes direct and indirect taxes, operational income from public utilities (like railways or the post office), and dividends and profits from public assets. There has been a small “Investment Income” too received from sale of public assets like Maruti. Also, since loans are made directly, there has to be a category for their recovery.

“One must not take from the real needs of the people for the imaginary needs of the state”, said Montesquieu; while De Marco in the same vein said “the greatest satisfaction of collective needs” has to be sought by “the least possible waste of private wealth”. Even Mao Zedong reportedly said: “Thrift should be the guiding principle of our government expenditure”. The C&AG requires Government determine “how little money it need take out of the pockets of the taxpayers in order to maintain its necessary activities at the proper standard of efficiency”.

Yet India’s top politicians and bureaucrats spend wildly ~ driven by the organised special interest groups on whom they depend, while ostentatiously consuming public time, space and resources themselves “quite uselessly in the pleasurable business of inflating the ego” (Veblen).

For Government to do what it need not or should not do contributes to its failure to do what it must. Thus we have armies of indolent soldiers, policemen and bureaucrats and piles of rotting supplies in government warehouses while there are queues outside hospitals, schools, courts etc.

Parliament and State Legislatures need to first ask of an annual budget whether it is efficient: “Is expenditure being allocated to enhance the public interest to the greatest extent possible, and if not, how may it be made to do so?” National welfare overall should increase the same whichever public good or service the final million of public rupees has been spent on.

Fundamentally, government finance requires scientific honesty, especially by way of clear rigorous accounting and audit of uses and origins of public resources. That scientific honesty is what we have not had at Union or State level for more than half a century.

Posted in Accounting and audit, Big Business and Big Labour, Economic Policy, Economic quackery, Economic Theory, Economics of Public Finance, Finance, Financial Management, Financial markets, Financial Repression, Government accounting, Government Budget Constraint, Government of India, Growth rates (economic), India's Big Business, India's credit markets, India's savings rate, India's stock and debt markets, India's 1991 Economic Reform, India's agriculture, India's Agriculture & Food, India's balance of payments, India's Banking, India's Budget, India's bureaucracy, India's Capital Markets, India's corporate finance, India's corporate governance, India's corruption, India's crimes, India's Economy, India's Foreign Exchange Reserves, India's Government Budget Constraint, India's Government Expenditure, India's inflation, India's Macroeconomics, India's Monetary & Fiscal Policy, India's nomenclatura, India's political lobbyists, India's political parties, India's Politics, India's pork-barrel politics, India's poverty, India's Public Finance, Macroeconomics, Mendacity in politics, Political corruption, Political cynicism, Political Economy, Political mendacity, Public Choice/Public Finance, Public property waste fraud, Satyam corporate fraud, Unorganised capital markets. 2 Comments »

India’s “pork-barrel politics” needs a nice (vegetarian) Hindi name! “Teli/oily politics” perhaps? (And are we next going to see a Bill of Rights for Lobbyists?)

January 3, 2009 — drsubrotoroy

“Pork barrel politics” has been known as a concept in America and other Western countries for more than a century. India is clearly playing catch-up here but advancing quickly. The so-called “second fiscal stimulus” announced yesterday by Dr Manmohan Singh’s chief economic policy aide no longer makes any pretence of any engagement with serious public finance economics at all and is instead a plain bill of rights for lobbyists, especially organised business (and with it, organised labour).

In fact New Delhi’s way seems to be for organised lobbies to deal directly with the higher bureaucracy with executive political approval or acquiescence; pork arising from legislative politics may be secondary.

Now “pork” is too ugly a term for our Indian sensibilities and not many people eat any in the country (though, believe it or not, pork-production literally speaking is still the recipient of a government subsidy!). So we do need a nice preferably vegetarian name for “pork-barrel politics” Indian-style. “Tel” or “oil” may provide some ideas, and as a rough approximation I would suggest “Teli politics” or “Oily politics” but suggestions are welcome.

There are groups in America known as “Porkbusters” :

Any similar resistance in India responding to our version of pork-barrel politics might have to be called “Tel busters” or “Oil busters” or just “Detergents”.

And finally, since there has been a complete takeover of the economic policy process (and the mainstream media) by organised business lobbies, are we going to be perhaps seeing next a formal Bill of Rights for Lobbyists?

Subroto Roy, Kolkata

Posted in Big Business and Big Labour, Economic Policy, Economic quackery, Government Budget Constraint, India's Big Business, India's Government economists, India's Banking, India's Budget, India's bureaucracy, India's Capital Markets, India's corruption, India's Economy, India's Government Budget Constraint, India's Government Expenditure, India's Industry, India's inflation, India's Macroeconomics, India's Monetary & Fiscal Policy, India's nomenclatura, India's political lobbyists, India's Politics, India's Polity, India's pork-barrel politics, India's Public Finance, India's Reserve Bank, India's State Finances, Interest group politics, Manmohan Singh, Mendacity, Mendacity in politics, Political corruption, Political cynicism, Political mendacity, Pork-barrel politics, Public Choice/Public Finance, Public property waste fraud. Leave a Comment »

Pump-priming for car-dealers: Keynes groans in his grave (If evidence was needed of the intellectual dishonesty of New Delhi’s new macroeconomic policy, here it is)

December 9, 2008 — drsubrotoroy

Pump-priming for car-dealers: Keynes groans in his grave

(If evidence was needed of the intellectual dishonesty of New Delhi’s new macroeconomic policy, here it is)

by

Subroto Roy

I have said the Government of India’s new macroeconomic policy announced on Sunday by Dr Manmohan Singh’s main economic policy aide has no economic models or data to support it, and may as likely worsen rather than dampen any business-cycle India might be on for the simple reason that no one has a clue where we are in the cycle, or indeed even if such a cycle exists. (See https://independentindian.com/2008/12/07/will-the-government-of-indias-economic-policy-dampen-or-worsen-the-business-cycle-if-such-a-cycle-exists-at-all-no-one-knows-%E2%80%9Cwhere-ignorance-is-bliss-%E2%80%98tis-folly-to-be-wise/)

The policy appears to be the result of the usual intense lobbying by organised capital and organised labour with the Government’s Ministries in New Delhi.

If evidence was needed of this root intellectual dishonesty, one need look only as far as “Highlights of India’s fiscal stimulus package” (Daily News and Analysis, December 7 2008) and note the item:

” Norms for government departments to replace vehicles relaxed”.

Dr Singh’s aide, after announcing the policy, openly spoke of how private automobile manufacturers had accumulated a lot of unintended inventory due to falling sales, and how they needed, in his opinion, to lower prices. Evidently, the Government has also decided to itself buy a lot of that unintended inventory too, using the very scarce public resources of India’s ordinary people. Pump-priming for car-dealers — JM Keynes groans in his grave! Watch out for those fancy fast new cars carrying India’s bureaucrats, politicians and their friends and family!

Posted in Big Business and Big Labour, Economic Policy, Economic quackery, Economics of Public Finance, Economics of Unemployment, Government accounting, Government Budget Constraint, Government of India, India's Big Business, India's bureaucracy, India's corruption, India's Economy, India's Government Budget Constraint, India's Government Expenditure, India's Industry, India's inflation, India's Macroeconomics, India's Monetary & Fiscal Policy, India's political lobbyists, India's Polity, India's pork-barrel politics, India's Public Finance, India's Reserve Bank, India's State Finances, Inflation, Interest group politics, John Maynard Keynes, Manmohan Singh, Mendacity in politics, Political corruption, Political cynicism, Political mendacity, Politics, Public Choice/Public Finance, Public property waste fraud. Leave a Comment »

The Indian Revolution

December 8, 2008 — drsubrotoroy

The Indian Revolution

by

Subroto Roy

Prefatory Note Dec 2008: This outlines what might have happened if (a) Rajiv Gandhi had not been assassinated; (b) I had known at age 36 all that I now know at age 53. Both are counterfactuals and hence this is a work of fiction. It was written long before the Mumbai massacres; the text has been left unchanged.

“India’s revolution, when it came, was indeed bloodless and non-violent but it was firm and clear-headed and inevitably upset a lot of hitherto powerful people.

The first thing the Revolutionary Government declared when it took over in Delhi was that the rupee would become a genuine hard currency of the world economy within 18 months. This did not seem a very revolutionary thing to say and the people at first did not understand what was meant. The Revolutionaries explained: “Paper money and the banks have been abused by all previous regimes ruling in Delhi since 1947 who learnt their tricks from British war-time techniques. We will give you for the first time in free India a rupee as good as gold, an Indian currency as respectable as any other in the world, dollar, pound, yen, whatever. What you earn with your hard work and resources will be measured by a sound standard of value, not continuously devalued in secret by government misuse”.

The people were intrigued but not enlightened much. Nor did they grasp things to come when the Revolutionary Government abolished the old Planning Commission, sending its former head as envoy to New Zealand (with a long reading-list); attached the Planning Commission as a new R&D wing to the Finance Ministry; detached the RBI from the Finance Ministry; instructed the RBI Governor to bring proper work-culture and discipline to his 75,000 staff and instructed the Monetary Policy Deputy Governor to prepare plans for becoming a constitutionally independent authority, besides a possible monetary decentralization towards the States. India’s people did not understand all this, but there began to be a sense that something was up in Lutyens’ Delhi faraway.

The Revolutionary Government started to seem a little revolutionary when it called in police-chiefs of all States — the PM himself then signed an order routed via the Home Ministry that they were to state in writing, within a fortnight, how they intended to improve discipline and work-culture in the forces they commanded. Each was also asked to name three reliable deputies, and left in no doubt what that meant. State Chief Ministers murmured objections but rumours swirled about more to come and they shut up quickly. The Revolutionary Government sent a terse note to all CMs asking their assistance in implementation of this and any further orders. It also set up a “Prison Reform and Reconstruction Panel” with instructions to (a) survey all prisons in the country with a view to immediately reduce injustices within the prison-system; (b) enlarge capacity in the event fresh enforcement of the Rule of Law came to demand this.

The Revolutionary Government then asked all senior members of the judiciary to a meeting in Trivandrum. There they declared the judiciary must remain impartial and objective, not show favoritism even to members of the Revolutionary Party itself who might be in court before them for whatever reason. The judges were assured of carte blanche by way of resources to improve quality of all public services under them; at the same time, a new “Internal Affairs Department” was formed that would assure the public that the Bench and the Bar never forgot their noble calling. When a former judge and a former senior counsel came to be placed in two cells of the new prison-system, the public finally felt something serious was afoot. Late night comics on TV led the public’s mirth — “Thieves have authority when judges steal themselves”, waxed one eloquently.

The Revolutionary Government’s next step reached into all nooks and crannies of the country. A large room in the new Finance Ministry was assigned to each State – a few days later, the Revolutionary Government announced it had taken over control under the Constitution’s financial emergency provision of all State budgets for a period of six months at the outset.

Now there was an irrepressible outcry from State Chief Ministers, loud enough for the Revolutionary Government to ask them to a national meeting, this time in Agartala. When the Delhi CM sweetly complained she did not know how to get there, she got back two words “Get there”; and she did.

There the PM told the CMs they would get their budgets back some day but only after the Revolutionary Government had overseen their cleaning and restoration to financial health from their current rotten state. “But Prime Minister, the States have had no physical assets”, one bright young CM found courage to blurt out.

“That is the first good question I have heard since our Revolution began,” answered the PM. “We are going to give you the Railways to start with — Indian Railways will keep control of a few national trains and tracks but will be instructed to devolve control and ownership of all other assets to you, the States. See that you use your new assets properly”. There was a collective whoop of excitement. “During the time your budgets remain with us, get your police, transport, education and hospital systems to work for the benefit of common people, confer with your oppositions about how you can get your legislatures to work at all. Keep in mind we are committed to making the rupee a hard currency of the world and we will not stand for any waste, fraud or abuse of public moneys. We really don’t want to be tested on what we mean by that. We are doing the same with the Union Government and the whole public sector”. The Chief Ministers went home nervous and excited.

Finally, the Revolutionary Government turned to Lutyens’ Delhi itself. Foreign ambassadors were called in one by one and politely informed a scale-back had been ordered in Indian diplomatic missions in their countries, and hence by due protocol, a scale-back in their New Delhi embassies was called for. “We are pulling our staff, incidentally, from almost all international and UN agencies too because we need such high-quality administrators more at home than abroad”, the Revolutionary Foreign Minister told the startled ambassadors.

Palpable tension rose in the national capital when the Revolutionary Government announced that Members of Parliament would receive public housing of high quality but only in their home constituencies! The MPs would have to vacate their Delhi bungalows and apartments! “But we are Delhi! We must have facilities in Delhi!”, MPs cried. “Yes, rooms in nationalized hotels suffice for your legislative needs; kindly vacate the bungalows as required; we will be building national memorials, libraries and museums there”, replied the radicals in power. Tension in the capital did not subside for weeks because the old political parties all had thrived on Delhi’s social circuit, whose epicenter swirled around a handful of such bungalows. Now those old power-equations were all lost. A few MPs decided to boycott Delhi and only work in their constituencies.

When the Pakistan envoy was called with a letter for her PM, outlining a process of détente on the USSR-USA pattern of mutual verification of demilitarization, both bloated militaries were upset to see their jobs and perks being cut but steps had been taken to ensure there was never any serious danger of a coup. The Indian Revolution was in full swing and continued for a few years until coherence and integrity had been forced upon the public finances and currency of a thousand million people….”

https://independentindian.com/2013/11/23/coverage-of-my-delhi-talk-on-3-dec-2012/

Posted in Academic economics, Academic research, anarchy and governance, Economic Policy, Economic Theory, Economics of exchange controls, Governance, Government accounting, Government Budget Constraint, Government of India, India's 1991 Economic Reform, India's balance of payments, India's Banking, India's bureaucracy, India's Capital Markets, India's Constitution, India's currency history, India's Democracy, India's Economy, India's Foreign Policy, India's Government Budget Constraint, India's Government Expenditure, India's History, India's Macroeconomics, India's Monetary & Fiscal Policy, India's Politics, India's Polity, India's poverty, India's Revolution, India's Rule of Law, Indian Revolution, Political corruption, Political cynicism, Political Economy, Political legitimacy, Politics, Rajiv Gandhi, Rajiv Gandhi's assassination, Revolution. Leave a Comment »

Will the Government of India’s new macroeconomic policy dampen or worsen the business-cycle (if such a cycle exists at all)? No one knows! “Where ignorance is bliss, ‘Tis folly to be wise.”

December 7, 2008 — drsubrotoroy

I began a two part article published in The Statesman last year (September 23-24 2007) titled “Against Quackery” saying:

“WASTE, fraud and abuse are inevitable in the use and allocation of public property and resources in India as elsewhere, but Government is supposed to fight and resist such tendencies. The Sonia-Manmohan Government have done the opposite, aiding and abetting a wasteful anti-economics ~ i.e., an economic quackery. Vajpayee-Advani and other Governments, including Narasimha-Manmohan in 1991-1996, were just as complicit in the perverse policy-making. So have been State Governments of all regional parties…. Our dismal politics merely has the pot calling the kettle black while national self-delusion and superstition reign in the absence of reason. The general pattern is one of well-informed, moneyed, mostly city-based special interest groups (especially including organised capital and organised labour) dominating government agendas at the cost of ill-informed, diffused anonymous individual citizens ~ peasants, small businessmen, non-unionized workers, old people, housewives, medical students etc….

The cheap money policy announced yesterday and now the so-called “fiscal stimulus” announced today may be a case in point. Dr Manmohan Singh’s main economic policy aide said the aim was for Government to act in a “contra-cyclical” manner, presumably referring to an attempted “counter cyclical policy” to dampen the amplitude of a business-cycle.

But has anyone asked — let aside, does anyone know — where precisely, in terms of phase, period and amplitude, India’s macro-economy happens to be on its presumed business-cycle? Of course not. No one has the faintest clue. There are no models of such a cycle existing and there are no data which have been fit to such non-existent models. Not in Delhi, not in Mumbai, not with any international agency.

[Inspector Gregory (Scotland Yard detective): “Is there any other point to which you would wish to draw my attention?”
Sherlock Holmes: “To the curious incident of the dog in the night-time.”
Inspector Gregory: “The dog did nothing in the night-time.”
Sherlock Holmes: “That was the curious incident.”]

A cheap money policy and a so-called “fiscal stimulus” may in fact, for all that anyone in the Government of India or outside it really knows, exacerbate the amplitude of a business-cycle — making it worse, not better.

In such a state of ignorance, it is odd for policy-makers to go about glibly formulating and announcing so many policy-changes at once. (It may all add up to be just incoherent waffle.) Such has been the typical pattern to emerge from the process of political lobbying by “well-informed, moneyed, mostly city-based special interest groups”. Organised capital and organised labour (as well as of course bureaucrats and politicians) will likely do very well from all this as usual, at the expense of “ill-informed, diffused anonymous individual citizens” of India.

Posted in Big Business and Big Labour, Economic Policy, Economic quackery, Economic Theory, Economics of Public Finance, Government accounting, Government Budget Constraint, Government of India, India's Big Business, India's agriculture, India's Banking, India's Budget, India's bureaucracy, India's Capital Markets, India's corruption, India's Economic History, India's Economy, India's Government Budget Constraint, India's Government Expenditure, India's inflation, India's Macroeconomics, India's Monetary & Fiscal Policy, India's political lobbyists, India's Polity, India's pork-barrel politics, India's Public Finance, India's Reserve Bank, Inflation, Interest group politics, Macroeconomics, Manmohan Singh, Mendacity, Mendacity in politics, Political corruption, Political cynicism, Political mendacity, Politics, Pork-barrel politics. Leave a Comment »

America’s divided economists

October 26, 2008 — drsubrotoroy

America’s divided economists

by

Subroto Roy

First published in

Business Standard 26 October 2008

Future doctoral theses about the Great Tremor of 2008 will ask how it was that the Fed chief, who was an academic economist, came to back so wholeheartedly the proposals of the investment banker heading the US Treasury. If Herbert Hoover and FDR in the 1930s started something called fiscal policy for the first time, George W Bush’s lameduck year has marked the total subjugation of monetary policy.

In his 1945 classic, History of Banking Theory, the University of Chicago’s Lloyd Mints said: “No reorganisation of the Federal Reserve System, while preserving its independence from the Treasury, can offer a satisfactory agency for the implementation of monetary policy. The Reserve banks and their branches should be made agencies of the Treasury and all monetary powers delegated by Congress should be given to the Secretary of the Treasury…. It is not at all certain that Treasury control of the stock of money would always be reasonable… but Treasury influence cannot be excluded by the creation of a speciously independent monetary agency that cannot have adequate powers for the performance of its task…” Years later, Milton Friedman himself took a similar position suggesting legislation “to end the independence of the Fed by converting it into a bureau of the Treasury Department…”(see, for example, Essence of Friedman, p 416).

Ben Bernanke’s Fed has now ended any pretence of monetary policy’s independence from the whims and exigencies of executive power. Yet Dr Bernanke’s fellow academic economists have been unanimous in advising caution, patience and more information and reflection upon the facts. The famous letter of 122 economists to the US Congress was a rare statement of sense and practical wisdom. It agreed the situation was difficult and needed bold action. But it said the Paulson-Bernanke plan was an unfair “subsidy to investors at taxpayers’ expense. Investors who took risks to earn profits must also bear the losses. Not every business failure carries systemic risk. The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise.”

Besides, the plan was unclear and too far-reaching. “Neither the mission of the new agency nor its oversight are clear. If taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards…. If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America’s dynamic and innovative private capital markets have brought the nation unparalleled prosperity. Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.”

The House’s initial bipartisan “backbench revolt” against “The Emergency Economic Stabilisation Act of 2008” (ESSA) followed this academic argument and rejected the Bernanke Fed’s advice. Is there an “emergency”, and if so what is its precise nature? Is this “economic stabilisation”, and if so, how is it going to work? The onus has been on Dr Bernanke and his staff to argue both, not merely to assert them. Even if the House “held its nose” and passed the measure for now, the American electorate is angry and it is anybody’s guess how a new President and Congress will alter all this in a few months.

Several academic economists have argued for specific price-stabilisation of the housing market being the keystone of any large, expensive and risky government intervention. (John McCain has also placed this in the political discussion now.) Roughly speaking, the housing supply-curve has shifted so far to the right that collapsed housing prices need to be dragged back upward by force. Columbia Business School economists Glenn Hubbard and Chris Mayer, both former Bush Administration officials, have proposed allowing “all residential mortgages on primary residences to be refinanced into 30-year fixed-rate mortgages at 5.25 per cent…. close to where mortgage rates would be today with normally functioning mortgage markets….Lower interest rates will mean higher overall house prices…” Yale’s Jonathan Koppell and William Goetzmann have argued very similarly the Treasury “could offer to refinance all mortgages issued in the past five years with a fixed-rate, 30-year mortgage at 6 per cent. No credit scores, no questions asked; just pay off the principal of the existing mortgage with a government check. If monthly payments are still too high, homeowners could reduce their indebtedness in exchange for a share of the future price appreciation of the house. That is, the government would take an ownership interest in the house just as it would take an ownership interest in the financial institutions that would be bailed out under the Treasury’s plan.”

Beyond the short run, the US may play the demographic card by inviting in a few million new immigrants (if nativist feelings hostile to the outsider or newcomer can be controlled, especially in employment). Bad mortgages and foreclosures would vanish as people from around the world who long to live in America buy up all those empty houses and apartments, even in the most desolate or dismal locations. If the US’s housing supply curve has moved so far to the right that the equilibrium price has gone to near zero, the surest way to raise the equilibrium price would be by causing a new wave of immigration leading to a new demand curve arising at a higher level.

Such proposals seek to address the problem at its source. They might have been expected from the Fed’s economists. Instead, ESSA speaks of massive government purchase and control of bad assets “downriver”, without any attempt to face the problem at its source. This makes it merely wishful to think such assets can be sold for a profit at a later date so taxpayers will eventually gain. It is as likely as not the bad assets remain bad assets.

Indeed the University of Chicago’s Casey Mulligan has argued there is a financial crisis involving the banking sector but not an economic one: “We’re not entering a second Great Depression.” The marginal product of capital remains high and increasing “far above the historical average. The third-quarter earnings reports from some companies already suggest that America’s non-financial companies are still making plenty of money…. So, if you are not employed by the financial industry (94 per cent of you are not), don’t worry. The current unemployment rate of 6.1 per cent is not alarming, and we should reconsider whether it is worth it to spend $700 billion to bring it down to 5.9 per cent.”

Dr Bernanke has been a close student of A Monetary History of the United States in which Milton Friedman and Anna J Schwartz argued that the Fed inadvertently worsened the Great Contraction of 1929-1933 by not responding to Congress. Let not future historians find that the Fed, at the behest of the Treasury Secretary, worsened the Great Tremor of 2008 by bamboozling Congress into hasty action.

Posted in Accounting and audit, America's housing market, America's mortgage crisis, American academia, American democracy, American financial crises, American history, American politics, Anna Schwartz, asymmetric information, Banking, Ben Bernanke, Dynamic competition, Economic Policy, Economic quackery, Economic Theory, Economic Theory of Interest, Economic Theory of Value, Economics of Exchange Rates, Economics of housing markets, Economics of Public Finance, Economics of real estate valuation, Economics of Unemployment, Federal Reserve Bank of New York, Federal Reserve Banks, Financial markets, Government accounting, Government Budget Constraint, Great Tremor of 2008, International immigration, Lehman Brothers crisis, Macroeconomics, Milton Friedman, Monetary Theory, Money and banking, October 1929 New York Stock Market Crash, Political cynicism, Political Economy, Pork-barrel politics, Professional ethics, Public Choice/Public Finance, Public property waste fraud, United States Congress, University of Chicago, US economy, US Federal Reserve System, US in World Trade, US Monetary and Fiscal Policy, US Presidential Election, US Republicans and Democrats, USA, United States, USA, United States polity, World History. 1 Comment »

Monetary Integrity and the Rupee (2008)

September 28, 2008 — drsubrotoroy

Monetary Integrity and the Rupee: Three British Raj relics have dominated our macroeconomic policy-making

First published in Business Standard 28 September 2008

This image has an empty alt attribute; its file name is img_20210713_160909-1.jpg

Taxation via inflation “does not require detailed legislation, and can be administered very simply. All that it requires is to spend newly created notes. The resulting inflation automatically imposes a tax on cash balances by depreciating the value of money”. Philip Cagan said this in a pioneering 1956 study of hyperinflations worldwide. Britain’s Hugh Dalton observed how government deficits could be met by “use of the printing press to manufacture legal tender paper money” to pay government creditors either directly “with new paper money specially printed for the purpose” or indirectly “out of loans to itself from the Central Bank”. Milton Friedman and Anna Schwartz pointed to America’s wartime resort to inflation.

Government debt held by a central bank quickly filters through to appear as an asset in balance-sheets of commercial banks, causing expansion of bank-lending and hence of bank-deposits and broad money. After the attack on Pearl Harbour, the US Treasury could get from the Federal Reserve or commercial banks “any funds that it needed beyond those secured by taxation and by borrowing from non-bank sources”. America’s wartime banking system became “a mechanism for providing funds to finance government expenditure” — deposits grew because “bank buying of government securities increases bank deposits”.

In RF Harrod’s words: “There is a well-known aphorism that ‘bank loans create deposits’…. if the central bank has an increase of assets, whether through a gold inflow or its own increase of ‘lending’ (including the purchase of bills or bonds), some commercial bank will have an increase of assets of equal amount, in the form of claims on the central bank (deposits at it or notes issued by it) and an increase of deposit liabilities of equal amount to its customers”.

India has followed in peacetime over six decades what the USA and Britain followed during war. Our vast growth of bank-deposits in recent decades has been mostly a paper (or nominal) phenomenon caused by unlimited deficit-finance in a fractional reserve banking system. Policy-makers have widely misinterpreted it as indicating a real phenomenon of incredibly high savings behaviour. In an inflationary environment, people save their wealth less as paper deposits than as real assets like land, cattle, buildings, machinery, food-stocks, jewellery etc.

Almost 50% of annual public revenues in real terms may have been arising from inflationary finance in recent decades. To take a specific example, during Dr Manmohan Singh’s tenure as Finance Minister, Union Government expenditure net of operational income was some Rs. 1.3 trillion (Rs 1.3 lakh crore) in 1994-1995. Some Rs. 675 billion (1 bn= 100 crore) was raised from all taxation that year, Rs 183 billion from direct taxes. The remaining Rs. 620.8 billion was borrowed on behalf of future generations of citizens using the Government of India’s credit. What is termed “Gross Fiscal Deficit” is this additional or marginal annual borrowing — it adds itself to the ongoing stock of public debt every year and has been continually monetised insofar as our mostly nationalized banking system annually comes to hold government securities to that additional amount.

India’s inflation-history shows a first phase from the 1870s until the Second World War when money prices fluctuated in response to real shocks, positive and negative, domestic and international. E.g., the US Civil War and First World War caused demand surges for Indian manufactures like cotton textiles and steel railway-tracks, while the Great Depression saw Indian prices crashing with world prices.

During the Second World War, money prices in India rose at their fastest rate ever, caused by deliberate British policy to pay for war expenditure by printing money. The British resort to inflationary wartime finance saw the highest money supply growth rates in India ever to occur to date. This pattern came to be adopted and institutionalised by independent India’s socialist authorities, so there has been a third phase of steady inflationary finance from the 1950s until today, along with negative shocks like military and civil conflicts, droughts and oil price-rises, as well as happier developments like technological progress leading to growth of real income (see graph).

Two more relics from the wartime British Raj continue to dominate Indian macroeconomic policy to this day. One is unlimited spending on vast standing armies — our supposed adversary itself being a political remnant of the Raj with similar macroeconomic problems to ourselves. India’s army has some 19 divisions facing Pakistan, Pakistan’s army has 19 divisions facing India!

The other relic has been the Indian rupee becoming inconvertible as a world money ever since import quotas were imposed across the Sterling Area in 1940-1942. Lack of convertibility has made all government finance in India unlike that in modern Western economies. US government bonds are held freely in foreign portfolios so a Swiss household or Japanese bank may trade these as they please. Bond prices vary inversely with interest-rates, and yield curves would be attempted to be defined reflecting the maturity-structure and state of expectations. Competitive arbitrage in international capital markets may succeed in ensuring government debt is priced accurately.

A central bank with a convertible currency sells debt to raise monetary interest rates and attract capital flows, buys up its debt to lower rates and cause capital outflows. Money growth unwarranted by real growth depreciates the currency under floating exchange rates; a partial export of inflation occurs under fixed-rates. Debt instruments are liquid near-moneys, and it is because US Government debt has been liquid that debt instruments of its sub-sovereign divisions like States or municipalities are almost as liquid. If sovereign debt is not liquid, nor will be sub-sovereign debt.

In India, bank assets may be liquid domestically but are illiquid internationally. Government debt is not held by domestic households as voluntary savings nor has it been a liquid asset held worldwide in foreign portfolios. The same holds a fortiori for debt issued by more than two dozen State Governments. “Mutual funds” created in recent years do contain government debt on modern principles of portfolio-selection but amounts involved are small. The Rupee achieving monetary integrity after more than six decades of governmental misuse would be indicated only when any ordinary Indian resident can freely hold or trade India’s money for foreign moneys or precious metals as he/she pleases. India’s economy and money can begin to move towards coherence and integrity only when we put to rest the three relics from the wartime British Raj which we unthinkingly have allowed to dominate our macroeconomic policy-making ever since.

The Excel graphs built on my data were made into a nice picture by Business Standard but seem to have been removed from their website, and hence are reproduced here now for the first time today, Oct 2, 2011:

Monetary Integrity and the Rupee (SRoy2008)

India’s Money, 2012,

Critical assessments of India’s economic policy, plus my 3 Dec 2012 Delhi talk on India’s money, Interview on Lok Sabha TV 2012, GDI Impuls Zürich Interview, Sunday Guardian Interview & Asian Age/Deccan Herald coverage

https://independentindian.com/2013/11/23/coverage-of-my-delhi-talk-on-3-dec-2012/

122 sensible American economists

September 26, 2008 — drsubrotoroy

$700 billion comes to more than, uhhhm, $6,000 per income taxpayer in the USA.

I was glad to see the sensible letter of 122 American economists to US legislators regarding the Paulson-Bernanke plan to address America’s financial crisis.

Subroto Roy

Posted in American academia, American financial crises, Banking, Ben Bernanke, Economic Policy, International monetary economics, Lehman Brothers crisis, Macroeconomics, Monetary Theory, Money and banking, US Federal Reserve System, US in World Trade, US Monetary and Fiscal Policy. Leave a Comment »

October 1929? Not!

September 18, 2008 — drsubrotoroy

October 1929? Not!

by Subroto Roy

First published in

Business Standard, Editorial Page,

18 September 2008

Lehman Brothers filing for bankruptcy protection, Merrill Lynch taken over by Bank of America, Fannie Mae and Freddie Mac and now AIG being nationalised by the US Government, Bear Stearns getting a government bailout, many thousands of low-quality loans going bad … Does it all add up to an American financial crisis in the autumn of 2008 comparable to that in the autumn of 1929? Even Alan Greenspan himself has gone on record on TV saying it might.

But there are overriding differences. Most important, the American economy and the world economy are both incomparably larger today in the value of their capital stock, and there has also been enormous technological progress over eight decades. Accordingly, it would take a much vaster event than the present turbulence — say, something like an exchange of multiple nuclear warheads with Russia causing Manhattan and the City of London to be destroyed — before there was a return to something comparable to the 1929 Crash and the Great Depression that followed.

Besides, the roots of the crises are different. What happened back then? In 1922, the Genoa Currency Conference wanted to correct the main defect of the pre-1914 gold standard, which was freezing the price of gold while failing to stabilise the purchasing power of money. From 1922 until about 1927, Benjamin Strong of the Federal Reserve Bank of New York adopted price-stabilisation as the new American policy-objective. Britain was off the gold standard and the USA remained on it. The USA, as a major creditor nation, saw massive gold inflows which, by traditional gold standard principles, would have caused a massive inflation. Governor Strong invented the process of “sterilisation” of those gold inflows instead and thwarted the rise in domestic dollar prices of goods and services.

Strong’s death in 1928 threw the Federal Reserve System into conflict and intellectual confusion. Dollar stabilisation ended as a policy. Surplus bank money was created on the release of gold that had been previously sterilised.

The traditional balance between bulls and bears in the stock-market was upset. Normally, every seller of stock is a bear and every buyer a bull. Now, amateur investors appeared as bulls attracted by the sudden stock price rises, while bears, who sold securities, failed to place their money into deposit and were instead lured into lending it as call money to brokerages who then fuelled these speculative bulls. As of October 22, 1929 about $4 billion was the extent of such speculative lending when Chase National Bank’s customers called in their money.

Chase National had to follow their instructions, as did other New York banks. New York’s Stock Exchange could hardly respond to a demand for $4 billion at a short notice and collapsed. Within a year, production had fallen by 26 per cent, prices by 14 per cent, personal income by 14 per cent, and the Greatest Depression of recorded history was in progress — involuntary unemployment levels in America reaching 25 per cent.

That is not, by any reading, what we have today. Yes, there has been plenty of bad lending, plenty of duping shareholders and workers and plenty of excessive managerial payoffs. It will all take a large toll, and affect markets across the world.

But it will be a toll relative to our plush comfortable modern standards, not those of 1929-1933. In fact, modern decision-makers have the obvious advantage that they can look back at history and know what is not to be done. The US and the world economy are resilient enough to ride over even the extra uncertainty arising from the ongoing presidential campaign, and then some.

“Rangarajan Effect”

August 24, 2008 — drsubrotoroy

Dr C Rangarajan stepping down from chairmanship of the PM’s official economic advisers is, fortunately, not a sign that his role as a policy-maker is coming to end;he has become a Rajya Sabha MP and it has even been speculated he may be invited into the Cabinet. India has been experiencing high recorded inflation in recent months. The most disconcerting aspect of this may be that it seems to be accelerating Business Standard 24 August 2008

Posted in C Rangarajan, Economic Policy, Economics of Public Finance, Financial Repression, Government of India, India's Banking, India's Budget, India's Economic History, India's Economy, India's Government Expenditure, India's inflation, India's Macroeconomics, India's Monetary & Fiscal Policy, India's Public Finance, India's Reserve Bank, Manmohan Singh, Sukhamoy Chakravarty. 1 Comment »

Reddy’s reckoning

August 10, 2008 — drsubrotoroy

Reddy`s reckoning
Where should India’s real interest rate be relative to the world?
Business Standard 10 August 2008

The Governor of the Reserve Bank of India has made a curious, possibly fallacious remark.

Posted in Banking, Economic Policy, Economic Theory of Interest, India's Government economists, India's Capital Markets, India's Economic History, India's Economy, India's inflation, India's Monetary & Fiscal Policy, India's Reserve Bank, Inflation, Interest rates, Macroeconomics, Monetary Theory, Money and banking. Leave a Comment »

Growth of Real Income, Money & Prices in India 1869-2008

July 28, 2008 — drsubrotoroy

I have warned against a “monetary meltdown” in India for more than a decade and a half now. I said it to Rajiv Gandhi (who listened with care and respect) and after he was gone I have said it to Government economists in India, to IMF/World Bank bureaucrats in Washington, to academic audiences in India and the UK and to India’s general newspaper reading public.

Obviously I hope such a meltdown does not come about. But inflation, or the decline in the value of money, presently is in double-digits even by the Government’s own admission. (As a general rule, I think the decline in the value of money has been higher by several percent than what the Government says at any given time.) Hence I am publishing again some results of my macroeconomic research on India over the years. You are free to use them and communicate with me about them but please acknowledge them properly and do not steal.

The first graph of 1869-2004 data was published in print to accompany my Growth and Government Delusion in The Statesman February 22, 2008; it had also accompanied other similar articles, e.g. The Dream Team: A Critique in January 2006. The second graph of 1935-2008 data was published in print to accompany my article Indian Inflation in The Statesman of April 22 2008.

Subroto Roy

Distribution of Govt of India Expenditure (Net of Operational Income) 1995

July 27, 2008 — drsubrotoroy

For more than a decade and a half now, I have been engaged in some “fundamental research” about India’s public finances. This has involved inter alia transforming the entire set of government accounting data (both Union and all States) from their present obscurity and opaqueness to what I have called a condition of “maximum feasible transparency” (see my April 29 2000 address to the Reserve Bank’s Conference of Finance Secretaries).

Here is an example of the Union Government’s 1994-1995 expenditure (net of operational income).

It is from my unpublished ongoing research and is being released as a public service for India’s people. Readers are welcome to use it with acknowledgement under the normal “fair use” rule. Please try not to steal it, i.e. use it without proper acknowledgement.

from-ongoing-research-of-dr-subroto-roy-on-india

Subroto Roy

Nuksaan-Faida Analysis = Cost-Benefit Analysis in Hindi/Urdu

June 30, 2008 — drsubrotoroy

I have published about a half dozen or more articles, mainly in The Statesman‘s Editorial Page, on the India-US Nuclear Deal, e.g. “Imperialism Redux”14 March 2006, “Towards an Energy Policy” 2 April 2006, “India’s Energy Interests” 27-28 August 2006, “Need for Clarity”, 19 August 2007. One of my main complaints has been that the Prime Minister and his acolytes seem to have failed to do a proper cost-benefit analysis of the whole thing. The same currency-risk that made the Dabhol-Enron project instantly unviable is also faced a fortiori in the idea of importing nuclear fuel and reactors. The Finance Minister and Finance Secretary who failed to calculate that currency risk in the former project, and hence caused its failure, have now failed again as PM and Planning Commission chief while advocating the latter project. Is the Indian rupee destined to depreciate in the long run? Of course it is: just look at the long run trends and compare our money supply growth rates and inflation rates with those of the USA or EU. The cost of imported nuclear power in India must be recalculated under different scenarios for the exchange-rate of the Indian rupee including e.g. a 20% depreciation.

It is not as if the Government of India is ignorant of what Cost-Benefit Analysis is supposed to be! For example, look up

“*Ministry of Personnel, Public Grievances and Pensions* * *THE INDIAN ADMINISTRATIVE SERVICES (PROBATIONERS’ FINAL EXAMINATION) REGULATIONS, 1955* * *In pursuance of rule 7 of the Indian Administrative Service (Probation) Rules, 1954, the Central Government, in consultation with the State Governments and the Union Public Service Commission, hereby makes the following regulations, namely* *1. Short title:- These regulations may be called the Indian Administrative Service (Probationers’ Final Examination) Regulations, 1955.* *2. Definition:- 2(1) In these regulations, unless the context otherwise requires,-* *(a) `Academay’ (sic) means Lal Bahadur Shastri National Academy of Administration;* *(b) [ ];* *(c) `Director’ means the Director of the Academy; and * *(d) `Schedule’ means a Schedule appended to these regulations.* *2(2) All other words and expressions used in these regulations and not defined shall have the meanings respectively assigned to them in the Indian Administrative Service (Probation) Rules, 1954.* *3. Final examination.- 3(1) Every probationer shall, at or about the end of the period of training in the Academy appear at a final examination.* *3(2) The examination shall be conducted by the 4Director in the manner laid down in these regulations….4. PUBLIC ADMINSTRATION AND MANAGEMENT* *Essentials of Administration-Organisational Structure of Governments, Role of Civil Servants, Administrative Ethics and Accountability, Delegation and Decentralisation-District and Local Administration-Personal Administration, Police Administration-Jail Administration Panchayati Raj Administration- CalamityAdministration-Administration of Development and Welfare Programmes- Budget and Role of Audit and general financial principles-Role of District Officer/SDO-Conduct of Elections.* *Management and Organisation* *Behavioural Science Motivation, Leadership, Decision-Making, MBO, Management of Conflicts, Management of Change ,Transactional Analysis, -MIS-O&M & Work study-Pert-CPM, Time Management Methodology of Presentation of a subject-Financial Management Capital Budgeting, Discountal Cash Flow, Ratio Analysis, Project Formulation, Cost benefit Analysis, Project Evaluation Interpretation of Balance Sheets….” (emphasis added)

How come there has been none with the India-US nuclear deal then? I think we need a new more comprehensible term for Cost-Benefit Analysis, and that should be, most simply, its Hindi/Urdu equivalent: “Nuksaan-Faida Analysis”.

What is the estimated Nuksaan?

What is the estimated Faida?

How do they compare? It all becomes so much easier!

Subroto Roy

Posted in Cost Benefit Analysis, Dabhol/Enron fiasco, Economic Policy, Economic quackery, Economics and Energy, Economics of Exchange Rates, India's Economy, India's Energy, India's Government Expenditure, India's Macroeconomics, India's Polity, India-United States business, India-US Nuclear Deal, Manmohan Singh, Nuksaan Faida Analysis. Leave a Comment »

University of Hawaii Project on India’s Political Economy 1986-1992

June 13, 2008 — drsubrotoroy

University of Hawaii Project on India’s Political Economy 1986-1992

This is dated May 21 1989 and located at the University of Hawaii President’s House. Prof. Milton Friedman and the Indian Ambassador to the USA are wearing Hawaiian leis. The academic result of this project was the work Foundations of India’s Political Economy: Towards an Agenda for the 1990s edited by myself & WE James and published by Sage. The practical and political result was the origin of the 1991 Indian economic reform when the project manuscript in unpublished form reached Rajiv Gandhi through my hand on September 18 1990 at 10 Janpath New Delhi; the story of my encounter with Mr Gandhi has been told elsewhere here.

see https://independentindian.com/1990/09/18/rajiv-gandhi-and-the-origins-of-indias-1991-economic-reform/

https://independentindian.com/2013/08/23/did-jagdish-bhagwati-originate-pioneer-intellectually-father-indias-1991-economic-reform-did-manmohan-singh-or-did-i-through-my-encounter-with-rajiv-gandhi-just-as-siddhartha-shan/

Posted in Economic Policy, India's 1991 Economic Reform, India's Economic History, India's Economy, India's History, India's Politics, Milton Friedman, Rajiv Gandhi, Roy vs University of Hawaii, State of Hawaii, University of Hawaii. Leave a Comment »

Indian Inflation: Upside Down Economics from New Delhi’s Establishment (2008)

April 16, 2008 — drsubrotoroy

Indian Inflation:

Upside Down Economics From The New Delhi Establishment

by

Subroto Roy

First published in two parts in

The Statesman, Editorial Page Special Article,

April 15-16, 2008

Suppose there are only three real goods and services in the economy, and their prices per unit expressed in terms of money were Rs 3, Rs 2, Rs 6 respectively. If those money prices per unit doubled to Rs 6, Rs 4, Rs 12 respectively, we would say inflation of 100% occurred during the relevant time-period. If the prices had gone instead to Rs 4.50, Rs 3, Rs 9, we would say inflation was 50%, and so on. Notice the ratios between the three prices have remained the same in these examples; i.e., while the money prices of the items have changed, relative prices between them remained constant. In reality, there are many hundreds of millions of differentiated real goods and services in any economy though the logic stays the same.

Decline of money
It is well within living memory that the monthly salary of a Government of India Joint Secretary was Rs 3,000. Middle class parents would wed their daughters respectably to a groom earning such a figure. A Joint Secretary today makes 20 times as much and Rs 3,000 is made by his driver or children’s nanny whose equivalent back then made perhaps Rs 150 per month. The relative distance between the Joint Secretary and his driver has not decreased but the absolute amount of rupees made by each has been multiplied by a factor of 20. That indicates the fall in the value of rupees or rise in prices of goods and services relative to rupees during that period.

One reason this has happened is that the monopoly issuer of rupees, namely the Government of India, has vastly enlarged the stock of rupees present in the economy, both paper-notes and bank-deposits. Inflation, strictly speaking, is uniform decline in the value of money or, what is the same thing, uniform increase in all rupee prices, including wages, with relative prices constant. The time-period could be a year or even a month; “hyperinflation” may start to be defined if the value of money falls at more than 10% per month.

The main problem with inflation is that rupee prices never expand uniformly and hence some classes of people gain unexpectedly while others suffer catastrophe. E.g., all those with debts expressed in rupee terms pay back less in real terms while their creditors go bankrupt. Those with fixed or slow-changing incomes (like old people, unorganised non-unionised workers etc) and those with paper assets (like currency rather than land or jewelry) are all made worse off by inflation. Unionized workers, like Government employees, do very well from inflation relative to others in society as their compensation is inflation-indexed. And the Government of India itself, as the largest debtor in the economy, gains massively from inflation; indeed, printing more paper is a standard way for all governments around the world to reduce their real debts by subterfuge.

The farmers at Singur or the SEZs who hand over their land for paper rupees from the Government will find the value of that paper declining and the value of that land rising over future years ~ which may help explain the recent keenness of city-people to take over rural India.

Rupee prices are one key variable that tend to expand via inflation with expansion of money stock. The other main change occurs in real income through growth. The Joint Secretary and his driver both use colour TVs for entertainment and gas-stoves for cooking these days; their earlier counterparts would have used transistor radios and coal-fired ovens.

To that extent, we have superior standards of living than we did in the past. There has been enormous technological progress, mostly through spontaneous learning and productivity increase, and that leads to vastly greater commerce and transactions between people, hence greater income and wealth through specialization. The vastly increased volume and value of commerce requires more money to expedite its turnover.

India’s money stock in recent decades has been growing at no less than 15% per annum, most recently reaching an all-time high of 22% per annum last year. Even if current Government estimates of growth of real income at some 9% are taken at face-value, that may mean growth in all rupee prices, i.e. inflation, near 22-9=13% per annum. TV economists parrot Government WPI inflation at 5% per annum, and now newspaper headlines are screaming WPI inflation is at 7.4% ~ more realistically, the decline in the value of India’s paper money has likely been in double-digits for years.

Paper money is a peculiar thing as it has no intrinsic value ~ even a hair pin or shirt-button has more usefulness as such. Paper money derives whatever value it has only because each of us in the economy believes everyone else will accept it in transactions in payment of wages or to purchase food and other items with.

Gold standard

The currency note in your pocket may carry the signature of the RBI Governor and his “promise to pay the bearer” the face-value ~ as if he is going to pay you its equivalent in gold held by the Government. But this is open humbug, a childish fiction. In 1931 the British pound, and the Indian rupee which linked to it at the time, went off the “gold standard” and there has been no backing of the Indian currency with gold ever since then.

In a pure gold standard, gold is money ~ interchangeable in the sense the central bank guarantees it will exchange gold for the paper it issues at an announced price. If that price changes up or down, there is devaluation or revaluation of the currency with respect to gold (depending on how you count it).

A gold exchange standard is similar except gold is not used as money and central banks of nations guarantee the announced prices of their paper moneys with respect to gold in transactions with one another. In the dollar exchange standard (or Bretton Woods system from 1944 to 1971), the US Government alone and uniquely undertook to guarantee the price of the dollar at $35 a troy oz of gold in transactions with all other central banks. That was the underpinning of the international financial system until Richard Nixon “closed the gold window” on 15 August 1971 because the US had largely financed the Vietnam War through money-creation, and other countries’ central banks (like France) had accumulated large dollar-balances.

The “gold standard”, “gold exchange standard”, and “dollar exchange standard” are all examples of “fixed” exchange rate systems which came to end in 1971-1972. The price of gold at $35 an oz was obviously unrealistically low, and it shot up at once, and has even reached $1000 an oz recently. Since 1972, the Western world has been on “floating exchange rates” where currencies find their own values and gold is merely one asset among many. Fixed exchange rate systems can lead to speculation, runs against currencies and the irresponsible international export of inflation which floating exchange rate systems tend to avoid because there will tend to be market-determined movement in the exchange-rate instead.

Elite capital flight

India today has neither a proper fixed nor a proper floating exchange-rate system but instead continues a system of highly discriminatory exchange controls. Twenty or thirty million people in our major cities know how to use the present system well enough to exchange their Indian rupees for as much as US $200,000 per annum to send their children and relatives settled abroad as foreign nationals. Plus Indian corporations have been allowed to convert rupees to buy sinking foreign companies. Foreign-currency reserves have vastly climbed too as domestic Indian companies have been allowed to incur foreign-currency denominated debt. Hence the thirty million special people are rather cleverly able to borrow foreign currency with one hand and then transmit it abroad with the other.

The net result is a clear policy of government-induced elite capital flight, unprecedented in its irresponsibility anywhere in world economic history ~ signed, sealed and delivered by the Montek-Manmohan-Chidambaram trio now just as Yashwant-Jaswant-KC Pant and friends had done a little earlier. The Communists would only be worse, as their JNU economists renounce all standard textbook microeconomics and macroeconomics in favour of street-shouting instead.

Outside the thirty million Indians with NRI connections, the average Indian today is disallowed from holding foreign exchange accounts at his/ her local bank or holding or trading in gold or other precious metals freely as he/she may please ~ the physical arrest of Mohun Bagan’s hapless Brazilian footballer by our inimitable Customs officers the other day reveals the ugliness of the situation most poignantly.

Every TV economist in Delhi, Bombay and Kolkata now seems to have a solution about India’s inflation and all sorts of fallacious reasoning is in the air. Some recommend the rupee appreciating or depreciating ~ as if anyone in the country has the faintest idea how elastic imports, exports and capital flows may be in fact to changes in the (controlled) exchange-rate. The Finance Minister and PM keep saying inflation is being “imported” because international commodity prices are high ~ someone should explain to them inflation is “imported” when fixed exchange rates allow transmission through the price-specie flow mechanism, and that is far from being India’s main problem. The extra-constitutional “Planning Commission” has, we may be thankful, remained silent about inflation, and seems to have abandoned earlier misconceptions about using forex reserves for “infrastructure”. The UPA Chair, we may be thankful, also has been silent and admits innocence of all economics, implicitly trusting her PM’s wisdom in all such matters instead.

What no one wants to talk about is the hippopotamus that is present in the room, namely, the chronically diseased state of accounts and public finances of the issuer of India’s paper-rupees, the Union Government, as well as the diseased accounts and finances of more than two dozen State Governments that are subservient to it. The macroeconomic and fiscal policy process that the Congress, BJP, Communists and everyone else in the political class in New Delhi and the State capitals have been presiding over for decades is one that turns normal economics upside down.

What happens in the West is that an estimate of technological progress and population growth is made by policy-makers, then an “acceptable” or “unavoidable” or “natural” rate of inflation is added (the figure of monetary change needed for efficiency in the real economy so relative prices adjust to equilibrium in response to demand and supply changes), then a monetary growth target is set, to which the fiscal authority ~ i.e. the legislature handling the Government’s budget ~ must adjust taxation and spending plans accordingly.

What has been happening in India every year for decades is that each of some two dozen state legislatures runs up a large deficit, which are all added up and passed on to the “Centre”; the “Centre” and its “Yojana Bhavan”, at the behest of every conceivable organised interest-group with access in Delhi especially government unions and the military, runs up its own vastly larger fiscal deficit, and then this grand total of fiscal-deficits is offered to the Reserve Bank at the end of a loaded pistol ~ to pay for one way or another via new public debt creation and money printing. Subtract the WPI rate from the Money Supply Growth rate and government spokesmen and their businessmen friends then exclaim that the economy must try to reach the difference as its “warranted” growth rate! It is all economics upside down from people who have either learnt nothing significant in the subject or forgotten whatever little they once did.

Fragile financial state

The net result has been a banking system (mostly nationalized) in which the asset side of banks’ balance-sheets is made up almost entirely of rather dubious government debt, interest payments on which are received every year from fresh money-printing. The liability side of those balance-sheets consists of course of customer-deposits. In this fragile monetary and financial state, a government-induced capital flight has been allowed to continue under pretence of liberalization ~ with Indian companies being allowed to borrow from foreign markets many times their domestic rupee-denominated net worth by which to acquire ailing foreign companies and brands. Furthermore, there has been a massive fiscal effect as vast new Government spending programs ~ like buying foreign aircraft carriers, fighter-jets or passenger aircraft or writing off farm loans ~ come to be announced and absorbed into expectations of future inflation. A monetary meltdown is what the present author cautioned against in 1990-1995 and again, publicly, in 2000-2005. Economics, candidly treated, tells us not only that there is no such thing as a free lunch but also that chickens come home to roost.

Articles of related interest include “Against Quackery”, “India’s Macroeconomics”, “Fiscal Instability”, “Indian Money and Credit”, “Indian Money and Banking”, “The Dream Team: A Critique” etc. See https://independentindian.com/2013/11/23/coverage-of-my-delhi-talk-on-3-dec-2012/

Irresponsible Governance

March 4, 2008 — drsubrotoroy

Irresponsible Governance

Congress, BJP, Communists, BSP, Sena Etc Reveal Equally Bad Traits

By Subroto Roy

First published in

The Statesman, March 4 2008,

Editorial Page Special Article

A “black” American, born of a black Kenyan father and white American mother, and having a Muslim middle name Hussein though Christian by faith, may become the freely elected President of the USA in January 2009. He has stood up himself and anyone who knows Western cultures will know how hard it would have been to overcome workplace prejudices. Martin Luther King Jr’s dream of America becoming a nation where people “will not be judged by the colour of their skin but by the content of their character” might start to be fulfilled.

Can the same be said of modern India, ever? When will Muslims, Dalits, tribals and whomever become well enough integrated with mainstream Hindu societies ~ and vice versa ~ that we have army generals, fighter pilots, submarine commanders, nuclear scientists, media moghuls, top executives, and yes, freely elected Prime Ministers of India from any externally identifiable group without batting an eyelid? The policies followed by the Congress, BJP, Communists, BSP etc., exemplified by Mr Chidambaram’s pandering Budget-Speech last week, suggest that the answer will be never.

Selling illusions

Mr Chidambaram mentioned “Scheduled Caste” six times and “Minority” (meaning “Muslim”) five times in his speech~ if he or the Sonia-Manmohan Government genuinely felt any of the schemes mentioned were in the true interest of these groups, these schemes could have been simply and quietly implemented without fanfare or political advertisement. Making a big deal about them in Parliament during a Budget-Speech precisely reveals the actual underlying cynicism and hypocrisy. The fact may be it is not the schemes themselves that are important but the illusions created and sold about them, illusions that have electoral value because they deceive the purported beneficiaries into thinking that somebody powerful cares about them and controls their well-being.

A quarter-century ago in Pricing, Planning & Politics: A Study of Economic Distortions in India, I applied the arguments of the black American economist Thomas Sowell to the Indian case. I said: “the racial composition of contemporary American society is a complex mosaic, and no-one can say with certainty how it has come to be what it is today. In such circumstances, for the government to try to isolate a single contingent characteristic like “race”, partition society on the basis of census data according to this characteristic, and then construct public policies accordingly, is to introduce an enormous arbitrariness into economic life. By merely defining a group by reference to a single contingent characteristic, which all its members seem to possess, the intrinsic complexity of the individual person is lost or overlooked. Two members of the same race may be very different from each other in every relevant characteristic (income, education, political preference, and so on), and indeed resemble members of other races more closely in them. A policy which introduces a citizen’s race as a relevant factor in the assignment of jobs or college places partitions the citizenry into vague groups: members of groups who are very different from members of other groups in characteristics other than race rarely competing with each other anyway, while the burden and beneficence of the State’s policies fall on members of groups who are not very different from members of other groups in characteristics other than race”.

Sowell himself (in Knowledge and Decisions) put it like this: “costs are borne disproportionately by those members of the general population who meet standards with the least margin and are therefore most likely to be the ones displaced to make room for minority applicants. Those who meet the standards by the widest margin are not directly affected ~ that is, pay no costs. They are hired, admitted or promoted as if blacks did not exist. People from families with the most general ability to pay also have the most ability to pay for the kind of education and training that makes such performance possible. The costs of special standards are paid by those who do not. Among the black population, those most likely to benefit from the lower standards are those closest to meeting the normal standards. It is essentially an implicit transfer of wealth among people least different in non-racial characteristics. For the white population it is a regressively graduated tax in kind, imposed on those who are rising but not on those already on top.’”

What Sowell said about American blacks may well apply to India’s religious and caste minorities today. Problems of tribal India are more subtle requiring more technical sociological and anthropological study.

The Leftist idea common to the Congress, Communists, BSP etc has been to perpetuate dependency of Muslims, Dalits, OBCs etc upon the whims of State power (as wielded by such Leftists themselves). By contrast, the Rightist/Fascistic idea of the BJP, its RSS parent, the Sena etc has been to try to bludgeon Muslims, Dalits and everyone else into submission whereby they must adopt majority customs, habits or political beliefs or (in true Nazi fashion) come to be exiled or banned from mainstream society. Both Left and Right in India have also promoted new government-induced “Sex Wars” between males and females ~ passing laws drastically raising the risk and cost of maintaining marriages and family households, which then simply collapse as has happened elsewhere.

In general, the Congress, BJP, Communists, BSP etc have been united in being wholly incapable of seeing India’s people as individuals in their own right in all the diversity and complexity that entails ~ as free citizens who possess individual rights to belief, property, security, privacy etc. Instead the idea has been to politically categorize people as members of mass-groups that may be then manipulated as puppets using State power in one direction or another. The result has been a general failure in the country to develop the notion of responsible individual citizens (hundreds of millions in number) dealing with responsible public and civic institutions including the State.

Citizens and State

Even in nations that are heirs to a long history of democratic political development, the link often has not been made in the public mind between enjoyment or lack of enjoyment of public services, and costs upon individual citizens from whom resources must be ultimately raised. In a fiscal democracy “those who bear the costs of public services are also the beneficiaries” (JM Buchanan); conversely, those who demand public services must pay for them in real resources one way or another. If citizens feel they receive little or nothing of value from government, there is an obvious loss of incentive to be counted as responsible voting members of the same community, and instead reason to evade taxes or flee the country or cynically believe everything to be corrupt.

On the other hand, if citizens demand public services without expecting to contribute private resources for their production, this amounts to being no more than a wish to be free-riders on the general budget. While Indian citizens have been arbitrarilty partitioned by government according to religion, caste etc., widespread cynicism has prevailed about secular provision of public services by government at any level. At the same time the idea is far from understood that beneficiaries of public services must sooner or later expect to bear real resource-costs one way or another. Everyday politics thus becomes highly irresponsible. Political New Delhi has created such a state of affairs over decades and continues to contribute to it.

Posted in Barack Obama, BJP, Communists, Congress Party, Economic Policy, Economic quackery, Economics of Unemployment, India's Caste/Ethnic Problems, India's Constitution, India's Democracy, India's Jurisprudence, India's Nationalism, India's Politics, India's Polity, Martin Luther King Jr, Thomas Sowell, USA, United States polity. Leave a Comment »

India’s Budget Process (in Theory)

February 29, 2008 — drsubrotoroy

(This was a front-page signed editorial article in The Statesman on Budget Day 2008; it had been preceded by How to Budget: Thrift,Not Theft, Needs to Guide Our Public Finances, and by Growth & Government Delusion a few days earlier. Other related articles published over the last year in The Statesman include India’s Macroeconomics, Fiscal Instability, Fallacious Finance, Against Quackery, etc.)

Budget process, in theory

by Subroto Roy

First published in The Statesman, February 29, 2008, Front Page

India follows the British system of public finance ~ except it is very far from having followed or even being aware of numerous deep improvements the UK made in its system in recent decades.

Government accounts are divided between the “Consolidated Fund of India”, “Contingency Fund” and “Public Account”. The first is most important and credits all revenues received and all loans raised by issue of government debt, and all moneys received in repayment of loans. The second is for unforeseen expenditure pending subsequent authorisation by Parliament. The last includes “trust funds” and is where all transactions relating to debt, deposits, advances, remittances are made.

The annual financial statement of the Union government presented to Parliament is popularly known as “the Budget”. Parliament’s “Vote on Account” is to enable estimates to be considered more carefully.

There is a “Revenue” Budget referring to expenditures and receipts of an annually recurrent nature; for example, staff-salaries of a school is revenue expenditure. There is a “Capital Budget” referring to investment expenditure “incurred with the object either of increasing concrete assets of a material and permanent character or of reducing recurring liabilities”. Spending today on a new school-building or setting aside a sinking fund to reduce the stock of extant public debt is supposed to be what capital expenditure includes. Capital expenditure should be met “generally… from receipts of a capital, debt, deposit or banking character as distinguished from ordinary taxes, duties….” but the government is also allowed to meet it from ordinary current revenues when these are “sufficient”.

In addition there has been in the Indian case large outright direct annual lending undertaken by the government to chosen recipients, bypassing normal capital markets. All three types of expenditure, “Current”, “Investment” and “Loan”, are of spending decisions made at the same time about the same or a similar set of activities. Yet nowhere in the Government of India’s accounts today is to be found clear actionable data that public expenditures on e.g. the power sector in a given year happens to include “Loans for Power Projects” under Account Head 6801, current expenditure on “Power” under Account Head 2801 and capital expenditure on “Power Projects” under Account 4801. It is only when these are added can a picture emerge about total expenditure on the power sector. Government accounts remain on a cash and not accrual basis, unlike the best practices adopted internationally in recent decades.

The process includes preparation of the Budget by the Executive; its consideration and adoption by the Legislature; its implementation by the administration and government agencies; and post-evaluation of achievement and performance by the Public Accounts Committee, Estimates Committee, Committee of Public Undertakings etc of Parliament.

In addition, there is Audit. Where private sector audit systems show how much profit may be properly “put into the pockets of the proprietors”, government audit is supposed to find the least cost to taxpayers in providing necessary public goods and services “to enable Government to determine how little money it need take out of the pockets of the tax-payers in order to maintain its necessary activities at the proper standard of efficiency”. That maxim of India’s Auditor-General in 1930 captures part of the normative intent of public finance in any country at any time. The office of “Comptroller & Auditor General” is charged with independently assessing and evaluating the effectiveness of outcomes generated by the fiscal process, the “high independent statutory authority… who sees on behalf of the Legislature that… money expended was legally available for and applied to the purpose or purposes to which it has been applied….. Audit… is the main instrument to secure accountability of the Executive to the Legislature…. The fundamental object of audit is to secure real value for the taxpayer’s money”. That is the theory at least.

Similar processes on smaller scales are supposed to get carried out in our more than two dozen States, though there the role of the (extra-constitutional) “Planning Commission” has been prevailing while that of the (constitutional) Finance Commission has been diminished.

The crucial variable to look out for in Mr P Chidambaram’s speech will be how much interest expenditure the Government of India has to make on its debt already incurred. That may be nearing Rs 2 trillion (or Rs 2 lakhs of crores) – and could be more than 100% of the Gross Fiscal Deficit! It is an amount “charged” directly to the Consolidated Fund of India and not submitted to the vote of Parliament though Parliament has a right to discuss it. If you want to know who in Parliament is awake and aware of our nation’s economic and financial good, look for anyone who discusses or wants to discuss the size of that amount! It may be best to ignore all attempts at joking and poetry as distractions because the situation is grim ~ although of course there is such a thing as “gallows humour”.

How to Budget: Thrift, Not Theft, Needs to Guide Our Public Finances

February 26, 2008 — drsubrotoroy

How to Budget:

Thrift, Not Theft, Needs to Guide Our Public Finances

By Subroto Roy

First published in The Statesman, Editorial Page Special Article, http://www.thestatesman.net, February 26 2008

For most family households in India as elsewhere, the time for weekly or monthly budgeting and accounting is a time of sobriety ~ when reality must be faced about which goals and desires can be achieved and which cannot, about how incomings and outgoings of family resources are going to be matched. The same holds for corporations when their managements must face their boards, shareholders or workers, though individual stakeholders in large corporations may be so ignorant of the facts or so small and insignificant in size that top management can get away with a lot of bluff.

When it comes to entities the size of countries, the scope for feeding illusions to the general public becomes enormously large; hence there is need for scientific honesty in government accounting and finance, and when that is lacking as it often is in any country, there is need for intense public awareness and vigorous criticism of what the government of the day may be up to with the public purse.

‘Seignorage’

Mao Zedong once said “Thrift should be the guiding principle of our government expenditure”. Those who govern fiscal and monetary processes, whether autocratically or democratically, have a general duty to be frugal or economic in using resources that have been forcibly raised from the public and which could have been spent privately in other welfare-enhancing directions.

“One must not take from the real needs of the people for the imaginary needs of the state” said Montesquieu. National Governments “take” from the people not only via direct taxation (e.g. of income) and indirect taxation (e.g. of expenditure) but also via inflation ~ invisibly reducing the purchasing power or value of paper money and other paper assets by exploiting the government’s monopoly over currency-printing (a process that economists traditionally termed “seignorage” from the debasing of metal coins that kings historically indulged in to pay for wars).

In providing public goods and services, if a government does what it need not do it may end up failing to do what it must and which only it can do. “That part of the public expenditure, which is devoted to the maintenance of civil and military establishments (i.e., all except the interest of the national debt), affords, in many of its details, ample scope for retrenchment. But while much of the revenue is wasted under the mere pretence of public service, so much of the most important business of government is left undone, that whatever can be rescued from useless expenditure is urgently required for useful” (JS Mill).

Such an idea that “whatever can be rescued from useless expenditure is urgently required for useful” was used in Gordon Brown’s 2004 rhetoric as Britain’s Finance Minister when, for example, he said 40,000 jobs would be reduced in the UK civil services to release resources to enhance “frontline” public services like schools and hospitals.

From such a practical point of view, three questions must be typically addressed by any Parliament or Government trying to optimally align public expenditure and income in a budget placed before it:

(1) Is public expenditure allocated efficiently in given circumstances, in a manner that enhances the public interest to the greatest degree possible? If not, how may it be made to do so?

(2) Can income from government operations be enhanced in given circumstances? What taxation should be imposed, raised, lowered or abolished, why so, and at what least cost to the population?

(3) If government expenditure exceeds income from taxation and operations, how should the borrowing be financed at least cost? Is the government’s existing portfolio of assets and liabilities of different liquidity and term-structure efficient, or can it be improved?

Unfortunately, we do none of this in India and have not done so for decades. Indeed New Delhi’s establishment economists and the media have not ever even been thinking on such practical lines. Instead, each bureaucratic department tries to maintain or enlarge its own size and claims on public funds every year. What New Delhi does, in a nutshell, is to allow every Ministry (especially the military) to add a 10-20% inflation-premium to its previous year’s expenditures and assert a new claim during the Budget season. (The most accurate measure of inflation in India may be that involved in growth of nominal expenditure on Government’s bureaucracy). Organised business, organised labour, exporters, importers, farmers, women, and every sundry political lobbyist then assert their claims to subsidies and concessions as well ~ and some gargantuan number comes to be added up.

To that number must be added the vast annual expenditure on interest payments by Government on the public debt accumulated from previous years and decades ~ payments which keep afloat the entire banking system in India because our nationalized banks hold such debt-instruments as their main assets where customer-deposits are their main liabilities.

A crucial question in relation to the convertibility of the rupee has to do with international valuation of that vast public debt (hence valuation of the asset side of our banking system) in the event the rupee became freely exchangeable into gold and foreign exchange for the general public, not merely city-based super-elites and NRIs.

Once interest payments have been added to other government expenditures, some humongous number comes to be reached. That number, and how it breaks down between interest expenditures, military expenditures and other expenditures, is among the key variables to look out for in Mr Chidambaram’s forthcoming Budget-Speech. From it will be subtracted the total taxation and non-tax revenues of the Government ~ each after it has been subjected to its own political lobbying process by different interest groups who have managed to obtain access to the Finance Minister. The residual (government expenditure minus government income) is the “Gross Fiscal Deficit” which is how much the Government of India says it plans to newly borrow from the (mostly captive) domestic financial markets. That residual in turn will add itself to next year’s accumulating public debt on which interest payments will have to be then made. The Finance Minister and his spokesmen typically quote the Gross Fiscal Deficit as some percentage of GDP figures; a better ratio to look for may be the size of Government interest payments per head as a percentage of tax revenues per head.

Corruption

The Union Finance Ministry no longer appears to exercise effective managerial control over the budgets and accounts of the innumerable publicly funded institutions, entities and projects in the country, nor even remembers how to do so. Everyone knows that the eventual aggregate result of public financial processes will be more deficit-finance paid for by silent and unlimited money-printing. Thus, for example, we see enormous building and construction plans being requested and granted for public institutions and agencies to indulge in ~ if the private builders and developers involved in such public contracts throw in an urban apartment or two for the heads of such institutions, who are powerful enough to be making the spending decisions with their friends, what does it really matter? Deficit-finance, arising from an abysmal state of government and public sector accounting, makes government corruption quite simple and straightforward if one thinks about it.

It is sad to say that the principle guiding our public finances may have become theft, not thrift, because political and administrative decision-makers throughout the system, instead of being sober, remain drunk when it comes to spending India’s public resources.

Growth & Government Delusion (2008)

February 22, 2008 — drsubrotoroy

Growth & Government Delusion:

Progress Comes From Learning, Enterprise, Exchange, Not The Parasitic State

By Subroto Roy

First published in The Statesman, Editorial Page Special Article,
February 22, 2008

P Chidambaram, Montek Ahluwalia and Manmohan Singh, like their BJP predecessors, delude themselves and the country as a whole when they claim responsibility for phenomenal economic growth taking place. “My goal is to continue to maintain growth but at the same time the government reserves the right to make rapid adjustments depending upon the evolving international situation” is a typical piece of nonsensical waffle.

Honest Finance Ministers in any country cannot take personal responsibility for rates of economic growth nor is any government in the world nimble, well-informed and intelligent enough to respond to exogenous shocks in a timely manner. The UPA and NDA blaming one another for low growth or taking credit for high growth merely reveal the crude mis-education of their pretentious TV economists. There are far too many measurement and data problems as well as lead-and-lag problems for any credibility to attach to what is said.

Per capita real GDP

Indian businessmen and their politician/ bureaucratic friends seem to think “growth” refers to nominal earnings before tax for the corporate sector, or some such number that can be sold to visiting foreigners to induce them to park their money in India: “You will get a 10 per cent return if you invest in India” to which the visitor says “Oh that must mean India has 10 per cent growth going on”. Of such nonsense are expensive Davos and Delhi conferences made.

What is supposed to be measured when we speak of economic growth? It is annual growth of per capita inflation-adjusted Gross Domestic Product (National Income or Net National Product would be better if available). West Germany and Japan had the highest annual per capita real GDP growth-rates in the world starting from devastated post-War initial conditions. What were their rates? West Germany: 6.6 per cent in 1950-1960, falling to 3.5 per cent by 1960-1970, and 2.4 per cent by 1970-1978. Japan: 6.8 per cent in 1952-1960; 9.4 per cent in 1960-1970, 3.8 per cent in 1970-1978. Thus, only Japan in the 1960s measured more than 9 per cent annual growth of real per capita GDP.

Now India and China are said to be achieving 9 per cent plus routinely. Perhaps we are observing an incredible phenomenon of world economic history. Or perhaps we are just being fed something incredible, some humbug. India’s population is growing at 2 per cent so even if the Government’s number of 9 per cent is taken at face-value, we have to subtract 2 per cent population growth to get per capita figures. Typical official fallacies include thinking clever bureaucratic use of astronomically high savings rates causes growth. For example, Meghnad Desai of Britain’s Labour Party says: “China now has 10.4 per cent growth on a 44 per cent savings rate… ” Indian savings have been alleged near 32 per cent. What has been mismeasured as high savings is actually paper expansion of bank-deposits in a fractional reserve banking system induced by runaway government deficit-spending in both countries.

Real economic growth arises from spontaneous technological progress, improved productivity and learning-by-doing of the general population. World economic history suggests growth occurs in spite of, rather than due to, behaviour of an often parasitic State. Technological progress in a myriad of ways and discovery of new resources are important factors contributing to India’s growth today. But while the “real” economy does well, the “nominal” paper-money economy controlled by Government does not.

Continuous deficit financing for half a century has led to exponential growth of public debt and broad money. The vast growth of bank-deposits has been misinterpreted as indicating unusual savings behaviour when it in fact signals vast government debt being held by nationalised banks. What Messrs Chidambaram, Ahluwalia,Manmohan Singh, the BJP et al have been presiding over is annual paper-money supply growth of 22 per cent! That is what they should be taking honest responsibility for because it certainly implies double-digit inflation (i.e. decline in the value of paper-money) perhaps as high as 14 or 15 per cent. If you believe Government numbers that inflationis near 5 per cent you may believe anything.

The mainsprings of real growth in the wealth of the individual, and so of the nation, are greater practical learning, increases in capital resources and improvements in technology. Deeper skills and improved dexterity cause output produced with fewer inputs than before, i.e. greater productivity. Adam Smith said there is “invention of a great number of machines which facilitate and abridge labour, and enable one man to do the work of many”.

Consider a real life example. A fresh engineering graduate knows dynamometers are needed in testing and performance-certification of diesel engines. He strips open a meter, finds out how it works, asks engine manufacturers what design improvements they want to see, whether they will buy from him if he can make the improvement. He finds out prices and properties of machine tools needed and wages paid currently to skilled labour, calculates expected revenues and costs, and finally tries to persuade a bank of his production plans, promising to repay loans from his returns.

Overcoming restrictions of religion or caste, the secular agent is spurred by expectation of future gains to approach various others with offers of contract, and so organize their efforts into one. If all his offers ~ to creditors, labour, suppliers ~ are accepted he is, for the moment, in business. He may not be for long ~ but if he succeeds his actions will have caused an improvement in design of dynamometers and a reduction in the cost of diesel engines, as well as an increase in the economy’s produced means of production (its capital stock) and in the value of contracts made. His creditors are more confident of his ability to repay, his buyers of his product quality, he himself knows more of his workers’ skills, etc. If these people enter a second and then a third and fourth set of contracts, the increase in mutual trust in coming to agreement will quickly decline in relation to the increased output of capital goods. The first source of increasing returns to scale in production, and hence the mainspring of real economic growth, arises from the successful completion of exchange.

Risk and enterprise

Transforming inputs into outputs necessarily takes time, and it is for that time the innovator or entrepreneur or “capitalist” or “adventurer” must persuade his creditors to trust him, whether bankers who have lent him capital or workers who have lent him labour. The essence of the enterprise (or “firm”) he tries to get underway consists of no more than the set of contracts he has entered into with the various others, his position being unique because he is the only one to know who all the others happen to be at the same time. In terms introduced by Professor Frank Hahn, the entrepreneur transforms himself from being “anonymous” to being “named” in the eyes of others, while also finding out qualities attaching to the names of those encountered in commerce.

Profits earned are partly a measure of the entrepreneur’s success in this simultaneous process of discovery and advertisement. Another potential entrepreneur, fresh from engineering college, may soon pursue the pioneer’s success and start displacing his product in the market ~ eventually chasers become pioneers and then get chased themselves, and a process of dynamic competition would be underway. As it unfolds, anonymous and obscure graduates from engineering colleges become by dint of their efforts and a little luck, named and reputable firms and perhaps founders of industrial families. Multiply this simple story many times, with a few million different entrepreneurs and hundreds of thousands of different goods and services, and we shall be witnessing India’s actual Industrial Revolution, not the fake promise of it from self-seeking politicians and bureaucrats.

Sonia’s Lying Courtier with Postscript 25 Nov 2007, & Addendum 30 June 2014

November 25, 2007 — drsubrotoroy

30th June 2014

“Sonia’s Lying Courtier” (see below) has now lied again! In a ghost-written 2014 book published by a prominent publisher in Delhi!

He has so skilfully lied about himself the ghost writer was probably left in the dark too about the truth.

The largest concealment has to do with his Soviet connection: he is fluent in Russian, lived as a privileged guest of the state there, and before returning to the Indian public sector was awarded in the early 1970s a Soviet degree, supposedly an earned doctorate in Soviet style management!

How do I know? He told me so personally! His Soviet degree is what allowed himself to pass off as a “Dr” in Delhi power-circles for decades, as did many others who were planted in that era. He has also lied about himself and Rajiv Gandhi in 1990-1991, and hence he has lied about me indirectly.

In 2007 I was gentle in my exposure of his mendacity because of his advanced age. Now it is more and more clear to me that exposing this directly may be the one way for Sonia and her son to realise how they, and hence the Congress party, were themselves influenced without knowing it for years…

25 November 2007

Two Sundays ago in an English-language Indian newspaper, an elderly man in his 80s, advertised as being “the Gandhi family’s favourite technocrat” published some deliberate falsehoods about events in Delhi 17 years ago surrounding Rajiv Gandhi’s last months. I wrote at once to the man, let me call him Mr C, asking him to correct the falsehoods since, after all, it was possible he had stated them inadvertently or thoughtlessly or through faulty memory. He did not do so. I then wrote to a friend of his, a Congress Party MP from his State, who should be expected to know the truth, and I suggested to him that he intercede with his friend to make the corrections, since I did not wish, if at all possible, to be compelled to call an elderly man a liar in public.

That did not happen either and hence I am, with sadness and regret, compelled to call Mr C a liar.

The newspaper article reported that Mr C’s “relationship with Rajiv (Gandhi) would become closer when (Rajiv) was out of power” and that Mr C “was part of a group that brainstormed with Rajiv every day on a different subject”. Mr C has reportedly said Rajiv’s “learning period came after he left his job” as PM, and “the others (in the group)” were Mr A, Mr B, Mr D, Mr E “and Manmohan Singh” (italics added).

In reality, Mr C was a retired pro-USSR bureaucrat aged in his late 60s in September 1990 when Rajiv Gandhi was Leader of the Opposition and Congress President. Manmohan Singh was an about-to-retire bureaucrat who in September 1990 was not physically present in India, having been working for Julius Nyerere of Tanzania for several years.

On 18 September 1990, upon recommendation of Siddhartha Shankar Ray, Rajiv Gandhi met me at 10 Janpath, where I handed him a copy of the unpublished results of an academic “perestroika-for-India” project I had led at the University of Hawaii since 1986. The story of that encounter has been told first on July 31-August 2 1991 in The Statesman, then in the October 2001 issue of Freedom First, then in January 6-8 2006, September 23-24 2007 in The Statesman, and most recently in The Statesman Festival Volume 2007. The last of these speaks most fully yet of my warnings against Rajiv’s vulnerability to assassination; this document in unpublished form was sent by me to Rajiv’s friend, Mr Suman Dubey in July 2005, who forwarded it with my permission to the family of Rajiv Gandhi.

It was at the 18 September 1990 meeting that I suggested to Rajiv that he should plan to have a modern election manifesto written. The next day, 19 September, I was asked by Rajiv’s assistant V George to stay in Delhi for a few days as Mr Gandhi wished me to meet some people. I was not told whom I was to meet but that there would be a meeting on Monday, 24th September. On Saturday, the Monday meeting was postponed to Tuesday 25th September because one of the persons had not been able to get a flight into Delhi. I pressed to know what was going on, and was told I would meet Mr A, Mr B, Mr C and Mr D. It turned out later Mr A was the person who could not fly in from Hyderabad.

The group (excluding Mr B who failed to turn up because his servant had failed to give him the right message) met Rajiv at 10 Janpath in the afternoon of 25th September. We were asked by Rajiv to draft technical aspects of a modern manifesto for an election that was to be expected in April 1991. The documents I had given Rajiv a week earlier were distributed to the group. The full story of what transpired has been told in my previous publications.

Mr C was ingratiating towards me after that first meeting with Rajiv and insisted on giving me a ride in his car which he told me was the very first Maruti ever manufactured. He flattered me needlessly by saying that my PhD (in economics from Cambridge University) was real whereas his own doctoral degree had been from a dubious management institute of the USSR. (Handling out such doctoral degrees was apparently a standard Soviet way of gaining influence.) Mr C has not stated in public how his claim to the title of “Dr” arises.

Following that 25 September 1990 meeting, Mr C did absolutely nothing for several months towards the purpose Rajiv had set us, stating he was very busy with private business in his home-state where he flew to immediately. Mr D went abroad and was later hit by severe illness. Mr B, Mr A and I met for luncheon at New Delhi’s Andhra Bhavan where the former explained how he had missed the initial meeting. Then Mr B said he was very busy with his house-construction, and Mr A said he was very busy with finishing a book for his publishers on Indian defence, and both begged off, like Mr C and Mr D, from any of the work that Rajiv had explicitly set our group. My work and meeting with Rajiv in October 1990 has been reported previously.

Mr C has not merely suppressed my name from the group in what he has published in the newspaper article two Sundays ago, he has stated he met Rajiv as part of such a group “every day on a different subject”, another falsehood. The next meeting of the group with Rajiv was in fact only in December 1990, when the Chandrashekhar Government was discussed. I was called by telephone in the USA by Rajiv’s assistant V George but I was unable to attend, and was briefed later about it by Mr A.

When new elections were finally announced in March 1991, Mr C brought in Mr E into the group in my absence (so he told me), perhaps in the hope I would remain absent. But I returned to Delhi and between March 18 1991 and March 22 1991, our group, including Mr E (who did have a genuine PhD), produced an agreed-upon document. That document was handed over by us together in a group to Rajiv Gandhi at 10 Janpath the next day, and also went to the official political manifesto committee of Narasimha Rao, Pranab Mukherjee and M. Solanki.

Our group, as appointed by Rajiv on 25 September 1990, came to an end with the submission of the desired document to Rajiv on 23 March 1991.

As for Manmohan Singh, contrary to Mr C’s falsehood, Manmohan Singh has himself truthfully said he was with the Nyerere project until November 1990, then joined Chandrashekhar’s PMO in December 1990 which he left in March 1991, that he had no meeting with Rajiv Gandhi prior to Rajiv’s assassination but rather did not in fact enter Indian politics at all until invited by Narasimha Rao several weeks later to be Finance Minister. In other words, Manmohan Singh himself is on record stating facts that demonstrate Mr C’s falsehood.

The economic policy sections of the document submitted to Rajiv on 23 March 1991 had been drafted largely by myself with support of Mr E and Mr D and Mr C as well. It was done over the objections of Mr B, who had challenged me by asking what Manmohan Singh would think of it. I had replied I had no idea what Manmohan Singh would think of it, saying I knew he had been out of the country on the Nyerere project for some years.

Mr C has deliberately excluded my name from the group and deliberately added Manmohan Singh’s instead. What explains this attempted falsification of facts – reminiscent of totalitarian practices in communist countries? Manmohan Singh was not involved by his own admission, and as Finance Minister told me so directly when he and I were introduced in Washington DC in September 1993 by Siddhartha Shankar Ray, then Indian Ambassador to the USA.

A possible explanation for Mr C’s mendacity is as follows: I have been recently publishing the fact that I repeatedly pleaded warnings that I (even as a layman on security issues) perceived Rajiv Gandhi to have been insecure and vulnerable to assassination. Mr C, Mr B and Mr A were among the main recipients of my warnings and my advice as to what we as a group, appointed by Rajiv, should have done towards protecting Rajiv better. They did nothing — though each of them was a senior man then aged in his late 60s at the time and fully familiar with Delhi’s workings while I was a 35 year old newcomer. After Rajiv was assassinated, I was disgusted with what I had seen of the Congress Party and Delhi, and did not return except to meet Rajiv’s widow once in December 1991 to give her a copy of a tape in which her late husband’s voice was recorded in conversations with me during the Gulf War.

Mr C has inveigled himself into Sonia Gandhi’s coterie – while Manmohan Singh went from being mentioned in our group by Mr B to becoming Narasimha Rao’s Finance Minister and Sonia Gandhi’s Prime Minister. If Rajiv had not been assassinated, Sonia Gandhi would have been merely a happy grandmother today and not India’s purported ruler. India would also have likely not have been the macroeconomic and political mess that the mendacious people around Sonia Gandhi like Mr C have now led it towards.

POSTSCRIPT: The Congress MP was kind enough to write in shortly afterwards; he confirmed he “recognize(d) that Rajivji did indeed consult you in 1990-1991 about the future direction of economic policy.” A truth is told and, furthermore, the set of genuine Rajivists in the present Congress Party is identified as non-null.

Karl Georg Zinn’s 1992 Review of Philosophy of Economics Routledge: 1989 (English translation, 1994, by Nihar Bhattacharya).

September 26, 2007 — drsubrotoroy

Review of Philosophy of Economics by Karl Georg Zinn

Jahrbücher für Nationalökonomie und Statistik / Zeitschrift für Wirtschaft und Statistik. Vol. 209, Nr. 5/6 (May 1992), p 573-574

(translated from the German by Nihar Bhattacharya, 1994)

“The author intends to discuss some of the central philosophical questions facing modern economic theory. In the foreground is a disposition of the conventional problem of value-independence. Roy sees the value-independence postulate as “Hume’s Scepticism”. He defines Hume’s First and Second Laws on the basis of two signified propositions taken from R. M. Hare.

(1) From positive empirical premises, no normative postulate can be derived; in order to establish obligatory propositions, at least one normative proposition is needed.

(2) In a specified economic context, after all empirical and formal/logical matters are resolved, little scope exists for further intersubjectively valid answers. Valuations beyond this limit are based on the subjective feelings of the economist to the concerned problem.

The scientific/theoretical attitude representative of most economists of the 20th century has been based on this characteristic Humean scepticism. To show this, the author reviews short representative quotations from some of the known names of recent economic theory: Friedman, Myrdal, Lionel Robbins, P. A. Samuelson, Hicks, Joan Robinson, Hayek, Oskar Lange, Schumpeter, Arrow, Blaug, Frank Hahn.

Subsequently, the author raises the point as to what explains this scientific-theoretical approval. A cursory survey of important real and virtual historical developments since antiquity confirms that the essential reason for the reported wide acceptance of a humean position by the economic scientist indeed could have been as a defensive posture against dogmatism and political dictatorship (“It is part of the democratic reaction against medieval authoritarianism” p.45).

Conditioned by their “disgust with the tyrannies and ideologies of the twentieth century”, these authorities tried to protect economic science and guarantee the objectivity of research by resort to moral scepticism.

Hence the author arrives at the starting position of his actual subject: After using Hume to escape from dependence on Plato e tutti quanti, has not value-free economics gotten into a fresh dependence, namely, moral scepticism and its philosophical consequence, moral indifference? Here too a contradiction is shown to arise, namely, that each argumentation against the normative can stand its ground only through normative premises. Thus ultimately something like correct standards become necessary. This however is only a marginal problem compared to a very much more important point: whether the moral scepticism permeating the strict scientific-theoretical position, is not just part of a very much more comprehensive scepticism, which includes Hume’s own criticism of induction as well. But then the same scepticism makes positive theory dubious as well: “Either all of positive economics is attacked with just as much scepticism as anything in normative economics, or we accept one and reject the other when instead there are reasons to think they share the same ultimate grounds and must be accepted or rejected together”(p.47).

The author illustrates the difficulties with radical scepticism in a continental traversal of economic theory: micro and macroeconomics, mathematical economic theory and welfare theory are stations on this tour. A solution of the problem in the strict sense is not given nor could have been expected. But Roy delivers a methodical rule which permits a more exact definition of the limits to which normative discussion can take place precisely and objectively: first, to distinguish always whether an objective answer is at all possible to certain questions, and secondly, to ask who is competent or in the best position to give an answer.

For readers interested in a new, thoroughly subtle discussion of a basic yet customary problem, this book will be profitable reading. However, the author could have argued some matters slightly more elaborately and others less redundantly, and set forth the central idea more clearly through appropriate summaries.”

Against Quackery (2007)

September 24, 2007 — drsubrotoroy

Against Quackery

First published in two parts in The Sunday Statesman, September 23 2007, The Statesman September 24 2007

by

Subroto Roy

Manmohan and Sonia have violated Rajiv Gandhi’s intended reforms; the Communists have been appeased or bought; the BJP is incompetent

WASTE, fraud and abuse are inevitable in the use and allocation of public property and resources in India as elsewhere, but Government is supposed to fight and resist such tendencies. The Sonia-Manmohan Government have done the opposite, aiding and abetting a wasteful anti-economics ~ i.e., an economic quackery. Vajpayee-Advani and other Governments, including Narasimha-Manmohan in 1991-1996, were just as complicit in the perverse policy-making. So have been State Governments of all regional parties like the CPI-M in West Bengal, DMK/ AIADMK in Tamil Nadu, Congress/NCP/ BJP/Sena in Maharashtra, TDP /Congress in Andhra Pradesh, SP/BJP/BSP in Uttar Pradesh etc. Our dismal politics merely has the pot calling the kettle black while national self-delusion and superstition reign in the absence of reason.

The general pattern is one of well-informed, moneyed, mostly city-based special interest groups (especially including organised capital and organised labour) dominating government agendas at the cost of ill-informed, diffused anonymous individual citizens ~ peasants, small businessmen, non-unionized workers, old people, housewives, medical students etc. The extremely expensive “nuclear deal” with the USA is merely one example of such interest group politics.

Nuclear power is and shall always remain of tiny significance as a source of India’s electricity (compared to e.g. coal and hydro); hence the deal has practically nothing to do with the purported (and mendacious) aim of improving the country’s “energy security” in the long run. It has mostly to do with big business lobbies and senior bureaucrats and politicians making a grab, as they always have done, for India’s public purse, especially access to foreign currency assets. Some $300 million of India’s public money had to be paid to GE and Bechtel Corporation before any nuclear talks could begin in 2004-2005 ~ the reason was the Dabhol fiasco of the 1990s, a sheer waste for India’s ordinary people. Who was responsible for that loss? Pawar-Mahajan-Munde-Thackeray certainly but also India’s Finance Minister at the time, Manmohan Singh, and his top Finance Ministry bureaucrat, Montek Ahluwalia ~ who should never have let the fiasco get off the ground but instead actively promoted and approved it.

Cost-benefit analysis prior to any public project is textbook operating procedure for economists, and any half-competent economist would have accounted for the scenario of possible currency-depreciation which made Dabhol instantly unviable. Dr Singh and Mr Ahluwalia failed that test badly and it cost India dearly. The purchase of foreign nuclear reactors on a turnkey basis upon their recommendation now reflects similar financial dangers for the country on a vastly larger scale over decades.

Our Government seems to function most expeditiously in purchasing foreign arms, aircraft etc ~ not in improving the courts, prisons, police, public utilities, public debt. When the purchase of 43 Airbus aircraft surfaced, accusations of impropriety were made by Boeing ~ until the local Airbus representative said on TV that Boeing need not complain because they were going to be rewarded too and soon 68 aircraft were ordered from Boeing!

India imports all passenger and most military aircraft, besides spare parts and high-octane jet fuel. Domestic aviation generates near zero forex revenues and incurs large forex costs ~ a debit in India’s balance of payments. Domestic airline passengers act as importers subsidised by our meagre exporters of textiles, leather, handicrafts, tea, etc. What a managerially-minded PM and Aviation Minister needed to do before yielding to temptations of buying new aircraft was to get tough with the pampered managements and unions of the nationalized airlines and stand up on behalf of ordinary citizens and taxpayers, who, after all, are mostly rail or road-travellers not jet-setters.

The same pattern of negligent policy-behaviour led Finance Minister P. Chidambaram in an unprecedented step to mention in his 2007 Union Budget Speech the private American companies Blackstone and GE ~ endorsing the Ahluwalia/Deepak Parekh idea that India’s forex reserves may be made available to be lent out to favoured private businesses for purported “infrastructure” development. We may now see chunks of India’s foreign exchange reserves being “borrowed” and never returned ~ a monumental scam in front of the CBI’s noses.

The Reserve Bank’s highest echelons may have become complicit in all this, permitting and encouraging a large capital flight to take place among the few million Indians who read the English newspapers and have family-members abroad. Resident Indians have been officially permitted to open bank accounts of US $100,000 abroad, as well as transfer gifts of $50,000 per annum to their adult children already exported abroad ~ converting their largely untaxed paper rupees at an artificially favourable exchange-rate.

In particular, Mr Ratan Tata (under a misapprehension he may do whatever Lakshmi Mittal does) has been allowed to convert Indian rupees into some US$13,000,000,000 to make a cash purchase of a European steel company. The same has been allowed of the Birlas, Wipro, Dr Reddy’s and numerous other Indian corporations in the organised sector ~ three hundred million dollars here, five hundred million dollars there, etc. Western businessmen now know all they have to do is flatter the egos of Indian boxwallahs enough and they might have found a buyer for their otherwise bankrupt or sick local enterprise. Many newcomers to New York City have been sold the Brooklyn Bridge before. “There’s a sucker born every minute” is the classic saying of American capitalism.

The Sonia-Manmohan Government, instead of hobnobbing with business chambers, needed to get Indian corporations to improve their accounting, audit and governance, and reduce managerial pilfering and embezzlement, which is possible only if Government first set an example.

Why have Indian foreign currency reserves zoomed up in recent years? Not mainly because we are exporting more textiles, tea, software engineers, call centre services or new products to the world, but because Indian corporations have been allowed to borrow abroad, converting their hoards of paper rupees into foreign debt. Forex reserves are a residual in a country’s international balance of payments and are not like tax-resources available to be spent by Government; India’s reserves largely constitute foreign liabilities of Indian residents. This may bear endless repetition as the PM and his key acolytes seem impervious to normal postgraduate-level economics textbooks.

Other official fallacies include thinking India’s savings rate is near 32 per cent and that clever bureaucratic use of it can cause high growth. In fact, real growth arises not because of what politicians and bureaucrats do but because of spontaneous technological progress, improved productivity and learning-by-doing of the general population ~ mostly despite not because of an exploitative parasitic State. What has been mismeasured as high savings is actually expansion of bank-deposits in a fractional reserve banking system caused by runaway government deficit-spending.

Another fallacy has been that agriculture retards growth, leading to nationwide politically-backed attempts at land-grabbing by wily city industrialists and real estate developers. In a hyperinflation-prone economy with wild deficit-spending and runaway money-printing, cheating poor unorganised peasants of their land, when that land is an asset that is due to appreciate in value, has seemed like child’s play.

What of the Opposition? The BJP/RSS have no economists who are not quacks though opportunists were happy to say what pleased them to hear when they were in power; they also have much implicit support among organised business lobbies and the anti-Muslim senior bureaucracy. The official Communists have been appeased or bought, sometimes so cheaply as with a few airline tickets here and there. The nonsensical “Rural Employment Guarantee” is descending into the wasteland of corruption it was always going to be. The “Domestic Violence Act” as expected has started to destroy India’s families the way Western families have been destroyed. The Arjun-DMK OBC quota corrodes higher education further from its already dismal state. All these were schemes that Congress and Communist cabals created or wholeheartedly backed, and which the BJP were too scared or ignorant to resist.

And then came Singur and Nandigram ~ where the sheer greed driving the alliance between the Sonia-Manmohan-Pranab Congress and the CPI-M mask that is Buddhadeb, came to be exposed by a handful of brave women like Mamata and Medha.

A Fiscal U-Turn is Needed For India to Go in The Right Economic Direction

Rajiv Gandhi had a sense of noblesse oblige out of remembrance of his father and maternal grandfather. After his assassination, the comprador business press credited Narasimha Rao and Manmohan Singh with having originated the 1991 economic reform. In May 2002, however, the Congress Party itself passed a resolution proposed by Digvijay Singh explicitly stating Rajiv and not either of them was to be so credited. The resolution was intended to flatter Sonia Gandhi but there was truth in it too. Rajiv, a pilot who knew no political economy, was a quick learner with intelligence to know a good idea when he saw one and enough grace to acknowledge it.

Rule of Law

The first time Dr Manmohan Singh’s name arose in contemporary post-Indira politics was on 22 March 1991 when M K Rasgotra challenged the present author to answer how Dr Singh would respond to proposals being drafted for a planned economic liberalisation that had been authorised by Rajiv, as Congress President and Opposition Leader, since September 1990. It was replied that Dr Singh’s response was unknown and he had been heading the “South-South Commission” for Tanzania’s Julius Nyerere, while what needed to be done urgently was make a clear forceful statement to restore India’s credit-worthiness and the confidence of international markets, showing that the Congress at least knew its economics and was planning to take bold new steps in the direction of progress.

There is no evidence Dr Singh or his acolytes were committed to any economic liberalism prior to 1991 as that term is understood worldwide, and scant evidence they have originated liberal economic ideas for India afterwards. Precisely because they represented the decrepit old intellectual order of statist ”Ma-Bap Sarkari” policy-making, they were not asked in the mid-1980s to be part of a “perestroika-for-India” project done at a foreign university ~ the results of which were received, thanks to Siddhartha Shankar Ray, by Rajiv Gandhi in hand at 10 Janpath on 18 September 1990 and specifically sparked the change in the direction of his economic thinking.

India is a large, populous country with hundreds of millions of materially poor citizens, a weak tax-base, a vast internal and external public debt (i.e. debt owed by the Government to domestic and foreign creditors), massive annual fiscal deficits, an inconvertible currency, and runaway printing of paper-money. It is unsurprising Pakistan’s economy is similar, since it is born of the same land and people. Certainly there have been real political problems between India and Pakistan since the chaotic demobilisation and disintegration of the old British Indian Army caused the subcontinent to plunge into war-like or “cold peace” conditions for six decades beginning with a bloody Partition and civil war in J&K. High military expenditures have been necessitated due to mutual and foreign tensions, but this cannot be a permanent state if India and Pakistan wish for genuine mass economic well-being.

Even with the continuing mutual antagonism, there is vast scope for a critical review of Indian military expenditures towards greatly improving the “teeth-to-tail” ratio of its fighting forces. The abuse of public property and privilege by senior echelons of the armed forces (some of whom have been keen most of all to export their children preferably to America) is also no great secret.

On the domestic front, Rajiv was entirely convinced when the suggestion was made to him in September 1990 that an enormous infusion of public resources was needed into the judicial system for promotion and improvement of the Rule of Law in the country, a pre-requisite almost for a new market orientation. Capitalism without the Rule of Law can quickly degenerate into an illiberal hell of cronyism and anarchy which is what has tended to happen since 1991.

The Madhava Menon Committee on criminal justice policy in July proposed a Hong Kong model of “a single high-tech integrated Criminal Justice complex in every district headquarters which may be a multi-storied structure, devoting the ground floor for the police station including a video-installed interrogation room; the first floor for the police-lockups/sub-jail and the Magistrate’s Court; the second floor for the prosecutor’s office, witness rooms, crime laboratories and legal aid services; the third floor for the Sessions Court and the fourth for the administrative offices etc…. (Government of India) should take steps to evolve such an efficient model… and not only recommend it to the States but subsidize its construction…” The question arises: Why is this being proposed for the first time in 2007 after sixty years of Independence? Why was it not something designed and implemented starting in the 1950s?

The resources put since Independence to the proper working of our judiciary from the Supreme Court and High Courts downwards have been abysmal, while the state of prisons, borstals, mental asylums and other institutions of involuntary detention is nothing short of pathetic. Only police forces, like the military, paramilitary and bureaucracies, have bloated in size.

Neither Sonia-Manmohan nor the BJP or Communists have thought promotion of the Rule of Law in India to be worth much serious thought ~ certainly less important than attending bogus international conclaves and summits to sign expensive deals for arms, aircraft, reactors etc. Yet Rajiv Gandhi, at a 10 Janpath meeting on 23 March 1991 when he received the liberalisation proposals he had authorized, explicitly avowed the importance of greater resources towards the Judiciary. Dr Singh and his acolytes were not in that loop, indeed they precisely represented the bureaucratic ancien regime intended to be changed, and hence have seemed quite uncomprehending of the roots of the intended reforms ever since 1991.

Similarly, Rajiv comprehended when it was said to him that the primary fiscal problem faced by India is the vast and uncontrolled public debt, interest payments on which suck dry all public budgets leaving no room for provision of public goods.

Government accounts

Government has been routinely “rolling over” its domestic debt in the asset-portfolios of the nationalised banks while displaying and highlighting only its new additional borrowing in a year as the “Fiscal Deficit”. More than two dozen States have been doing the same and their liabilities ultimately accrue to the Union too. The stock of public debt in India is Rs 30 trillion (Rs 30 lakh crore) at least, and portends a hyperinflation in the future.

There has been no serious recognition of this since it is political and bureaucratic actions that have been causing the problem. Proper recognition would entail systematically cleaning up the budgets and accounts of every single governmental entity in the country: the Union, every State, every district and municipality, every publicly funded entity or organisation, and at the same time improving public decision-making capacity so that once budgets and accounts recover from grave sickness over decades, functioning institutions exist for their proper future management. All this would also stop corruption in its tracks, and release resources for valuable public goods and services like the Judiciary, School Education and Basic Health. Institutions for improved political and administrative decision-making are needed throughout the country if public preferences with respect to raising and allocating common resources are to be elicited and then translated into actual delivery of public goods and services. Our dysfunctional legislatures will have to do at least a little of what they are supposed to. When public budgets and accounts are healthy and we have functioning public goods and services, macroeconomic conditions would have been created for the paper-rupee to once more become a money as good as gold ~ a convertible world currency for all of India’s people, not merely the metropolitan special interest groups that have been controlling our governments and their agendas.

Posted in Accounting and audit, asymmetric information, Banking, Big Business and Big Labour, BJP, Communists, Congress Party, Deposit multiplication, DMK, Economic Policy, Economic quackery, Economics of Public Finance, Governance, Government accounting, Government Budget Constraint, Government of India, India's Big Business, India's savings rate, India's stock and debt markets, India's 1991 Economic Reform, India's aviation, India's balance of payments, India's Banking, India's Budget, India's Capital Markets, India's communists, India's corporate governance, India's corruption, India's Democracy, India's Economic History, India's Economy, India's Energy, India's Exports, India's Families, India's Foreign Exchange Reserves, India's Foreign Trade, India's Government Budget Constraint, India's Government Expenditure, India's Industry, India's inflation, India's Judiciary, India's Land, India's Macroeconomics, India's Monetary & Fiscal Policy, India's nomenclatura, India's political lobbyists, India's Politics, India's Polity, India's pork-barrel politics, India's poverty, India's Public Finance, India's Reserve Bank, India's State Finances, India's Union-State relations, India-Pakistan peace process, India-US Nuclear Deal, Indira Gandhi, Inflation, Interest group politics, Mamata Banerjee, Manmohan Singh, Mendacity in politics, Non-Resident Indians, Pakistan, Balochistan, Afghanistan, Iran, Political corruption, Political cynicism, Political Economy, Political mendacity, Political Philosophy, Politics, Pork-barrel politics, Power-elites and nomenclatura, Public Choice/Public Finance, Public property waste fraud, Rajiv Gandhi, Reason, Redeposits, Singur and Nandigram, Sonia Gandhi, Unorganised capital markets, Welfare Economics. 2 Comments »

Saving Pakistan: A Physicist/Political Philosopher May Represent Iqbal’s “Spirit of Modern Times”

August 13, 2007 — drsubrotoroy

Saving Pakistan: A Physicist/Political Philosopher May Represent Iqbal’s “Spirit of Modern Times”

by Subroto Roy

First published in The Statesman, Editorial Page Special Article, August 13 2007,

Pakistan’s Nobel winning particle physicist Abdus Salam (1926-1996) was, like Pakistan’s most eminent jurist Zafrullah Khan (1893-1985), treated badly by his country and compatriots merely because of his religious beliefs as an Ahmadiya/Qadiani. This itself may be an adequate reason for secular thinking when it comes to identifying Pakistan’s or any country’s interests. Pakistan has had eminent poets and writers but there have been no dedicated first-rate technical economists ~ and no serious political philosophers other than, recently, Pervez Hoodbhoy who is a physicist. Most political economy by Pakistanis about Pakistan has tended to be at the level of World Bank bureaucratic reports or traveller’s tales, which have their uses but hardly amount to profound insight or significant scholarship. (We in India also have had numerous minor World Bank/UN bureaucrats, with or without PhDs about anything, passing themselves off as experts on India’s political economy.)

Yet during Pakistan’s present national crisis (and Pakistan has continually faced crises ever since 1947) people must go back to first principles of political economy and ask questions like “Who are we?”; “What are we doing to ourselves?”; “What is our future?” etc ~ questions about national identity and national viability and national purpose.

Abu Dhabi Pact

On 29-30 July, a deal was reportedly struck in Abu Dhabi after a secret face-to-face meeting between Pervez Musharraf and Benazir Bhutto: he would stay on as President for five years, she would be PM and Head of Government, have prosecutions against her dropped and get back her enormous frozen wealth. Such would be the intended outcome of the long-touted return to fair competitive elections later this year. The deal was brokered by British, American, Saudi and other go-betweens outside Pakistan, and is an overt way of keeping Musharraf in power while also seeming to allow a large concession by way of the return of a purported symbol of democracy like Benazir.

But Benazir seems out of touch with reality. When she returned two decades ago as a young unmarried woman confronting General Zia ul-Haq, she was a genuine popular hero. Her father’s judicial execution at Zia’s hands was still fresh in public memory, and Zulfiqar Ali Bhutto, no matter how misguided his ideologies, had some makings of a serious modern Pakistani nationalist politician.

Benazir as a middle aged matron is not her father and has lost almost all political credibility with her flip-flopping opportunism, and is now seen merely as a face agreeable to the West. Her good looks were discussed on American TV by the comedian Bill Maher while Musharraf’s publicity agent had him sharing jokes on a rival TV comedy – however, American TV audiences are or should not be a Pakistani constituency.

Benazir also forgets that Zia had set up Nawaz Sharif as an ally of the Pakistan military against her own populism in the late 1980s, just as she is being set up now as an ally of the same military against people like Sharif, Javed Hashmi, Maulana Fazlur Rahman and Imran Khan. Musharraf overthrew Sharif and jailed Hashmi and they are his declared foes; the other two have expressed opinions hostile to Western military presence in Pakistan and Afghanistan. The Maulana made a nationalistic overture towards India, while Imran has openly praised Indian democracy despite its faults. But Indian foreign policy has not responded and seems under manifest influence of the Western powers ~ had we felt and thought with genuine independence we could have, for example, easily declared and implemented large-scale humanitarian food-aid from the FCI’s wheat-stocks for the people of Afghanistan and Iraq as was suggested in these pages a year ago.

A Musharraf-Benazir alliance is hardly destined to save Pakistan and will be no more than a cynical example of short-term opportunism: we in India can expect them to use J&K as traditional rhetorical camouflage for their own continuing misgovernance and corruption. As in Iraq, Palestine and Afghanistan, the Western powers face the dilemma that any government they support in Pakistan will be perceived as lacking legitimacy while a genuine hands-off policy could result in legitimate popular governments which seem to Western Governments beyond their control and hence seemingly adverse to Western interests.

The West has long ill-understood Pakistan, partly because it has seen Pakistan merely to be used as a source of convenient military manpower and real-estate for itself as and when necessary. American diplomats were reporting as early as November 1951 that Maulana Maududi’s Jamaat were hostile to the “evils” of Western materialism which they wanted to “do away with root and branch” in the country. In January 1976, American diplomats were reporting Pakistan’s “crash program to develop nuclear weapons”, and by June 1983 that Pakistan was close to nuclear test capability, intended to deter aggression by India “which remains Pakistan’s greatest security concern”. For Islamic revivalism to coincide with nuclear weapons in the last decade has been something long-predictable if there had been adequate will to do so.

Right wing politicians and religious fundamentalists have come to power in countries with nuclear weapons without untoward results, e.g., Likud in Israel or the BJP/RSS in India. (It is America’s present leaders, as well as all main Democrat and Republican presidential candidates except Ron Paul, who have unilaterally threatened nuclear attacks on a non-nuclear country that has not committed aggression against anyone.) There is no obvious reason why an elected legitimate “conservative” or right wing government in Pakistan must come to pose a special nuclear danger to anyone. If it is serious about governance (which Musharraf-Benazir may not be), it may even succeed in finding enough sobriety and political honesty to start to face up to Pakistan’s real economic and social problems which are vast in size and scope.

Wali Allah vs Iqbal

“We are an Arab people whose fathers have fallen in exile in the country of Hindustan, and Arabic genealogy and Arabic language are our pride,” said Wali Allah (1703-1762). Two centuries later, Mohammad Iqbal (1877-1938), in his 1930 Presidential Speech to the Muslim League in Allahabad conceptualising today’s Pakistan, wished precisely to become free of that Arab influence: “I would like to see the Punjab, NWFP, Sind and Baluchistan amalgamated into a single state… The life of Islam as a cultural force in this living country very largely depends on its centralisation in a specified territory… For India it means security and peace resulting from an internal balance of power, for Islam an opportunity to rid itself of the stamp that Arabian Imperialism was forced to give it, to mobilise its law, its education, its culture, and to bring them into closer contact with its own original spirit and the spirit of modern times.”

That “spirit of modern times” is today represented most prominently in Pakistan by Pervez Hoodbhoy. In a December 2006 speech, Hoodbhoy suggested a new alternative to MA Jinnah’s ”Faith, Unity, Discipline” slogan: “First, I wish for minds that can deal with the complex nature of truth…. My second wish is for many more Pakistanis who accept diversity as a virtue… My third, and last, wish is that Pakistanis learn to value and nurture creativity.” And he has spoken of bringing “economic justice to Pakistan”, of the “fight to give Pakistan’s women the freedom which is their birthright”, and of people to “wake up” and engage politically. We shall witness a most engaging battle if Benazir and her new military friends all representing the jaded and corrupt old political power structures, come to face in the elections a new conservative alliance of people like Sharif, Hashmi, Fazlur Rahman and Imran all infused with Hoodbhoy’s scientific liberalism representing Iqbal’s ”spirit of modern times”.

India and “Energy Security”

May 7, 2007 — drsubrotoroy

First published in India’s Energy Security edited by Anant Sudarshan and Ligia Noronha, Konrad Adenauer Stiftung, New Delhi 2007

“On the Political Economy of India’s Energy Policy: One Citizen’s Viewpoint”

by

Subroto Roy

For the idea of “energy security” to have meaning, “energy insecurity” must hold meaning as well. Looking back a generation, the average American, European and Japanese citizen became anxious and insecure when the cartel power of the oil exporting countries was first exercised, and energy prices quadrupled. The idea of the US Government accumulating a “strategic reserve” of petroleum originated due to the oil crisis, and amounted to no more than a buffer-stock or commodity price-stabilisation scheme so “cheap gasoline” could be had always, and lifestyles would not be suddenly inconvenienced, and hence presidential popularity ratings would not suddenly drop.

In many ways energy insecurity has been a creation of bad design. Hawaii is a good example of this. Hawaii’s renowned climate is cooled by the magnificent trade-winds which blow all year long except in September. Architecture suitable to those trade-winds would have created homes a few stories high with windows which could be opened. Instead, Honolulu has become a city of high-rises and skyscrapers in the middle of the Pacific Ocean — many with New York-style permanently closed windows and centralised airconditioning.

Energy Insecurity, and hence Energy Security, may be notions mostly relevant to advanced Western economies. North American, European and Japanese homes, lifestyles, architectures and urban sprawls are all highly capital-intensive and inelastically dependant on domestic or imported energy. The reason a vague undefined notion of “Energy Security” tends to make New Delhi anxious is because many inside the Delhi Beltway live in dreamlands or fantasy-worlds where they would like to imitate Western lifestyles in their personal lives. But New Delhi is not Europe or America and certainly India is not New Delhi.

There are hundreds of millions of Indians in rural India. What is the appropriate National Energy Policy for them? It quite simply is for there to be genuine electrification of India’s 600,000 villages (where more than 70% of the rural Indian population still have no electric lighting even according to Government data), as well as better trains, better all-weather feeder-roads to reach bus routes and primary schools, and conditions to arise for technological change and normal prosperity among ordinary people, so those who are today transporting a whole family of four on a bicycle, are able in a few years to do so on a motor-scooter, and some years after that perhaps in a small private car. Economic theory speaks of preferences, resources and technologies. Preferences define and give rise to the demand-side; resources and technologies define and give rise to the supply-side. Relative prices (which include interest-rates, reflecting the force of the present relative to the future) tend to intermediate equilibria between demand and supply conditions. In policy-making, private preferences for public goods and services must somehow become translated through a tolerable political process into reasonable public preferences. It must have seemed a good idea privately to someone to create skyscrapers with closed windows in Honolulu forgetting the trade winds and ignoring the energy-dependence of the Hawaiian Islands, yet in retrospect that may seem to have been publicly unwise. Similarly, India is a coal-abundant coal-exporting and diesel-importing country yet we got rid of all our steam locomotives and replaced these with diesel engines – if there were enough reasons to do so, I at least remain ignorant of what they were. One problem with our energy policy-making that has emerged in the current nuclear deal-making with American businessmen and politicians, is that it has seemed to lack rational assessments being made of relative costs and benefits in the Indian case of nuclear/fossil fuel/renewable energy, especially hydroelectric energy. Indeed it reveals the same lack of transparency as other policy-making in this country – like the $12 billion worth of commercial aircraft from Boeing and Airbus bought for our bankrupt nationalized airlines.

Moving from preference-formation to resources and technologies, it will be recalled that no economist of any school of thought anywhere ever backed the Club of Rome/“Limits to Growth” idea a generation ago that mankind was doomed in some sense to run out of resources. There are always alternatives, each with a relative cost attached to it, and there are always new and unpredictable opportunities and ingenuities arising which dynamically change the set of alternatives on offer at a given time. Prices and costs tend to adjust when possible to make myriad individual decisions consistent with one another, and in fact, futures, forward and option markets for petroleum products are among the most active and well-traded that there are in the world. Design improvements in nuclear reactors will also improve productivity; e.g. “fast breeder” reactors “breed” more fissile material than they use, and may get 100 times as much energy from a kilogram of uranium as existing reactors do. We in India also have one innovatively designed thorium reactor under construction.

Coming to the nuclear deal, the plausible part of the Government of India’s official line on the Indo-US nuclear deal is that removing these international restrictions will — through importation of new technologies, inputs, fuel etc — improve the functioning of the 14 existing nuclear plants that are going to be designated as “civilian”. However, those purchasing decisions involved in enhancing India’s efficiency gains must be made by the Government’s nuclear scientists on technical grounds of improving the working of our existing nuclear infrastructure.

It would be a different animal altogether to be purchasing new nuclear reactors on a turnkey basis from American, French or any other foreign businessmen in a purported attempt to improve India’s “energy security”. The central question over such massive foreign purchases no longer would be the technical one of using the Indo-US deal to improve efficiency or productivity of our existing inefficient and even crippled nuclear infrastructure. Instead it would become a question of calculating social costs and benefits of our newly investing in nuclear power relative to other sources like hydroelectric power. The contribution of nuclear power to India’s electricity production has been close to negligible. Among India’s energy sources, the largest growth-potential has remained hydroelectric. Even if all other sources of electricity remained constant, and our civilian nuclear capacity alone was made to grow by 100% under the deal that Dr Manmohan Singh and Mr Montek Singh Ahluwalia have been promoting, that would still make up less than 8% of total Indian electricity produced.

In 2004, the International Energy Agency’s estimated that the new energy capacity required by rising economic growth in 2020 will derive 1400 GW from burning coal (half of it in China and India), 470 GW from burning oil, 430 GW from hydro, and 400 GW from renewable sources like solar or wind power. Because gas prices are expected to remain low worldwide, construction of new nuclear reactors for electricity will mostly remain unprofitable. By 2030, new energy expected to be required worldwide is 4700 GW, of which only 150 GW is expected from new nuclear plants which in any case will replacing existing plants due to be retired. I am afraid the thought cannot be avoided that a proper cost-benefit analysis may reveal that the reason why potential American, French and other sellers of new nuclear reactors to India are becoming so keen on India using civilian nuclear energy is that they are unable to sell these reactors under free market principles elsewhere in the world economy. There is enough circumstantial evidence that the current nuclear deal-making has been promoted mostly by big business lobbies and has had little to do with anything else. The nuclear deal was promoted by the US-India Business Council and the US-India CEO Forum. The Confederation of Indian Industry registered as an official lobbyist in Washington, and went about spending half a million dollars lobbying American politicians for the nuclear deal. After President Bush’s visit to India, the US Foreign Commercial Service reportedly said American engineering firms, equipment suppliers and contractors faced a $1,000 billion opportunity in India, and the US Chamber of Commerce said the nuclear deal can cause $100 billion worth of new American business in India’s energy-sector alone.

If the Indo-US nuclear deal helps India improve or maintain its existing nuclear infrastructure, well and good. If in fact the underlying motivation of the local and foreign business lobbies driving the deal has been to sell India nuclear reactors on a turnkey basis at a time when nuclear energy is uneconomical elsewhere in the world because of low gas prices, then India’s ordinary citizens may demand to know from the Government whether the deal is principally aimed at allowing such importation of new nuclear reactors, and if so, why such an expensive alternative is being considered. Thus must include a realisation that while the transactions, organisation and political costs of getting new hydroelectric power investments off the ground are high, it is hydroelectric and not nuclear power where India’s real future potential exists. As a general rule, I put it to you that we need to be less worried about “Energy Security” anywhere and more worried about thoughtless irresponsible corrupt governments everywhere. There is no shortage of energy or resources as such anywhere in the world; what should be making us feel insecure is the shortage of wisdom in political decision-making. That there is everywhere.

Posted in Asia and the West, Economic Policy, Economics and Energy, India's Energy, India's Foreign Policy, India's Foreign Trade, India's Industry, India-United States business, India-US Nuclear Deal, Manmohan Singh, Political Economy, US economy, USA, United States. 3 Comments »

Swindling India (2007)

April 2, 2007 — drsubrotoroy

SWINDLING INDIA

by

Subroto Roy

First published in slightly abbreviated form as “A scam in the making” in The Sunday Statesman April 1 2007, Front page comment

A gigantic financial scheme is in the making. Will it come to be seen in future years as having been in fact a scam – indeed India’s scam of the 21st Century for which India’s unknowing masses will be made to pay for many generations? The scheme is mind-boggling in size as well as its sheer audacity. Bofors, Quattrochi etc amount to peanuts in comparison.

No less a personage than the Finance Minister of India, P Chidambaram, has openly praised the potential of this financial scheme. And he has done so in no less an open and transparent place than his latest Budget Speech to Parliament last February.

It is a scheme openly advocated and currently being developed by our Prime Minister Dr Manmohan Singh’s closest acolytes, Planning Commission head Mr Montek Singh Ahluwalia and HDFC head Mr Deepak Parekh, in collaboration with Reserve Bank Governor Dr YV Reddy and the Finance Ministry’s top bureaucrats. The PM himself has come close to endorsing it explicitly. And this PM is not an elected member of the Lok Sabha but holds office and acts as the executive agent of the UPA Chairperson and Lok Sabha Member from Rae Bareilly, Sonia Gandhi.

I hasten to add nobody in the BJP has objected to this financial scheme — in fact had the BJP been in power today instead of Congress, they would have been likely even more agreeable to the scheme given their close proximity to business lobbies and organized capital. As for the Communists, none of their JNU economics professors is technically competent enough to comprehend or recognize what is going on.

The scheme involves private companies “borrowing” India’s foreign exchange reserves from the Reserve Bank of India, allegedly for purpose of “infrastructure” creation — in collaboration with the American bank Citigroup, the American financial business, Blackstone Group, and possibly the American giant, GE Capital too. Mr Chidambaram took the unprecedented step of naming Mr Deepak Parekh as well as Citigroup and Blackstone in the text of his Budget Speech.

To begin to comprehend the nature of this scheme, we need to recall an earlier case.

Foreign exchange reserves of countries typically include foreign currency holdings as well as gold stocks. One of the biggest Wall Street scams of the 1980s-1990s involved private companies borrowing not countries’ foreign currency reserves but their gold reserves.

In that scam, it was not the Reserve Bank of India that was cheated but the Central Banks of Poland, Malaysia, Portugal and Yugoslavia. The New York financial company involved was a subsidiary of the Drexel Burnham Lambert Group. The Drexel parent went bankrupt on February 13 1990 and its subsidiary followed on May 9 1990.

A report on June 4 1990 by Leah J. Nathans (now Leah Nathans Spiro) in New York’s highly respected Business Week magazine said: “Central banks, those pillars of monetary virtue, lost $219 million ($21.9 crore) to an obscure commodities subsidiary called Drexel Burnham Lambert Trading Corporation”. The sum was small by American standards but it was “a big, big number” for the countries involved at the time.

What had these national central banks done? They had been lured into becoming greedy. They had been sitting on stocks of gold as part of their national reserves which they felt “just collect dust”. So they yielded to the temptation offered by the Drexel subsidiary of leasing the gold to private parties.

In Ms. Nathans’ words, “By leasing gold, a central bank earns a modest interest rate, ranging from less than 0.5% to 2.5%. Typically, the central bank consigns the gold to a dealer – say, for 90 days. The dealer can then lend the gold to a customer, at a higher interest rate. It may be a speculator, who hopes to repay the borrowed gold when the price falls, or a gold mine that wants to repay the broker with gold produced later.”

But the Drexel parent and subsidiary went bankrupt through bad financial decisions. Drexel’s Michael Milken went to jail. The Central Banks of Poland, Malaysia, Portugal and Yugoslavia were left empty-handed – and had to sue as creditors in New York’s courts trying desperately to get back the gold they had been lured into parting with. It would be unwise to take bets on how much of their gold they ever got back.

All the present PM’s men — Messrs Chidambaram, Ahluwalia, Parekh, Reddy et al in collaboration with one or two American financial companies – now have a scheme that will use not the RBI’s gold but its foreign currency reserves.

Mr Ahluwalia and Mr Parekh have made the outlandish claim that “India needs US$320 billion” (US 32,000 crore) by way of “investment for physical infrastructure” during the so-called “Eleventh Five-Year Plan”. (How many so-called “Five Year Plans” is India going to have incidentally? We had our “First Plan” when Manmohan Singh was a student at Punjab University. Stalin, who invented the “Five Year Plan”, died during that time, and even his old USSR has ceased to exist, let alone its “Five Year Plans”.)

That vast amount of “investment for physical infrastructure” is what Mr Ahluwalia says he knows India needs for his purported “9% growth rate” to be achieved. Where are the macroeconomic models and time-series data sets from him or his friends to back such assertions? There are none. None of the PM’s men, no one in the Finance Ministry or RBI or Planning Commission, nor any of their JNU economics professor friends or anyone else in Delhi, Mumbai, Kolkata etc have any such models or data with which to back such assertions. Nor do the World Bank etc. It is all sheer humbug – all a lie. It is part of the mendacity and self-delusion that our capital city has been floating upon.

In any event, the RBI reportedly has “opposed the idea of deploying forex reserves for infrastructure development on the grounds that it will create monetary expansion”. But Mr Chidambaram’s Finance Ministry owns the RBI, and the Ministry has said “the RBI’s concerns had been taken care of, as the investments would be deployed only through a structured mechanism”. (Business Standard 23 March 2007, p. 3)

What is a “structured mechanism”? Mr Chidambaram, mentioning Citigroup and Blackstone Group specifically, said in his Budget Speech that Mr Deepak Parekh has “suggested the establishment of two wholly-owned overseas subsidiaries of India Infrastructure Finance Company Ltd with the following objectives: (i) to borrow funds from the RBI and lend to Indian companies implementing infrastructure projects in India, or to co-finance their External Commercial Borrowings for such projects, solely for capital expenditure outside India; and (ii) to borrow funds from the RBI, invest such funds in highly rated collateral securities, and provide ‘credit wrap’ insurance to infrastructure projects in India for raising resources in international markets. The loans by RBI to these two subsidiary companies will be guaranteed by the Government of India and the RBI will be assured of a return higher than the average rate of return on its incremental investment.”

You do not understand? Well, no one is supposed to. The most exquisite thievery occurs after all not in darkness but in broad daylight with everyone watching but no one able to see or comprehend anything. So let us return to elementary first principles.

What are foreign exchange reserves and why do countries hold them? It is quite simply answered. Consider the USA and Canada, each with its own dollar. Canadians want to purchase American goods and services, give gifts and make loans to American residents, and make investments in the USA. Americans want to do the same in Canada. Each has to use the domestic money of the other when it does so. If an American wishes to lend money to a Canadian or to purchase something from him, he receives Canadian dollar notes from the Canadian Government to make his Canadian transactions, handing over his American dollar notes instead. The American dollar notes he hands over become part of Canada’s foreign exchange reserves, held by its Central Bank. Roughly speaking, a country’s foreign exchange reserves are the residual foreign currency assets its central bank holds after all these transactions are carried out on both sides of the border.

In the US-Canada case, neither Government prevents its citizens from exchanging domestic money for foreign money. In India, our rupee has been inconvertible since about 1940. The average Indian cannot freely exchange his/her rupee-denominated assets for foreign exchange denominated ones even if he/she wished to. There has been some import-liberalisation in recent years but only someone with the political access of Mr Tata or Mr Birla can purchase foreign assets and foreign companies using their Indian money – because the rupee is inconvertible, any bad financial decisions they make in using their foreign assets will be implicitly paid for by the Indian public.

Now a country’s central bank, such as our Reserve Bank, is the custodian of its foreign exchange reserves. India’s reserves are supposed to have reached $195.96 Billion ($19,596 Crore) as of March 16 2007. Keep in mind we do not know why they have risen: they can rise merely because foreigners (including NRIs) have lent us more of their money, not because foreigners have bought more of our goods and services. In fact Business Standard yesterday 31 March 2007 said on its front page “external commercial borrowing” was “a major source of accretion” of India’s reserves.

Also keep in mind that the Reserve Bank has the duty to manage these foreign-denominated assets against which it has already issued Indian rupees. It might receive a small conservative income from the cash-management aspect of this but it may not risk them or place them in any jeopardy!

Yet the whole idea behind the Chidambaram-Ahluwalia-Parekh-Reddy scheme under discussion by the Sonia-Manmohan Government is that the RBI will “lend” some of the billions of Americans dollars in its custody to overseas subsidiaries of Indian companies – say, for example, to the Tatas who have now bought foreign “capital assets” of some US$ 12 Billion ($1200 Crore) from Corus without having anything near that kind of foreign income.

Such favoured Indian companies might then use these “borrowed” funds as collateral for other borrowings. In exchange, they will go about undertaking purported “infrastructure” projects in India. So much for the “structured mechanisms” being touted by Messrs Chidambaram, Ahluwalia, Parekh et al.

Before India’s public understands it, the schemers will shout (as they have done with the SEZ Act) that Parliament has passed it. The BJP will applaud with envy. The Communists might uncomprehendingly complain a little, and then be bought off with a sop or two that they do understand, like a little pro-China rhetoric or being let off lightly on Nandigram.

Now international institutions like the International Monetary Fund and the Bank of International Settlements officially exist to advise central banks to stay along the straight and narrow and to avoid all such mischief. Here is what the IMF explicitly warned about such schemes in its Guidelines for Foreign Exchange Reserve Management dated September 20 2001:

“Liquidity risk. The pledging of reserves as collateral with foreign financial institutions as support for loans to either domestic entities, or foreign subsidiaries of the reserve management entity, has rendered reserves illiquid until the loans have been repaid. Liquidity risks have also arisen from the direct lending of reserves to such institutions when shocks to the domestic economy led to the borrowers’ inability to repay their liabilities, and impairment of the liquidity of the reserve assets.
Credit risk. Losses have arisen from the investment of reserves in high-yielding assets that were made without due regard to the credit risk associated with the issuer of the asset. Lending of reserves to domestic banks, and overseas subsidiaries of reserve management entities, has also exposed reserve management entities to credit risk.”

Dostoevsky believed man could have evil intent. Socrates was more generous and said man does not do wrong knowingly. It is not impossible our Indian schemers have innocent intent and do not even realize how close they are to becoming scamsters, or are already in the grip of scamsters. But at least we are now forewarned: India faces a clear risk of being swindled of its foreign exchange reserves. Prevention is better than cure.

Posted in Accounting and audit, Banking, Bankruptcy, BJP, Communists, Congress Party, Dostoevsky, Economic Policy, Economic Theory, Economics of Exchange Rates, Financial markets, Good and Evil, Government accounting, Government Budget Constraint, Government of India, India's Big Business, India's stock and debt markets, India's balance of payments, India's Banking, India's bureaucracy, India's Capital Markets, India's currency history, India's Economy, India's Foreign Exchange Reserves, India's Foreign Trade, India's Government Budget Constraint, India's Government Expenditure, India's Industry, India's Macroeconomics, India's Monetary & Fiscal Policy, India's pork-barrel politics, India's Public Finance, India's Reserve Bank, International Law, Macroeconomics, Manmohan Singh, Monetary Theory, Socrates, Sonia Gandhi, Unorganised capital markets. 1 Comment »

Fallacious Finance: Congress, BJP, CPI-M et al may be leading India to hyperinflation (2007)

March 5, 2007 — drsubrotoroy

Fallacious Finance: **Congress, BJP, CPI-M et al may be leading India to hyperinflation**

by

Subroto Roy

first published in The Statesman, 5 March 2007

Editorial Page Special Article

It seems the Dream Team of the PM, Finance Minister, Mr. Montek Ahluwalia and their acolytes may take India on a magical mystery tour of economic hallucinations, fantasies and perhaps nightmares. I hasten to add the BJP and CPI-M have nothing better to say, and criticism of the Government or of Mr Chidambaram’s Budget does not at all imply any sympathy for their political adversaries.

It may be best to outline a few of the main fallacies permeating the entire Governing Class in Delhi, and their media and businessman friends:

1. “India’s Savings Rate is near 32%”. This is factual nonsense. Savings is indeed normally measured by adding financial and non-financial savings. Financial savings include bank-deposits. But India is not a normal country in this. Nor is China. Both have seen massive exponential growth of bank-deposits in the last few decades. Does this mean Indians and Chinese are saving phenomenally high fractions of their incomes by assiduously putting money away into their shaky nationalized banks? Sadly, it does not. What has happened is government deficit-financing has grown explosively in both countries over decades. In a “fractional reserve” banking system (i.e. a system where your bank does not keep the money you deposited there but lends out almost all of it immediately), government expenditure causes bank-lending, and bank-lending causes bank-deposits to expand. Yes there has been massive expansion of bank-deposits in India but it is a nominal paper phenomenon and does not signify superhuman savings behaviour. Indians keep their assets mostly in metals, land, property, cattle, etc., and as cash, not as bank deposits.

2. “High economic growth in India is being caused by high savings and intelligently planned government investment”. This too is nonsense. Economic growth in India as elsewhere arises not because of what politicians and bureaucrats do in capital cities, but because of spontaneous technological progress, improved productivity and learning-by-doing on part of the general population. Technological progress is a very general notion, and applies to any and every production activity or commercial transaction that now can be accomplished more easily or using fewer inputs than before. New Delhi still believes in antiquated Soviet-era savings-investment models without technological progress, and some non-sycophant must tell our top Soviet-era bureaucrat that such growth models have been long superceded and need to be scrapped from India’s policy-making too. Can politicians and bureaucrats assist India’s progress? Indeed they can: the telecom revolution in recent years was something in which they participated. But the general presumption is against them. Progress, productivity gains and hence economic growth arise from enterprise and effort of ordinary people — mostly despite not because of an exploitative, parasitic State.

3. “Agriculture is a backward sector that has been retarding India’s recent economic growth”. This is not merely nonsense it is dangerous nonsense, because it has led to land-grabbing by India’s rulers at behest of their businessman friends in so-called “SEZ” schemes. The great farm economist Theodore W. Schultz once quoted Andre and Jean Mayer: “Few scientists think of agriculture as the chief, or the model science. Many, indeed, do not consider it a science at all. Yet it was the first science – Mother of all science; it remains the science which makes human life possible”. Centuries before Europe’s Industrial Revolution, there was an Agricultural Revolution led by monks and abbots who were the scientists of the day. Thanks partly to American help, India has witnessed a Green Revolution since the 1960s, and our agriculture has been generally a calm, mature, stable and productive industry. Our farmers are peaceful hardworking people who should be paying taxes and user-fees normally but should not be otherwise disturbed or needlessly provoked by outsiders. It is the businessmen wishing to attack our farm populations who need to look hard in the mirror – to improve their accounting, audit, corporate governance, to enforce anti-embezzlement and shareholder protection laws etc.

4. “India’s foreign exchange reserves may be used for ‘infrastructure’ financing”. Mr Ahluwalia promoted this idea and now the Budget Speech mentioned how Mr Deepak Parekh and American banks may be planning to get Indian businesses to “borrow” India’s forex reserves from the RBI so they can purchase foreign assets. It is a fallacy arising among those either innocent of all economics or who have quite forgotten the little they might have been mistaught in their youth. Forex reserves are a residual in a country’s balance of payments and are not akin to tax revenues, and thus are not available to be borrowed or spent by politicians, bureaucrats or their businessman friends — no matter how tricky and shady a way comes to be devised for doing so. If anything, the Government and RBI’s priority should have been to free the Rupee so any Indian could hold gold or forex at his/her local bank. India’s vast sterling balances after the Second World War vanished quickly within a few years, and the country plunged into decades of balance of payments crisis – that may now get repeated. The idea of “infrastructure” is in any case vague and inferior to the “public goods” Adam Smith knew to be vital. Serious economists recommend transparent cost-benefit analyses before spending any public resources on any project. E.g., analysis of airport/airline industry expansion would have found the vast bulk of domestic airline costs to be forex-denominated but revenues rupee-denominated – implying an obvious massive currency-risk to the industry and all its “infrastructure”. All the PM’s men tell us nothing of any of this.

5. “HIV-AIDS is a major Indian health problem”. Government doctors privately know the scare of an AIDS epidemic is based on false assumptions and analysis. Few if any of us have met, seen or heard of an actual incontrovertible AIDS victim in India (as opposed to someone infected by hepatitis-contaminated blood supplies). Syringe-exchange by intravenous drug users is not something widely prevalent in Indian society, while the practise that caused HIV to spread in California’s Bay Area in the 1980s is not something depicted even at Khajuraho. Numerous real diseases do afflict Indians – e.g. 11 children died from encephalitis in one UP hospital on a single day in July 2006, while thousands of children suffer from “cleft lip” deformity that can be solved surgically for 20,000 rupees, allowing the child a normal life. Without any objective survey being done of India’s real health needs, Mr Chidamabaram has promised more than Rs 9.6 Billion (Rs 960 crore) to the AIDS cottage industry.

6. “Fiscal consolidation & stabilization has been underway since 1991”. There is extremely little reason to believe this. If you or I borrow Rs. 100,000 for a year, and one year later repay the sum only to borrow the same again along with another Rs 40,000, we would be said to have today a debt of Rs. 140,000 at least. Our Government has been routinely “rolling over” its domestic debt in this manner (in the asset-portfolios of the nationalised banking system) but displaying and highlighting only its new additional borrowing in a year as the “ Fiscal Deficit” (see graph, also “Fiscal Instability”, The Sunday Statesman, 4 February 2007). More than two dozen State Governments have been doing the same though, unlike the Government of India, they have no money-creating powers and their liabilities ultimately accrue to the Union as well. The stock of public debt in India may be Rs 30 trillion (Rs 30 lakh crore) at least, and portends a hyperinflation in the future. Mr Chidambaram’s announcement of a “Debt Management Office” yet to be created is hardly going to suffice to avert macroeconomic turmoil and a possible monetary collapse. The Congress, BJP, CPI-M and all their friends shall be responsible.

Of related interest: Mistaken Macroeconomics,
“The Indian Revolution”, “Against Quackery”, “The Dream Team: A Critique”, “India’s Macroeconomics”, “Indian Inflation”

Posted in Academic research, Banking, Big Business and Big Labour, BJP, China, China's macroeconomics, China's savings rate, China's Economy, Communists, Congress Party, Deposit multiplication, Economic Policy, Economic quackery, Economic Theory of Growth, Economics of exchange controls, Economics of Public Finance, Economics of real estate valuation, Finance, Financial Management, Financial markets, Financial Repression, Foreign exchange controls, Governance, Government accounting, Government Budget Constraint, Government of India, India's Big Business, India's credit markets, India's Government economists, India's interest rates, India's savings rate, India's stock and debt markets, India's agriculture, India's Agriculture & Food, India's balance of payments, India's Banking, India's Budget, India's bureaucracy, India's Capital Markets, India's corporate finance, India's corporate governance, India's currency history, India's Democracy, India's Economic History, India's Economy, India's Exports, India's farmers, India's Finance Commission, India's Foreign Exchange Reserves, India's Foreign Trade, India's Government Budget Constraint, India's Government Expenditure, India's grassroots activists, India's Health/Medicine, India's Industry, India's inflation, India's Labour Markets, India's Land, India's Macroeconomics, India's Monetary & Fiscal Policy, India's nomenclatura, India's peasants, India's political lobbyists, India's Polity, India's pork-barrel politics, India's poverty, India's Public Finance, India's Reserve Bank, India's State Finances, India's Union-State relations, Inflation, Interest group politics, Macroeconomics, Manmohan Singh, Mendacity in politics, Monetary Theory, Money and banking, Paper money and deposits, Political cynicism, Political Economy, Political mendacity, Public Choice/Public Finance, Redeposits, Unorganised capital markets. 3 Comments »

Bengal’s Finances

February 25, 2007 — drsubrotoroy

BENGAL’S FINANCES

First published in The Sunday Statesman February 25 2007, Editorial Page Special Article, www.thestatesman.net

There is urgent need for calm, sober thought, not self-delusion. Foreign trade, world politics are not what State Governments are constitutionally permitted to do.

By SUBROTO ROY

Mr Buddhadeb Bhattacharjee is fond of saying his hoped for industrialization plans will lead to jobs for “thousands” of unemployed young men and women emerging from West Bengal’s many schools, colleges and universities.

Now ever since JM Keynes’s time, economists have understood the phenomenon of unemployment quite well. Some unemployment is voluntary: where someone declines to accept a job at the prevailing wage or chooses leisure instead, e.g. withdraws from the labour-force in order to go to college or care for children or family or be involved in search for a better job. Some unemployment is seasonal, as in agriculture ~ where there often is “overfull” employment at harvest-time. Some unemployment may be frictional or structural, depending on dynamic unpredictable industrial or technological changes. In none of these cases is any large role defined for government investment using public resources, though there can be smaller roles like providing job-information, advice and training.

Keynes himself was concerned with systematic “involuntary” unemployment, where masses of people are willing but unable to find work at the going wage because there has been a general collapse of the market economy, as arguably happened in the 1930s in the Western countries. There has been no such situation in independent India.

And it is important to remember our labour markets are mostly unrestricted by State boundaries: unlike totalitarian China, we do not have internal passports in the country, and Indians are mostly free to work anywhere they wish to. Talk from CPI-M, Congress, BJP or other politicians of alleged Keynesian “multiplier” effects arising from government expenditure is mostly talk. And as for Sonia Gandhi’s “National Rural Employment Guarantee”, to the extent it was argued for at all by Amartya Sen’s disciples like Jean Drèze, the argument was not on Keynesian grounds but of a purportedly more equitable distribution of government expenditure.

What then is the Bhattacharjee Government supposed to be doing?

Chandrababu Naidu started a trend among Chief Ministers flying off to exotic foreign vistas, addressing international conferences and signing memoranda with foreign businessmen. But world politics, international relations and foreign trade are not what Indian State Governments are permitted by our Constitution to be engaged in doing. Nelson Mandela is a great man of history but Jyoti Basu’s Government had no constitutional right or business to gift him five million American dollars of West Bengal public money after he was released from jail in South Africa in 1990 by De Klerk.

Our Constitution is crystal clear that the legitimate agenda of India’s State Governments is something very mundane and wholly unglamorous: State Governments are supposed to be managing Courts of Law; the Police, Civil Order, Prisons; Water, Sanitation, Health; State Debt Service; Intra-State Infrastructure & Communications; Local Government; Liquor & Other Public Sector Industry; Trade, Local Banking & Finance; Land, Agriculture, Animal Husbandry; Libraries, Museums, Monuments; State Civil Service & Administration. In addition, “concurrent” with the Union Government are Criminal, Civil & Family Law, Contracts & Torts; Forests & Environmental Protection; Unemployment & Refugee Relief; Electricity; Education. It is relative to that explicit agenda that State Government performances around the country must be evaluated.

The finances of the West Bengal Government and those of every other State of the Union appear in a condition of Byzantine confusion. Even so, it is not impossible for any citizen to understand them with a little serious effort. The State receives tax revenues, income from State operations (like bus fares, lottery tickets etc), and grants transferred from the Union. Of the State’s total revenues, more than 80% arise from taxation. Of those taxes, about 30% is collected by the Union on behalf of the State in accordance with the Finance Commission’s formulae; 70% is collected by the State itself, and about 60% of whhat the State collects is Sales Tax. On the expenditure side, more than 60% goes in repaying the State’s debts as well as interest owed on that debt. The remainder gets distributed as summarily shown in the table. (What would be revealed at a higher level of detail is that e.g. Rs. 2.63 Bn is spent in collecting Rs. 9.93 Bn of land revenue!) The wide difference between the State’s income from all sources and its expenditures implies the State must then issue new public debt. That typically has been a larger and larger sum every year, greater than the amount of maturing debt being amortised or extinguished. The potentially grave consequence of this will be obvious to any householder, and makes it imperative that calm, sober thought and objective analysis occur about the State’s financial condition and budget constraint. There is no room for self-delusion, especially on the part of the Bhattacharjee Government. We are still paying interest on the money we borrowed to make Nelson Mandela a gift seventeen years ago.

Govt. of W. Bengal’s Finances 2003-2004
Rs Billion (Hundred Crore)
EXPENDITURE ACTIVITIES:
government & local government 8.68 1.68%
judiciary 1.27 0.25%
police (including home guard etc.) 13.47 2.61%
prisons 0.62 0.12%
bureaucracy 5.69 1.10%
collecting land revenue & taxes 4.32 0.84%
government employee pensions 26.11 5.05%
schools, colleges, universities, institutes 45.06 8.72%
health, nutrition & family welfare 14.70 2.84%
water supply & sanitation 3.53 0.68%
roads, bridges, transport, etc. 8.29 1.60%
electricity (mostly loans to power sector) 31.18 6.03%
irrigation, flood control, environment, ecology 10.78 2.09%
agricultural subsidies, rural development, etc. 7.97 1.54%
industrial subsidies 2.56 0.50%
capital city development 7.29 1.41%
social security, SC, ST, OBC, labour welfare 9.87 1.91%
tourism 0.09 0.02%
arts, archaeology, libraries, museums 0.16 0.03%
miscellaneous 0.52 0.10%
debt amortization & debt servicing 314.77 60.89%
total expenditure 516.92

tax revenue 141.10
operational income 6.06
grants from Union 18.93
loans recovered 0.91
total income 167.00
INCOME SOURCES:

GOVT. BORROWING REQUIREMENT
(total expenditure
minus total income ) 349.93

financed by:
new public debt issued 339.48
use of Trust Funds etc 10.45
349.93
From the author’s research and based on latest available data published by the Comptroller & Auditor General of India

Our Policy Process: Self-Styled “Planners” Have Controlled India’s Paper Money For Decades

February 20, 2007 — drsubrotoroy

Our Policy Process:

Self-Styled “Planners” Have Controlled India’s Paper Money For Decades

by

Subroto Roy

First published in The Statesman, Editorial Page Special Article, Feb 20 2007

Three agencies of the Executive Branch of our Government have controlled the country’s fiscal and monetary processes. The most glamorous is the Planning Commission, a nominated agency of the Government of the day without constitutional status but which has informally charged itself with articulating national and provincial preferences on public spending. It has overshadowed in impact and prestige the Finance Ministry or Treasury, which normally would design the budget, raise taxes, run the fiscal machinery and be accountable to Parliament (the Legislative Branch) via the person of the Finance Minister. In turn, the Finance Ministry owns and controls the Reserve Bank, effectively placing India’s paper money and bank deposits at the discretion of New Delhi’s purported “economic planners”.

In addition, the Finance Commission is charged with articulating a suitable allocation of public resources between the Union and States, setting some medium-term parameters of federal finance. And the Comptroller & Auditor General is supposed to assess effectiveness of Government behaviour: the “high independent statutory authority..… who sees on behalf of the Legislature that … money expended was legally available for and applied to the purpose or purposes to which it has been applied.” “Audit … is the main instrument to secure accountability of the Executive to the Legislature …. The fundamental object of audit is to secure real value for the taxpayer’s money” (Indian Government Accounts & Audit, 1930).

Weakness of Parliament

In parliamentary government, the whole Executive Branch is accountable to and the agent of the Legislative Branch. But the utter weakness of our Parliament over decades has led its institutions, including the C&AG, to be run roughshod over by the Government of the day. The Finance Commission, being a temporary and transient body, can hardly take on the entrenched bureaucracy the Planning Commission has become.

This unconstitutional subservience of policy-making to the Planning Commission began when the first planners said on December 7 1952: “The raison d’etre of a planned economy is the fullest mobilisation of available resources and their allocation so as to secure optimum results …. There is no doubt that the RBI, which is a nationalised institution, will play its appropriate part in furthering economic development along agreed lines”. When Jawaharlal Nehru as free India’s first prime minister chose to himself lead the “Second Plan”, the fate of India’s paper money was sealed. “Insofar as government expenditure is financed by central bank credit, there is a direct increase in currency in circulation”. That May 14 1956 statement marked the last mention for the next 43 years of India’s money during the process of articulating India’s public expenditure priorities.

The Reserve Bank has indeed behaved “along agreed lines”. While superficially presiding over currency, banking and foreign exchange, it has been legally and practically a department (with some 75,000 employees today) of the Finance Ministry. Since the vast bulk of customer deposits are held by nationalized banks owned and managed by the Finance Ministry, India has had practically a “one-tier” banking system on the old USSR model.

The “Ninth” and “Tenth” Planning Commissions included not only Prime Minister Atal Behari Vajpayee but also his Finance and Foreign Ministers as members. It was not our Reserve Bank but such persons, including the prominent official (now in post-retirement service) Montek Singh Ahluwalia, who declared on April 5 1999 in the “Ninth Five Year Plan” that a “viable monetary posture” was “to accept an average inflation rate in the region of 7 per cent per annum, which would justify a growth rate of money supply (base money) of 16 per cent per annum”. Recent money supply growth rates under the Sonia-Manmohan Congress have been near 19%-21%, and inflation properly measured may be well above 10%.

In Western countries, it would be normal procedure for an acceptable level of inflation to be decided upon, followed by monetary and fiscal targets being set in view of what is statistically expected by way of real economic growth, since growth is mainly a result not of Government behaviour but of spontaneous technological progress and increase in productivity. By contrast, our “planning” process has allowed unconstrained fiscal expenditure to emerge out of chaotic and unconstrained nationwide politics on the sure-fire assumption that budget deficits are going to be “paid for” by money-printing (and hence by invisible taxation of the paper assets of an unknowing public).

For a PM and Finance Minister to sign off on fiscal-monetary targets during the “planning” process commits the entire Executive Branch to it. Reversing or even critically discussing such intentions would require nothing less than a Parliamentary Vote of No-Confidence, which itself would require public dissemination of economic models and data exclusively available to the Executive Branch, whether or not the Executive Branch is aware of it. Public exhortations and rhetoric then follow from politicians, bureaucrats and their businessman friends as to how much real growth needs to occur in order for inflation not to be above a given level!

The cart is thus squarely placed in front of and not behind the buffalo. If exhortations are not met by reality it is typically said ~ in bureaucrat-speak that avoids accountability ~ “slippages” occurred due to outside factors like rainfall, American business cycles or perhaps, now, global warming and AIDS.

Indeed because the upside-down nature of this process has likely not been grasped even by politicians, bureaucrats and establishment economists participating in it, let aside Parliament or the public, it hardly seems a conscious or deliberate “macroeconomic policy” at all, but rather an outcome of habitual, ritualistic routines taking place year after year for decades. And India’s financial press and TV media, instead of soberly seeking facts, have tended merely to flatter top politicians and bureaucrats, as is the wont of businessmen to do.

War finance, not peace

The structure of incentives and information has become such that no one in government, academia, international credit-rating agencies or elsewhere, is able to effectively point out that fiscal intentions expressed in a “Plan” may be infeasible, inflationary or generally unwise. This includes the IMF and World Bank who lead India’s creditors in Western financial markets, and whose staff are generally uninterested in the countries they work on except to make sure loans received are large and repayments timely (as their personal livelihoods depend on such factors). But a brave anonymous squeak can be found hidden in thousands of pages of “Tenth Plan” verbiage dated December 21 2002 ~ that it is all being “financed almost entirely by borrowing …. India’s public finance inherits the consequence of fiscal mismanagement in the past.” Efforts of one recent Governor to carve out a modern independent role for the Reserve Bank have apparently gone in vain, and he too has been co-opted as a Government spokesman in retirement.

The Bank of England could at one time “theoretically lend the full amount” the British Government was authorized to spend by the UK Parliament (Hirsch). For decades, the RBI has been required by our Government to do almost that in practice (see graph). During the Second World War, the US Government was assured its Central Bank “could and would see that the Treasury was supplied with all the money that it needed for war finance … beyond those secured by taxation and by borrowing from non-bank sources” (Chandler). India’s politicians and bureaucrats have given us macroeconomic processes that pretend our country has since Independence remained at war ~ when in fact we have been mostly at peace.

Posted in asymmetric information, Atal Behari Vajpayee, Banking, Economic Policy, Economic Theory, Economics of Public Finance, Expertise and democracy, Government accounting, Government Budget Constraint, Government of India, Growth rates (economic), India's Big Business, India's Government economists, India's Banking, India's Budget, India's bureaucracy, India's Constitution, India's currency history, India's Economic History, India's Economy, India's Finance Commission, India's Government Budget Constraint, India's Government Expenditure, India's History, India's inflation, India's Lok Sabha, India's Macroeconomics, India's Monetary & Fiscal Policy, India's Parliament, India's political lobbyists, India's Polity, India's pork-barrel politics, India's poverty, India's Public Finance, India's Reserve Bank, India's State Finances, India's Union-State relations, Macroeconomics, Money and banking, Political Economy. Leave a Comment »

India in World Trade & Payments (2007)

February 12, 2007 — drsubrotoroy

Our Trade & Payments

by

SUBROTO ROY

First published in The Sunday Statesman, Feb 11 2007, The Statesman, Feb 12 2007

Editorial Page Special Article

TWO and a half millennia ago, the Greeks described how brightly coloured textiles imported from India were popular among the Persians. Five centuries later, the Roman historian Pliny complained that India every year “took from Italy a hundred million sesterces in return for spices, perfumes and ornaments”. Montesquieu observed in 1748: “All peoples who have traded with India have always taken metals there and brought back commodities. Indians need only our metals, which are the signs of value. In all times those who deal with India will take silver there and bring back none”.

During the British period, India remained a great trading nation. JM Keynes found Britain, the world’s largest exporter in 1913, exporting more to India than anywhere else, and Germany, the world’s fastest growing economy in 1913, receiving 5 percent of its imports from India and sending it 1.5 percent of exports, making India the sixth largest exporter to Germany (after the USA, Russia, Britain, Austria-Hungary, France) and eighth largest importer from it (after Britain, Austria-Hungary, Russia, France, the USA, Belgium, Italy). India’s share of world exports during 1870-1914 may have been about 3-4 per cent. As of 1917-1918, India’s balance of payments and fiscal budget appear idyllic: an export surplus of £61.42 million, official reserves of £66.53 million, total claims on the rest of the world of £127.5 million (or 32.85 million troy ozs of gold), and a 1916-1917 budget surplus of £6,594,885.

Even at mid-20th Century, India was still a trading power with 2 percent of world exports and a rank of 16 in the world economy after the USA, Britain, West Germany, France, Canada, Belgium, Holland, Japan, Italy, Australia, Sweden, Venezuela, Brazil, Malaya and Switzerland.

Yet during the second half of the 20th Century, the Indian subcontinent collapsed to near insignificance in world trade and payments. The traditional export surplus implied a high “treasure” demand for precious metals on capital account; this was reversed and the new India became a chronic trade-deficit country dependant on foreign borrowings and grants. Of world merchandise exports, the subcontinent’s share today is 0.8 of 1 per cent, and of Asia’s 6 percent (India accounting for two thirds); by contrast, Malaysia alone accounts for 0.9 of 1 percent of world exports and 6.5 percent of Asia’s. Most poignantly, among 11 major developing countries (Korea, Taiwan, Singapore, Hong Kong, Argentina, Brazil, Chile, Mexico, Israel, Yugoslavia), India’s share of manufactured exports to the world fell from 65 per cent in 1953 to 51 percent in 1960 to 31 per cent in 1966 to 10 per cent by 1973. Our legendary textiles lost ground steadily. As of 1962-1971, India held an average annual market-share of almost 20 percent of manufactured textile imports into the USA; this fell to 10 percent by 1972-1981 and less than 5 percent by 1982-1991. India’s share of Britain’s imports of textile manufactures fell from 16 per cent in the early 1960s to less than 4 per cent in the 1990s. India and Sri Lanka once dominated world tea exports but lost rapidly to Kenya, Indonesia and Malawi. Of total British tea imports, Sri Lanka’s market-share fell from 11 percent in 1980 to 7 per cent by 1991 while India’s fell from 33 percent in 1980 to 17 per cent by 1991. Today India may not be in the top thirty largest merchandise exporting countries of the world.

Several causes may be identified for our historical collapse in world trade and payments. These include Western protectionism e.g. of domestic textiles between 1965-2005, and emergence of new technologies like synthetic fibres, plastics, tea-bags etc as well as new competitors in the world marketplace willing to use these. Successful commerce depends on intangible quantities like trust, reliable information and contacts between individual contracting parties. Decline in our shares of world exports led to wastage of such informational capital and commercial trust. Foreign importers established new relations with India’s competitors, and for Indian entrepreneurs (now facing lessened foreign protectionism or newly liberalized domestic policies) to win new customers or win back old ones becomes doubly difficult.

But the most important cause of the decline was undoubtedly the political discord and trauma leading to economic disintegration of Old India into modern India, Pakistan, Sri Lanka and Bangladesh. Partly as a result of their conflict, independent India and Pakistan deepened government requisitioning and rationing of foreign exchange purportedly as part of pseudo-socialist “planning”.

Trade policy followed the British pattern of import quotas imposed to conserve hard currency and save shipping space during war. Discretionary controls were in place by 1942 on grounds of “essentiality” and non-availability from indigenous sources. War needs over-rode others, and consumer goods banned ~ favouring their production by domestic business houses. In 1945 consumer goods were placed on open general license, as “the pattern of post-war trade should not be dictated by perpetuation of controls set up for purely war-time purposes”, and in 1946 there was further liberalization in view of India’s enormous sterling balances. But by March 1947 this ended, and import of gold and 200 “luxury” goods were banned. Only a few “essential” goods remained on the open list.

After the British left, political/bureaucratic control of imports and foreign exchange were extended, not removed. Intricate restrictions, subsidies, barriers and import-licensing (based on obsolete war-time “essentiality” and “actual user” criteria) continued, now in name of “import-substitution” and “planning”. Major industries were nationalized, and these became leading consumers of imports obtained by administrative rationing of the foreign exchange earned by export sectors. As consumer goods’ imports were most restricted, Indian businesses predictably diverted to produce these in the large highly protected domestic markets that resulted, causing monopolistic profits and financing of a vast parallel or “black” economy with its thriving hawala sector. Restriction of consumer goods’ and gold imports also caused smuggling and open corruption in Customs. The international price of the rupee was viewed not as reflecting demand for foreign relative to domestic moneys but as just another administered price to be used by politicians and bureaucrats. Foreign exchange earnings of exporters were confiscated in exchange for rupees at the administered rate. Foreign currency thus requisitioned was (and still mostly is) disbursed by rationing in the following order of precedence: first to meet Government debt repayments to international organizations, and Government expenditures abroad like maintenance of embassies and purchase of military imports, plus politicians’ and bureaucrats’ foreign travel etc; secondly, for import of food, fertilizers, petroleum; thirdly, for imported inputs required by Government firms; fourthly, for import demands of those private firms successful in obtaining import licenses; lastly, to satisfy demands of the public at large for purposes like travel or study abroad.

After devaluing with sterling in 1949, the rupee was maintained at the same value for 17 years despite weakening reserve positions and numerous shocks to the economy like the 1962 war with China, 1965 war with Pakistan, and droughts and food crises. Devaluation on June 6 1966 to Rs. 7.50 per US dollar met political opposition and contributed to Congress Party losses in the 1967 elections. The rupee did not respond to sterling’s devaluation in November 1967 and was not adjusted downwards though the economy continued to suffer shocks like the rise in petroleum prices, refugees from the Pakistan civil war, and domestic strikes and political instability. In August 1971, India pegged to the dollar and devalued with the dollar’s depreciation but in December again linked to sterling at Rs 18.97. When sterling depreciated after floating in June 1972, the rupee effectively devalued with it, and until July 1975 there were three small devaluations against sterling. In September 1975, India pegged (within margins) to an undisclosed basket of hard currencies including the dollar, yen and deutschmark, and between 1981-1985, the rupee was slowly managed downwards, without political resistance. From September 1985-July 1991, it followed a more rapid downward course depreciating 40 per cent, while the dollar depreciated as well against major currencies, suggesting the dollar weighed heavily in the basket to which the rupee was pegged.

1991 reforms

Narasimha Rao, P Chidambaram and others received from Rajiv Gandhi in his last months the results of a “perestroika-for-India” project, and started a process of economic liberalisation. Chidambaram said at the time the reforms “were not miraculous” but based on rewriting the Congress manifesto: “We were ready when we came back to power in 1991”.

On July 1 1991, the rupee devalued 9 percent and on July 3 a further 11 percent. The new Government’s March 1 1992 Budget placed the rupee experimentally on a dual rate, implicitly taxing exporters who had to surrender 40 percent of their forex at an officially determined rate and could sell 60 percent in an open market. On March 1 1993, the rupee began to be made convertible for current account transactions, i.e. for import and export of goods and services. Trade reforms included removing many import quotas and some export subsidies. But grave fiscal and monetary problems were not (and have never been) addressed with any seriousness.

Balance of payments

The “balance of payments” sums a country’s current and capital accounts. In Western countries, the capital account consists of net trading in long and short-term securities like private stock and government debt ~ domestic securities being bought and sold freely by foreign residents and foreign securities by domestic residents. Prices determined by competitive trading are very sensitive to interest-rate differences. In India (and Pakistan etc) genuine capital account transactions have not existed since the 1930s, and do so only in highly distorted form even today. The traditional export surplus and positive current account, balanced by net inflow of precious metals, had been wiped out and current account deficits were coupled with overvalued currencies and closed capital markets – along with repressive financial policies causing capital flight of an elite nomenklatura. The inherent risk of unproductive use of funds by borrowers and consumers of forex (mostly Government) were shifted to export and other hard-currency earning sectors.

In particular, a severe trade-deficit had followed petroleum-price rises in the late 1970s, which continues today. There has been some exploration, discovery and extraction of domestic supplies of oil and gas, but no significant move to conserve or find economical alternatives to use of imported energy. (Indeed a coal-exporting petroleum-importing nation with the most heavily used railways in the world made an unprovoked decision to abolish steam-locomotives in favour of diesel and electric. And now, very expensive foreign nuclear plants are planned to be imported on a turnkey basis under a false assumption these will help India’s energy sector.)

India gained from exporting temporary workers to the Gulf since the 1970s but that could hardly finance the increased oil bill. Instead there has been large growth of foreign debt since the 1970s, mostly owed by the Government (and recently by large private businesses) to Western financial markets via brokerage of Western governments and organizations they control. India’s foreign debt amounts to more than $100 being owed by each of our one billion citizens, each of us having to earn five or six dollars every year on average just to meet interest payments due to foreign creditors.

This has been accompanied in the last few years by foreign exchange reserves (the residual in the balance of payments) seeming to grow rapidly, and rising reserves have been perceived as a sign of optimism. Just as bad luck came by way of large oil-price increases, we have seen windfall gains from spread of American “information technology” ~ causing an even larger surplus on services as Indian computer-workers are exported, or new foreign investment is lured by low costs of “business process outsourcing” using our “reserve army” of labour and seemingly cheap real estate.

Rising forex reserves may or may not indicate a better financial position just as rising debt may or may not indicate a weaker financial position. A cash-rich person or company or country may have enough liquid resources to meet an immediate payments’ crisis ~ but may have become cash-rich merely by having borrowed more. A country’s forex reserves may be rising because foreigners have lent it more or have been exploiting arbitrage opportunities presented by multiple exchange-rates or interest-rates or other capital market inefficiencies, or even because reserve-assets have appreciated in world markets due to currency movements.

Similarly, it is not the absolute size of a debt that matters but productivity of the use to which it has been put. At a conference on a “perestroika-for-India” in May 1989 at the University of Hawaii, the late Milton Friedman remarked that one man can be heavily indebted yet have used his debt for investment in capital and hence real growth, while another man can be less heavily indebted but have used borrowed money for debauchery or other wasteful consumption.

For countries too, it is the use to which debt has been put ~ the nature of assets that have been created with the debt ~ that is fundamental. If our foreign debt has been used by Government to create roads and bridges or improve agricultural productivity, fertile capital assets have been invested in, which lead to economic growth and well-being.

If borrowed foreign money has been mostly spent on fancy tanks and bombers (or even passenger aircraft, which mostly earn domestic and not foreign currency) or on foreign trips for politicians and bureaucrats, it has likely gone on sterile consumption goods for the elite. Since Pakistan and India are armed with foreign weapons intended to be used mainly against one another, the arms’ merchants on both sides have been laughing all the way to their Swiss banks for decades. Pakistan and India’s weapons’ imports have been effectively paid by their Governments having borrowed what now constitutes the bulk of their enormous sovereign debts. Requisitioning forex has permitted military generals, politicians, bureaucrats and other lobbies to spend as they wish foreign monies earned by relatively meagre export sectors under conditions of severe international competition.

False convertibility

The RBI is presently engaged in a false convertibility whereby the organised private sector can purchase foreign assets, and the elite can transfer $50,000 annually to their adult children already exported abroad. Truly freeing the rupee today would involve allowing, overnight, any Indian to hold gold, foreign currency and foreign exchange bank accounts freely at his/her local bank (just like those glamorous NRIs). But some 50% or more of public expenditure is being financed by debt compulsorily held by nationalized banks, and this would leave Government with the problem of finding real resources to pay interest and amortisation on the sovereign debt. Moving towards convertibility may induce severe inflation and instability caused by exposure of the weakness of the banks, as their assets (especially Government debt) come to be valued at international prices. Yet without a convertible rupee, proper valuation at world prices is not possible of any paper assets in India (including shares), nor is there any incentive for a responsible fiscal and monetary policy to emerge, even while the nomenklatura continue in capital flight, and India’s masses unknowingly inherit large accumulating rupee and dollar-denominated public debts.

Fiscal Instability

February 4, 2007 — drsubrotoroy

Fiscal Instabilty

Interest payments quickly suck dry every year’s Budget. And rolling over old public debt means that Government Borrowing in fact much exceeds the Fiscal Deficit

by Subroto Roy

First published in The Sunday Statesman,

Editorial Page Special Article, 4 February 2007

While releasing Mr Chidambaram’s book some days ago, our PM said that as Narasimha Rao’s Finance Minister in 1991 he had caused “fiscal stabilization” of the country. Unfortunately, Dr Manmohan Singh may have been believing the flattery of his sycophants, since the facts point differently.

The Fiscal Deficit is new borrowing by Government added for a given year. In 1994-1995 for example, the Union Government’s expenditure net of operational and other income was some Rs 1,295 billion (1 billion = 100 crore). Rs. 674 billion was generated for the Union Government by taxation that year (Rs 184 billion from direct taxes, Rs 653 billion from indirect and miscellaneous taxes, less Rs 163 billion as the States’ share). The difference between Rs 1,295 billion and Rs. 674 billion, that is Rs. 621 billion had to be borrowed by the Government of India in the name of future unborn generations of Indian citizens. That was the “Fiscal Deficit” that year. If the stock of Public Debt already accumulated has been B,this Fiscal Deficit, C, adds to the interest burden that will be faced next year since interest will have to be then paid on B + C.

Interest payments on Government debt have dominated all public finance in recent decades, quickly sucking dry the budgets every year both of the Union and each of our more than two dozen States. Some Rs. 440 billion was paid by the Union Government as interest in 1994-1995, and this had risen to some Rs. 1,281 billion by 2003-2004. As a percentage of tax revenue, interest expenditure by the Government of India on its own debt rose from 40% in 1991 to 68% in 2004 ~ through the Finance Ministerships of Manmohan Singh, P Chidambaram, Yashwant Sinha and Jaswant Singh.

Financial control of India’s fiscal condition, and hence monetary expansion, vitally requires control of the growth of these kinds of dynamic processes and comprehension of their analytical underpinnings. Yet such understanding and control seem quite absent from all organs of our Government, including establishment economists and the docile financial press.

For example, contrary to the impression created by the Finance Ministry, RBI and Union Cabinet (whether of the UPA or NDA, while the Communists would only be worse), the Fiscal Deficit has been in fact very far from being all that the Government of India borrows from financial markets in a given year. The stock of Public Debt at any given moment consists of numerous debt-instruments of various sorts at different terms. Some fraction of these come to maturity every year and hence their principal amounts (not merely their interest) must be repaid by Government. What our Government has been doing routinely over decades is to roll over these debts, i.e. issue fresh public debt of the same amount as that being extinguished and more. For example, some Rs. 720 billion, Rs. 1,180 billion, Rs.1,330 billion and Rs. 1,390 billion were amounts spent in extinguishing maturing public debt in 1993, 1994, 1995 and 1996 respectively. No special taxes were raised in those years specifically for that purpose. Instead the Government merely issued additional new debt or “rolled over” or “converted” the old debt in the same amounts and more in the portfolios of the captive nationalized banking system (see graph).

Plainly, the Government of India’s actual “Borrowing Requirement”, as the difference between its Income and Expenditure, when accounted for properly, will be the sum of this rolled over old debt and the Fiscal Deficit (which is merely the additional borrowing required by a single year’s Budget). In other words, the Government’s Borrowing Requirement is the Fiscal Deficit plus the much larger amount required to annually roll over maturing debt. Because the latter expenditure does not appear at all in calculation of the Fiscal Deficit by the subterfuge of having been routinely rolled over every year, the actual difference between Government Expenditure and Income in India has been made to appear much smaller than it really is. Although neglected by the Cabinet, Finance Ministry, RBI and even (almost) the C&AG, the significance of this discrepancy in measurement will not be lost on anyone seriously concerned to address India’s fiscal and monetary problems.

On the expenditure side, Current Expenditure (anachronistically named “Revenue Expenditure” in India as it is supposed to be met by current revenue) meets recurrent liabilities from one budget-date to the next, like salaries of school-staff or coupon payments on Government debt.

Investment Expenditure “of a capital nature” is supposed to increase “concrete assets of a material and permanent character” like spending on a new public library, or reducing “recurring liabilities” by setting aside a sinking fund to reduce Government debt. Some public resources need to be spent to yield benefits or reduce costs not immediately but in the future. Besides roads, bridges and libraries, these may include less tangible investments too like ensuring proper working of law-courts or training police-officers and school-teachers.

Also, there has been large outright direct lending by the Government of India bypassing normal capital markets on the pattern of old Soviet “central planning”, whereby “credit” is disbursed to chosen recipients.

“Current”, “Investment” and “Loan” expenditure decisions of this kind are made on the same activities. For example, in 1994-1995, the Government of India spent Rs. 2.7 billion as “Loans for Power Projects” in addition to Rs. 9.8 billion under Current Expenditure on “Power” and Rs. 15.5 billion as Investment Expenditure on “Power Projects”. By 2003-2004, these had grown to Rs. 50.94 billion, Rs. 31.02 billion, Rs. 28.5 billion respectively. Yet the opaqueness of Government accounts, finances and economic decision-making today is such that nowhere will such data be found in one table giving a full picture of public expenditure on the Power sector as a whole. On the revenue side, Government’s “Current Income” includes direct and indirect taxes, operational income from public utilities (like railways or the post office), and dividends and profits from public assets. There has been a small “Investment Income” too received from sale of public assets like Maruti. Also, since loans are made directly, there has to be a category for their recovery.

“One must not take from the real needs of the people for the imaginary needs of the state”, said Montesquieu; while De Marco in the same vein said “the greatest satisfaction of collective needs” has to be sought by “the least possible waste of private wealth”. Even Mao Zedong reportedly said: “Thrift should be the guiding principle of our government expenditure”. The C&AG requires Government determine “how little money it need take out of the pockets of the taxpayers in order to maintain its necessary activities at the proper standard of efficiency”.

Yet India’s top politicians and bureaucrats spend wildly ~ driven by the organised special interest groups on whom they depend, while ostentatiously consuming public time, space and resources themselves “quite uselessly in the pleasurable business of inflating the ego” (Veblen).

For Government to do what it need not or should not do contributes to its failure to do what it must. Thus we have armies of indolent soldiers, policemen and bureaucrats and piles of rotting supplies in government warehouses while there are queues outside hospitals, schools, courts etc.

Parliament and State Legislatures need to first ask of an annual budget whether it is efficient: “Is expenditure being allocated to enhance the public interest to the greatest extent possible, and if not, how may it be made to do so?” National welfare overall should increase the same whichever public good or service the final million of public rupees has been spent on.

Fundamentally, government finance requires scientific honesty, especially by way of clear rigorous accounting and audit of uses and origins of public resources. That scientific honesty is what we have not had at Union or State level for more than half a century.

Posted in Economic Policy, Economic Theory, India's Budget, India's Economic History, India's Economy, India's Government Expenditure, India's Macroeconomics, India's Monetary & Fiscal Policy, India's Polity, India's State Finances, James M Buchanan, Macroeconomics, Mao Zedong, Public Choice/Public Finance. Leave a Comment »

India’s Macroeconomics (2007)

January 20, 2007 — drsubrotoroy

(NB This is one of a set of articles that include “India in World Trade & Payments”, “Fiscal Instability”, “Fallacious Finance”, “Indian Money & Credit”, “Indian Money & Banking”, “Against Quackery”, “Indian Inflation”, “Monetary Integrity and the Rupee”, “The Dream Team: A Critique” etc., as well as “Mistaken Macroeconomics” etc. See My Recent Works, Interviews etc on India’s Money, Public Finance, Banking, Trade, BoP, Land, etc (an incomplete list) )

India’s Macroeconomics

Real growth has steadily occurred because India has shared the world’s technological progress. But bad fiscal, monetary policies over decades have led to monetary weakness and capital flight

by

Subroto Roy

First published in The Sunday Statesman Editorial Page Special Article

January 20 2007

Government expenditure in a democracy is supposed to be representative of real public needs. But democracy is everywhere imperfect, and spending tends to follow instead the pattern of special interest groups, i.e., who has how much organised lobbying power in the polity. “Whatever can be rescued from useless expenditure is urgently required for useful”, said JS Mill. How can public spending be made more productive (or less unproductive) by cutting waste, fraud and abuse, and instead better alleviate mass ignorance, poverty and destitution? And how can there be reduced chance of a collapse of confidence in public institutions, especially currency and the banks as has happened in other countries at different times? These are central questions for serious macroeconomic policy-making in India today. In fact, it is likely the Indian people are at present both over-taxed and under-taxed: we are over-taxed by the corroded, corrupt wasteful polity that has actually arisen, while we are under-taxed relative to the fiscal and monetary needs of a robust modern democratic polity yet to exist.

India has shared the technological progress the world economy witnessed in the 20th Century. Private ingenuity, enterprise and business acumen at all scales of operation are manifest in countless examples across the country every day. Real economic growth has taken place steadily as a result, and there is no doubt average levels of health, education, and material well-being have improved almost everywhere ~ often despite government action, sometimes thanks to it. Our legendary population has grown mainly due to lowering of mortality rates via better health, nutrition and awareness, causing longer life-spans than ever before. Our village festivals, market-towns and city-streets are filled with bustling shops with busy people and merchandise, while large concrete buildings are being built everywhere by invisible builders. There is no apparent lack of a potential basis for taxation of private resources for public uses in the country.

At the same time, monumental problems of absolute poverty, ignorance, destitution and inequality remain obvious to the naked eye everywhere in India, affecting hundreds of millions of citizens. A rare candid Government study said: “It does not require clever tools of measurement to demonstrate that there are millions of children in India who are totally deprived of any education worth the name. And it is not as if they are invisible, remote, and therefore unreached. They are everywhere in the cities: on the streets, wiping cars at traffic junctions, picking rags in mounds of waste; in the roadside eateries; in small factories, as cheap labour or domestic help; at ‘home’ completing household chores. In the villages again they are everywhere, responding to the contextual demands of family work as well as bonded labour.” (India Education Report, 2002, p. 47). Such and similar children, their parents and kith and kin constitute the hundreds of anonymous millions of India today.

Less than 30 million people are employed in the “organised” sector, about 18 by government and 12 by the “organised private sector”. Even if four dependents are assumed for each, that hardly makes 15% of the whole population of one billion people today. So while there may be some 150 million people in India who in one way or another engage with the “organised sector”, there may be 850 million who do not ~ reminiscent of Disraeli’s “Two Nations” of Dickensian England.

India’s tax-revenues are raised in proportion of about 30% direct to 70% indirect, where the same ratio for an advanced economy like the USA is about 90% direct to 10% indirect. A mere 10 million income-tax returns are received in a given year in all of India. The masses are being taxed, perhaps heavily, though they are mostly unaware of what is being indirectly extracted out of their household budgets through ubiquitous archaic systems of Customs and Excise. From long before the British arrived in India, there was a tax on salt via government monopoly, and long after MK Gandhi’s march to the Arabian Sea to produce salt freely, indirect taxes bear down invisibly upon the masses of democratic India today. Nicholas Kaldor approved the current system in 1956 but by 1959 had retracted and recommended widespread direct taxation instead, which has never happened. Kaldor’s best known Indian student is today PM of the country.

Also, everyone’s holdings of monetary assets in India have been taxed by inflation, without people realising it except for a continual feeling or memory of the dwindling value of the rupee and other paper assets. Government debt, the quantity of money and general price-level of real goods and services (the inverse of the price of money) have been on exponential growth paths, most conspicuously since the compulsory government take-over of banks in the early 1970s, though origins reach back to the start of pseudo-socialist “planning” in the 1950s (see graph).

When transparent visible taxation cannot be proposed and voted for in the “real” economy because it needs too much political effort or insight, governments resort to invisible, undemocratic means of taxing the public’s monetary resources by the subterfuge of inflating currency and bank deposits. Inflation has everywhere raised real resources for governments too weak to administer proper tax systems or resist the onslaught of organised pressure-groups in incurring public expenditure.

Taxation via inflation “does not require detailed legislation, and can be administered very simply. All that it requires is to spend newly created notes. The resulting inflation automatically imposes a tax on cash balances by depreciating the value of money” (Cagan). A routine means of meeting a government’s deficits can become “use of the printing press to manufacture legal tender paper money”, either directly by paying its creditors “with new paper money specially printed for the purpose”, or indirectly by paying its creditors “out of loans to itself from the Central Bank”, issuing money to that amount in exchange for government debt (Dalton). Because public memories are short and economic models and data unavailable to ordinary people, a large scope exists for governments to extract real resources by inflation before “money-illusion” comes to be dispelled. Briefly, such has been how India’s continuous budget-deficits have been financed ever since Independence – made possible with impunity because our rulers have also kept our currency from being internationally convertible (except for themselves).

These quite subtle facts remain practically unknown to the Indian public whose lives and those of future generations are deeply affected by them, though in recent decades elite elements like bureaucrats, academics, military officers, businessmen, politicians etc with better information and access to resources have sensed monetary weakness in the country and exported their adult children and savings abroad expeditiously. The sphere of knowledge and concerns of most people are so close to needs of their own survival that they make easy prey for the machinations of others with better information or access to resources. This may help explain why we, who for more than a century and a half have seen a vast political awakening take place and can take pride in having a free press and the world’s largest electorate, at the same time have had our political life and public institutions wracked by enormous corruption, fraud and venality, enfeebling the political economy by widespread cynicism and loss of confidence, and inducing capital flight abroad on the part of a vapid elite.

Posted in Academic economics, Academic research, asymmetric information, Banking, Economic Policy, Economic Theory, Economic Theory of Growth, Economics of exchange controls, Economics of Public Finance, Economics of Unemployment, Financial Repression, Government accounting, Government Budget Constraint, Government of India, Growth rates (economic), India's Big Business, India's Government economists, India's interest rates, India's stock and debt markets, India's Banking, India's Budget, India's bureaucracy, India's Capital Markets, India's Democracy, India's Economic History, India's Economy, India's emigrants to the West, India's Foreign Exchange Reserves, India's Government Budget Constraint, India's Government Expenditure, India's inflation, India's Labour Markets, India's Macroeconomics, India's Monetary & Fiscal Policy, India's nomenclatura, India's political lobbyists, India's Polity, India's pork-barrel politics, India's poverty, India's Public Finance, India's Reserve Bank, Interest group politics, Macroeconomics, Manmohan Singh, Monetary Theory, Nicholas Kaldor, Public Choice/Public Finance, Technological progress, Unorganised capital markets. 2 Comments »

Milton Friedman: A Man of Reason, 1912-2006

November 22, 2006 — drsubrotoroy

A Man of Reason

Milton Friedman (1912-2006)

First published in The Statesman, Perspective Page Nov 22 2006

Milton Friedman, who died on 16 November 2006 in San Francisco, was without a doubt the greatest economist after John Maynard Keynes. Before Keynes, great 20th century economists included Alfred Marshall and Knut Wicksell, while Keynes’s contemporaries included Irving Fisher, AC Pigou and many others. Keynes was followed by his younger critic FA Hayek, but Hayek is remembered less for his technical economics as for his criticism of “socialist economics” and contributions to politics. Milton Friedman more than anyone else was Keynes’s successor in economics (and in applied macroeconomics in particular), in the same way David Ricardo had been the successor of Adam Smith. Ricardo disagreed with Smith and Friedman disagreed with Keynes, but the impact of each on the direction and course both of economics and of the world in which they lived was similar in size and scope.

Friedman’s impact on the contemporary world may have been largest through his design and advocacy as early as 1953 of the system of floating exchange-rates. In the early 1970s, when the Bretton Woods system of adjustable fixed exchange-rates collapsed and Friedman’s friend and colleague George P. Shultz was US Treasury Secretary in the Nixon Administration, the international monetary system started to become of the kind Friedman had described two decades earlier. Equally large was Friedman’s worldwide impact in re-establishing concern about the frequent cause of macroeconomic inflation being money supply growth rates well above real income growth rates. All contemporary talk of “inflation targeting” among macroeconomic policy-makers since the 1980s has its roots in Friedman’s December 1967 presidential address to the American Economic Association. His main empirical disagreement with Keynes and the Keynesians lay in his belief that people held the intrinsically worthless tokens known as “money” largely in order to expedite their transactions and not as a store of value – hence the “demand for money” was a function mostly of income and not of interest rates, contrary to what Keynes had suggested in his 1930s analysis of “Depression Economics”. It is in this sense that Friedman restored the traditional “quantity theory” as being a specific theory of the demand for money.

Friedman’s main descriptive work lay in the monumental Monetary History of the United States he co-authored with Anna J. Schwartz, which suggested drastic contractions of the money supply had contributed to the Great Depression in America. Friedman made innumerable smaller contributions too, the most prominent and foresighted of which had to do with advocating larger parental choice in the public finance of their children’s school education via the use of “vouchers”. The modern Friedman Foundation has that as its main focus of philanthropy. The emphasis on greater individual choice in school education exemplified Friedman’s commitments both to individual freedom and the notion of investment in human capital.

Friedman had significant influences upon several non-Western countries too, most prominently India and China, besides a grossly misreported episode in Chile. As described in his autobiography with his wife Rose, Two Lucky People (Chicago 1998), Friedman spent six months in India in 1955 at the Government of India’s invitation during the formulation of the Second Five Year Plan. His work done for the Government of India came to be suppressed for the next 34 years. Peter Bauer had told me during my doctoral work at Cambridge in the late 1970s of the existence of a Friedman memorandum, and N. Georgescu-Roegen told me the same in America in 1980, adding that Friedman had been almost insulted publicly by VKRV Rao at the time after giving a lecture to students on his analysis of India’s problems.

When Friedman and I met in 1984, I asked him for the memorandum and he sent me two documents. The main one dated November 1955 I published in Hawaii on 21 May 1989 during a project on a proposed Indian “perestroika” (which contributed to the origins of the 1991 reform through Rajiv Gandhi), and was later published in Delhi in Foundations of India’s Political Economy: Towards an Agenda for the 1990s, edited by myself and WE James.

The other document on Mahalanobis is published in The Statesman today for the first time, though there has been an Internet copy floating around for a few years. The Friedmans’ autobiography quoted what I said in 1989 about the 1955 memorandum and may be repeated: “The aims of economic policy (in India) were to create conditions for rapid increase in levels of income and consumption for the mass of the people, and these aims were shared by everyone from PC Mahalanobis to Milton Friedman. The means recommended were different. Mahalanobis advocated a leading role for the state and an emphasis on the growth of physical capital. Friedman advocated a necessary but clearly limited role for the state, and placed on the agenda large-scale investment in the stock of human capital, encouragement of domestic competition, steady and predictable monetary growth, and a flexible exchange rate for the rupee as a convertible hard currency, which would have entailed also an open competitive position in the world economy… If such an alternative had been more thoroughly discussed at the time, the optimal role of the state in India today, as well as the optimum complementarity between human capital and physical capital, may have been more easily determined.”

A few months before attending my Hawaii conference on India, Friedman had been in China, and his memorandum to Communist Party General Secretary Zhao Ziyang and two-hour dialogue of 19 September 1988 with him are now classics republished in the 1998 autobiography. Also republished there are all documents relating to Friedman’s six-day academic visit to Chile in March 1975 and his correspondence with General Pinochet, which speak for themselves and make clear Friedman had nothing to do with that regime other than offer his opinion when asked about how to reduce Chile’s hyperinflation at the time.

My association with Milton has been the zenith of my engagement with academic economics, with e-mails exchanged as recently as September. I was a doctoral student of his bitter enemy yet for over two decades he not only treated me with unfailing courtesy and affection, he supported me in lonely righteous battles: doing for me what he said he had never done before, which was to stand as an expert witness in a United States Federal Court. I will miss him much though I know that he, as a man of reason, would not have wished me to.

Subroto Roy

Posted in Academic economics, Academic research, Adam Smith, Alfred Marshall, American academia, American financial crises, American history, Anna Schwartz, Asia and the West, Banking, China, China's macroeconomics, China's Economy, China's History, Communist China, Crash of 1929, David Ricardo, Economic Policy, Economic Theory, Economic Theory of Value, Economics of education, Economics of Exchange Rates, FA Hayek, Federal Reserve Bank of New York, Federal Reserve Banks, Financial markets, Frank Hahn, Freedom, Friedman Foundation, George P Shultz, Government Budget Constraint, Government of India, Great Depression, India's 1991 Economic Reform, India's Economy, India's Monetary & Fiscal Policy, Inflation, Inflation targeting, Jawaharlal Nehru, John Maynard Keynes, Keynesian economics, Macroeconomics, Microeconomics, Milton Friedman, Monetary Theory, Money and banking, PC Mahalanobis, Peter Bauer, Political Economy, Rajiv Gandhi, Richard Nixon, University of Chicago, University of Hawaii, US economy, US Federal Reserve System, US Monetary and Fiscal Policy, USA, United States, Wall Street financial crises. 1 Comment »

Milton Friedman on the Mahalanobis-Nehru “Second Plan”

November 22, 2006 — drsubrotoroy

Note by Dr Subroto Roy: Milton Friedman, who died last week (obituary: page 7) , gave me this document (dated 15 February 1956) in 1984. I did not publish it in Hawaii in May 1989 in Foundations of India’s Political Economy along with his November 1955 Memorandum to the Government of India because it was rather more candid and personal in tone. The Berlin Wall had not yet fallen, and I was at the time being attacked by prominent Indian and foreign economists and political scientists for wanting to publish the 1955 Memorandum at all. Today, we in India are well on our way to making more objective studies of our intellectual and political history than was possible two decades ago. Friedman’s candid observations, from the Cold War era of Krushchev’s denunciation of Stalin, seem as fascinating as the tales of travellers from courts of olden times.

Mahalanobis’s Plan
by Milton Friedman

First published in The Statesman front page http://www.thestatesman.net November 22 2006

“I met PC Mahalanobis in 1946 and again at a meeting of the International Statistical Institute in September 1947, and I know him well by reputation. He was absent during most of my stay in New Delhi, but I met him at a meeting of the Indian Planning Commission, of which he is one of the strongest and most able members.

Mahalanobis began as a mathematician and is a very able one. Able mathematicians are usually recognized for their ability at a relatively early age. Realizing their own ability as they do and working in a field of absolutes, tends, in my opinion, to make them dangerous when they apply themselves to economic planning. They produce specific and detailed plans in which they have confidence, without perhaps realizing that economic planning is not the absolute science that mathematics is. This general characteristic of mathematicians is true of Mahalanobis but in spite of the tendency he is willing to discuss a problem and listen to a different point of view. Once his decision is reached, however, he has great confidence in it.

Mahalanobis was unquestionably extremely influential in drafting the Indian five-year plan. There were four key steps in the plan. The first was the so-called “Plan Frame” drafted by Mahalanobis himself. The second was a tentative plan based on the “Plan Frame”. The third step was a report by a committee of economists on the first two steps, and the fourth was a minority report by BR Shenoy on the economists’ report. The economists had no intention of drafting a definitive proposal but merely meant to comment on certain aspects of the first two steps. Shenoy’s minority report, however, had the effect of making the economists’ report official.

The scheme of the Five Year Plan attributed to Mahalanobis faces two problems; one, that India needs heavy industry for economic development; and two, that development of heavy industry uses up large amounts of capital while providing only small employment.

Based on these facts, Mahalanobis proposed to concentrate on heavy industry development on the one hand and to subsidize the hand production cottage industries on the other. The latter course would discriminate against the smaller manufacturers. In my opinion, the plan wastes both capital and labour and the Indians get only the worst of both efforts. If left to their own devices under a free enterprise system I believe the Indians would gravitate naturally towards the production of such items as bicycles, sewing machines, and radios. This trend is already apparent without any subsidy.

The Indian cottage industry is already cloaked in the same popular sort of mist as is rural life in the US. There is an idea in both places that this life is typical and the backbone of their respective countries. Politically, the Indian cottage industry problem is akin to the American farm problem. Mohandas Gandhi was a proponent of strengthening the cottage industry as a weapon against the British. This reason is now gone but the emotions engendered by Gandhi remain. Any move to strengthen the cottage industry has great political appeal and thus, Mahalanobis’ plan and its pseudo-scientific support for the industry also has great political appeal. I found many supporters for the heavy industry phase of the Plan but almost no one (among the technical Civil Servants) who really believes in the cottage industry aspects, aside from their political appeal.

In its initial form, the plan was very large and ambitious with optimistic estimates. My impression is that there is a substantial trend away from this approach, however, and an attempt to cut down. The development of heavy industry has slowed except for steel and iron. I believe that the proposed development of a synthetic petroleum plant has been dropped and probably wisely so. In addition, I believe that the proposed five year plan may be extended to six years. Other than his work on the plan, I am uncertain of Mahalanobis’ influence. The gossip is that he has Nehru’s ear and potentially he could be very influential, simply because of his intellectual ability and powers of persuasion. The question that occurs to me is how much difference Mahalanobis’ plan makes. The plan does not seem the important thing to me. I believe that the new drive and enthusiasm of the Indian nation will surmount any plan, good or bad. Then too, I feel a wide diversity in what is said and what is done. I believe that much of Nehru’s socialistic talk is simply that, just talk. Nehru has been trying to undermine the Socialist Party by this means and apparently the Congress Party’s adoption of a socialistic idea for industry has been successful in this respect.

One gets the impression, depending on whom one talks with, either that the Government runs business, or that two or three large businesses run the government. All that appears publicly indicates that the first is true, but a case can also be made for the latter interpretation. Favour and harassment are counterparts in the Indian economic scheme. There is no significant impairment of the willingness of Indian capitalists to invest in their industries, except in the specific industries where nationalization has been announced, but they are not always willing to invest and take the risks inherent in the free enterprise system. They want the Government to support their investment and when it refuses they back out and cry “Socialism”.”

On a Liberal Party for India

October 22, 2006 — drsubrotoroy

NON-EXISTENT LIBERALS

By SUBROTO ROY

First published in The Sunday Statesman October 22 2006, Editorial Page Special Article

Communists, socialists and fascists exist in the Left, Congress and BJP-RSS ~ but there is a conservative/”classical liberal” party missing in Indian democracy today

We in India have sorely needed for many years a serious “classical liberal” or “conservative” political party. Major democratic countries used to have such parties which paid lip-service at least to “classical liberal” principles. But the 2003 attack on Iraq caused Bush/McCain-Republicans to merge with Hilary-Democrats, and Blair-Labour with Tory neocons, all united in a cause of collective mendacity, self-delusion and jingoism over the so-called “war on terror”. The “classical liberal” or “libertarian” elements among the Republicans and Tories find themselves isolated today, just as do pacifist communitarian elements among the Democrats and Labour. There are no obvious international models that a new Indian Liberal Party could look at ~ any models that exist would be very hard to find, perhaps in New Zealand or somewhere in Canada or North Eastern Europe like Estonia. There have been notable individual Indian Liberals though whom it may be still possible to look to for some insight: Gokhale, Sapru, Rajagopalachari and Masani among politicians, Shenoy among economists, as well as many jurists in years and decades gone by.

What domestic political principles would a “classical liberal” or conservative party believe in and want to implement in India today? First of all, the “Rule of Law” and an “Efficient Judiciary”. Secondly, “Family Values” and “Freedom of Religious Belief”. Thirdly, “Limited Government” and a “Responsible Citizenry”. Fourthly, “Sound Money” and “Free Competitive Markets”. Fifthly, “Compassion” and a “Safety Net”. Sixthly, “Education and Health for All”. Seventhly, “Science, not Superstition”. There may be many more items but this in itself would be quite a full agenda for a new Liberal Party to define for India’s electorate of more than a half billion voters, and then win enough of a Parliamentary majority to govern with at the Union-level, besides our more than two dozen States.

The practical policies entailed by these sorts of political slogans would involve first and foremost cleaning up the budgets and accounts of every single governmental entity in the country, namely, the Union, every State, every district and municipality, every publicly funded entity or organisation. Secondly, improving public decision-making capacity so that once budgets and accounts recover from having been gravely sick for decades, there are functioning institutions for their proper future management. Thirdly, resolving J&K in the most lawful and just manner as well as military problems with Pakistan in as practical and efficacious a way as possible today. This is necessary if military budgets are ever going to be drawn down to peacetime levels from levels they have been at ever since the Second World War. How to resolve J&K justly and lawfully has been described in these pages before (The Statesman, “Solving Kashmir” 1-3 December 2005, “Law, Justice and J&K”, 2-3 July 2006).

Cleaning up public budgets and accounts would pari passu stop corruption in its tracks, as well as release resources for valuable public goods and services. A beginning may be made by, for example, tripling the resources every year for three years that are allocated to the Judiciary, School Education and Basic Health, subject to tight systems of performance-audit. Institutions for improved political and administrative decision-making are necessary throughout the country if public preferences with respect to raising and allocating common resources are to be elicited and then translated into actual delivery of public goods and services.

This means inter alia that our often dysfunctional Parliament and State Legislatures have to be inspired by political statesmen (if any such may be found to be encouraged or engendered) to do at least a little of what they have been supposed to be doing. If the Legislative Branch and the Executive it elects are to lead this country, performance-audit will have to begin with them.

The result of healthy public budgets and accounts, and an economy with functioning public goods and services, would be a macroeconomic condition for the paper-rupee to once more become a money that is as good as gold, namely, a convertible world currency again after having suffered sixty years of abuse via endless deficit finance at the hands of first the British and then numerous Governments of free India that have followed.

It may be noticed the domestic aspects of such an agenda oppose almost everything the present Sonia-Manmohan Congress and Jyoti Basu “Left” stand for — whose “politically correct” thoughts and deeds have ruined India’s money and public budgets, bloated India’s Government especially the bureaucracy and the military, starved the Judiciary and damaged the Rule of Law, and gone about overturning Family Values. While there has been endless talk from them about being “pro-poor”, the actual results of their politicization of India’s economy are available to be seen with the naked eye everywhere.

One hundred years from now if our souls returned to visit the areas known today as India, Pakistan, Bangladesh etc, we may well find 500+ million inhabitants still below the same poverty-line despite all the gaseous prime ministerial or governmental rhetoric today and projections about alleged growth-rates.

If the Congress and “Left” must oppose any real “classical liberal” or conservative agenda, we may ask if the BJP-RSS could be conceivably for it. The answer is clearly not. The BJP-RSS may pontificate much about being patriotic to the motherland and about past real or imagined glories of Indian culture and religion, but that hardly ever has translated concretely into anything besides anti-Muslim or anti-Christian rhetoric, or breeding superstitions like astrology even at supposedly top technological institutes in the country. (Why all astrology is humbug, and a pre-Copernican Western import at that, is because all horoscopes assume the Sun rotates around the Earth in a geocentric solar system; the modern West’s scientific outlook arose only after astrology had declined there thanks to Copernicus and Galileo establishing the solar system as heliocentric.)

As for a “classical liberal” economic agenda, the BJP in Government transpired to be as bad if not worse than their adversaries in fiscal and monetary profligacy, except they flattered and were flattered by the organised capital of the big business lobbies whereas their adversaries flatter and are flattered by the organised power of the big labour unions (covering a tiny privileged class among India’s massive workforce). Neither has had the slightest interest in the anonymous powerless individual Indian citizen or household. The BJP in Opposition, instead of seeking to train and educate a new modern principled conservative leadership, appear to wish to regress even further back towards their very own brand of coarse fascism. “Family Values” are why Indian school-children have become the envy of the world in their keen discipline and anxiety to learn – yet even there the BJP had nothing to say on Sonia Gandhi’s pet bill on women’s property rights, whose inevitable result will be further conflict between daughters and daughters-in-law of normal Indian families.

At the root of the malaise of our political parties may be the fact we have never had any kind of grassroots “orange” revolution. There has been also an underlying national anxiety of disintegration and disorder from which the idea of a “strong Centre” follows, which has effectively meant a Delhi bloated with power and swimming in self-delusion. The BJP and Left are prisoners of their geriatric leaderships and rather unpleasant ideologies and interest-groups, while the Congress has failed to invent or adopt any ideology besides sycophancy. Let it be remembered Sonia Gandhi had been genuinely disdainful of the idea of leading that party at Rajiv’s death; today she has allowed herself to become its necessary glue. The most salubrious thing she could do for the party (and hence for India) is to do a Michael Howard: namely, preside over a genuine leadership contest between a half-dozen ambitious people, and then withdraw with her family permanently from India’s politics, focusing instead on the legacy of her late husband. Without that happening, the Congress cannot be made a healthy political entity, and hence the other parties have no role-model to imitate. Meanwhile, a liberal political party, which necessarily would be non-geriatric and non-sycophantic, is still missing in India.

Posted in Academic freedom, Academic research, BJP, BR Shenoy, Britain, C Rajagopalachari, Communists, Congress Party, Economic Policy, Ethics, Family Values, Fascists, Freedom, Government accounting, Government Budget Constraint, Government of India, India's Banking, India's Budget, India's bureaucracy, India's Caste/Ethnic Problems, India's communists, India's Constitution, India's constitutional politics, India's corruption, India's Democracy, India's Economy, India's Families, India's inflation, India's Judiciary, India's Jurisprudence, India's Lok Sabha, India's Macroeconomics, India's Monetary & Fiscal Policy, India's Nationalism, India's nomenclatura, India's Parliament, India's Personality Cults, India's Philosophy, India's political lobbyists, India's political parties, India's Politics, India's Polity, India's pork-barrel politics, India's Public Finance, India's Rule of Law, India's State Finances, Iraq war, Jammu & Kashmir, Liberalism/Libertarianism, Manmohan Singh, Minoo Masani, Pakistan, Balochistan, Afghanistan, Iran, Political Economy, Sonia Gandhi, USA, United States. Leave a Comment »

New Foreign Policy? (8-9 Oct 2006)

October 9, 2006 — drsubrotoroy

NEW FOREIGN POLICY? “Kiss Up, Kick Down”?

Seven phases of Indian foreign policy may be identifiable since Nehru; the current phase seems to involve subservience to the strong, jingoism otherwise

by Subroto Roy

First published in The Sunday Statesman 8 Oct 2006, The Statesman 9 Oct 2006 Editorial Page Special Article

The outlines of a new tri-partisan Indian foreign policy may be becoming discernible. That it is “new” or that it commands near unanimity among the Congress, BJP and “Left” and their respective friends in the Indian media and political classes, does not make it sound or robust in any way. In fact, its basis in the history, geography and economics of India is wholly inadequate, and it is also entirely divorced from any clearly enunciated new Indian political ethics for the modern world.

The new policy, which may be fairly dubbed the Jaswant-Manmohan policy after the BJP and Congress politicians who have been its putative authors and leading practitioners, is as likely as not to lead to an India that is no longer a free decision-maker in any meaningful way in world affairs by 2047, one hundred years after Independence. Our great grandchildren may well be taught that for some decades in Indian history a sovereign unitary republic actually existed which then came to be effectively lost.

Indeed the new policy may amount to being less a coherent new doctrine of India’s role in international relations than a mere change in attitude on the part of politicians, bureaucrats and their intelligentsia friends: from seeming universally arrogant in the world to becoming pliant and subservient towards those world powers perceived (accurately or inaccurately) as strong, combined with a vainglorious jingoism towards all others. It is an application to international diplomacy and politics of the classic bureaucratic principle of “kiss up, kick down” in an organisation, and may reflect the fact the two main institutions the Mughals and British used to run their empires were the bureaucracy and military ~ both of which have grown and continued to run New Delhi (and Islamabad) afterwards, co-opting whatever domestic political development that has arisen. There is plenty of wishful waffling too about India becoming a “great power” or being a “swing state in the global balance of power”, and about how well the economy is supposedly doing ~ as if what Government spokesmen say about the economy is to be believed at face-value. Indian Leftists and their fellow-travellers ~ as great lovers themselves of bureaucracy, collectivist groupthink and propaganda on the USSR or PRC pattern, and fearful or envious of all individual criticism, creativity and achievement – have taken to the same principle like fish to water.

The first phase of Indian foreign policy was Nehruvian in that it began with Nehru’s Fabian misperception of Stalin’s USSR, and ended with the military debacle he led the country into at the hands of Zhou’s “human wave” armies in the mountains of Ladakh and NEFA.

A second phase was Kashmir-centric, overlapping with the first insofar as it may be traced to Karan Singh’s iniquitous dismissal of Sheikh Abdullah’s first Government, but really beginning after Nehru’s death with the Ayub-Abdullah summit, and being marked by Ayub’s 1965 attack in J&K ~ Shastri’s riposte reaching the Ichogil Canal signalled that no longer would war over J&K be confined to J&K.

A third phase was forced on India by the Pakistani civil war that led to Bangladesh’s creation, and was marked by the Indira/ Haksar alliance with Brezhnev’s USSR, as well as by Pokhran-I.

A fourth phase of Indian foreign policy may be identified in the late 1970s and 1980s, marked by rebellion of the fundamentalist Sikhs whom Indira and Sanjay Gandhi had provoked, which led in due course to her assassination. The turmoil that followed in Punjab and North India was financed by anti-Indian Sikhs from Vancouver,California and Britain, with gleeful help from the Pakistanis, and Indian diplomats had their hands full in trying to counter that phenomenon. It was during this phase of domestic Indian turmoil that New Delhi wholly missed the seismic changes occurring in the USSR, East Europe and international relations generally, and completely failed to predict its consequences for India.

The phase came to end when the Narasimha Rao Government (upon advice of a well-known communist cabal in the IFS and JNU) instantly showered praise on the anti-Yeltsin coup in August 1991. When Yeltsin returned to power, the new anti-communist Russians took their revenge on New Delhi, exacting hard dollars for the soft rouble-trade of friendlier times.

A fifth phase may be seen in retrospect as one of relative success.The main plank of Indian foreign policy in the late 1980s and early 1990s was to get Pakistan designated a “terrorist state” in American eyes, as well as to warn of the dangers of a Pakistani nuclear bomb. It had been prompted by the end of American involvement in the Afghan war, which caused the ISI to shift the jihadis to J&K, and the Indian policy was destined not to succeed. No matter how hard Kanwal Sibal tried in 1992-1993 as Minister-Political in the Washington Embassy to tell the Americans that their Pakistani friends were dangerous, he was destined to fail as the MEA had entirely failed to realise how far ahead the Pakistanis were in their lobbying power in Washington ~ the Pakistani super-elite has been entrenched among the K-Street lobbyists and in expensive real-estate along the Potomac River for more than two generations. Yet after the 9/11 attacks several years later, the Indians were able to look back at that fifth phase and say to the Americans, “We told you so”.

In the late 1990s came a short-lived sixth phase of Pokhran-II and the Lahore bus-trip, which may be credited as Vajpayee successes, and also contained the Kargil War and Kandahar hijacking, which were more dubious. This overlapped with the last and currently continuing seventh phase of Indian foreign policy with Jaswant Singh breaking the ice with the Americans when they had recovered from the fact the CIA’s failures included not foreseeing Pokhran-II; it coincided too with Osama bin Laden’s declarations of jihad against the USA. The Americans enlisting themselves on the side of the Northern Alliance to defeat the Taliban after 9/11 was beneficial from an Indian standpoint since Afghanistan had been effectively lost to secular Indian influence for two decades, and the Taliban had shown themselves no friends of India during the Kandahar hijacking.

But the BJP’s anti-Muslim thought processes quickly took over, as did its proximity to organised business lobbies. When Iraq was attacked and occupied in 2003, there was hardly a whimper from the BJP leadership, and instead their businessmen friends started to fly to Amman hopeful of “reconstruction” contracts. The Sonia/ Manmohan Congress/Leftist combine has effectively continued and expanded that trend, though now the business lobbies have been much more muted and subtle, especially in their backroom dealings and payoffs with respect to the nuclear deal. There is also an occasional burst of anti-Americanism from leftists though it is hard of course to beg for American foreign investment in Marxist-run areas while also being sincere in quaint street demos or agitprop.

Running through the new foreign policy is a fiction that it is driven by a new economic motivation to improve development and mass well-being in India. The bizarre idea of creating hundreds of so-called “Special Economic Zones” (reminiscent of 17th and 18th Century colonial fortifications) illustrates this. India’s ordinary anonymous masses ~ certainly the 850 million people entirely outside the organised sector ~ have little or nothing to do with any of this. Benefits will accrue only to the ten million Indian nomenclatura controlling or having access to the gaping exit holes to the outside world in the new semi-closed economy with its endless deficit finance paid for by unlimited printing of an inconvertible domestic currency.

It is as fallacious to think private investment from foreign or domestic businessmen will support public “infrastructure” creation as it is to think foreign exchange reserves are like tax revenues in being available for Government expenditure on “infrastructure”. Such fallacies are intellectual products of either those who know no economics at all or those who have forgotten whatever little they might have been once mistaught in their youth. What serious economics does say is that Government should generally have nothing to do with any kind of private business, and instead should focus on properly providing public goods and services, encourage competition in all avenues of economic activity and prevent or regulate monopoly, and see to it all firms pay taxes they are due to pay.

That is it. It is as bad for Government to be pampering organised foreign or domestic business or organised labour with innumerable subsidies, as has been happening in India for decades, as it is to make enterprise difficult with red tape and hurdles. Businessmen are grown ups and should be allowed to freely risk their capital and make their profits or their losses without public intervention.

An economics-based policy would have single-mindedly sought to improve the financial condition of every governmental entity in the country, with the aim of improving the provision of public goods and services to all 1,000 million Indians. If and when budgets of all governmental entities become sound, foreign creditors would automatically line up before them with loans to sell, and ambitious development goals can be accomplished. As long as public budgets (and public accounts) remain in an outrageous shambles, nothing can be in fact achieved and only propaganda, corruption and paper-money creation results instead. Whatever economic growth does occur is due to new enterprise and normal technological progress, and is mostly despite and not because of New Delhi’s bureaucrats (see “The Dream Team: A Critique”, The Statesman 6-8 January 2006).

The first aspect of the new Indian foreign policy has been for Government to become wholly ingratiating towards any and all “First World” members visiting India who may deign to consider any kind of collaboration whatsoever. The long line of foreign businessmen and heads of government having photo-ops with the Indian PM began with Vajpayee and has continued with Manmohan, especially when there is a large weapons’ or commercial aircraft or other purchase to be signed. The flip-side has been ministerial and especially Prime Ministerial trips abroad ~ from Vajpayee’s to a Singapore golf-cart immediately after commiserating Gujarat, to Manmohan receiving foreign honorary doctorates while still holding public office.

Subservience to foreign business interests in the name of economic policy extends very easily to Indian naval, military or diplomatic assets being used to provide policing or support services for the great powers as and when they may ask for it. Hence, Indian naval forces may be asked by the Americans to help fight pirates in the Indian Ocean, or escort this vessel or that, or India may be asked to provide refuelling or base facilities, or India may be requested to vote against Iran, Venezuela or whomever here or there. But there would be absolutely no question of India’s role in international politics being anything greater than that of a subaltern or comprador whose response must be an instant “Ji, Huzoor”. The official backing of the Tharoor candidacy was as futile and ridiculous as the quest for UN veto-power or the willingness to attend G-8 summits as an observer.

While subservience towards the First World’s business and military interests is the “kiss up” aspect of the new foreign policy, an aggressive jingoism towards others is the “kick down” aspect. One influential voice among the media friends of the new foreign policy states it as follows: “The search for `equity oil’ has been the single most important new element of Indian economic diplomacy in recent years… Equity oil raises India’s stakes in the stability of regimes or even individuals who preside over these resources… the big question is how far would India go in defence of `regime stability’ elsewhere? And if it’s assets fall into hostile hands, would India be prepared to consider promoting `regime change’?” Just as surely as a pacifist Fabian socialist Nehru misperceived Stalin’s USSR, New Delhi’s new capitalistic jingoists have misperceived the Cheney-Rumsfeld grab for “equity oil” and have even defined Bush-Blair adventurism as being “the side of the angels”. How they must love to want to project Indian military force ~ paratroopers in the Maldives perhaps, though they need to recall what happened with the LTTE too!

Multiple Jallianwalla Bagh massacres may have been occurring in front of us in Iraq, Afghanistan and Balochistan, and there may soon be an attack on Iran too. New Delhi’s new “kiss up, kick down” attitude has rendered India’s once-dignified and sober voice silent, our eyes closed or our face turned away.

The obvious alternative to bureaucratic “kiss up, kick down” would be “kick up, kiss down” loved by all individualists and anti-bureaucrats. In other words, it would be for India to take each case and circumstance in international politics on its merits; be seen to stand up seriously to the powerful in world politics wherever and whenever necessary; seek to protect those who may be vulnerable to international or other brutality in world affairs, while getting on properly with the mundane business of ordinary government and commerce at all other times. That mundane business may call for a gradual withdrawal of India from all or most of the fancy, corrupt international bureaucracies in New York, Washington, Geneva etc, focussing calmly but determinedly instead on improved administration and governance at home. Such was what Rajiv Gandhi was advised in January 1991 (see “Memos to Rajiv,” The Statesman 31 July-2 August 1991; Freedom First October 2001), when for one futile moment he even formed a peaceful bridge between the Americans and Saddam during the first Gulf War. The New Delhi establishment may be too intoxicated with power and insecure intellectually to be able to reflect on such sober alternatives.

Indian Money and Credit

August 6, 2006 — drsubrotoroy

Indian Money & Credit
by
Subroto Roy
First published in The Sunday Statesman, August 6 2006, Editorial Page Special Article

One rural household may lend another rural household 10 kg or 100 kg of grain or seed for a short time. When it does, it expects to receive back a little more than the amount lent ~ even if that little amount is in services or in plain goodwill among friends or neighbours. That extra amount is “real interest”, and the percentage of its value relative to the whole is the “real rate of interest”. So if 10 kg of grain are lent for two weeks and 11 kg are returned, an implicit real rate of interest of 10 per cent has been paid over that short period. The future is always less valuable than the present in the sense that 10 kg of grain today is worth something more than the prospect of the same 10 kg of grain tomorrow.

But loans may be made in terms of money rather than real units of grain, thus the change in the value of money over the period of the loan becomes relevant. If a loan of Rs 100,000 is made by a bank to a borrower for one year at a simple interest rate of 13 per cent per annum, and the value of money then declines at 8 per cent over the year, the debtor is paying real interest of just about 13 per cent-8 per cent = 5 per cent. The Yale economist Irving Fisher described how this monetary rate of interest equals the real rate of interest plus the rate of monetary inflation, while the great Swedish economist Knut Wicksell predicted inflation if the monetary rate fell below the real rate, and vice versa.

And there is another consideration too. A new cycle-rickshaw costs about Rs 5,000. A rickshaw driver who does not own his own machine has to pay the owner of the rickshaw a fixed rental of about Rs 15 per day. Now a government policy may want to see more cycle-rickshaw drivers owning their own machines, and allocate bank-credit accordingly. But some fraction of the drivers are alcoholics and hence are bad credit-risks, while others are industrious, have strong family lives and are good credit-risks. If a creditor is unable to distinguish between who is an alcoholic and who is not, credit terms will tend towards subsidising the alcoholic and taxing the industrious.

On the other hand, a creditor who knows each debtor individually will also know their credit-risks, and price individual loans to them accordingly. India’s credit markets, both rural and urban, have been segmented always into “formal” and “informal”, and remain so despite (or perhaps because of) much government intervention in recent decades.

Banks and the Reserve Bank of India operate in formal financial markets, but the informal credit market is where the real action is. For example, a mosaic-machine used in the construction business costs Rs 15,000 brand new and gets to be rented out at the rate of Rs 150 per day.

Someone with access to formal sector bank loans at say 13 per cent per annum, might borrow the Rs 15,000, buy a machine, rent it out, break-even within a few months and make a whopping profit afterwards. Everyone would thus hunger after subsidised formal sector bank loans, and these would be rationed quickly and then come to be allocated to people known to bank officials (like their own friends and relatives).

Rates of return on capital, i.e. real profits, are and always have been massively high in India, and that is what is to be expected because capital, both machinery and finance, is relatively scarce as a factor of production. Rates of return on labour, i.e. real wages, are on the other hand relatively low in India thanks to our vast population. For these reasons we have had for three centuries foreigners coming to India to invest their capital in enterprise and make a profit, while Indians have emigrated all over the world from Fiji to Britain to America in search of higher wages.

Now all of this is very elementary reasoning well known to serious monetary economists, yet it seems to have always escaped India’s monetary and fiscal decision-makers. For example, just the other day, the Finance Minister said in Parliament that all rural banks had been instructed to lend farmers credit at a 7 per cent (monetary) rate of interest, and failure to do so would lead to punishment. By the rickshaw example (in fact many cycle-rickshaw drivers are also marginal farmers), the FM did not wish to, and of course cannot in practice, distinguish between good and bad credit-risks among the recipients of such loans. If the value of money is declining by, say, 8 per cent per annum, a 7 per cent monetary rate is equivalent to a minus 1 per cent real rate. i.e., the FM would have done some Humpty Dumpty economics and caused the future prospect of holding Rs 1,000 tomorrow to be more and not less valuable than the certainty of holding Rs 1,000 today. It is inevitable there will be credit-rationing when credit is so massively subsidised, so the typical borrowing farmer will get some little fraction of his credit-needs at the official government price of 7 per cent per annum and then have to get the bulk of his credit-needs fulfilled in the informal market ~ at a price perhaps of 1 per cent-5 per cent PER DAY! The FM promising in his Budget to subsidise farm credit sounds nice on TV but may be wholly futile as a way of stopping farmers’ suicides.

The same kind of Humpty Dumpty monetary economics has been religiously pursued by the Reserve Bank of India for decades upon directions from its owner and master, the Finance Ministry ~ which in turn has always meekly followed the dictates of India’s unreasonable politicians of all parties. Formal sector interest rates in India have been for decades so artificially lowered that even if we use official figures measuring inflation, this leads to real interest rates being lower in capital-scarce India than in the capital-rich West! (See graphs). Negative or near-zero real interest rates in India’s formal financial sector coexisting with massively high profit rates in informal credit markets point to continuous processes of low risk profits being made by arbitrage between the two. That is why the organised private and public sectors seem so pleased with official credit policies ~ while every borrower in the informal credit markets always has suicide not far from his/her mind.

Other than Dr Rangarajan who once mentioned it, we have never had an RBI Governor who has wished to see the Reserve Bank of India constitutionally independent of the Government of the day, and hence dedicated to restoring the integrity of India’s money. Playing with the repo rate or other short term monetary rates is fun and makes the RBI think it is doing something as important as the US or UK central banks. Certainly the upward trend in such short term rates over the last few months is better than the nonsensical flip-flops previously. But it is small potatoes compared to the really giant variables which are all fiscal and not monetary in India. For example, Sonia Gandhi (as advised by another naturalized Indian, Jean Drèze, disciple of the Non-Resident Amartya Sen) insisted on a massive “Rural Employment Guarantee”; Manmohan Singh and Pranab Mukherjee have insisted on massive foreign weapons’ purchases and government wage increases; Praful Patel on massive foreign aircraft purchases; Arjun Sengupta on Scandinavian welfare benefits; Montek Ahluwalia on nuclear reactor purchases (so South Delhi will be able at least to run its ACs in 20 years’ time). All this adds endlessly to the stock of government paper being held as bank-assets, while the currency remains inconvertible (See e.g. The Statesman 30 October 2005, 6-8 January, 23 April 2006).The RSS/BJP and JNU/Left have been equally bereft of serious thought.

Tell any suicidal farmer that the Government of India has been borrowing larger and larger amounts every year just to pay interest on previously incurred debts; it may make him realise there are famous and powerful people who are even more unwise than himself and amount to effective suicide-prevention therapy. But do not tell him that they unlike himself have been playing with public money ~ or you may have the opposite effect.

Posted in Academic economics, Academic research, asymmetric information, Banking, BJP, C Rangarajan, Capital and labour, Communists, Congress Party, Credit markets, Economic Policy, Economic quackery, Economic Theory, Economic Theory of Growth, Economic Theory of Interest, Economic Theory of Value, Economics of housing markets, Economics of Public Finance, Enterprise and entrepeneurship, Financial markets, India's credit markets, India's stock and debt markets, India's Agriculture & Food, India's Banking, India's Budget, India's Capital Markets, India's corruption, India's currency history, India's Economy, India's Foreign Trade, India's Government Budget Constraint, India's Government Expenditure, India's Industry, India's inflation, India's Labour Markets, India's Macroeconomics, India's Monetary & Fiscal Policy, India's nomenclatura, India's political lobbyists, India's pork-barrel politics, India's poverty, India's Public Finance, India's Reserve Bank, Inflation, Interest rates, Irving Fisher, Knut Wicksell, Macroeconomics, Manmohan Singh, Microeconomics, Monetary Theory, Money and banking, Mumbai financial world, Sonia Gandhi, Unorganised capital markets. Leave a Comment »

The Politics of Dr Singh (2006)

May 21, 2006 — drsubrotoroy

Preface April 25 2009: This article of mine has become a victim of bowdlerization on the Internet by someone who seems to support Dr Singh’s political adversaries. I should say, therefore, as I have said before that there is nothing personal in my critical assessment of Dr Singh’s economics and politics. To the contrary, he has been in decades past a friend or at least a colleague of my father’s, and in the autumn of 1973 visited our then-home in Paris at the request of my father to advise me, then aged 18, before I embarked on my undergraduate studies at the London School of Economics. My assessments in recent years like “The Politics of Dr Singh” or “Assessing Manmohan” etc need to be seen along with my “Assessing Vajpayee: Hindutva True and False”, “The Hypocrisy of the CPI-M”, “Against Quackery”, “Our Dismal Politics”, “Political Paralysis” etc. (Also “Mistaken Macroeconomics”, June 2009). Nothing personal is intended in any of these; the purpose at hand has been to contribute to a full and vigorous discussion of the public interest in India.

Postscript 2 Sep 2013: See especially Did Jagdish Bhagwati “originate”, “pioneer”, “intellectually father” India’s 1991 economic reform? Did Manmohan Singh? Or did I, through my encounter with Rajiv Gandhi, just as Siddhartha Shankar Ray told Manmohan & his aides in Sep 1993 in Washington? Judge the evidence for yourself. And why has Amartya Sen misdescribed his work? India’s right path forward today remains what I said in my 3 Dec 2012 Delhi lecture!

also from 2014: https://independentindian.com/2014/08/07/haksar-manmohan-and-sonia/

THE POLITICS OF DR SINGH

by

Subroto Roy

First published in The Sunday Statesman Editorial Page Special Article, May 21 2006

Manmohan Singh matriculated during Partition, and earned bachelor’s and master’s degrees in economics from Punjab University in 1952 and 1954. He then went to Cambridge to read for the BA over two years. The pro-communist Joan Robinson and Nicholas Kaldor were dominant influences in Cambridge economics at the time. Mark Tully reports Dr Singh saying in 2005 he fell under their influence. “At university I first became conscious of the creative role of politics in shaping human affairs, and I owe that mostly to my teachers Joan Robinson and Nicholas Kaldor. Joan Robinson was a brilliant teacher, but she also sought to awaken the inner conscience of her students in a manner that very few others were able to achieve. She questioned me a great deal and made me think the unthinkable. She propounded the left wing interpretation of Keynes, maintaining that the state has to play more of a role if you really want to combine development with social equity. Kaldor influenced me even more; I found him pragmatic, scintillating, stimulating. Joan Robinson was a great admirer of what was going on in China, but Kaldor used the Keynesian analysis to demonstrate that capitalism could be made to work.”

Now, in fact, what was going on in China at that time was the notorious catastrophe caused by Mao Zedong known initially as the “Little Leap Forward” (with a Stalin-like collectivization of agriculture) and then as the “Great Leap Forward”. Mao later apologised to China’s people for his ignorance of microeconomic principles, admitting he “had not realised coal and steel do not move of their own accord but have to be transported”. If what Robinson was extolling to young Indians at Cambridge like Amartya Sen and Manmohan Singh in the mid 1950s was Mao’s China, it was manifest error.

As for Kaldor, the Canadian economist Harry Johnson independently reported that “being a man who rolls with the times fairly fast”, Kaldor “decided early on that capitalism actually was working. So for him the problem was, given that it works, it cannot possibly work because the theory of it is right. It must work for some quite unsuspected reason which only people as intelligent as himself can see.” Like Robinson, Kaldor made a handful of fine contributions to economic theory. But in policy-making he exemplified the worst leftist intellectual vanity and “technocratic” arrogance.

Returning to India, Manmohan Singh was required to spend three years at Chandigarh. In 1960, he left for Nuffield College to work for an Oxford DPhil on the subject of Indian exports. He returned to Chandigarh as required by government rules for another three years, and in 1966 left again until 1969, this time as a bureaucrat at the new UNCTAD in New York run by Raul Prebisch. A book deriving from his doctoral thesis was published by Clarendon Press in 1964.

In 1969, Dr Singh returned to India becoming Professor of International Trade at the Delhi School of Economics. A technical survey of mainstream Indian economic thinking done by his colleagues Jagdish Bhagwati and Sukhamoy Chakravarty published in the American Economic Review of 1969, made footnote references to his book in context of planning and protectionism, but not in the main discussion of Indian exports which at the time had to do with exchange-rate overvaluation.

After Indira Gandhi’s March 1971 election victory, Dr Singh came to the attention of Parameshwar Narain Haksar, who launched his career in bureaucracy after inviting him to write a political paper “What to do with the victory”. Haksar had been an Allahabad lawyer married into the Sapru family. In London as a student he was a protégé of R. Palme Dutt and Krishna Menon, and openly pro-USSR. He was close to the Nehrus, and Jawaharlal placed him in the new Foreign Service. He was four years older than Indira and later knew her husband Feroze Gandhi who died in 1960. By May 1967 Haksar was Indira’s adviser, and became “probably the most influential and powerful person in the Government” until 1974, when there was a conflict with her younger son. But Haksar’s influence continued well into the 1990s. His deeds include nationalization of India’s banks, the Congress split and creation of the Congress(I), and politicisation of the bureaucracy including the intelligence services. High quality independent civil servants became politically committed pro-USSR bureaucrats instead. Professionalism ended and the “courtier culture” and “durbar” politics began.

Haksar and T. N. Kaul were key figures negotiating the August 1971 “Treaty of Peace, Friendship and Cooperation” with the USSR, which was to run 25 years except the USSR collapsed before then. Indira had hosted Richard Nixon two years previously, and the Nixon-Kissinger attempt to get close to Zhou En Lai’s China using Pakistan’s Z. A. Bhutto and Yahya Khan (coinciding with Pakistan’s civil war) were undoubtedly factors contributing to India’s Soviet alliance.

As Haksar’s protégé, Dr Singh’s rise in the economic bureaucracy was meteoric. By 1972 he was Chief Economic Adviser and by 1976 Secretary in the Finance Ministry. The newly published history of the Reserve Bank shows him conveying the Ministry’s dictates to the RBI. In 1980-1982 he was at the Planning Commission, and in 1982-1985 he was Reserve Bank Governor (when Pranab Mukherjee was Finance Minister), followed by becoming Planning Commission head, until taking his final post before retirement heading the “South-South Commission” invented by Julius Nyerere of Tanzania, from August 1987 until November 1990 in Geneva.

Dr Singh joined Chandrashekhar’s Government on 10 December 1990, when Rajiv Gandhi was Leader of the Opposition yet supporting Chandrashekhar “from the outside”, and left when new elections were announced in March 1991. The first time his name arose in context of contemporary post-Indira Congress Party politics was on 22 March 1991 when M K Rasgotra challenged the present author to answer how Manmohan Singh would respond to proposals being drafted for a planned economic liberalisation of India by the Congress Party authorised by Rajiv since September 1990 (viz., “Memos to Rajiv” The Statesman 31 July-2 August 1991 republished here as “Three Memoranda to Rajiv Gandhi”; “The Dream Team: A Critique” The Statesman 6-8 January 2006 also republished here; see also “Rajiv Gandhi and the Origins of India’s 1991 Economic Reform” published elsewhere here, and in abbreviated form in Freedom First, October 2001).

Rajiv was assassinated on 21 May 1991, resulting in Narasimha Rao (who had been ill and due to retire) becoming PM in June 1991. Dr Singh told Tully: “On the day (Rao) was formulating his cabinet, he sent his Principal Secretary to me saying, `The PM would like you to become the Minister of Finance’. I didn’t take it seriously. He eventually tracked me down the next morning, rather angry, and demanded that I get dressed up and come to Rashtrapati Bhavan for the swearing in. So that’s how I started in politics”. In the same conversation, however, Dr Singh also said he learnt of “the creative role of politics” from Robinson, and hence he must have realised he actually became politically committed when he began to be mentored by Haksar — Indira Gandhi’s most powerful pro-communist bureaucrat. Before 1991, Dr Singh may be fairly described as a statist anti-liberal who travelled comfortably along with the tides of the pro-USSR New Delhi political and academic establishment, following every rule in the bureaucratic book and being obedient in face of arbitrary exercise of political and economic power. There is no evidence whatsoever of him having been a liberal economist before 1991, nor indeed of having originated any liberal economic idea afterwards. The Congress Party itself in May 2002 passed a resolution saying the ideas of India’s liberalisation had originated with neither him nor Narasimha Rao.

Indeed, the 1970s and 1980s saw onset of the worst macroeconomic policies with ruination and politicisation of India’s banking system, origins of the Rs 30 trillion (Rs 30 lakh crore) public debt we have today, and the start of exponential money supply growth and inflation. Along with Pranab Mukherjee, Dr Singh, as the exemplary Haksarian bureaucrat, must accept responsibility for having presided over much of that. If they are to do anything positive for India now, it has to be first of all to undo such grave macroeconomic damage. This would inevitably mean unravelling the post-Indira New Delhi structure of power and privilege by halting deficit finance and corruption, and enforcing clean accounting and audit methods in all government organisations and institutions. Even the BJP’s Vajpayee and Advani lacked courage and understanding to begin to know how to do this, allowing themselves to be nicely co-opted by the system instead. Rajiv might have done things in a second term; but his widow and her coalition government led by Dr Singh, who exemplified India’s political economy of the 1970s and 1980s, appear clueless as to the macroeconomic facts, and more likely to enhance rather than reverse unhealthy fiscal and monetary trends.

Indian Money and Banking

April 23, 2006 — drsubrotoroy

ON MONEY & BANKING

The deficit-finance of all public institutions flow like rivulets into the swamp that is our Public Debt, managed by the RBI

by

SUBROTO ROY

First published in The Sunday Statesman, Editorial Page, Special Article

April 23 2006

THE Reserve Bank of India, like all other public institutions, belongs to all of India’s people. There has been a tendency with every national institution, whether the ONGC or nationalised banks like SBI, or the IITs and IIMs or Air India and Indian Airlines or the Railways, Army, Navy, Air Force, IAS, IFS, Central Secretariat etc, even Parliament and State legislatures, to think that its assets, both tangible and intangible, are to serve the interests mainly of its employees, whether of Class 1, 2, 3, or 4. In fact, the assets of all such national institutions belong to all Indians: all one thousand million of us, from nameless street children and rural mendicants onwards. The body of our whole Indian citizenry own any and all such public institutions, and their employees are merely our “agents”, literally “public servants” who get paid salaries and perquisites out of public revenues. The task of managing and controlling these vast cohorts of public servants is a stupendous one of democratic politics and public administration. As a country we have never been very adept at it, indeed we often have been hopelessly incompetent. Without proper control and management, employees of national institutions have naturally tended to take over control of these assets, shifting liabilities onto the shoulders and budgets of the anonymous diffused body of citizenry who are supposed to be their masters. The public’s servants have tended to become the masters of the public’s assets and resources.

The RBI, as the nation’s Central Bank, has a unique position because its principal task is to establish and maintain the integrity of our money and banking system. The deficit-finance of all public institutions flow like rivulets into the swamp that is our Public Debt, managed by the RBI.

Money as such has no “intrinsic” worth. All the paper rupees, dollars, pounds, euros, yen in the world have less “intrinsic” usefulness than a hairpin or a button or a pair of shoelaces. Hairpins, buttons and shoelaces at least keep your hair, your shirt or your shoes together ~ the paper of paper money can be at best used to roll cigarettes perhaps. Yet paper money comes to be needed and is valued by everyone in every country ~ from street children upwards to Mr Premji, Mr Gates and Mr Mittal. Everyone accepts paper money as wages in exchange for his/her work, and then plans to use that same paper to buy food, shelter, clothing and other necessities with. I.e., we accept paper money for a short time believing we can use it to acquire useful things with. It has no intrinsic worth yet it is universally valued because everyone believes it will be accepted by everyone else in exchange for real goods and services which are in fact useful and conducive to life. The use of paper money depends on a fine and invisible web of collective trust permeating throughout the economy.

Banks arose due to the increasing complexity of modern economies in the last six hundred years. Paper currency was then supplemented in commerce by “deposits”, so that a transaction between two persons need not involve turnover of cash but can come to be accomplished by adjustment in their respective deposits with their banks. This vastly increased the quantum of trust ordinary people placed in the system of normal transactions, since they had to now believe not just in the exchangeability of paper money but also in the viability of the banks where they had placed their deposits. Currency plus Bank Deposits constitute what is called the “Money Supply”, and its controller is the RBI.

Our collective trust in money and banking is in and of itself something with economic value, which commercial banks are in a unique position to exploit. Banks can usually bet that all their customers will not demand their deposits at the same time, and so they are able to lend out as loans a very large fraction of what they have received as deposits from the public. Making such loans in turn causes the recipients of the loans to make new deposits (of what they have borrowed) in yet other banks, and this in turn acts as a signal to the receiving banks to make even more loans. Hence a process of “redeposit” or “deposit multiplication” occurs in any banking system where only a fraction of deposits is legally required to be kept as reserves by the bank. A Central Bank like the RBI then has the duty to see none of this gets out of hand: that while individual banks are acting to make profitable investments on the capital risked by a bank’s owners, they are, as a collective body, creating enough but not excessive credit to meet the needs of business.

In India, most banks came to be nationalised decades ago by Indira Gandhi on advice of P. N. Haksar, the mentor of Dr Manmohan Singh in his career as an economic bureaucrat. Whatever original capital they have had also arises from the public exchequer, and all their employees are effectively “public servants” under the Ministry of Finance. We have not been hearing from the RBI anything about the deleterious effects of this continuing state of affairs.

The RBI’s functions include managing the “Public Debt”, which stands today at perhaps Rs. 30 trillion (1 trillion= 1 lakh crore), on which interest of perhaps Rs 2-3 trillion must be paid by the Union and State Governments every year to those holding the debt (mostly the nationalised banking system under duress from the RBI). Why the stock-market has been doing so “well” is because it has been like an athlete on steroids. A stock market is supposed to be risky while a debt market is supposed to be safe. Our Government’s fiscal and monetary behaviour over decades has caused the formal debt market to yield negative returns, and so the stock-market has become relatively lucrative despite its risky nature.

It is also the RBI’s task to manage the country’s foreign exchange “reserves”, i.e. the residual balance left after all forex outgoings from purchases of imports (like petroleum or weapons) and payments of interest on or repayment of foreign loans have been subtracted from flows of incoming forex arising from export revenues, emigrants’ remittances, and new foreign loans and investments. These “reserves” do not belong to the Government or the nation in the same way tax-revenues belong to the Consolidated Fund of India. It was a shocking conceptual error of the Manmohan Singh Government’s most prominent economic bureaucrat to fail to see this and to suggest forex reserves could be used for “infrastructure” development. For the business press to get excited about forex reserves being at this or that level is also misleading, since high reserves may or may not indicate a better financial position just as a heavily indebted man may or may not be in a bad position depending on what kind of use he has made of his debts.

We have not been hearing of any of these matters from the RBI under Dr Y. V. Reddy. Instead, the one definite number we have received last week is that the RBI, under behest of its master, the Ministry of Finance, has been causing the Money Supply to grow at something like 15%. The Government’s apologists would like us to believe that this gets distributed between real economic growth in the region of 10% and inflation in the region of 5%. But for all that anybody really knows, it may be that real growth is at 5% and inflation is at 10%! Ask yourself if what you bought last year for Rs 1000 costs Rs 1050 or Rs. 1100 this year. Your guess may be as good as the Government’s.

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Towards an Energy Policy

April 2, 2006 — drsubrotoroy

Note: This article may have initiated the public debate on the economics of the Indo-US nuclear deal. It was published as a Special Article on the Editorial Page of The Sunday Statesman of April 2 2006 but it failed to be uploaded at the website http://www.thestatesman.net because there had been a fire on March 31 2006. The politicians who led the parliamentary debate in 2006 subsequently made reference to it.

“Towards an Energy Policy”

by Subroto Roy

First published in

The Sunday Statesman, Editorial Page Special Article 2 April 2006

When was the last time we heard a thorough, well informed debate in Parliament about India’s long-term energy needs and policy-alternatives? The answer is never. Just as Pakistan tends to be run by Islamabad’s generals, we tend to be run by New Delhi’s bureaucrats; both are a legacy of the Raj which was run by small numbers of pompous civil servants and soldiers. Bureaucrats keep as much decision-making information as they can to themselves, give it to Parliament only under duress and then too in garbled opaque form, and share it voluntarily with the public never at all. A bureaucrat of conscience who shares vital information transparently becomes a “whistleblower”, and may risk his/her life and career because assorted mafias invariably surround all government contracting, and, like vampire bats, cannot stand the light of day shed upon them.

The problem with the Manmohan/Montek deal-making with the USA on behalf of India’s people has less to do with rational assessments not having been made of the relative costs and benefits of e.g. nuclear/fossil fuel/renewable energy, as it has to do with the fact it reflects the same lack of transparency (and is accompanied by the same politically correct propaganda) as has existed in other policy-making – like the $12 billion worth of commercial aircraft from Boeing and Airbus bought for our bankrupt nationalized airlines, or spending untold billions of borrowed dollars on new weapons from France, Russia, Britain or whomever to fight unknown enemies in unimagined wars, or throwing newly printed paper-money at every government project that any fool or knave cares to mention.

To be fair, the UPA/Communist dispensation of the public’s largesse is no worse than that of the NDA/RSS. Both are part of New Delhi’s own “Inside-the-Beltway” syndrome, and turn up at the same celebrity wedding-receptions and iftehar parties. Neither minds too much when the other is in power so long as they can keep their government accommodation. Our fundamental political problem may be the absence of any serious party of Left or of Right which is secular, scientific, liberal, nationalist, clean, law-abiding, and fiscally prudent.

Since no national debate on energy-policy has been offered by New Delhi, ordinary citizens will have to create such a debate for themselves. What follows constitutes a few of the barest facts needed to start such an analysis of India’s alternative energy scenarios and their respective costs.

Hydroelectric power does not involve burning any fuels. Instead, the gravitational force of the movement of water from the mountains to the oceans is harnessed to generate electricity. But hydroelectric projects (like the Narmada Dam) can displace people, who must be then compensated and resettled. Burning of organic “fossil fuels” like coal, gas and oil, causes atmospheric oxygen to turn into carbon dioxide, which may affect climate in unknown ways. In 2004, the International Energy Agency’s estimated the new energy capacity worldwide required by rising economic growth in the year 2020 will derive 1400 GW from burning coal (half of it in China and India), 470 GW from burning oil, 430GW from hydro, and 400 GW from renewable sources (like solar or wind power). On the Agency’s assumptions, gas prices will remain low, making construction of new nuclear plants for electricity uneconomical. By 2030, new energy expected to be required worldwide is 4700GW, of which only 150GW is expected from new nuclear plants — which will be replacing existing nuclear plants due to be retired. (Such is the scenario before any new nuclear plants were going to be exported by e.g. USA to India).

Now the fission of an atom of uranium produces perhaps 10 million times the energy produced by combustion of an atom of carbon from coal. Gas and fossil fuels may be cheap and in plentiful supply worldwide for generations to come but the potential for cheap energy from nuclear sources seems practically infinite. Nuclear power can arise from fission of radioactive uranium, plutonium or thorium. India has perhaps 8 million tonnes of monazite deposits along the seacoast of which half may be mined, to yield 225,000 tonnes of thorium metal; we have one innovatively designed thorium reactor under construction. But almost all nuclear energy worldwide today arises from uranium, and there are practically unlimited reserves of that. There is so much uranium in sea water that mankind’s total electricity needs can be satisfied for 7 million years. There is more energy in the uranium impurity present in coal than can arise from actually burning the coal. There is plenty of uranium in granite. None of these sources will become profitable for centuries because there is so much cheap uranium possible to be extracted from conventional ores. In 2001, uranium cost about US$20 per kg or so, translating to US$0.0004 per kwh of electricity. The known reserves of uranium that can be profitably sold at $120 per kg are enough for at least a hundred years. Design improvements in reactors will also improve productivity; e.g. “fast breeder” reactors “breed” more fissile material than they use, and may get 100 times as much energy from a kilogram of uranium as existing reactors do. India has about 95,000 tonnes of uranium metal which may be mined to yield about 61,000 tonnes net for power generation.

Natural uranium is 99.3 percent of the U-238 isotope and 0.7 percent of the radioactive U-235 isotope. Nuclear power requires “enriched uranium” or “yellow cake” in which U-235 has been increased from 0.7 percent to 4 to 5 percent, and that “separation” process is expensive. (Nuclear bombs require highly enriched uranium with more than 90% of U-235). Yellow cake is broken into small pieces, put in metal rods placed in bundles, which are then bombarded by neutrons causing fission. In nuclear bombs, the fission occurs in a small space, and the blast that results kills all life for miles around it by sucking up all the atmospheric oxygen, besides causing firestorms, shock waves and radioactivity. In a civilian reactor, the energy released turns water into steam, which moves turbines powering the generation of electricity. However, while there is no carbon dioxide “waste” as in burning fossil fuels, the “spent” rods of nuclear fuel and other products constitute grave radioactive waste, which is hard if not impossible to dispose of. Many countries like the USA just bury their nuclear waste in remote thinly populated desert areas.

Rational choice between energy sources depends on costs determined by history and geography. France has 59 of the 441 or so civilian nuclear reactors in the world, and generates 78% of its electricity from them, 22% from hydroelectricity. Japan has 54 reactors and generates 34% of its electricity from them. The USA has 104 reactors but generates only 20% of its electricity from them, principally because it has vast alternative sources of energy. In India, installed power generating capacity as of 2003 was 107,533.3MW, of which 71% was from burning fossil fuels. Hydroelectric potential is 150,000MWe. In 2003, total installed hydro capacity with utilities was 26,910MWe (about 18% of the potential). More than 70% of India’s hydroelectric potential is in the North and NorthEast regions put together.

India’s 14 nuclear reactors produce less than 4% of the total electricity being consumed in the country. Even if all other sources of electricity remained constant, and our civilian nuclear capacity alone was made to grow by 100% under the Manmohan-Montek deal with the USA, that would mean less than 8% of total Indian electricity produced. So the first question India’s citizens must ask is why such a fuss has been created about the Manmohan-Montek deal with America. Clearly, the Government of India must come wholly clean with all the facts and analysis it has available on the whole problem of India’s energy future in all its complexity and detail. If and when it does so, we may simply find that the fault lies not in the stars but in ourselves. Whether the US-India nuclear deal stands or falls, it will have scant effect in satisfying the country’s energy needs.

Imperialism redux

March 14, 2006 — drsubrotoroy

IMPERIALISM REDUX

Business, Energy, Weapons And Foreign Policy

First published in The Statesman March 14 2006 Editorial Page Special Article

By Subroto Roy

If souls can transmigrate, so may souls of companies, and future historians might well look back and say that the new US-India “CEO Forum” heralded the modern rebirth of the East India Company. Like the old Company, the new Forum has many ambitious, competent people. The American side includes heads of AES Corporation, Cargill Inc., Citigroup, JP Morgan Chase, Honeywell, McGraw-Hill, Parsons Brinckerhoff Ltd, PepsiCo, Visa International and Xerox Corporation. The Indian side includes heads of Tata Group, Apollo Hospitals Group, Bharat Forge Ltd, Biocon India Group, HDFC, ICICI One Source, Infosys, ITC Ltd, Max India Group and Reliance Industries — all stalwarts of what Mr Kanu Sanyal’s Naxals would have termed India’s “comprador bourgeoisie”.

Business advocacy
Presiding over the Indian side has been Prime Minister Manmohan Singh’s trusted confidante, Montek Singh Ahluwalia (whose family moved to the USA after 20 years in India). Indeed it may have been his idea to have a government-sponsored business initiative. A “US-India Business Council” has existed for thirty years in Washington as “the premier business advocacy organization promoting US commercial interests in India.… the voice of the American private sector investing in India”. But for both Governments to sponsor private business via the Forum was “unprecedented” as noted by Washington’s press during Dr Singh’s visit in July 2005. The State Department (America’s foreign ministry) announced it saying: “Both our governments have agreed that we should create a high-level private sector forum to exchange business community views on key economic priorities…”

The Forum seems to have gone well beyond exchanging business community views, and has had a clear impact in the sudden redefinition of the direction of India’s foreign, military and energy policy. When Dr Singh addressed America’s legislature, the main aspect of the speech he read there had to do with agreeing with the American President “to enhance Indo-US cooperation in the field of civilian nuclear technology”. And nuclear energy has suddenly begun to dominate India’s news and national political agenda — even though the 2503MW of nuclear power produced in the country accounts for merely 4% of our civilian energy needs, barely significant. But before nuclear or any other deals could be contemplated with American business, the Dabhol payouts were required to be made. The Maharashtra State Electricity Board — or rather, its sovereign guarantor the Government of India — paid out at least $140-$160 million each to General Electric and Bechtel Corporations in “an amicable settlement” of the Dabhol affair. (When is the last word going to be said on that?) Afterwards, General Electric’s CEO for India was kind enough to say “India is an important country to GE’s global growth. We look forward to working with our partners, customers, and State and Central Governments in helping India continue to develop into a leading world economy”.

A weak and corrupt Delhi
Such nice rhetoric was on close display during the deal-making leading up to and beyond President George W. Bush’s recent India visit. America’s Ambassadors are mostly political appointees and special friends of the President of the day; the present Ambassador to India is a prominent Texas businessman, and business has been driving American thinking with India all the way. After Dr Singh’s visit, the US Foreign Commercial Service reportedly said American engineering firms, equipment suppliers and contractors faced a $1000 bn (1 bn = 100 crore) opportunity in India. Before the Bush visit, Dr Singh signed vast purchases of commercial aircraft from Boeing and Airbus, as well as large weapons’ deals with France and Russia. After the Bush visit, the US Chamber of Commerce has said the nuclear deal can cause $100 bn worth of new American business in India’s energy-sector alone. Getting American legislators to agree will require “massive grassroots efforts” at lobbying politicians, saying that “energy-starved” India will now become open “to US investment in key areas from IT and telecom to pharmaceuticals and insurance”. Mr Bush’s foreign minister Condoleezza Rice (who has authored the political aspects of the new India-orientation) and her pointman Nicholas Burns have said, “we are suggesting India-specific amendments to the Atomic Energy Act of 1954… It’s a waiver authority … We are not seeking relief from US law for any country in the world except India and we don’t anticipate putting any country forward. So it is India specific.” India will separate by 2014 closely entwined civilian and military nuclear facilities and put 14 of 22 civilian nuclear reactors under international inspection.

Now the East India Company had not intended to rule India but ended up dictating to a weak and corrupt Delhi, waging wars across Bengal, the Deccan and North India, and inducing “regime change” all over the place among local satraps. In the modern context, the American Government and its businessman Ambassador to the Delhi Court have made it crystal-clear India’s support has been expected in the matter of American policy towards Iran. Dr Singh has been his own Foreign Minister, crafting his America policy aided by Mr Ahluwalia on one hand and Mr M. K. Narayanan on the other. None of the three has diplomatic, historical or foreign policy-making experience. Mr Narayanan is a retired officer of domestic counter-intelligence (which is traditionally Pakistan-specific). Dr Singh and Mr Ahluwalia are retired economic officials. None has ever outlined for public scrutiny any views on India’s history, politics or foreign policy in any book or essay. India’s historians and career diplomats (and not just the most loquacious and greedy ones) have been silenced. Yet this is a time when a well-respected Indian world figure (though unfortunately there may be none, except Zubin Mehta) could have brought Iran and Israel to the conference table together. Iran must recognise Israel and the two countries must exchange ambassadors if the present tension is not to degenerate into more war in our region. Israel needs to declare itself a nuclear weapons’ power and not be belligerent towards Muslims, and Iran could be allowed to pursue its nuclear research within reason. It is in India’s and Pakistan’s common interests to see that Jimmy Carter’s extension of the Monroe doctrine to include the Persian Gulf be replaced by the Zionist philosopher Martin Buber’s idea of a “federative structure” for the peoples of the East. Instead the reverse is happening.

What economics does say
Dr Singh and Mr Ahluwalia may say economics has been driving their new foreign policy. But what economics actually says is that Government should have nothing to do with any kind of business. Government should encourage competition in all avenues of economic activity and prevent or regulate monopoly, and also see to it that firms pay taxes they are due to pay. But that is it. It is as bad for Government to pamper organised business and organised labour with subsidies of any kind as it is to make enterprise difficult with red tape and hurdles. Businessmen are grown ups and should be allowed to freely risk their capital and make their profits or their losses without public intervention. Government’s role is to raise taxes and provide public goods and services properly. We need to remind ourselves that India is a large, populous country with hundreds of millions of materially poor ill-informed citizens, a weak tax-base, a humongous internal and external public debt (i.e. debt owed by the Government to domestic and foreign creditors), a non-investment grade credit-rating in world financial markets, massive annual fiscal deficits, an inconvertible currency, nationalized banks, and runaway printing of paper-money. There is plenty of serious economics that has yet to begin to be done in the country. New Delhi must wake up from its self-induced dreaming.

The Dream Team: A Critique (2006)

January 8, 2006 — drsubrotoroy

The Dream Team: A Critique

by Subroto Roy

First published in The Statesman and The Sunday Statesman, Editorial Page Special Article, January 6,7,8, 2006

(Author’s Note: Within a few weeks of this article appearing, the Dream Team’s leaders appointed the so-called Tarapore 2 committee to look into convertibility — which ended up recommending what I have since called the “false convertibility” the RBI is presently engaged in. This article may be most profitably read along with other work republished here: “Rajiv Gandhi and the Origins of India’s 1991 Economic Reform”, “Three Memoranda to Rajiv Gandhi”, “”Indian Money & Banking”, “Indian Money & Credit” , “India’s Macroeconomics”, “Fiscal Instability”, “Fallacious Finance”, “India’s Trade and Payments”, “Our Policy Process”, “Against Quackery”, “Indian Inflation”, etc)

1. New Delhi’s Consensus: Manmohantekidambaromics

Dr Manmohan Singh has spoken of how pleasantly surprised he was to be made Finance Minister in July 1991 by PV Narasimha Rao. Dr Singh was an academic before becoming a government economic official in the late 1960s, rising to the high office of Reserve Bank Governor in the 1980s. Mr Montek Singh Ahluwalia now refers to him as “my boss” and had been his Finance Secretary earlier. Mr Ahluwalia was a notable official in the MacNamara World Bank before being inducted a senior government official in 1984. Mr P Chidambaram was PVNR’s Commerce Minister, and later became Finance Minister in the Deve Gowda and Gujral Governments. Mr Chidamabaram is a Supreme Court advocate with an MBA from Harvard’s Business School. During 1998-2004, Dr Singh and Mr Chidambaram were in Opposition but Mr Ahluwalia was Member-Secretary of the Vajpayee Planning Commission. Since coming together again in Sonia Gandhi’s United Progressive Alliance, they have been flatteringly named the “Dream Team” by India’s pink business newspapers, a term originally referring to some top American basketball players.

Based on pronouncements, publications and positions held, other members or associates of the “Dream Team” include Reserve Bank Governor Dr YV Reddy; his predecessor Dr Bimal Jalan; former PMO official Mr NK Singh, IAS; Chief Economic Advisers Dr Shankar Acharya and Dr Ashok Lahiri; RBI Deputy Governor Dr Rakesh Mohan; and others like Dr Arvind Virmani, Dr Isher Ahluwalia, Dr Parthasarathi Shome, Dr Vijay Khelkar, Dr Ashok Desai, Dr Suman Bery, Dr Surjit Bhalla, Dr Amaresh Bagchi, Dr Govind Rao. Honorary members include Mr Jaswant Singh, Mr Yashwant Sinha, Mr KC Pant and Dr Arun Shourie, all economic ministers during the Vajpayee premiership. Institutional members include industry chambers like CII and FICCI representing “Big Business”, and unionised “Big Labour” represented by the CPI, CPI(M) and prominent academics of JNU. Mr Mani Shankar Aiyar joins the Dream Team with his opinion that a gas pipeline is “necessary for the eradication of poverty in India”. Mr Jairam Ramesh explicitly claimed authoring the 1991 reform with Mr Pranab Mukherjee and both must be members (indeed the latter as Finance Minister once had been Dr Singh’s boss). Dr Arjun Sengupta has claimed Indira Gandhi started the reforms, and he may be a member too. External members include Dr Jagdish Bhagwati, Dr. TN Srinivasan, Dr Meghnad Desai, Dr Vijay Joshi, Mr Ian Little, Dr Anne O. Krueger, Dr John Williamson, IMF Head Dr R Rato, and many foreign bank analysts who deal in Bombay’s markets. Harvard’s Dr Larry Summers joins with his statement while US Treasury Secretary in January 2000 that a 10% economic growth rate for India was feasible. His Harvard colleague Dr Amartya Sen — through disciples like Dr Jean Dreze (adviser to Sonia Gandhi on rural employment) — must be an ex officio member; as an old friend, the Prime Minister launched Dr Sen’s recent book while the latter has marked Dr Singh at 80% as PM. Media associates of the Dream Team include editors like Mr Aroon Purie, Mr Vinod Mehta, Dr Prannoy Roy, Mr TN Ninan, Mr Vir Sanghvi and Mr Shekhar Gupta, as well as the giddy young anchors of what passes for news and financial analysis on cable TV.

This illustrious set of politicians, government officials, economists, journalists and many others have come to define what may be called the “New Delhi Consensus” on contemporary India’s economic policy. While it is unnecessary everyone agree to the same extent on every aspect — indeed on economic policy the differences between the Sonia UPA and Vajpayee NDA have had to do with emphasis on different aspects, each side urging “consensus” upon the other — the main factual and evaluative claims and policy-prescriptions of the New Delhi Consensus may be summarised as follows:

A: “The Narasimha Rao Government in July 1991 found India facing a grave balance of payments crisis with foreign exchange reserves being very low.”

B: “A major cause was the 1990-1991 Gulf War, in its impact as an exogenous shock on Indian migrant workers and oil prices.”

C: “The Dream Team averted a macroeconomic crisis through “structural adjustment” carried out with help of the IMF and World Bank; hence too, India was unaffected by the 1997 ‘Asian crisis'”.

D: “The PVNR, Deve Gowda, Gujral and Vajpayee Governments removed the notorious license-quota-permit Raj.”

E: “India’s measurable real economic growth per capita has been raised from 3% or lower to 7% or more.”

F: “Foreign direct investment has been, relative to earlier times, flooding into India, attracted by lower wages and rents, especially in new industries using information technology.”

G: “Foreign financial investment has been flooding into India too, attracted by India’s increasingly liberalised capital markets, especially a liberalised current account of the balance of payments.”

H: “The apparent boom in Bombay’s stock market and relatively large foreign exchange reserves bear witness to the confidence foreign and domestic investors place in India’s prospects.”

I: “The critical constraint to India’s future prosperity is its “infrastructure” which is far below what foreign investors are used to in other countries elsewhere in Asia.”

J: “It follows that massive, indeed gargantuan, investments in highways, ports, airports, aircraft, city-flyovers, housing-estates, power-projects, energy exploration, gas pipelines, etc, out of government and private resources, domestic and foreign, is necessary to remove remaining “bottlenecks” to further prosperity for India’s masses, and these physical constructions will cause India’s economy to finally ‘take off’.”

K: “India’s savings rate (like China’s) is exceptionally high as is observable from vast expansion of bank-deposits, and these high (presumed) savings, along with foreign savings, will absorb the gargantuan investment in “infrastructure” without inflation.”

L: “Before the gargantuan macroeconomic investments bear the fruits of prosperity, equally large direct transfer payments also must be made from the Government to prevent mass hunger and/or raise nominal incomes across rural India, while existing input or other subsidies to producers, especially farmers, also must continue.”

M: “While private sector participants may increasingly compete via imports or as new entrants in industries where the public sector has been dominant, no bankruptcy or privatisation must be allowed to occur or be seen to occur which does not provide public sector workers and officials with golden parachutes.”

Overall, the New Delhi Consensus paints a picture of India’s economy on an immensely productive trajectory as led by Government partnered by Big Business and Big Labour, with the English-speaking intellectuals of the Dream Team in the vanguard as they fly between exotic conferences and international commercial deals. An endless flow of foreign businessmen and politicians streaming through Bangalore, Hyderabad, five-star hotels or photo-opportunities with the PM, followed by official visits abroad to sign big-ticket purchases like arms or aircraft, reinforce an impression that all is fine economically, and modern India is on the move. Previously rare foreign products have become commonplace in India’s markets, streets and television-channels, and a new materialist spirit, supposedly of capitalism, is captured by the smug slogan yeh dil mange more (this heart craves more) as well as the more plaintive cry pardesi jana nahin, mujhe chhorke (foreigner, please don’t leave me).

2. Money, Convertibility, Inflationary Deficit Financing

India’s Rupee became inconvertible in 1942 when the British imposed exchange controls over the Sterling-Area. After 1947 independent India and Pakistan, in name of “planned” economic development, greatly widened this war-time regime – despite the fact they were at war now only with one another over Jammu & Kashmir and, oddly enough, formed an economic union until 1951 with their currencies remaining freely convertible with each other.

On May 29 1984, the present author’s Pricing, Planning and Politics: A Study of Economic Distortions in India proposed in London that the Indian Rupee become a convertible hard currency again — the first time liberal economics had been suggested for India since BR Shenoy’s critique of the Second Five Year Plan (a fact attracting an editorial of The Times). The simple litmus test whether believers in the New Delhi Consensus have or have not the courage of their stated convictions – i.e., whether what they have been saying is, in its empirical fundamentals, more signal or noise, more reality or rhetorical propaganda – would be to carry through that proposal made 21 years ago. The Dream Team have had more than enough political power to undertake this, and it remains the one measure necessary for them to demonstrate to India’s people and the world that the exuberant confidence they have been promoting in their model of India’s economy and its prospects is not spurious.

What does convertibility entail? For a decade now, India has had limited ease of availability of foreign exchange for traders, students and tourists. Indeed some senior Government monetary economists believe there is convertibility already except forex dealers are being allowed “one-way” and not “two-way” quotes! That is wrong. The Government since 1942 has requisitioned at the border all foreign exchange earned by exporters or received as loans or investment — allocating these first to pay interest and amortisation on the country’s foreign debt, then to make its own weapons and other purchases abroad, then to release by ration what remains to private traders, students, tourists et al. Current account liberalisation has meant the last of these categories has been relaxed, especially by removal of some import quotas. What a convertible Rupee would mean is far more profound. It would allow any citizen to hold and save an Indian money that was exchangeable freely (i.e. without Government hindrance) into moneys of other countries. Full convertibility would mean all the paper money, bank deposits and rupee-denominated nominal assets held by ordinary people in India becomes, overnight, exchangeable without hindrance into dollars, yens, pounds or euros held anywhere (although not of course at the “one-way” rates quoted today).

Now money is a most peculiar human institution. Paper money is intrinsically worthless but all of India’s 1,000 million people (from street children onwards) have need to hold it temporarily to expedite their individual transactions of buying and selling real goods and services. Money also acts as a repository of value over time and unit of account or measure of economic value. While demand to hold such intrinsically worthless paper is universal, its supply is a Government monopoly. Because Government accepts obligations owed to it in terms of the fiat money it has itself issued, the otherwise worthless paper comes to possess value in exchange. Because Government controls its supply, money also can be abused easily enough as a technique of invisible taxation via inflation.

With convertibility in India, the quantity of currency and other paper assets like public debt instruments representing fiscal decisions of India’s Union and State Governments, will have to start to compete with those produced by other governments. Just as India’s long-jumpers and tennis-players must compete with the world’s best if they are to establish and sustain their athletic reputations, so India’s fiscal and monetary decisions (i.e. about government spending and revenues, interest-rates and money supply growth) will have to start competing in the world’s financial markets with those of the EU, USA, Japan, Switzerland, ASEAN etc.

The average family in rural Madhya Pradesh who may wish, for whatever personal reason, to liquidate rupee-denominated assets and buy instead Canadian, Swiss or Japanese Government debt, or mutual fund shares in New York, Frankfurt or Singapore, would not be hindered by India’s Government from doing so. They would become as free as the swankiest NRI jet-setters have been for years (like many members of the New Delhi Consensus and their grown children abroad). Scores of millions of ordinary Indians unconnected with Big Business or Big Labour, neither among the 18 million people in government nor the 12 million in the organised private sector, would become free to hold any portfolio of assets they chose in global markets (small as any given individual portfolio may be in value). Like all those glamorous NRIs, every Indian would be able to hold dollar or Swiss Franc deposit accounts at the local neighbourhood bank. Hawala operators worldwide would become redundant. Ordinary citizens could choose to hold foreign shares, real-estate or travellers’ cheques as assets just as they now choose jewellery before a wedding. The Indian Rupee, after more than 65 years, would once again become as good as all the proverbial gold in Fort Knox.

When added up, the new demand of India’s anonymous masses to hold foreign rather than Rupee-denominated assets will certainly make the Rupee decline in price in world markets. But — if the implicit model of India’s economy promoted by the Dream Team is based on correctly ascertained empirical facts — foreign and domestic investor confidence should suffice for countervailing tendencies to keep India’s financial and banking system stable under convertibility. Not only would India’s people be able to use and save a currency of integrity, the allocation of real resources would also improve in efficiency as distortions would be reduced in the signalling function of domestic relative prices compared to world relative prices. An honest Rupee freely priced in world markets at, say, 90 per dollar, would cause very different real microeconomic decisions of Government and private producers and consumers (e.g., with respect to weapons’ purchases or domestic transportation, given petroleum and jet fuel imports) than a semi-artificial Rupee at 45 per dollar which forcibly an inconvertible asset in global markets. A fully convertible Rupee will cause economic and political decisions in the country more consistent with word realities.

Why the Rupee is not going to be made convertible in the foreseeable future – or why, in India’s present fiscal circumstances if it was, it would be imprudent to do so – is because, contrary to the immense optimism promoted by the Dream Team about their own deeds since 1991, they have in fact been causing India’s monetary economy to skate on the thinnest of thin ice. Put another way, a house of cards has been constructed whose cornerstone constitutes that most unscientific anti-economic of assumptions, the “free lunch”: that something can be had for nothing, that real growth in average consumption levels of the masses of ordinary households of rural and urban India can meaningfully come about by nominal paper-money creation accompanied by verbal exhortation, hocus-pocus or abracadabra from policy-makers and their friends in Big Business, Big Labour and the media. (Lest half-remembered inanities about “orthodox economics” come to be mouthed, Maynard Keynes’s 1936 book was about specific circumstances in Western economies during the Depression and it is unwise to extend its presumptions to unintended situations.)

3. Rajiv Gandhi and Perestroika Project

On 25 May 2002, India’s newspapers reported “PV Narasimha Rao and Manmohan Singh lost their place in Congress history as architects of economic reforms as the Congress High Command sponsored an amendment to a resolution that had laid credit at the duo’s door. The motion was moved by…. Digvijay Singh asserting that the reforms were a brainchild of the late Rajiv Gandhi and that the Rao-Singh combine had simply nudged the process forward.”

Now Rajiv Gandhi was an airline-pilot and knew no economics. But the origins of the 1991 reform did come about because of an encounter he had, as Opposition Leader and Congress President from September 1990 onwards, with a “perestroika” project for India’s political economy occurring at an American university since 1986 (viz., The Statesman Editorial Page July 31-August 2 1991, now republished here; Freedom First October 2001). In being less than candid in acknowledging the origins of the reform, the Dream Team may have failed to describe accurately the main symptoms of illness that afflicted India before 1991, and have consequently failed to diagnose and prescribe for it correctly ever since.

The Government of India, like many others, has been sorely tempted to finance its extravagant expenditures by abusing its monopoly over paper-money creation. The British taught us how to do this, and in 1941-43 caused the highest inflation rates ever seen in India as a result. Fig. 1 shows this, and also that real growth in India follows as expected the trend-rate of technological progress (having little to do with government policy). Independent India has continually financed budget- deficits by money creation in a process similar to what the British and Americans did in wartime. This became most conspicuous after Indira Gandhi’s bank and insurance nationalisations of 1969-1970. Indeed, among current policy-makers, Pranab Mukherjee, Manmohan Singh, Arjun Sengupta, Montek Singh Ahluwalia, Bimal Jalan, NK Singh, Amaresh Bagchi and Shankar Acharya, were among those governing such macroeconomic processes before 1991 — albeit in absence of the equations that illustrate their nature. Why the Rupee cannot be made an honest, internationally convertible, stable money held with confidence by all Indians today, is because the Dream Team have continued with the same macroeconomics ever since. The personal and political ambitions of the tiniest super-elite that the New Delhi Consensus represent (both personal and political) have depended precisely on gargantuan unending deficit-financing backed by unlimited printing of paper-money, and hence the continuing destruction of the integrity of India’s banking system. A convertible Rupee would allow India’s ordinary people to choose to hold other stores of value available in the world today, like gold or monies issued by foreign governments, and thus force an end to such processes.

Two recent articles in The Statesman (Perspective Page 30 October 2005, Front Page 29 November 2005) outlined India’s financial repression and negative real interest rates (which suffice to explain the present stock market boom the way athletes perform better on steroids), and also how deficits get financed by money creation accompanied by wishful projections of economic growth in an upside down imitation of how macroeconomic policy gets done in the West.

“Narrow Money” consists mostly of hand-to-hand currency. “Broad Money” consists of Narrow Money plus bank-deposits. Modern banking is built on “fractional reserves”, i.e. a system of trust where your bank does not literally hold onto deposits you place there but lends these out again – which causes further deposit expansion because no individual banker can tell whether a new deposit received by it is being caused by the depositor having himself borrowed. As a general rule, bank lending causes further deposit expansion. Why India’s (and China’s) bank deposits have been expanding is not because Indians (or Chinese) are superhuman savers of financial assets in banks but because the Government of India (and China) has for decades compelled (the mostly nationalised) banks to hold vast sums of Government debt on the asset side of their balance-sheets. Thus there has been humongous lending by the banking system to pay for Government expenditures. The Dream Team’s macroeconomics relies entirely on this kind of unending recourse to deficit finance and money creation, causing dry rot to set into banks’ balance sheets (Figs. 2,3, 4). If the Rupee became convertible, those vast holdings of Government debt by banks would become valued at world prices. The crucial question would be how heavily New York, London and Hong Kong financial markets discounted Indian sovereign debt. If upon convertibility, the asset sides of domestic Indian banks get discounted very heavily by world financial markets, their insolvency upon being valued at international prices could trigger catastrophic repercussions throughout India’s economy. Hence the Rupee cannot be made convertible — and all our present inefficiencies and inequities will continue for ever with New Delhi’s rhetorical propaganda alongside. The capital flight of 10 out of 1000 million Indians will continue, leaving everyone else with the internal and foreign public debts to pay.

4. A Different Strategy had Rajiv Not Been Assassinated

Had Rajiv Gandhi not been assassinated and the perestroika project allowed to take its course, a different strategy would have been chosen. Honest money first demands honest Government and political leadership. It would at the outset have been recognised by Government (and through Government by all India’s people) that the asset-liability, income-expenditure and cash-flow positions of every public entity in the country without exception — of the Union Government, every State and local Government, every public undertaking and project – is abysmal. Due to entanglement with government financial loans, labour regulations, subsidies, price controls, protection and favouritism, the same holds for the financial positions of vast numbers of firms in the organised private sector. Superimpose on this dismal scene, the bleak situation of the Rule of Law in the country today – where Courts of Justice from highest to lowest suffer terrible abuse receiving pitiable amounts of public resources despite constituting a third and independent branch of India’s Government (while police forces, despite massive expenditure, remain incompetent, high-handed and brutal). What India has needed ever since 1991 is the Rule of Law, total transparency of public information, and the fiercest enforcement of rigorous accounting and audit standards in every government entity and public institution. It is only when budgets and financial positions become sound that ambitious goals can be achieved.

The Dream Team have instead made a fetish of physical construction of “infrastructure”, in some grandiose make-believe dreamworld which says the people of India wish the country to be a superpower. The Dream Team have failed to properly redefine for India’s masses the appropriate fiscal and monetary relationship between State and citizen – i.e. to demarcate public from private domains, and so enhance citizens’ sense of individual responsibility for their own futures, as well as explain and define what government and public institutions can and cannot do to help people’s lives. Grotesque corruption and inefficiency have thus continued to corrode practically all organs, institutions and undertakings of government. Corruption is the transmutation of publicly owned things into private property, while its mirror image, pollution, is the disposal of private wastes into the public domain. Both become vastly more prevalent where property rights between private and public domains remain ill demarcated. What belongs to the individual citizen and what to sovereign India –their rights and obligations to one another – remains fuzzy. Hence corruption and pollution run amuck. The irrational obsession with “infrastructure” is based on bad economics, and has led to profoundly wrong political and financial directions. The Rupee cannot be made an honest stable money because India’s fiscal and monetary situation remains not merely out of control but beyond New Delhi’s proper comprehension and grasp. If and when the Dream Team choose to wake up to India’s macroeconomic realities, a great deal of serious work will need to be done.

Posted in Academic economics, Academic research, Accounting and audit, Amartya Sen, Atal Behari Vajpayee, Banking, Big Business and Big Labour, BJP, BR Shenoy, China, Communists, Congress Party, Deposit multiplication, Economic Policy, Economic Theory, Economic Theory of Growth, Economic Theory of Interest, Economic Theory of Value, Economics of Exchange Rates, Economics of Public Finance, Financial markets, Freedom, Governance, Government accounting, Government Budget Constraint, Government of India, India's Big Business, India's credit markets, India's Government economists, India's interest rates, India's savings rate, India's stock and debt markets, India's 1991 Economic Reform, India's agriculture, India's Agriculture & Food, India's balance of payments, India's Banking, India's Budget, India's bureaucracy, India's Capital Markets, India's corruption, India's currency history, India's Democracy, India's Economic History, India's Economy, India's Exports, India's farmers, India's Foreign Exchange Reserves, India's Foreign Trade, India's Industry, India's inflation, India's Jurisprudence, India's Labour Markets, India's Land, India's Macroeconomics, India's Monetary & Fiscal Policy, India's nomenclatura, India's political lobbyists, India's political parties, India's Politics, India's Polity, India's Public Finance, India's Reserve Bank, India's Revolution, India's Rule of Law, India's State Finances, Indira Gandhi, Inflation, John Maynard Keynes, Macroeconomics, Manmohan Singh, Mendacity in politics, Milton Friedman, Monetary Theory, Political cynicism, Political Economy, Political mendacity, Rajiv Gandhi, Redeposits, University of Hawaii, Unorganised capital markets. Leave a Comment »

Waffle but No Models of Monetary Policy: The RBI and Financial Repression

October 27, 2005 — drsubrotoroy

Waffle but No Models of Monetary Policy:

The RBI and Financial Repression (A Stock Market on Steroids)

by

Subroto Roy
First published in The Statesman, Perspective Page, October 27 2005

If the average Indian citizen feels flummoxed at hearing all the fancy words from official spokesmen and the talking heads on TV and the expensive pink business newspapers — words like “credit offtake”, “liquidity”, “reverse repo rate” “medium term”, “inflation mandate” etc — there is help at hand. It is as likely as not that the purveyors are as flummoxed themselves even while they bandy these terms about in what has been passing for monetary policy in India in recent years. No one has any reliable economic models backed by time-series data to support all the waffle.

Here is an example.

The Government (and specifically the department of the Finance Ministry known as the RBI) will have us believe that the decline in the value of money that has been occurring in India has been at less than 5% per annum. According to official figures, the average Indian’s purchase of consumable goods and services (food, housing, clothing, transport etc) has been costing more every year by merely 5% at the very most. “What you can buy for Rs. 1000 in one year, you have to pay just Rs 1050 to buy the next year” is what the Government will have us believe. But is anyone’s personal experience of the diminishing value of the domestic currency in India consonant with what official spokesmen say inflation happens to be?

You may well reply that you cannot quite recall what Rs. 1000 bought for you last year. Precisely so. Nor really can anyone else — and that mutual collective loss of memory on the part of the public is something that India’s Government (like many other governments across time and space) has been literally banking on!

Consider a few very simple calculations. Suppose a citizen earns an annual income of Rs. 100,000, and an honest Government told him/her to pay total taxes (from both income and expenditure) of 10%. Clearly Rs. 90,000 would be left for the citizen to spend on his/her various choices of consumption or saving afterwards. If the citizen could assume the value of money was constant (inflation was 0%) then this Rs. 90,000 in one year would buy the same amount of goods and services the next year. But instead we may be living in a political system where the Government officially taxes very lightly, and then dishonestly taxes very heavily by reducing the value of money invisibly, i.e. by inflation. The Government may make the official tax-rate 8% and the actual inflation-rate 15%. The citizen who has Rs. 100,000 will then pay Rs. 8,000 in nominal taxes, but the Rs. 92,000 that is nominally left over for his own consumption and savings, will be made to decline by a further 15% every year.

I.e., a further value of Rs.13,800 (15% of Rs. 92,000) would effectively disappear as an invisible tax from the household budget due to the decline in the value of money, without the household being any wiser. In real terms, the household would have only Rs. 78,200 left.

Where would that extra value disappear to? Clearly, the beneficiary of this invisible extraction of real resources from household budgets would be the only entity that is able to compel the decline in the value of money, namely, the Government, which holds monopoly power to print the pieces of paper (at zero cost) that we call “money” and which we are forced by circumstances to use to expedite our real transactions of goods and services. Roughly speaking, that is how the Government’s own budget deficit gets financed in India.

I.e., the Government of India has its own (massive) expenditures — not merely on things like roads and bridges and military tanks and submarines, but also on ministers and bureaucrats’ wages etc., besides enormous interest payments on past debts incurred by the Government. If the expenditures exceed the visible revenues raised from taxation, as they have done by perhaps 40-50% or more every year for several decades, then the difference gets bridged by printing more paper money over which the Government has had a monopoly.

In India, a total of perhaps 18 million people work in all branches of government and a total of perhaps 12 million people work in the entire organised private sector. That makes 30 million people — with 4 dependants each, that accounts for perhaps 150 million people in the country. That leaves another 850 million people in our population of 1,000 million. Everyone, whether in the 150 million or the 850 million, rich and named or poor and anonymous, has had to use for his/her real transactions of goods and services the paper that the Government produces as money. By causing a decline in the value of this paper every year by x%, everyone who holds this paper, as well as assets denominated in this paper, suffers an invisible taxation of x% without quite realising it. The real revenue the Government of India extracts in this way is what has allowed it to balance its own books.

Furthermore, in the Indian case, what is said to be the inflation-rate and the actual inflation-rate experienced by ordinary people, may well be two different things. The wage-bill of those 18 million people employed by government agencies are linked directly to what official spokesmen say the inflation-rate is, so if the actual rate being experienced was higher and was announced as such, so would have to be that wage-bill and public expenditure! Official spokesmen may tell us the decline in the value of money has been merely 5% or less a year, so what cost Rs. 1000 last year costs Rs. 1050 this year, but as a matter of plain fact, the average citizen’s experience (and memory) may well tell him/her something different – e.g. that what cost Rs. 1000 last year, is in fact costing Rs. 1100 or Rs 1150 or Rs 1200 this year.

So much for the value of money. Now turn to interest-rates.

Here too, the average citizen need not be a rocket-scientist to know that relative to the Western countries, India is labour abundant and is capital scarce. Roughly speaking, that means we have relatively more people and fewer high-rise concrete buildings than the West does. Where then would you expect wages (the price of labour) to be higher, in the West or in India? Clearly in the place where labour is more scarce, namely, the West. And where would you expect interest-rates (the price of capital) to be higher? Clearly, where capital is relatively more scarce, namely India. Such was clearly the case between 1864 and 1926 (Fig. 1). Calcutta bank interest-rates were uniformly higher by about 2-3% than London bank interest-rates (in an era of zero inflation). But something wholly different occurred in the pseudo-socialist India after Independence. E.g., for the years 1975-1992 official Indian interest-rates (adjusted for inflation) were uniformly lower than those in world capital markets represented by the USA (Fig. 2). That remains true today. Not only have the higher wages of the West been attractive to Indians, so seems to be the higher real rates of return on capital! Hence everyone who could fled India – exporting their adult children and their savings abroad , leaving future generations of the anonymous masses with larger public debts to pay the bills in due course. There has been a flight of skilled labour and as well as capital flight from India — are foreigners going to come when they can see the Indian “elite” has fled? Official real interest-rates in India today may well be negative if inflation is properly measured, which would explain the Bombay stock-market boom the same way an athlete can perform better when on steroids.

Of course in the unorganised capital markets, actual real rates of return have always been higher in India than in the West and remain so. Just ask anyone in the unorganised capital markets how much he has to pay to rent machinery on a daily basis e.g. in the building or construction trade in an Indian city or small town or village. He will quote you rates of 2% or 5% or 10% — per day. Hence there is a massive distortion between what is happening in the unorganised capital markets all over the country and the official money markets the RBI believes itself to be presiding over in Bombay. Until the RBI starts to tell us frankly about this phenomenon, which is known to economists as “financial repression” and which has been caused by runaway Government spending programmes in India for decades, the average citizen may discount all the talk about a few basis points changing here and there on this or that nominal rate, in our pale imitation of what we think the US Fed or the European or British central banks do as policy. The truth is the RBI has never been allowed to model itself after those institutions. Instead, India has had nationalised commercial banking whose pampered inefficient management and staff have allowed the holding of massive amounts of government debt as assets in their balance-sheets, all denominated in an inconvertible controlled currency, and all presided over by a “one-tier” central bank patterned on the old Gosbank of the former Soviet Union, completely subservient to the dictates of the runaway spending that this or that particular set of politicians in power may demand. If there are dreams to be dreamt by honest economists in India, it would be for all that to be made to change.

Can India Become an Economic Superpower or Will There Be a Monetary Meltdown? (2005)

May 5, 2005 — drsubrotoroy

In 2005, I returned to Britain thanks to an invitation from Professor Patrick Minford of the Cardiff Business School, Cardiff University, to deliver a lecture on India’s Money at his Economics Seminar. http://www.cardiff.ac.uk/carbs/research/seminars.html
“Wednesday 13 April 2005 Dr Subroto Roy /India’s Money/ 4.30pm, Room S01 (Economics Seminar Series)

The same lecture was delivered at the Institute of Economic Affairs, London, a fortnight later under the title “Can India Become an Economic Superpower or Will There Be a Monetary Meltdown?”. The IEA’s summary of the lecture was as follows
http://www.iea.org.uk/record.jsp?type=news&ID=263
27 April 2005

“Leading Indian economist, Dr. Subroto Roy discusses the prospects of the Indian economy and warns of dangers ahead.

Can India become an economic superpower or will there be a monetary meltdown?

Dr. Roy discussed the prospects for the Indian economy at a lecture at the IEA on 27th April. Below is a synopsis of his lecture, outlining his hopes and concerns.

New technological progress in a myriad of ways, as well as the discovery of new resources, plus a possible peace-dividend arising from reduced regional tensions and conflict, are all important factors contributing to real economic growth in India today.

While the real side of the economy does well, the “nominal” economy, within the Government’s control, displays disconcerting trends. Continual deficit financing for half a century has led to exponential growth of public debt and broad money. The vast growth of time-deposits in banks may have been misinterpreted as indicating a real phenomenon such as unusual savings behaviour when it is more likely to be a nominal phenomenon resulting from increasing amounts of government debt being held by the largely nationalised banking sector. (The same may be true of China).

Twenty-one years ago, the author’s IEA Occasional Paper No. 69, Pricing, planning and politics: a study of economic distortions in India, proposed microeconomic reforms provoking the Times‘ lead editorial of May 29 1984. Some of these came to be implemented following the author’s role as a senior adviser to Rajiv Gandhi in 1990-1991. Now, monetary and fiscal reforms of a classical liberal nature are vitally necessary if a macroeconomic meltdown is to be prevented. Important among these are complete budgetary transparency, fiscal discipline improving the social productivity of all public expenditure, and monetary and financial policies to restore the integrity of the currency at home and abroad. Dr. Roy was Wincott Professor at the Department of Economics at the University of Buckingham last year. He is editor of Margaret Thatcher’s Revolution available from the recommended books page of the IEA’s website.”

When I returned to India, I was invited to give the same lecture on May 5 2005 to the Reserve Bank of India’s Monetary Economics Seminar, chaired by Chief Economist Dr Narendra Jadav; the invitation came thanks to the intervention of Dr S. S. Tarapore. I subsequently informed a few of India’s key monetary policy decision-makers of these lectures, and I was happy to see policy talk emanating from Delhi and Bombay becoming a little less drunken and disorderly than it had been before.

Subroto Roy, April 14 2007

Margaret Thatcher’s Revolution: How it Happened and What it Meant

April 27, 2005 — drsubrotoroy

Margaret Thatcher’s Revolution: How it Happened and What it Meant, edited by Subroto Roy & John Clarke, London & New York: Continuum, 2005, 2006.

Towards a Highly Transparent Fiscal & Monetary Framework for India’s Union & State Governments (29 April 2000)

April 29, 2000 — drsubrotoroy

Towards a Highly Transparent Fiscal & Monetary Framework for India’s Union & State Governments

An address by Dr Subroto Roy to

the Conference of State Finance Secretaries, Reserve Bank of India, Mumbai, 29 April 2000.

It is a great privilege to speak to this distinguished gathering of Finance Secretaries and economic policy-makers here at the Reserve Bank today. I should like to begin by thanking the Hon’ble Governor Dr Bimal Jalan and the Hon’ble Deputy Governor Dr YV Reddy for their kind invitation for me to do so. I should also like to record here my gratitude to their eminent predecessor, the Hon’ble Governor of Andhra Pradesh, Dr C Rangarajan, for his encouragement of my thinking on these subjects over several years.

My aim will be to share with you and seek your help with my continuing and very incomplete efforts at trying to comprehend as clearly as possible the major public financial flows taking place between the Union of India and each of its constituent States. I plan to show you by the end of this discussion how all the information presently contained in the budgets of the Union and State Governments of India, may be usefully transformed one-to-one into a fresh modern format consistent with the best international practices of government accounting and public budgeting.

I do not use the term “Central Government”, because it is a somewhat sinister anachronism left over from British times. When we were not a free nation, there was indeed a Central Government in New Delhi which took its orders from London and gave orders to its peripheral Provinces as well as to the British “Residents” parked beside the thrones of those who were called “Indian Princes”.

Free India has been a Union of States. There is a Government of the whole Union and there is a Government of each State. The Union is the sovereign and the sole international power, while the States, as political subdivisions of the Union, also possess certain sub-sovereign powers; as indeed do their own subdivisions like zilla parishads, municipalities and other local bodies in smaller measure.

Our 15 large States, which account for 97% of the population of the country, have an average of something like 61 million citizens each, which is vastly more than most countries of the world. In size of population at least, we are like 15 Frances or 15 Britains put together. The Indian Republic is unique or sui generis in that there has never been in history any attempt at federalism or democracy with such sheer large numbers of people involved.

In such a framework the citizen is supposed to feel a voter and a taxpayer at different levels, owing loyalty and taxes to both the national unit and the subdivisions in which he or she resides. In exchange, government at different levels is expected to provide citizens with public goods and services in appropriate measure. The problem of optimal fiscal decentralisation in India as elsewhere is one of allocating to each level of government the power to tax and responsibility to provide, public goods and services most appropriate to that level of government given the availability of information of resources and citizens’ preferences.

In parallel, a problem of optimal monetary decentralisation may be identified as that of allocating between an autonomous Central Bank and its regional or even State-level affiliates or subsidiaries, the power to finance through money-creation the deficits, if any, of the Union and State Governments respectively. It is not impossible to imagine a world in which individual State deficits did not flow into the Union deficit as a matter of course, but instead were intended to be financed more or less independently of the Union budget from a single-window source. There would be a clear conceptual independence between the Union and State levels of public action in the country. In such a world, the Union Government might approach a constitutionally autonomous national-level Central Bank to finance its deficit, while individual State Governments did something analogous with respect to autonomous regional or even State-level Central Banks which would be affiliates or subsidiaries of the national Central Bank.

This is similar to the intended model of the United States Federal Reserve System when it started 90 years ago, though it has not worked like that, in part because of the rapid rise to domination by the New York Federal Reserve relative to the other 11 regional Federal Reserve Banks.

A more radical monetary step would be to contemplate a “Reverse Euro” model by which a national currency issued by the national-level Central Bank acts in parallel with a number of regional or State-level currencies with full convertibility and floating exchange-rates guaranteed between all of them in a world of unhindered mobility of goods and factors.

However, these are very incomplete and theoretical thoughts which perhaps deserve to be shelved for the time being.[1] What necessitates this kind of discussion is after all not something theoretical but rather the practical ground realities of our country’s fiscal and monetary position, something of which this audience will be far better aware than am I.

Economic and political analysis suggests that managing a process of public financial decision-making requires a coincidence of the people who have the best information with the people who have the authority to act. In other words, decision-makers need to have relevant, reliable and timely information made available to them, and then they need to be considered accountable for the decisions made on that basis.

In a democracy like ours, the locus of economic policy decision-making must be Parliament and the State legislatures. Academics, civil servants, journalists, special interest groups, this or that business or industrial lobbyist or foreign management consultant can all have their say — but consensus on the direction and nature of economic policy, if it is to be genuine, has to ultimately emerge out of the legislative process on the basis of reasonable, well-informed discussion and debate, given full relevant timely information. The proper source of all economic policy decisions and initiatives is Parliament, the State legislatures and local government bodies — not this or that lobby or interest-group which may be vocal or powerful enough to be heard at a given time in New Delhi or some State capital-city.

Our 1950 Constitution was a marvellous document in its time and it has worked tolerably well. It defined the functions of government in India in accordance with the main parameters of normative public finance.

Economics ascribed a quite extensive traditional role to Government, the most important functions being collective and individual security, followed by all activities which in the words of Adam Smith,

“though they may be in the highest degree advantageous to a great society, are, however, of such a nature that the profit could never repay the expence to any individual or small number of individuals, and which it, therefore, cannot be expected that any individual or small number of individuals should erect or maintain.” (Wealth of Nations, V.i.c., 1776)

Our 1950 Constitution defined the Union’s responsibilities to be

External Security;

Foreign Relations & Trade;

Supreme Court & Domestic Security;

Debt Service, Foreign & Domestic;

National Infrastructure;

Communications & Broadcasting;

Atomic Energy;

Public Sector Industries;

Banking; Currency & Finance;

Archives; Surveys & National Institutions;

National Universities;

National Civil Services & Administration.

Each State’s responsibilities were

High Courts & Lower Judiciary;

Police; Civil Order; Prisons;

Water; Sanitation; Health;

State Debt Service;

Intra-State Infrastructure & Communications;

Local Government;

Liquor & Other Public Sector Industries; Trade; Local Banking & Finance;

Land; Agriculture; Animal Husbandry;

Libraries, Museums, Monuments;

State Civil Service & Administration.

Some duties were supposed to be shared by the Union with each State, including

Criminal Law;

Civil & Family Law, Contracts & Torts;

Forests & Environmental Protection;

Unemployment & Refugee Relief;

Electricity;

Education.

But the authors of the 1950 Constitution could not have envisaged the nature of present problems, or foreseen in those early years what we would have become like today. Our fiscal system has become such that a few clauses may have led to an impossibly complex centralization of fiscal power and information. Not only did the 1950 Constitution identify agendas of the Union and State Governments, it also dictated the procedure of decision-making and it is this which may have become intractable over 50 years. Under Article 280, a Finance Commission is appointed every five years whose task is to try to efficiently and equitably allot tax revenues collected by the Union downwards to the States and laterally between the States. Members of Finance Commissions have been elder statesmen of high reputation and integrity, yet the practical impossibility of their task has made their actions seem to all observers to be clouded in mystery and perhaps muddle. As one recent member, Justice Qureshi, has candidly stated

“it is humanly impossible for a person to understand the problems of the Centre and the 25 States and take a decision thereon within such a short time” (Ninth Finance Commission, Issues and Recommendations, p.350).

No matter how competent or well-meaning a Finance Commission’s members may be, their purpose may be stymied by the overload of information and overcentralisation of authority that has come to take place. As a result, it may have been inevitable that Government has ended up doing what it need not have done at the expense concomitantly of failing to do what only Government could or must have done.

The present situation is such that, despite the best efforts of the Reserve Bank and other Government agencies, there may be a gross lack of timely, relevant and reliable information reaching all decision-makers including the ordinary citizen, who as voter and taxpayer is the cornerstone of the fiscal system. My own inquiry started when Mr. Hubert Neiss, then Central Asia Director at the IMF, hired me as a consultant in December 1992. He told me the IMF was naturally concerned about India’s national budget deficit, but no one seemed to quite know how this related precisely to the budgets of the different States whose deficits seemed to be flowing into it. By its terms of reference, the IMF could not inquire into India’s States’ budgets and I did not do so in my work with them, but the import of his question remained in my thinking. Later I found similar questions being asked at the World Bank. I do not think it a great secret to state that there may be a great deal of simple puzzlement about the workings of our fiscal and monetary system on the part of observers and decision-makers who may be concerned about India’s fiscal position.

Among both public decision-makers and ordinary citizens right across the length and breadth of our country, a severe and widespread lack of information about and comprehension of India’s basic fiscal and monetary facts seems to exist. This in itself may be a cause of fiscal problems as citizens may not be adequately aware of the link between making their demands for public goods and services on the one hand, and the necessity of finding the resources to fund these goods and services on the other.

In any ultimate analysis, resources for public goods and services in an economy can be found only by diverting the real resources of individual citizens towards public uses. Other than printing fiat money, a national Government can only either tax those citizens who are present today in the population, or, borrow from the capital stock on behalf of unborn generations of future citizens.

West Europe and America are heirs to a long history of political development; yet even there, as Professor James Buchanan has often observed, the idea until has not been grasped until recently that benefits from use of public goods and services are supposed to accrue to citizens from whom resources have been raised. Until the 19th Century,

“government outlay was frequently considered “unproductive”, and there was, by implicit assumption, no return of services to the citizens who were taxed. In a political regime that devotes the bulk of government outlay to the maintenance expenses of a single sovereign, or even of an elite, there is no demonstrable return flow of services to the taxpayers…. Tax principles were discussed as if, once collected, revenues were removed forever from the economy; taxpayers, both individually and in the aggregate, were held to suffer real income loss” (James M. Buchanan, The Demand and Supply of Public Goods, Rand 1968, p. 167).

According to Buchanan, such an undemocratic fiscal model was transformed in the work of the great Swedish economist Knut Wicksell and others by introducing the key assumption of fiscal democracy, namely, that

“those who bear the costs of public services are also the beneficiaries in democratic structures”

Conversely, we may say those who demand public goods and services in a fiscal democracy should also expect to pay for them in real resources. If citizens are aware of taxes only as a burden and come to feel they receive little or nothing from Governments in return, there is a loss of incentive to pay taxes or to stand up and be counted as proud citizens of the country. There is an incentive instead to evade taxes or to flee the country or to cynically believe everything to be corrupt. On the other hand, if citizens demand public goods and services without expecting to contribute resources for their production, this amounts to being no more than a demand to be a free-rider on the general budget.

In our country, we may have been seeing both phenomena. On one hand, there is, rightly or wrongly, a tremendous public cynicism present almost everywhere with respect to expecting effective provision of public goods and services. On the other hand, the idea that the beneficiaries of public goods and services must also, sooner or later, come to bear the costs in terms of taxed resources is far from established so our politics come to often be unreasonable and irresponsible.

Reliable and comprehensible information about the system as a whole and about the contents of public budgets is thus vital for a fiscal democracy to function. In ancient Athens it was said:

“Here each individual is interested not only in his own affairs but in the affairs of the State as well; even those who are mostly occupied with their own business are extremely well-informed on general politics — this is a peculiarity of ours: we do not say that a man who has no interest in politics is a man who minds his own business; we say that he has no business here at all.” Pericles (Funeral Oration, Thucydides, The Pelopennesian War)

That was the criterion that Pericles defined for ancient Athenian democracy, and I see no reason why in the 21st Century it cannot be met in modern India’s democracy.

This finally brings me to the positive contribution I have promised to make. The aim my attempt to redesign the Union and State’s budgets utilising precisely the same data as available has been to make the fiscal position of all public entities accessible to any interested citizen.

We do not have to say that every Indian citizen, or even every literate and numerate citizen of our country, has to be able to understand the intricacies of the public budgets of his or her State and the Union. But if information is available such that anyone who understands the finances of his own family or his own business enterprise is also reasonably able to understand the public budget then a standard of maximum feasible transparency would have been defined and met.

I have relied on the international normative model developed by our own countryman, Mr. A. Premchand, who retired from the IMF a few years ago, as described in his outstanding book Effective Government Accounting (IMF 1995), where he showed applications for e.g. the USA, New Zealand and Switzerland. What I have done – or rather did in 1997/1998, with the help of a research assistant and a student – is apply that to all of our States and the Union too.[2] What will be seen by way of differences with the present methodology is that there is essentially an Operating Statement, a Financial Statement and a Cash Flow Statement offered for each State and the Union. The financial position and gross fiscal deficit definition emerge rather neatly from this – while there the rather confusing “Development/Non-development” and “Planning/Non-Planning” distinctions have been done away with.

The exercise points to the foundations of a new and fresh federal framework for our Republic. A central new fact of modern India is that many, perhaps most, of our States have developed what is effectively a bipolar division in their legislatures. Voters have also increasingly started to judge Governments not by the personalities they contain but rather by their performance on the job, and, at election-time, have begun to frequently enough shown one side the door in the hope the other side may do better. In such circumstances, there seems no reason in principle why an entity as large as the average State of modern India today cannot be entrusted to legislate and administer a modern tax-system, based especially on the income-tax, and especially taxing income from all sources including agriculture. In a fresh and modern federalism, an elected State Government would have appropriate economic powers to run its own affairs, and be mainly accountable to the legislature whose confidence it requires, and ultimately to voters below.

From an efficiency standpoint, we should want a framework in which repercussions of political turmoil or bad financial management by a State Government to not spill into other States or flow into the Union Government’s own problems of deficit financing. With free mobility of goods and factors throughout the Union, citizens faced with a poorly performing State Government could seek to vote it out of office, or may of course “vote with their feet” by moving their capital or resources to another part of the country. In short, State Governments will be held responsible by their electorates for their expenditures on public goods and services, while having the main powers of domestic taxation in the economy, especially taxes on income from all sources including agriculture.

At the same time, diverse as India is, we are not 15 or 25 separate republics federated together but rather one country all of whose peoples are united by a common geography and a common experience of history. From an equity and indeed national standpoint, we may also want a system which also firmly established that the National Parliament would have to determine how much each citizen should be taxed for the Union to provide public goods and services for the country as a whole, as well as what transfers ought to be made between the States via the Union in the interests of equity given differences in initial resource-endowments between them.

Here again an American example may be useful. As is well-known, the 50 United States each have their own Constitutions governing most intra-State political matters, yet all being inferior in authority to the 1789 Constitution of the United States as duly amended. In India, an author as early as 1888 recommended popular Constitutions for India’s States on the grounds

“where there are no popular constitutions, the personal character of the ruler becomes a most important factor in the government… evils are inherent in every government where autocracy is not tempered by a free constitution.”[3]

We could ask if a better institutional arrangement may occur by each State of India electing its own Constitutional Convention subject naturally to the supervision of the National Parliament and the obvious provision that all State Constitutions be inferior in authority to the Constitution of the Union of India.[4] These documents would then furnish the major sets of rules to govern intra-State political and fiscal decision-making more efficiently. An additional modern reason can be given from the work of Professor James M. Buchanan, namely, that fiscal constitutionalism, and perhaps only fiscal constitutionalism, allows over-riding to take place of the interests of competing power-groups.[5]

State-level Constitutional Conventions in India would provide an opportunity for a realistic assessment to be made by State-level legislators and citizens of the fiscal positions of their own States. Greater recognition and understanding of the plain facts and the desired relationships between income and expenditures, public benefits and public costs, would likely improve the quality of public decision-making at State-levels, sending public resources from destinations which are socially worthless towards destinations which are socially worthwhile. It bears repeating the average size of a large State of India is 61 million people, and almost all existing political Constitutions around the globe furnish rules for far smaller populations than that.

Thank you for your patience. Jai Hind.

[1] Monetary Federalism at Work: F. A. Hayek more than anyone else taught us that relative prices are signals or guides to economic activity — summarizing in a single statistic information about the resources, constraints, expectations and ambitions of market participants. An exchange-rate between two currencies is also a relative price, conveying information about relative market opinions regarding the issuers of the two currencies. Suppose we had two States of India in the fresh kind of federal framework outlined above, which were identical in all respects except one had a larger deficit and so a larger nominal money supply growth. Would that mean the first currency must depreciate relative to the second? Not necessarily; it is not the size of indebtedness that matters but rather the quality of public investment decisions, to which borrowed money has been put. Thus we come to the crux: Suppose we have two States which are identical in all respects except one: State X is found to have an efficient Government, i.e. one which has made relatively good quality public investment decisions, and State Y is found to have one which has made relatively bad quality public investment decisions. In the present amalgamated model of Indian federal finance, no objective distinction can be made between the two, and efficient State Governments are surreptitiously compelled to end up subsidising inefficient ones. In a differentiated federal framework for India, as the different information about the two State Governments comes to be discovered, the X currency will tend to appreciate as resources move towards it while the Y will tend to depreciate as resources move away from it. In an amalgamated model, efficient State Governments lose incentives to remain efficient, while in a differentiated model, inefficient State Governments will gain an incentive not to be inefficient. The present amalgamated situation is such that inefficient States – and this may include not only the State Government but also the State Legislature and the State electorate itself – receive no fiscal incentive to improve themselves. In a differentiated framework, the same inefficient State would face a tangible, visible loss of reserves or depreciation of its currency relative to other States on account of its inefficiency, and thereby have some incentive to mend its ways. I call the proposal given here a “Reverse Euro” model because Europe appears to be moving from differentiated currencies and money supplies to an amalgamated currency and money supply, while the argument given here for India is in the opposite direction. Professor Milton Friedman of the Hoover Institution at Stanford, has had the kindness, at the age of 88, to send me a brilliant and forceful critique of my Reverse Euro idea for India when I requested his comment. Since he is the founder of the flexible exchange-rate system and he has found it too radical, I have shelved it for the time being.

[2] The assistance of Dola Dasgupta and K. Shanmugam is recorded with gratitude.

[3] Surendranath Roy, A History of the Native States of India, Vol I. Gwalior, Calcutta & London: Thacker 1888.

[4] Large amounts of legal and constitutional precedent have built up on issues of a regional or local nature: whether a State legislature should be unicameral or bicameral, what should be its procedures, what days should be State holidays but need not be national holidays, on tenancy, rent control, school standards, health standards and so on ad infinitum. All this body of explicit and implicit local rules and conventions may be duly collected and placed in State-level Constitutions.

[5] James M. Buchanan, Limits to Liberty, Texas, 1978.

A major expansion and reorganization of the judiciary would have to accompany the sort of basic constitutional reform outlined above. Union and State judiciaries would need to be more clearly demarcated, and rules established for review of State-level decisions by Union courts of law. It is common knowledge the judiciary in India is in a state of organizational overload at the point of collapse and dysfunction. An expansion and reorganization of the judiciary to match new Union-State constitutional relations will likely improve efficiency, and therefore welfare levels of citizens.

How populous is India? My April 2000 @RBI talk said "In size of popn at least, we are like 15 Frances or 15 Britains put together" https://t.co/qSjvmrp8na Here's a current list of the 18 larger Indian states and comparably populous countries @PMOIndia @SushmaSwaraj @rajnathsingh pic.twitter.com/q51s5mMYrt

— Prof Subroto Roy (@subyroy) August 14, 2018

Transparency and Economic Policy-Making

January 31, 1998 — drsubrotoroy

Transparency and Economic Policy-Making

An address by Professor Subroto Roy to the Asia-Pacific Public Relations Conference, (panel on Transparency chaired by C. R. Irani) January 30 1998.

This talk is dedicated to the memory of my sister Suchandra Bhattacharjee (14.02.1943-10.01.1998).
1. I would like to talk about transparency and economic policy-making in our country. For something to be transparent is, in plain language, for it to be able to be openly seen through, for it to not to be opaque, obscure or muddy, for it to be clear to the naked eye or to the reasonable mind. A clear glass of water is a transparent glass of water. Similarly, an open and easily comprehensible set of economic policies is a transparent set of economic policies.

The philosopher Karl Popper wrote a famous book after the Second World War titled The Open Society and its Enemies. It contained a passionate defence of liberal institutions and democratic freedoms and a bitter attack on totalitarian doctrines of all kinds. It generated a lot of controversy, especially over its likely misreading of the best known work of political philosophy since the 4th Century BC, namely, Plato’s Republic .[1] I shall borrow Popper’s terms ‘open society’ and ‘closed society’ and will first try to make this a useful distinction for modern times, and then apply it to the process of economic policy-making in India today.

2. An open society is one in which the ordinary citizen has reasonably easy access to any and all information relating to the public or social interest — whether the information is directly available to the citizen himself or herself, or is indirectly available to his or her elected representatives like MP’s and MLA’s. Different citizens will respond to the same factual information in different ways, and conflict and debate about the common good will result. But that would be part of the democratic process.

The assessment that any public makes about the government of the day depends on both good and bad news about the fate of the country at any given time. In an open society, both good news and bad news is out there in the pubic domain — open to be assessed, debated, rejoiced over, or wept about. If we win a cricket match or send a woman into space we rejoice. If we lose a child in a manhole or a busload of children in a river, we weep. If some tremendous fraud on the public exchequer comes to be exposed, we are appalled. And so on.

It is the hallmark of an open society that its citizens are mature enough to cope with both the good and the bad news about their country that comes to be daily placed before them. Or, perhaps more accurately, the experience of having to handle both good and bad news daily about their world causes the citizens in an open society to undergo a process of social maturation in formulating their understanding of the common good as well as their responses to problems or crises that the community may come to face. They might be thereby thought of as improving their civic capacities, as becoming better-informed and more discerning voters and decision-makers, and so becoming better citizens of the country in which they live.

The opposite of an open society is a closed society — one in which a ruling political party or a self-styled elite or nomenclatura keep publicly important information to themselves, and do not allow the ordinary citizen easy or reasonably free access to it. The reason may be merely that they are intent on accumulating assets for themselves as quickly as they can while in office, or that they are afraid of public anger and want to save their own skins from demands for accountability. Or it may be that they have the impression that the public is better off kept in the dark — that only the elite nomenclatura is in position to use the information to serve the national interest.

In a closed society it is inevitable that bad news comes to be censored or suppressed by the nomenclatura, and so the good news gets exaggerated in significance. News of economic disasters, military defeats or domestic uprisings gets suppressed. News of victories or achievements or heroics gets exaggerated. If there are no real victories, achievements or heroics, fake ones have to be invented by government hacks — although the suppressed bad news tends to silently whisper all the way through the public consciousness in any case.

Such is the way of government propaganda in almost every country, even those that pride themselves on being free and democratic societies. Dostoevsky’s cardinal advice in Brothers Karamasov was: “Above all, never lie to yourself”. Yet people in power tend to become so adept at propaganda that they start to deceive themselves and forget what is true and what is false, or worse still, cannot remember how to distinguish between true and false in the first place. In an essay thirty years ago titled Truth and Politics, the American scholar Hannah Arendt put it like this:

“Insofar as man carries within himself a partner from whom he can never win release, he will be better off not to live with a murderer or a liar; or: since thought is the silent dialogue carried out between me and myself, I must be careful to keep the integrity of this partner intact, for otherwise I shall surely lose the capacity for thought altogether.”[2]

3. Closed societies may have been the rule and open societies the exception for most of human history. The good news at the end of the 20th Century is surely that since November 7 1989, when the Berlin Wall fell, the closed society has officially ceased to be a respectable form of human social organization. The age of mass access to television and telecommunications at the end of the 20th Century may be spelling the permanent end of totalitarianism and closed societies in general. The Berlin Wall was perhaps doomed to fall the first day East Germans were able to watch West German television programs.

Other than our large and powerful neighbour China, plus perhaps North Korea, Myanmar, and some Islamic countries, declared closed societies are becoming hard to find, and China remains in two minds whether to be open or closed. No longer is Russia or Romania or Albania or South Africa closed in the way each once was for many years. There may be all sorts of problems and confusions in these countries but they are or trying to become open societies.

Under the glare of TV cameras in the 21st Century, horrors like the Holocaust or the Gulag or even an atrocity like Jalianwalla Bag or the Mai Lai massacre will simply not be able to take place anywhere in the world. Such things are not going to happen, or if they do happen, it will be random terrorism and not systematic, large scale genocide of the sort the 20th Century has experienced. The good news is that somehow, through the growth of human ingenuity that we call technical progress, we may have made some moral progress as a species as well.

4. My hypothesis, then, is that while every country finds its place on a spectrum of openness and closedness with respect to its political institutions and availability of information, a broad and permanent drift has been taking place as the 20th Century comes to an end in the direction of openness.

With this greater openness we should expect bad news not to come to be suppressed or good news not to come to be exaggerated in the old ways of propaganda. Instead we should expect more objectively accurate information to come about in the public domain — i.e., better quality and more reliable information, in other words, more truthful information. This in turn commensurately requires more candour and maturity on the part of citizens in discussions about the national or social interest. Closed society totalitarianism permitted the general masses to remain docile and unthinking while the nomenclatura make the decisions. Dostoevsky’s Grand Inquisitor said that is all that can be expected of the masses. Open society transparency and democracy defines the concept of an ordinary citizen and requires from that citizen individual rationality and individual responsibility. It is the requirement Pericles made of the Athenians:

“Here each individual is interested not only in his own affairs but in the affairs of the state as well; even those who are mostly occupied with their own business are extremely well-informed on general politics – this is a peculiarity of ours: we do not say that a man who takes no interest in politics is a man who minds his own business; we say that he has no business here at all.”[3]

5. All this being said, I am at last in a position to turn to economic policy in India today. I am sorry to have been so long-winded and pedantic but now I can state my main substantive point bluntly: in India today, there is almost zero transparency in the information needed for effective macroeconomic policy-making whether at the Union or State levels. To illustrate by some examples.

(A) Macroeconomic policy-making in any large country requires the presence of half a dozen or a dozen well-defined competing models produced by the government and private agencies, specifying plausible causal links between major economic variables, and made testable against time-series data of reasonably long duration. In India we seem to have almost none. The University Economics Departments are all owned by some government or other and can hardly speak out with any academic freedom. When the Ministry of Finance or RBI or Planning Commission, or the India teams of the World Bank or IMF, make their periodic statements they do not appear to be based on any such models or any such data-base. If any such models exist, these need to be published and placed in the public domain for thorough discussion as to their specification and their data. Otherwise, whatever is being predicted cannot be assessed as being very much more reliable than the predictions obtained from the Finance Minister’s astrologer or palmist. (NB: Horse-Manure is a polite word used in the American South for what elsewhere goes by the initials of B. S.). Furthermore, there is no follow-up or critical review to see whether what the Government said was going to happen a year ago has in fact happened, and if not, why not.

(B) The Constitution of India defines many States yet no one seems to be quite certain how many States really constitute the Union of India at any given time. We began with a dozen. Some 565 petty monarchs were successfully integrated into a unitary Republic of India, and for some years we had sixteen States. But today, do we really have 26 States? Is Delhi a State? UP with 150 million people would be the fifth or sixth largest country in the world on its own; is it really merely one State of India? Are 11 Small States de facto Union Territories in view of their heavy dependence on the Union? Suppose we agreed there are fifteen Major States of India based on sheer population size: namely, Andhra, Assam, Bihar, Gujarat, Haryana, Karnataka, Kerala, MP, Maharashtra, Orissa, Punjab, Rajasthan, Tamil Nadu, UP and West Bengal. These States account for 93% of the population of India. The average population of these 15 Major States is 58 million people each. That is the size of a major country like France or Britain. In other words, the 870 million people in India’s Major States are numerically 15 Frances or 15 Britains put together.

Yet no reliable, uniformly collected GDP figures exist for these 15 States. The RBI has the best data, and these are at least two years old, and the RBI will tell you without further explanation that the data across States are not comparable. If that is the case at State-level, I do not see how the national-level Gross Domestic Product can possibly be estimated with any meaningfulness at all.

(C) Then we hear about the Government Budget deficit as a percentage of GDP. Now any national government is able to pay for its activities only by taxation or borrowing or by using its monopoly over the domestic medium of exchange to print new money. In India today, universal money-illusion seems to prevail. It would not be widely recognised by citizens, journalists or policy-makers that, say, 100,000 Rupees nominally taxed at 10% under 20% inflation leaves less real disposable income than the same taxed at 20% with 5% inflation. This is in part because inflation figures are unknown or suspect. There is no reliable all-India or State-level consumer price index. The wholesale price index on the basis of which the Government of India makes its inflation statements, may not accurately reflect the actual decline in the purchasing power of money, as measured, say, by rises in prices of alternative stores of value like land. The index includes artificially low administered or subsidized prices for petroleum, cereals, and electricity. To the extent these prices may be expected to move towards international equilibrium prices, the index contains a strong element of deferred inflation. One urgent task for all macroeconomic research in India is construction of reliable price-data indices at both Union and State levels, or at a minimum, the testing for reliability by international standards of series currently produced by Government agencies.

Without reliable macroeconomic information being spread widely through a reasonably well-informed electorate, the Government of India has been able to wash away fiscal budget constraints by monetization and inflation without significant response from voters. The routine method of meeting deficits has become “the use of the printing press to manufacture legal tender paper money”, either directly by paying Government creditors “with new paper money specially printed for the purpose” or indirectly by paying creditors “out of loans to itself from the Central Bank”, issuing paper money to that amount. Every Budget of the Government of India, including the most recent ones of 1996 and 1997, comes to be attended by detailed Press discussion with regard to the minutae of changes in tax rates or tax-collection — yet the enormous phenomena of the automatic monetization of the Government’s deficit is ill-understood and effectively ignored. Historically, a policy of monetization started with the British Government in India during the Second World War, with a more than five-fold increase in money supply occurring between 1939 and 1945. Inflation rates never seen in India before or since were the result (Charts 0000), attended by the Great Famine of 1942/43. Though these were brought down after succession of C. D. Deshmukh as Governor of the Reserve Bank, the policy of automatic monetization did not cease and continues until the present day. Inflation “sooner or later destroys the confidence, not only of businessmen, but of the whole community, in the future value of the currency. Then comes the stage known as “the flight from the currency.” Had the Rupee been convertible during the Bretton Woods period, depreciation would have signalled and helped to adjust for disequilibrium. But exchange-controls imposed during the War were enlarged by the new Governments of India and Pakistan after the British departure to exclude convertible Sterling Area currencies as well. With the Rupee no longer convertible, internal monetization of deficits could continue without commensurate exchange-rate depreciation.

The Reserve Bank was originally supposed to be a monetary authority independent of the Government’s fiscal compulsions. It has been prevented from developing into anything more than a department of the Ministry of Finance, and as such, has become the captive creditor of the Government. The RBI in turn has utilized its supervisory role over banking to hold captive creditors, especially nationalized banks whose liabilities account for 90% of commercial bank deposits in the country. Also captive are nationalized insurance companies and pension funds. Government debt instruments show on the asset side of these balance-sheets. To the extent these may not have been held had banks been allowed to act in the interests of proper management of depositors’ liabilities and share-capital according to normal principles, these are pseudo-assets worth small fractions of their nominal values. Chart 0000 shows that in the last five years the average term structure of Government debt has been shortening rapidly, suggesting the Government is finding it increasingly difficult to find creditors, and portending higher interest rates.

General recognition of these business facts, as may be expected to come about with increasing transparency, would be a recipe for a crisis of confidence in the banking and financial system if appropriate policies were not in place beforehand.

(D) As two last examples, I offer two charts. The first shows the domestic interest burden of the Government of India growing at an alarming rate, even after it has been deflated to real terms. The second tries to show India’s foreign assets and liabilities together – we always come to know what is happening to the RBI’s reserve levels, what is less known or less understood is the structure of foreign liabilities being accumulated by the country. Very roughly speaking, in terms that everyone can understand, every man, woman and child in India today owes something like 100 US dollars to the outside world. The Ministry of Finance will tell you that this is not to be worried about because it is long-term debt and not short-term debt. Even if we take them at their word, interest payments still have to be paid on long-term debt, say at 3% per annum. That means for the stock of debt merely to be financed, every man, woman and child in India must be earning $3 every year in foreign exchange via the sale of real goods and services abroad. I.e., something like $3 billion must be newly earned every year in foreign exchange merely to finance the existing stock of debt. Quite clearly, that is not happening and it would stretch the imagination to see how it can be made to happen.

In sum, then, India, blessed with democratic political traditions which we had to take from the British against their will — remember Tilak, “Freedom is my birthright, and I shall have it” — may still be stuck with a closed society mentality when it comes to the all-important issue of economic policy. There is simply an absence in Indian public discourse of vigourous discussion of economic models and facts, whether at Union or State levels. A friendly foreign ambassador pointedly observed an absence in India of political philosophy. It may be more accurate to say that without adequate experience of a normal agenda of government being seen to be practised, widespread ignorance regarding fiscal and monetary causalities and inexperience of the technology of governance remains in the Indian electorate, as well as among public decision-makers at all levels. Our politicians seem to spend an inordinate amount of their time either garlanding one another with flowers or garlanding statues and photographs of the glorious dead. It is high time they stopped to think about the living and the future.

[1] Renford Bambrough (ed.) Plato, Popper and Politics: Some Contributions to a Modern Controversy, 1967.

[2] Philosophy, Politics and Society, 2nd Series, Peter Laslett & W. G. Runciman (eds.), 1967.

[3] Thucydides, History of the Pelopennesian War, II.40.

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Economic Assessment of India-USA Merchandise Trade 1962-1992

July 27, 1993 — drsubrotoroy

Author’s Note July 2007: This was a study done by me 14 years ago when I was an economic consultant in Washington DC, USA. It emerged from but was independent of the work on India’s exports and exchange-rates I had done as a consultant at the International Monetary Fund. It has not been published before though a few pages were published in an ICRIER study in 1994.

An Economic Assessment of India-United States Merchandise Trade

by Subroto Roy1]/

July 1993

1. Introduction

The aim of this study will be to give an economic assessment of the long-run trends in merchandise trade between the United States and India over the period 1962-1992.

Two basic facts have governed the long-run path and pattern of India-United States merchandise trade. One has to do with the relative decline and growth of the Indian and American economies respectively since the Second World War. The other has to do with the trade-regimes which have prevailed in each country.

On the American side, the market-based principles which are supposed to govern the United States economy have been in practice egregiously compromised by American protectionism of the domestic textiles and clothing industries — key sectors in which India and other countries of the subcontinent have held some traditional comparative advantage as exporters in the world economy. On the Indian side, the Indian economy has been egregiously distorted for decades by what can be characterized only as failed economic policies ever since the Second Five Year Plan.

Sections 2-4 briefly describe aspects of this historical and institutional background to the merchandise transactions between the two countries. Section 2 indicates the asymmetry which has come about in the relative positions of India and the United States in the world economy. Section 3 outlines the main features of American protectionism with respect to textiles and clothing. Section 4 outlines the main distortions of the trade and payments regime which has prevailed in India with respect to exports from the United States and other countries.

Sections 5 and 6 then examine the major trends in American imports from India and the major trends in Indian imports from the United States respectively. Section 7 summarizes the findings and raises some questions for policy-discussion.

Tables in the text and the Appendix give the data supporting the thesis of the study. Table 2.1. indicates the local and global sizes of the Indian and other subcontinental economies. Tables 5.1 and 5.2, reproduced from Safadi & Yeats (1993), describe the destination of the subcontinent’s exports and product composition to North America specifically. Table 5.3. describes the nominal and real changes in major Indian exports to the USA from 1962-1991. Table 5.4 and Chart 5.1. describe the changing market-share of India and Pakistan in certain key import-markets in the USA and Britain between 1962-1991. Table 5.5. indicates real growth of the subcontinent’s exports of clothing to major industrial countries in recent years. Tables 6.1-6.3 describe the major trends in American exports to India between 1962-1991 at current prices, while Table 6.4. describes the nominal and real changes in major American exports to India during the period.

Finally, for purposes of future research, Tables A.1 and A.2 in the Appendix give detailed United States Commerce Department data of all India-United States merchandise trade in the current period 1989-1992.[2]/

2. Relative Decline and Growth

Since the Second World War, India has drastically declined from moderate to insignificant size as a trading power in the world economy, while the United States has grown to become the predominant national economy in world trade and payments.

India’s precipitous decline can be indicated by a few examples.

In the era 1757-1947 “India was unquestionably one of the great trading nations of Asia”[3]/, indeed of the world economy as a whole. While precise calculations cannot be made of the costs and benefits of British influence in India during this time, it is clear that the Indian economy both gained from British activity in promoting new products, manufactures, investment and infrastructure in the country, as well as lost from iniquitous commercial policies, taxation and imperial charges imposed by the British Government.

Britain was the world’s largest economy and India is reported to have been the single largest destination of British exports.[4]/ Germany, the world’s fastest growing economy, received as much as 5 percent of its total imports from India in 1913, and sent 1.5 percent of its exports to India, making India the sixth largest exporter to Germany (after the USA, Russia, Britain, Austria-Hungary and France) and the eighth largest importer from it (after Britain, Austria-Hungary, Russia, France, the USA, Belgium and Italy.)[5]/ Throughout this era, the Indian economy generally showed an export surplus on merchandise account, and an excess demand only for precious metals on capital account.

India’s share of world exports were an estimated 2.5 per cent in 1867/68, 3.4 percent in 1880, 4.1 percent in 1890, 3.7 percent in 1897 and 4 per cent in 1913.[6]/ As late as the mid-1950s, just before the onset of the Government of India’s Second Five Year Plan, India could have been still considered a significant trading power with a share of 2 percent of world exports and a rank of 16 in the world economy (following the USA, Britain, West Germany, France, Canada, Belgium, Holland, Japan, Italy, Australia, Sweden, Venezuela, Brazil, Malaya and Switzerland).[7]/

Today the combined shares of India and all other countries of the subcontinent together amount to about 0.8 of 1 percent of world exports, India’s share being 0.54 of 1 percent. As can be seen from Table 2.1, the subcontinent accounts for just 6 percent of Asia’s total exports to the world, of which the Indian economy accounts for about two thirds. By way of comparison, Malaysia on its own accounts for 6.5 percent of Asia’s total exports and almost 0.9 of 1 percent of world exports. More poignant perhaps has been India’s loss of share of manufactured exports relative to other developing countries. Of 11 major developing countries (including Korea, Taiwan, Singapore, Hong Kong, Argentina, Brazil, Chile, Mexico, Israel and Yugoslavia), India’s share of the total manufactured exports of these countries fell from a dominant 65 percent in 1953 to 51 percent in 1960 to 31 percent in 1966 to 10 percent by 1973.[8]/

Other indicators of India’s loss of export competitiveness appear in the decline of traditional exports like textile manufactures and tea. India’s textile manufactures were legendary for centuries but have lost ground steadily. As late as 1962-1971, India held an average annual market-share of almost 20 percent of all manufactured textile imports into the United States. This fell to 10 percent in 1972-1981 and to less than 5 percent in 1982-1991. India’s share of Britain’s imports of textile manufactures has fallen from 16 percent in the early 1960s to less than 4 percent in the 1990s. This decline has been due in part to American and European protectionism of domestic textiles, and in part to Indian economic trade and exchange-rate policies.

In case of tea, India and Sri Lanka once dominated world exports but have both lost competitiveness rapidly to other exporting countries, especially Kenya, Indonesia and Malawi. Sri Lanka’s market-share of total British tea imports fell from 11 percent in 1980 to 7 percent in 1991 while India’s share of the same market has fallen even more drastically from 33 percent in 1980 to 17 percent in 1991.

Altogether, India, with the world’s second largest population, has now become the 31st largest exporting country in the world economy. Total Indian exports of $18 billion in 1990 were lower in absolute terms than the exports of China and every newly industrializing country in East and South East Asia; Brazil, Venezuela, South Africa, Saudi Arabia, and every country in West Europe and North America except Portugal, Greece and Iceland.[9]/ In proportion to India’s great size, the ranking would be far more adverse.

The basic asymmetry in analyzing India-United States trade is indicated by the fact that during the same period as India’s precipitous decline, the United States has grown to become the single largest national economy in the world.

The shares of the United States (and Britain respectively) in world exports were 12 percent (20 percent) in 1880; 14 percent (16 percent) in 1900; 13 percent (15 percent) in 1913; and 12 percent (18 percent) in 1937.[10]/ After the Second World War and the decline of the British economy, the United States unambiguously became the world’s predominant national economy. The United States was the keystone of the international monetary system following the Bretton Woods Conference in December 1945. At the same time, American exports accounted for as much as 20 percent of world exports in the 1950s, decreasing to 12 percent by the 1990s following the recoveries of Germany and Japan and the high performances of some East and South East Asian economies.[11]/

The growing asymmetry in the positions of India and the United States as exporting economies may be summarized by their respective shares in world exports. The ratio of India’s share in world exports to the U. S. share of world exports was 1:3 as of 1913, which became 1:10 as of 1955, and has become 1:24 as of 1990. Such an asymmetry may be expected to be an implicit factor explaining the course of bilateral economic discussions between the Governments of the two countries, as well as transactions between private parties.

3. American Protectionism in Textiles and Clothing

The second basic fact governing the path and pattern of India-United States trade has had to do with the administration of economic policy in each country.

According to the market-based principles which are supposed to govern the United States economy, American demand for Indian imports would have been driven solely by private sector demand conditions in the U. S. economy. The United States Government would not have been expected to intervene in limiting the value of the potential contracts made between private American importers and private Indian exporters. The main factors affecting American demand-decisions for Indian exports would then have been identified as relative costs, and the preferences and income-levels of American consumers.

That is, by textbook economic principles, the main factors affecting demand-decisions regarding American imports from India would have been identified as:

(a) the cost and quality of an Indian product relative to similar products from alternative suppliers including domestic producers;

(b) the exchange-rate of the Indian rupee with respect to the United States dollar;

In practice, volume restrictions imposed by the United States Government to protect domestic producers have been critical factors determining the pattern of exports from India and other developing countries to the United States. This has hit hardest via the so-called “Multi-Fibre Arrangement” (MFA) affecting textiles and clothing, the two key export sectors of India and other countries in the subcontinent.

The roots of this aspect of American protectionism are to be found in the early 1960s, in what was supposed to be a temporary short-term measure to protect the United States textile and clothing industry. Instead of imposing global protective quotas under the GATT with respect to all textile and clothing exporters, the United States (and European Community) chose to discriminate in a country-specific manner against imports of particular products from particular countries. A possible explanation of why global quotas were not used is that while the United States (and Europe) did not want to invite trade conflicts with major trading partners, no similar reluctance was called for with respect to smaller trading partners in the developing world.

Exporters like India and the other countries of subcontinent have had little alternative but “sheer capitulation to far stronger parties in world trade”[12]/. The MFA as administered in practice by importing countries has been so complicated and lacking in transparency that it has made “precise identification of the ex ante effective quotas virtually impossible”.[13]/ Divisiveness among the exporting countries has been inevitable, as each exporter has effectively faced in bilateral negotiations something like a large discriminating monopsonist.

The distortions caused by the MFA have been well-recorded as follows:

“The most efficient suppliers always make best use of the prevailing market conditions. The irony of discriminatory protectionism [like the MFA restrictions] is that good performance is punished. When a supplier shows a potential in a market, its most promising products are covered by quotas. Emerging suppliers usually start with a low coverage ratio and utilization rate… If they perform as expected, they soon hit the quota ceilings in those limited goods. They can move into new products, although these will also become subject to restrictions. Growth of quota ceilings do not catch up with the expansion of successful suppliers’ shipments, and product diversification is more than compensated by imposition of restrictions on the merging products. The moral of the story is that it is not only the exporters of the established suppliers who come under binding constraints. The newcomers, who might to some extent benefit from restrictions on the major suppliers, so find themselves pressed; the more successful they are, the faster and tighter they are embraced by the MFA.”[14]/

From the point of view of reforming the system, what may be more significant is that protective volume restrictions imposed by the MFA damage economic efficiency and welfare in the importing country.

The domestic United States textile industry produces very high quality goods, and has the advantage of close integration with domestic sources of raw materials and the domestic market. Free competition with foreign imports would have reduced costs and achieved even higher standards of quality for the benefit of the American consumer. Restrictions on foreign imports in the form of selective quotas have effectively reduced competition and tended to lower quality and raise costs for the American consumer.[15]/

In short, although the ultimate sources of demand-decisions for Indian products are private businesses and households in the United States economy, the protection of textiles and clothing has transferred potential benefits from the American consumer in the direction of powerful domestic producer lobbies, and in the process reduced the potential value of imports from India and other countries to the American market.

4. Distortions of India’s Trade and Payments

On the Indian side, Indian demands for the world’s exports have been, until the 1990s, completely determined by the centralized economic regime of the Government, which made only indirect reference to the Indian public. Until the start of the current reforms in 1991, Indian commercial and exchange-rate policy was fundamentally based on the official confiscation of foreign exchange earnings of export and hard currency earning sectors, official licensing of imports, and rationing of foreign exchange disbursements according to official priorities.

The roots of this system are to be found in the import quotas imposed on the Indian economy by the British Government in 1940 to conserve foreign exchange and save shipping space on behalf of Britain’s effort in the Second World War, while control of hard currency expenditures were implemented over the whole Sterling Area. All imports were under direct quantitative control by 1942 on the basis of “essentiality” and non-availability from indigenous sources. War needs over-ruled others, and consumer goods were heavily discriminated against, hence favouring domestic production. In 1945, the British Government took a liberalizing step of placing consumer goods imported from Britain into India on open general license. The Government accepted that “the pattern of post-war trade should not be dictated by perpetuation of controls set up for purely war-time purposes”. In 1946 there was pressure for further liberalization of consumer goods in view of large foreign exchange balances accumulated due to India’s war contributions, and foods and consumer goods were placed on universal open general license. Within months, however, by March 1947, there was an end to liberalized imports, and the importation of gold and 200 “luxury” goods were banned. Only a few “essential” goods remained on the open list.[16]/

This experience set the pattern which was followed by the independent governments in India and elsewhere in the subcontinent. Quantitative restrictions on imports and the resulting quantitative exchange-control became primary instruments of Indian commercial policy. Instead of relying on the subtleties of decentralized market flows guided by price-measures like tariffs or exchange-rate changes, economic policy-makers in India and neighbouring countries tended to prefer quantitative actions which could be imposed, reduced or removed by administrative fiat.

With respect to foreign-exchange, from 1940 until when the Indian rupee moved towards market-determination and convertibility on current account in 1992/1993, the general tendency of Indian economic policy-makers was to view the exchange-rate not as an implicit price of the demand for foreign monies relative to domestic money, but as one among a number of administered prices open to be utilized by the Government for its purposes. Foreign exchange earnings of export and other hard-currency earning sectors were confiscated in exchange for Indian rupees at the administered rate, contributing to the thriving parallel foreign exchange market which has been the external trade and payments sector of the large parallel or “black” economy. Gross overvaluation of the rupee may have occurred during this period, contributing to long-term damage to India’s export competitiveness in the world economy.

Foreign exchange obtained from the earnings of exporters were then disbursed by rationing in the following order of precedence: first, to meet the Government’s debt repayments to international organizations and the Government’s expenditures abroad in conduct of its foreign policy like maintenance of embassies and purchase of defence sector imports; secondly, to pay for imports of food, fertilizers and petroleum; thirdly, to pay for imported inputs required by Government-owned firms; fourthly, to pay for import demands of those private firms which had been successful in obtaining import licenses; lastly, to satisfy demands of the public at large for purposes like travel abroad.

For the entire period until the 1990s, India and other countries of the subcontinent have had trade and payments regimes characterized by extensive controls, subsidies, barriers and licensing. Intricate systems of import-licensing based on “essentiality” and “actual user” criteria have been in place in pursuit of generalized import-substitution. In accordance with apparent goals of national economic planning, major industries were nationalized, and these have been leading consumers of imports obtained via administrative rationing of foreign exchange earnings obtained from export sectors. As consumer goods’ imports have been restricted most severely, the predicted consequence has been diversion of the domestic private sector towards production of consumer goods in the large highly protected domestic markets that have resulted, leading to quasi-monopolistic profits and finance of the parallel or “black” economy with its thriving foreign exchange sector. The restriction of consumer goods imports and gold imports has also caused profitable smuggling sectors as well as noticeable corruption in the integrity of customs services.[17]/ In sum, the patterns which have emerged of Indian exports to the USA and American exports to India have been determined by decisions made in quite different institutional contexts of the two economies:

— While American demand-decisions for Indian exports have tended to be decentralized and guided by usual factors affecting market demand, these decisions have been egregiously distorted by the protection of the domestic American textile and clothing industries.

— Indian demand-decisions for American exports have been mostly centralized within the agencies and departments of the Government of India, with only indirect reference made to the Indian public.

5. Analysis of United States Imports from India

The traditional exports of the Indian subcontinent were cotton and cotton goods, foodgrains, jute and jute manufactures, leather and tea, with destinations in Europe, Japan, the United States and China.[18]/ Today the main export markets for India and the neighbouring economies are the European Community, North America and Japan. Among the main exports have been clothing, textiles, leather goods and agricultural materials. Polished diamonds and petroleum have also become major export sectors in India since the 1980s. Tables 5.1. describes the destination and value of the exports from India and neighbouring economies to the rest of the world. Table 5.2. describes the product composition of exports from India and neighbouring economies to North America specifically.[19]/

Focusing on Indian exports to the United States in particular, Tables 5.3.1-5.3.4 describe the nominal and real changes of the four major Indian exports to the United States over the entire period 1962-1991.

In the first ten-year period under consideration, 1962-1971, the dominant Indian export to the United States was textile yarn and fabric (SITC 65). The remaining exports were mainly agricultural products, namely, tea, coffee & spices (SITC 07), fruit and vegetables (SITC 05), sugars (SITC 06), fish and preparations (SITC 03), and crude agricultural matter (SITC 29).

In the next ten years, 1972-1981, this mix was transformed by growth of exports of polished diamonds (SITC 66) and clothing (SITC 84), which along with textile manufactures have dominated Indian exports to the United States ever since. In the most recent decade 1982-1991, the same mix has continued to dominate with the significant addition of petroleum and products (SITC 33), petroleum being the single largest import from India reported by the United States to the U.N. data-base in each year between 1982 and 1985.[20]/

Textile manufactures (SITC 65) were the dominant export until 1978 and have been in the top four throughout the period. But there has been steady decline in real terms. The decline has been from an annual average, in constant 1990 U. S. dollars, of $740 million (c.i.f) in 1962-71, to $406 million in 1972-1981, to $285 million in 1982-1991. As indicated by Table 5.4 and Chart 5.1, India has steadily lost market-share in total textile imports into the United States, dominating the market with an average annual market-share of 20 percent in 1962-1971, reduced to 10 percent in 1972-1981, reduced further to less than 5 percent in 1982-1991. The imposition of American quotas has undoubtedly affected this loss in part.

Clothing (SITC 84) during the same period has shown high real growth, going from an annual average, in constant 1990 U. S. dollars, of $7 million in 1962-1971 to $178 million in 1972-1981, to $538 million in 1982-1991. Average annual market-share of total U. S. imports of clothing has gone from 0.10 percent in 1962-1971, to 2.11 percent in 1972-1981, to 2.34 percent in 1982-1991. While this has been small growth from the point of view of the U. S. market, the movement has been large relative to initial conditions from the point of view of Indian exporters. As shown in Table 5.5, there has been large-scale real growth of clothing from all countries of the subcontinent to the major industrial countries especially in the decade 1982-1991. Not only has there been remarkable growth in real terms of clothing exports from the entire region, but there has been relatively higher growth in Pakistan compared to India, and higher growth in Sri Lanka and Bangladesh compared to Pakistan. It is likely that some of the growth from Sri Lanka and Bangladesh has been derived from Indian capital investment in those countries to make use of their allocated quotas in U. S. protectionism. It is possible also that there has been substitution on the part of Indian exporters from textiles towards clothing in response to non-tariff barriers.

Overall, the story of Indian exports to the United States may be summarized by saying that while the long-run product composition has changed over thirty years, it has not done so in ways that had been expected or hoped for by India’s national economic plans. India has not become a major industrial power or even a significant small exporter of industrial goods in the world economy, as had been wished for by the framers of the Second Five Year Plan in the 1950s.[21]/

Textile manufactures, clothing, polished diamonds and petroleum account for approximately 70 percent of Indian exports to the United States.

Traditional exports like textiles and tea have seen drastic declines. While it is not clear whether clothing is traditional or non-traditional, there has been remarkable growth in that sector in the 1980s. Petroleum exports were not anticipated in India’s national plans yet dominated the short export boom which seems to have been registered in the early 1980s. Polished diamonds have shown spectacular growth as a result of Indian entrepreneurship at its best; however, value-added is significantly lower in view of the high import value of uncut diamonds imported via Belgium from South Africa. Although these are classified as “gems and jewelry”, to the extent the uses of diamonds have been industrial in the metal-working industries of the main importing countries of the USA, Germany and Japan, future growth of this sector may be affected by, for example, large expected sales of industrial diamonds by the United States Defense Department from strategic reserves held during the Cold War.

6. Analysis of Indian Imports from the United States

We turn next to examine India-United States merchandise trade from the other side.

In view of India’s commercial and exchange-rate policies described in Section 2, diverse factors appear to have affected the Government of India’s demand for American exports, including agricultural fluctuations, the Green Revolution and the state of international political relations.

Tables 6.1-6.3 describe the main trends to be detected in Indian imports from the United States. In the first ten-year period under consideration, 1962-1971, a dominant place in American exports to India was taken by food imports, mainly cereals like wheat, rice and corn (SITC 04). American institutions especially the Ford and Rockefeller Foundations played key roles in the mid 1960s in persuading India’s Food and Agricultural Minister, C. S. Subramaniam, to promote adoption of high-yielding varieties of wheat and rice in selected areas of the country. This went against the advice of most Indian economists at the time[22]/, and in fact against the interests of America’s own farm lobbies as well.

Two direct results of this decision can be noticed in the trade-data reported in Tables 6.1-6.3. As is well-known, India was able to increase domestic food production spectacularly, permitting the reduction of cereal imports from the United States. Instead, India began since the mid-1960s to make large imports from the United States of manufactured fertilizers (SITC 56.2), which remain the single largest American export to India today at three-level SITC. American advice and assistance in stimulating the Green Revolution in India has certainly been a signal achievement of India-United States economic cooperation in the past.

The decline in Indian imports of American cereal in nominal and real terms can be seen in Table 6.4. In constant 1990 US dollars, average annual cereal imports have declined from $630 million in 1962-1971, to $295 million in 1972-1981, to an estimated $160 million in 1982-1991. Although the trend in Indian cereal output has been towards greater self-sufficiency, a random element still appears depending on the vagaries of the monsoon and the Government’s management of the country’s food-stocks. This is indicated by the large surges in cereal imports of 1975, 1976, 1983 and as recently as 1988.

Other than foods, a large component of American exports to India has been machinery and transport equipment, including aircraft and aircraft parts. Table 6.4. indicates that during the 1970s when India-United States political relations were not at their best, a distinct fall in real terms can be discerned of Indian imports of American machinery and transport equipment. Indian quotas for textile imports into the United States also likely suffered from weak political relations at the time.

Since the 1980s, American manufactured exports have started to climb again. In constant 1990 U. S. dollars, average annual imports of American machinery and transport into India was $717 million in 1962-1971, down to $456 million in 1972-1981, rising again to an estimated $673 million in 1982-1991.

The sporadic aspect to some of the Indian demand for American exports may be noticed also in case of the sudden large increases in imports of fixed vegetable oil (SITC 42) between 1977 and 1980, and in imports of cotton fibres (SITC 26) in 1977 and 1979.[23]/

In the period 1982-1991, the composition of Indian imports from the United States has seen some change with the growth of scrap iron ore and waste (SITC 28.2); precision instruments (SITC 87.4); pulp and waste paper (SITC 25); crude fertilizers (SITC 27); chemical elements and compounds (SITC 51), and plastics (SITC 58). Along with manufactured fertilizers and machinery and aircraft, these presently dominate United States exports to India.

As reported by the United States Commerce Department, India’s restrictive trade barriers in the past led to many American companies identifying potential export items but simply giving up in the face of quantitative restrictions and steep tariffs. Following the start of the economic reform process in July 1991, the United States has expressed the expectation that greater openness and transparency in the Indian trade-regime will lead to a significant increase in trade and investment. Lower Indian tariff barriers are expected to benefit a number of American exporters who presently face the tariff levels indicated: fertilizers (60 percent); wood products (110 percent); ferrous waste and scrap (85 percent); computers, office machinery and spares (95 percent); soda ash (over 50 percent); heavy equipment spares (80 percent); medical equipment components (40 percent); copper waste and scrap (50 percent); and agricultural products (135 percent).

7. Prospect

Economics, when candidly treated, is indeed the dismal science, and any candid assessment of India-United States merchandise trade may have to conclude that there is no compelling reason at present to expect large movement away from past trends.

In the opinion of the author, sources of significant new growth in Indian exports to the United States, and indeed to the rest of the world, do not seem to be easily identifiable.[24]/ While small advances may well be made in new sectors by Indian exporters, the great bulk of Indian export earnings from the United States market will continue to be accounted for by textile manufactures (SITC 65), clothing (SITC 84), polished diamonds (SITC 66) and petroleum and products (SITC 33).

Of these, diamonds and petroleum may be expected to face fluctuating demand conditions, while textiles and clothing will continue to face high non-tariff barriers. Given the political strength of the domestic textile and clothing industry in the United States, such a situation may be nearly permanent, or at least no change can be expected in the near future. The fact that the United States remains the single largest trading partner for India, while India in 1992 was the USA’s 36th largest export market (down from 25th in 1986) accounting for less than 1 percent of total American trade and barely 3 percent of American trade with all of Asia, makes it inevitable that a disparity of economic power will affect the course of bilateral economic relations.

Successful commerce depends on intangible quantities like trust, reliable information and contacts between individual contracting parties. The declines in real terms which seem to have occurred in India-United States commerce in the past have led to wastage of this kind of informational capital and commercial trust. American importers and exporters have established new relations with others among India’s competitors in East Asia and Latin America. For Indian entrepreneurship to win back old customers and investors or win new ones will be extremely difficult. The radical changes in Indian economic policy of the last few years have at least reduced Government-imposed barriers towards this — vindicating the tiny minority of critics, starting with Shenoy, who had more or less correctly diagnosed the folly of India’s economic policies now abandoned. As in Kalidasa’s story of the man cutting the branch of the tree on which he sits, the cutting at least appears to have ceased for the time being.

From the point of view of American exporters to India, prospects may seem more promising in view of the breakthrough which has been achieved in Indian economic policy-thinking in the last few years. The large potential scope for expansion of India-United States trade depends squarely on (a) the deepening of Indian reforms; and (b) removal of the egregious American protectionism in textiles and clothing.

American exports to an enormous market-based Indian economy founded on principles of private property and free exchange, with democratic political institutions and an open society (and assuming political stability), will come to depend eventually on the price and quality of American products and the income-levels of Indian importers. But these ultimate factors can only be improved by the growth of Indian exports in turn. Large-scale real growth of exports from India are necessary not only if the Indian market is to generate effective demand for foreign imports, but even to finance the large external borrowings on capital account on which the entire adjustment depends. It is in such a context that the constraints on Indian textiles and clothing exports imposed by powerful domestic producer interests in the importing economies have to be seen.

The most promising source of export earnings for India may be in fact via a multilateral forum if there could be a successful completion of the Uruguay Round trade talks. It has been estimated that with a 30 percent reduction in tariffs and non-tariff barriers in the USA, Europe and Japan, India’s exports to these markets would grow by more than $1.8 billion over the actual 1991 exports of $5.6 billion. With a 50 percent liberalization, the growth would be almost $3 billion more than the actual 1991 figure.[25]/

Although completion of the Uruguay Round itself may be a subject of wishful thinking, Indian external economic policy would be well-advised to base itself on the principle of increased world trade and access to markets, including reduction of barriers to movement of capital and labour.

References

Balassa, Bela (1978), “Export Incentives and Export Performance in Developing Countries: A Comparative Analysis”, Weltwirtschaftliches Archiv 114.

Balassa, Bela (1980), The Process of Industrial Development and Alternative Development Strategies Princeton Essays in International Finance 141.

Bhagwati, Jagdish & Padma Desai (1970) India: Planning for Industrialization, OECD, Paris.

Bhagwati, Jagdish & T. N. Srinivasan (1975) Foreign Trade Regimes and Economic Development: India National Bureau of Economic Research, New York.

Chaudhuri, K. N. (1982) “Foreign Trade and Balance of Payments 1757-1947” in The Cambridge Economic History of India edited by Dharma Kumar, Cambridge University Press.

Cline, W. (1987) The Future of World Trade in Textiles & Apparel, Inst. for Int. Economics, Washington D. C.

Desai, Ashok (1991), “Output and Employment Effects of Recent Changes in Policy”, in Social Dimensions of Structural Adjustment in India, ILO, New Delhi 1991.

Erzan, Refik, Junichi Goto & Paula Holmes (1989) “Effects of the Multi-Fibre Arrangement on Developing Countries’ Trade”, World Bank International Economics Department WPS 297.

Friedman, Milton (1992) “A Memorandum to the Government of India 1955”, in Subroto Roy & William E. James (eds), Foundations of India’s Political Economy: Towards an Agenda for the 1990s, Sage.

Hamilton, C. B. (1988), “Restrictiveness and International Transmission of the New Protectionism”, in R. Baldwin, C. B. Hamilton and A. Sapir (eds), Issues in US-EC Trade Relations, University of Chicago Press.

Hopper, David (1978) “Distortions of Agricultural Development Resulting from Government Prohibitions” in T. W. Schultz (ed.) Distortions in Agricultural Incentives, Indiana University Press.

Hufbauer, Gary, D. Berliner and K. Elliott (1986) Trade Protection in the United States: 31 Case Studies, Institute for International Economics, Washington D. C.

International Monetary Fund (1992) International Financial Statistics.

Keynes, John Maynard (1920) The Economic Consequences of the Peace, Harcourt, New York.

Primo Braga, C. & Alexander Yeats (1992) “How Minilateral Trading Arrangements May Affect the Post-Uruguay Round World”, World Bank International Economics Department WPS 974.

Roy, Subroto (1984) Pricing, Planning and Politics: A Study of Economic Distortions in India, Institute of Economic Affairs, London.

Roy, Subroto (1990) “Draft Memorandum on India’s Agenda 1990-2000: Notes on Policy for the First 18+ Months of a 5-Year Term”, a confidential memorandum to Rajiv Gandhi, October 26 1990. (Published versions have appeared as “A Memo to Rajiv, I, II, III”, The Statesman July 31-August 2 1991).

Roy, Subroto (1993) “Exchange Rate Policies in South Asia”, unpublished study, International Monetary Fund.

Safadi, Raed and Alexander Yeats (1993) “NAFTA: Its Effect on South Asia”, World Bank International Economics Department Working Paper.

Shenoy, B. R. (1955) “A Note of Dissent”, Papers Relating to the Formulation of the Second Five Year Plan, Government of India Planning Commission, New Delhi.

Sims, Holly (1988), Political Regimes, Public Policy & Economic Development: Agricultural Performance and Rural Change in Two Punjabs Sage.

Srinivasan, T. N. (1992) “Planning and Foreign Trade Reconsidered”, in Foundations of India’s Political Economy edited by Subroto Roy & William E. James, Sage.

Tarr, D. and M. Morkre (1984) Aggregate Cost to the United States of Tariffs and Quotas on Imports, United States Federal Trade Commission.

Tomlinson, B. R. (1992) “Historical Roots of Economic Policy” in Foundations of India’s Political Economy edited by Subroto Roy & William E. James, Sage.

United Nations (1955) Yearbook of International Trade Statistics.

World Bank (1992) Global Economic Prospects and the Developing Countries, Washington D. C.

[1]/ …..The author is a consultant economist in the Washington area. His publications include Philosophy of Economics (Routledge 1989), and (co-edited with W. E. James), Foundations of India’s Political Economy: Towards an Agenda for the 1990s and Foundations of Pakistan’s Political Economy: Towards an Agenda for the 1990s (Delhi & Karachi: Sage & OUP 1992). Correspondence may be addressed to…. Va. 22209.

[2]/ This data is made available by the kind courtesy of John Simmons of the United States Commerce Department.

[3]/ Chaudhuri (1982).

[4]/ Keynes (1920, p.17).

[5]/ Keynes (1920 p.197), table on German trade by value, origin and destination.

[6]/ Author’s estimates.

[7]/ United Nations (1955).

[8]/ Balassa (1978 p. 39), Balassa (1980 p.16).

[9]/ IMF (1992).

[10]/ United Nations (1955).

[11]/ John Maynard Keynes’s description of the Versailles Conference is perhaps the most graphic picture of America’s rise to predominance over Europe since the end of the First World War: “[T]he realities of power were in [President Woodrow Wilson’s] hands. The American armies were at the height of their numbers, discipline, and equipment. Europe was in complete dependence on the food supplies of the United States; and financially she was even more absolutely at her mercy. Europe not only already owed the United States more than she could pay; but only a large measure of further assistance could save her from starvation and bankruptcy.” Keynes (1920, p.38).

[12]/ Erzan et al. (1989) p.38.

[13]/ Erzan et al (1989), p.1.

[14]/ Erzan et al (1989, p.17)

[15]/ On the economic costs incurred by importing countries from protecting their domestic textile sectors from import competition, see for example Erzan et al (1989), Cline (1987), Hamilton (1988), Hufbauer et al (1986), and Tarr & Morkre (1984).

[16]/ Tomlinson (1992)

[17]/ The multiple distortions of domestic and external sectors of the economy caused by these procedures have been documented and analyzed by a number of observers. Early advocacy of liberal economic policies and a market-determined rate for the rupee came from Shenoy (1955) and Friedman (1992). The treatment of B. R. Shenoy, as a result of his prescient and singular critique of conventional majority-views at the time, remains a permanent disgrace upon the Indian economics profession. Friedman’s statement was similarly neglected, and remained unpublished and undiscussed among Indian economists from 1955 to 1992. Later advocates of similar positions include Bhagwati & Desai (1970); Bhagwati & Srinivasan (1975) and Roy (1984). See also Desai (1991), Srinivasan (1992), and Roy (1993).

[18]/ Chaudhuri (1982). Britain (23.5 per cent of total value), Japan (10.8 per cent), the United States (9.4 per cent), Germany (6.5 per cent), China (6.0 per cent) and France (5.0 per cent). The value composition of exports was: raw cotton (21.0 percent), cotton goods (1.6 percent), foodgrains (13.5 percent), raw jute (5.8 per cent), manufactured jute goods (14.5 per cent), hides and skins (8.1 per cent) and tea (10.7 per cent). All figures for 1930-1931.

[19]/ Tables 5.1 and 5.2 are reproduced from Safadi & Yeats (1993) with the kind permission of the authors.

[20]/ A discrepancy exists in the data as Indian data to the UN do not report any exports of petroleum to the USA or France in these years, when both the USA and France report receiving such imports as the top import from India. It is possible for an exporter to export without knowing the final destination of a product.

The author has not been able to determine if India’s petroleum exports were of crude oil, e.g. because of lack of refining capacity in India; or of non-crude classified as SITC 33.4. The United States Embassy in New Delhi in the mid 1980s suggested the former; latest U. S. Department of Commerce data suggest the latter.

[21]/ Developing countries among the world’s 25 largest exporters of high-tech manufactured goods as of 1988, with their share of world high-tech exports and value of high-tech exports were: Taiwan (3.2 percent, $16.6 million); Korea (2.9 percent, $14.7 million.); Singapore (2.4 percent, $12.5 million.); Hong Kong (1.6 percent, $8.4 million.); Mexico (1.4 percent, $7 million.); Malaysia (1.2 percent, $6 million.); China (1.1 percent, $5.4 million.); Brazil (0.6 percent; $3 million.); Thailand (0.4 percent; $1.9 million.); from Braga & Yeats (1992, p.29).

[22]/ See Hopper (1978) for an eyewitness account of how Subramaniam was prevailed upon to go against the advice of his advisers, which he did, leading to the largest seed transfer in history of 18,000 tons from Mexico to India. Also Sims (1988, p. 38).

[23]/ India buying cotton fibres from the world market and Pakistan selling cotton fibres to the world market is one of the ironies of the economic division of the subcontinent.

[24]/ The prediction made in Roy (1990) of an export boom following economic reforms has proven to be erroneous, in spite of the progress made in changing the broad direction of Indian economic policy. This was a memorandum dated October 26 1990 written at the invitation of the late Rajiv Gandhi then Leader of the Opposition, which contributed to the Congress Party’s economic manifesto in 1991. Mr. P. Chidambaram, former Commerce Minister in the Narasimha Rao Government, received the memorandum in hand from Mr. Gandhi in late October 1990. He has recently said that the economic reform program “was not miraculous” but was in fact based on the rewriting of the Congress manifesto when the Congress Party was in Opposition. “We were ready when we came back to power in 1991”. News India April 30 1993, p. 33.

[25]/ World Bank (1992, Appendix C2, p.52). Safadi & Yeats (1993) estimate that India may have lower exports to North America by up to $17 million dollars from trade-diversion towards Mexico as a result of the North American Free Trade Association. They affirm the overwhelming importance for India of the gains from the Uruguay Round in response to regionalism.

Posted in Economic Policy, India's Economy, India's Exports, India's Foreign Trade, India-United States business, India-USA Merchandise Trade, US in World Trade, US protectionism, USA, United States, World Trade and Payments. Leave a Comment »

Path of the Bangladesh Taka 1972-1993

June 4, 1993 — drsubrotoroy

Path of the Bangladesh Taka 1972-1993

Subroto Roy 1993

Note: This was part of a 1993 study I did as a consultant at the IMF in Washington in a project on exchange-rates and exports of “South Asian” countries. The IMF is not responsible for its content.

“Bangladesh, being the former East Pakistan, shared the same currency and trade-policy history as the rest of Pakistan until the Bangladesh taka was created on January 1 1972. Pakistan rupees in circulation remained legal tender until replaced by the taka 1:1 beginning March 4 1972.

The taka was set at par with the Indian rupee, and fixed to sterling at Tk 18.9677, or Tk 7.2797 to the United States dollar. The path followed by the taka was determined partly by the initial value chosen for the new currency in 1972. Given the devastation experienced by the Bangladesh economy from natural disaster, civil war and war in 1969-1971, the initial value chosen for the taka on par with the Indian rupee was in all likelihood unrealistic, even more so to the extent the Indian rupee was itself nominally overvalued at the time.

Since that time, the principal fact about official exchange-rate policy in Bangladesh has had to do with overseas workers’ remittances far exceeding any single sector of merchandise exports as a support for the balance of payments. A multiple exchange-rate system prevailed with a secondary market as an incentive for overseas workers to remit through official channels instead of at parallel or “hundi” market-rates, the spread between the parallel and official channels being exceptionally high for Bangladesh compared to India and Pakistan. IMF technical studies laid the groundwork for abolishment of the multiple exchange-rate practice and the unification of exchange-rates, which was accomplished on March 31 1992.

The path of the official taka is informative as a measure of nominal overvaluation. Since August 1979, the official taka has been pegged within margins to a currency-weighted basket. The taka was adjusted as many as 20 times between October 1980 and January 1982, the official rate being reduced to Tk. 38.4 to sterling or Tk.20.4 per United States dollar. In January 1983, the weights were changed and in March 1985 changed again. On this basis, the nominal effective exchange rate depreciated by 29 percent and the real effective exchange rate by 21 percent between August 1979 and December 1982. From February 1985, exchange-rate policy has with IMF support tried to keep in mind an upper limit on the real effective exchange, the nominal rate declining in one year by 20 percent and the real rate by 22 percent. From the end of 1985 through November 1988, there was further depreciation of 4 percent. In absence of further nominal depreciation, combined with further deterioration of the domestic price-level, the real exchange rate appreciated by 7 percent between November 1988 and April 1989, followed by further appreciation of over 9 percent during May-June 1989. A revised index confirmed the loss of competitiveness, indicating at least 12 percent real appreciation by end June 1989 relative to 1988. From November 1988 to February 1990, the taka remained at Tk 32.27 per United States dollar with the official secondary market 2 percent higher. In 1990 the rates were depreciated six times by a total of 11 percent, corresponding to 8 percent real depreciation. The official taka was at Tk.36.49 per United States dollar as of July 7 1991. Recent Bangladesh exchange-rate policy has seemed to be guided by such considerations, and has not been responsive to regional developments such as changes in the Indian rupee.”

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Path of the Sri Lankan Rupee 1948-1993

June 3, 1993 — drsubrotoroy

Path of the Sri Lankan Rupee 1948-1993

Subroto Roy, 1993

Note: This was part of a 1993 study I did as a consultant at the IMF in Washington in a project on exchange-rates and exports of “South Asian” countries. The IMF is not responsible for its content.

“The Ceylon rupee traded 1:1 with the Indian rupee at the time of Independence and devalued with sterling and the Indian rupee in September 1949 to Rs.4.76 per United States dollar. It was pegged to sterling throughout the Bretton Woods period at that value. Sri Lanka did not respond to the Indian devaluation of 1966 but when sterling devalued in November 1967 from $2.80 to $2.40, the Ceylon rupee was devalued by 20 percent to Rs.5.95 per United States dollar. In May 1968, a dual exchange-rate system was introduced with the official rate of Rs. 5.95 applying to official capital transactions, traditional exports of tea, rubber and copra, and imports of foods, drugs and fertilizers. Other importers and non-traditional exports faced an exchange-rate of Rs. 8.57 per United States dollar, devalued to Rs. 9.23 in June 1969.
Following the end of the Bretton Woods mechanism in August 1971, the Ceylon rupee appreciated because of its peg to sterling. As with India and Pakistan, the link to sterling was soon broken, and in November 1971 the Ceylon rupee was pegged to the dollar, thereby depreciating with the dollar. The peg was at the same official rate of Rs. 5.95 as previously. As with India and Pakistan, it is possible that long-term damage was done to Sri Lanka’s competitiveness relative to other developing countries in the Bretton Woods period by overvalued nominal exchange-rates associated with inward looking trade policies.
When sterling floated in June 1972, Sri Lanka delinked from the dollar and pegged at Rs. 15.60 to sterling, until May 1976 when the rupee was delinked again from sterling and pegged to an undisclosed basket of currencies. In a major reform in November 1977, the multiple exchange-rates were unified and the Sri Lankan rupee was devalued by more than 46 percent to Rs. 16 per United States dollar, which was maintained until the first half of 1980. The rupee depreciated further to Rs. 18.01 per United States dollar by the end of 1980, and to Rs.18.35 by May 1981. Relative to a weighted average of the currencies of Sri Lanka’s major trading partners (including India and Pakistan) the rupee depreciated by 14 percent from November 1977 through July 1980 and a further 10 percent by December 1980. But due to higher Sri Lankan price-level changes, this may have been associated with appreciation of the real exchange-rate.
From August 1983, a formal system was adopted attempting to target the real-exchange rate, by which the rupee would be adjusted periodically depending on domestic price-levels relative to Sri Lanka’s six main trading partners (Britain, the United States, India, Japan, Germany and France). In practice, the Sri Lankan authorities took other factors into account, “most notably exchange-rate movements of the currencies of neighboring as well as competitor countries”. The first half of the 1980s were marked by real exchange-rate appreciation by as much as 30 percent, especially against the currencies of Sri Lanka’s neighbours and competitors including India and Pakistan. In 1985, the rupee depreciated by more than 9 percent in nominal terms and more than 15 percent in real terms, including against India and Pakistan, but this decline did not fully offset the loss of competitiveness in 1981-1984.
Since 1986, the real effective exchange-rate has fluctuated substantially. Between 1986 and mid-1989 it depreciated by over 10 percent, when a large nominal depreciation in September 1989 contributed to further depreciation of the real rate. Subsequently, the real rate appreciated by about 17 percent between late-1989 and early-1991, following which further nominal depreciation contributed to gradual real depreciation through mid-1992.
Technical studies at the IMF laid the groundwork for a floating market-determined exchange-rate for Sri Lanka based on a daily interbank market. Sri Lanka introduced such a system in August 1990, whereby the authorities were to set daily buying and selling rates as intervention points and permit the spot exchange rate to be determined within them. This system began to work effectively with an adequate difference between the intervention points in March 1992. The Sri Lankan rupee, at Rs. 44.6 per United States dollar in December 1991 and Rs. 46 in December 1992, was at Rs. 47.5 in April 1993. The Indian exchange-rate reforms of 1992-1993 have been observed closely by Sri Lankan authorities, and in late March 1993, Sri Lanka removed all remaining barriers to current account convertibility.””

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Path of the Pakistan Rupee 1947-1993

June 2, 1993 — drsubrotoroy

Path of the Pakistan Rupee 1947-1993
Subroto Roy, 1993

Note: This was part of a 1993 study I did as a consultant at the IMF in Washington in a project on exchange-rates and exports of “South Asian” countries. The IMF is not responsible for its content.

“The Pakistan rupee traded 1:1 with the Indian rupee at the time of Independence. As noted, Pakistan chose not to devalue with sterling and the Indian rupee in 1949, which led to the end of the common market which existed with India. Almost six years later, on July 31 1955, Pakistan with IMF approval devalued to Rs.4.76 to the United States dollar, again establishing the same par-value as India.

Pakistan did not respond to the 1966 Indian devaluation although the Pakistan economy had suffered similar shocks, especially the 1965 war with India and natural disasters and civil conflict in East Pakistan. On July 22 1970, a fluctuating tourist rate was introduced, effecting a partial devaluation. Demonetization of bank-notes in June 1971 and the civil conflict leading up to the December 1971 Bangladesh war led to considerable capital flight via the well-developed parallel market where the Pakistan rupee reportedly touched Rs. 25 to the United States dollar.
Following the breakdown of the Bretton Woods mechanism as of August 1971, the official Pakistan rupee began to appreciate because of its peg to sterling. In September, Pakistan like India changed its peg from sterling to the dollar, thereby depreciating with the dollar. But Pakistan stayed at the same rate that had been established since 1955 of Rs.4.76 per United States dollar. As with India, it is possible that in the period 1949-1979 long-term damage was done to Pakistan’s competitiveness relative to other developing countries by highly overvalued nominal exchange-rates associated with an inward-oriented trade regime.
In May 1972, Pakistan implemented a major exchange reform, unifying existing multiple exchange-rates and declaring a new par value of Rs.10 to the United States dollar, which implied a 130 percent nominal devaluation and 62 percent real devaluation. After a small appreciation in 1974, the rupee was maintained at Rs. 9.9 to the United States dollar for the next nine years. However, the real exchange rate appreciated by an estimated 20 percent in the first half of the 1970s, and then depreciated by about 8 percent in the second half of the 1970s. Domestic inflation relative to foreign inflation caused further loss of competitiveness as the real rate appreciated by nearly 10 percent in 1981-1982. Although the authorities were aware of a loss of competitiveness, they were unwilling to devalue the nominal rate for almost a decade.

Faced with a severe balance of payments situation, Pakistan in January 1982 finally abandoned the fixed peg with the United States dollar and pegged to an undisclosed currency basket with the dollar retained as the intervention currency. The rupee was depreciated by nearly 20 percent in 1982-1983 and a further 11 percent in 1983-84, with real exchange-rate depreciations of 11 percent and 4.6 percent respectively. A substantial improvement was recorded in the current account especially on workers’ remittances (accounting for almost the same as the entire merchandise exports of Pakistan) which rose by 30 percent over the 1981-82 level. The nominal depreciation slowed in 1984-85, with slight real rate appreciation. This became reflected in the current account with workers’ remittances showing a remarkable elasticity and falling by almost $300 million. In 1985-86, the nominal exchange-rate was allowed to depreciate at a more accelerated pace.

The influence on Pakistan’s exchange-rate policies of India may be separated into different factors. Pakistan’s initial decision in 1949 not to follow the devaluation of sterling and the Indian rupee was seen by contemporary observers as a statement of national sovereignty by the new country. However, the detrimental consequences of this led six years later to Pakistani devaluation to the same par-value as India at Rs.4.76 per United States dollar. Pakistan did not respond to India’s 1966 devaluation to Rs.7.50 to the United States dollar, and the Pakistani devaluation of 1972 to Rs.10 to the United States dollar was a change of policy specifically in the new circumstances following the 1971 war with India over Bangladesh. The 1972 devaluation was in all likelihood long overdue, since, as already noted, both Pakistan and India may have sustained long-term damage during the Bretton Woods period from overvalued nominal exchange-rates in face of numerous economic shocks, especially natural disasters and wars with one another.

In relation to their mutual hostilities, overvalued nominal exchange-rates in India and Pakistan have been of course conducive to each country’s defence sector imports, although at the cost of mutual loss of competitiveness for export and other hard-currency earning sectors of in the world economy.

Pakistan did not nominally depreciate any further in the 1970s despite real exchange-rate appreciation. The delinking from the United States dollar and the start of active depreciation did not begin until January 1982. Whether this was coincidence or a response to the fact that India actively began to depreciate at the end of 1981 is hard to tell. In any case, the Pakistan rupee and Indian rupee both depreciated almost in tandem during most of the 1980s The extent of similarity was tested when the Indian rupee moved in the range of -1 to 1 percent, 1-2 percent on either side, and more than 2 percent on either side. The greater the change in the Indian rupee’s bilateral exchange-rate with respect to the United States dollar, the larger the extent of similarity in movement between the Pakistan rupee and the Indian rupee. In the Indian case, the large likely influence of the United States dollar has been noted, with the Indian currency depreciating less fast when the dollar was appreciating with respect to other major currencies than when the dollar was depreciating with respect to other major currencies in the 1980s. The Pakistan rupee seemed to be maintained in the 1980s at a significantly competitive rate with respect to the Indian rupee — e.g. at 1.32 per Indian in 1986, 1.34 in 1987, 1.30 in 1988, 1.27 in 1989 and 1.24 in 1990. This indicates a distinct change from the 1949 situation when resisting devaluation was seen as a statement of national sovereignty.
The large Indian devaluations of 1991 left the Pakistan rupee at 1.06 per Indian, and in 1992 at 0.97. The major changes which have taken place in the Indian exchange-rate regime in 1992 and 1993 have been followed closely by the Pakistan authorities and public.”

Posted in Economic Policy, Economics of Exchange Rates, Pakistan's currency history, Pakistan's economy, Pakistan's exports, Pakistan's history. 1 Comment »

Path of the Indian Rupee 1947-1993

June 1, 1993 — drsubrotoroy

Prefatory Note: This was part of a 1993 study I did as a Consultant at the International Monetary Fund in Washington in a project on exchange-rates and exports of “South Asian” countries for Hubert Neiss. The IMF is not responsible for its content. It was included in “India in World Trade & Payments”, first published in The Statesman, Feb 11-12 2007. See also

1) Monetary Integrity and the Rupee

2) My article “India’s Money” in Cayman Financial Review

3) My 3 Dec IIC Delhi talk “Towards Making the Indian Rupee a Hard Currency of the World Economy: An analysis from British times until the present day” & its coverage in Asian Age/Deccan Herald, GDI Impuls Zurich, Lok Sabha TV & Sunday Guardian

4) Did Jagdish Bhagwati “originate”, “pioneer”, “intellectually father” India’s 1991 economic reform? Did Manmohan Singh? Or did I, through my encounter with Rajiv Gandhi, just as Siddhartha Shankar Ray told Manmohan & his aides in Sep 1993 in Washington? Judge the evidence for yourself. And why has Amartya Sen misdescribed his work? India’s right path forward today remains what I said in my 3 Dec 2012 Delhi lecture!

5) No magic wand, Professor Rajan? Oh but there is…

and indeed https://independentindian.com/2013/11/23/coverage-of-my-delhi-talk-on-3-dec-2012/

Path of the Indian Rupee 1947-1993

by Subroto Roy

Washington June 1993

“Following the initial devaluation with sterling in 1949, the Indian rupee was pegged to sterling and maintained at the same par-value for the next 16 years. This was in spite of weakening reserve positions and numerous severe shocks to the economy including a 1963 war with China and a 1965 war with Pakistan, as well as severe droughts and food crises.

Devaluation on June 6 1966 by 57.5 percent to Rs. 7.50 per United States dollar met with enormous resistance on non-economic grounds, and indirectly contributed to the Congress Party’s losses in the elections of 1967. This experience may have contributed to a distinct reluctance to even consider using the exchange-rate for economic policy, or to even attempt to find a realistic price for the rupee.

India did not respond to sterling’s devaluation in November 1967, leading to a bilateral appreciation. While the Indian economy continued to suffer egregious shocks throughout the late 1960s and 1970s — including food crises, the rise in petroleum prices, refugees from the Pakistan civil war and the 1971 war creating Bangladesh, as well as domestic turmoil of various kinds such as the Railway Strike and the political Emergency and later political instability — the rupee was not adjusted downwards. The closing of the “gold window” and breakdown of the Bretton Woods system in August 1971 led India to maintain the same bilateral exchange-rate with the United States dollar, thereby devaluing with the dollar’s depreciation and delinking from sterling, though sterling remained the intervention currency. After the Smithsonian Agreement in December 1971, the rupee was again linked to sterling at Rs. 18.97, which implicitly meant a 5.4 percent devaluation against sterling. When sterling floated in June 1972 the rupee’s peg was maintained, thus effectively devaluing the rupee along with sterling’s depreciation. Three small devaluations occurred against sterling by a total of 2 percent between June 1972 and July 1975.

In September 1975, India delinked from sterling and pegged — within 2.25 percent until January 30 1980 and then within 5 percent margins — to an undisclosed basket of hard currencies which included the United States dollar, Japanese yen and Deutschmark.

Between 1981 and 1991, the Indian rupee was actively managed downwards by the authorities, remarkably with no political resistance unlike the 1966 episode in a world of fixed rates. Discrete downward changes occurred by 6.4 percent at the end of 1981, 4.3 percent at the end of 1982, and 4.5 percent at the end of 1983. These changes in the first half of the 1980s are relatively small compared to the depreciation of other major currencies against the United States dollar in that period. From September 1985 to July 1991, the rupee followed a more rapid downward course, depreciating by some 40 percent in nominal terms, during which time the United States dollar also depreciated against the other major currencies. What this may suggest is that the dollar weighed relatively heavily in the basket with which the rupee seemed to be pegged.

In July 1991, the incoming government was able to initiate significant economic reforms with surprising ease, especially the abolishment of import quotas and removal of export subsidies. On July 1 1991, the rupee was devalued by 9 percent and then on July 3 by a further 11 percent in the context of a determined effort to change the course of Indian economic policy-making towards one required by an outward-orientation.

The first budget of the Narasimha Rao Government on March 1 1992 partially floated the rupee in a context of removal of import licensing and export subsidies, and a general domestic and external liberalization. Between March 1 1992 and the budget of March 1 1993, the rupee was on a dual rate which implicitly taxed exporters who had to surrender 40 percent of their foreign exchange earnings at an officially determined rate and could sell 60 percent in an open market. On March 1 1993, the Indian rupee was begun to be made convertible for purposes of current account transactions. With these changes, a breakthrough in thinking may have been achieved, insofar as Indian economic policy-making may have been partially freed of the belief, held since the 1940s, that the exchange-rate of the rupee must necessarily be seen as an administered price and not a market-determined price.”

30 August 2013: Here is a graph showing interest in this article at my blog… It might correlate that with the currency’s recent volatility…

Posted in Economic Policy, Economics of Exchange Rates, India's 1991 Economic Reform, India's balance of payments, India's currency history, India's Economic History, India's Economy, India's Monetary & Fiscal Policy. 12 Comments »

Rajiv Gandhi and the Origins of India’s 1991 Economic Reform

September 18, 1990 — drsubrotoroy

Rajiv Gandhi and the Origins of India’s 1991 Economic Reform

Subroto Roy

Author’s Note May 2008: The family of Rajiv Gandhi received a copy of this when it was first written in July 2005. An earlier abbreviated version “Encounter with Rajiv Gandhi: On the Origins of India’s 1991 Economic Reform” was published in October 2001 in Freedom First, Bombay, a journal founded by the late Minoo Masani and now edited by S V Raju. A copy of that article was received by all Congress MPs of the 13th Lok Sabha. In May 2002, the Congress Party passed an official resolution stating Rajiv Gandhi and not Narasimha Rao or Manmohan Singh was to be credited with having originated the 1991 economic reforms. This article has now been published in print in The Statesman Festival Volume, October 2007. It may be profitably followed by “The Dream Team: A Critique”, “Solving Kashmir”, “Law, Justice & J&K”, “What to tell Musharraf”, “India’s Macroeconomics”, “Fiscal Instability”, “India’s Trade and Payments”, “Fallacious Finance”, “Against Quackery”, etc. My original advisory memoranda to Rajiv in 1990-1991 were published in The Statesman’s Editorial Pages July 31-August 2 1991, and now have been republished elsewhere here as well. See too https://independentindian.com/thoughts-words-deeds-my-work-1973-2010/rajiv-gandhi-and-the-origins-of-indias-1991-economic-reform/did-jagdish-bhagwati-originate-pioneer-intellectually-father-indias-1991-economic-reform-did-manmohan-singh-or-did-i-through-my-e/ https://independentindian.com/2014/08/07/haksar-manmohan-and-sonia/

I met Rajiv Gandhi for the first time on 18th September 1990 thanks to an introduction by S. S. Ray (see “I’m on my way out”: Siddhartha Shankar Ray (1920-2010)… | Independent Indian: Work & Life of Professor Subroto Roy) We met a half dozen or so times until his assassination in May 1991. Yet our encounter was intense and consequential, and resulted directly in the change of the Congress Party’s economic thinking prior to the 1991 elections. I had with me results of an interdisciplinary “perestroika-for-India” project I had led at the University of Hawaii since 1986. This manuscript (later published by Sage as Foundations of India’s Political Economy: Towards an Agenda for the 1990s edited by myself and W. E. James) was given by me to Rajiv, then Leader of the Opposition, and was instrumental in the change of thinking that took place. In interests of fairness, I tried to get the work to V. P. Singh too because he was Prime Minister, but a key aide of his showed no interest in receiving it.

The Hawaii project manuscript contained inter alia a memorandum by Milton Friedman done at the request of the Government of India in November 1955, which had been suppressed for 34 years until I published it in May 1989. Milton and Rose Friedman refer to this in their memoirs Two Lucky People (Chicago 1998). Peter Bauer had told me of the existence of Friedman’s document during my doctoral work at Cambridge under Frank Hahn in the late 1970s, as did N. Georgescu-Roegen in America. Those were years in which Brezhnev still ruled in the Kremlin, Gorbachev was yet to emerge, Indira Gandhi and her pro-Moscow advisers were ensconced in New Delhi, and not even the CIA had imagined the Berlin Wall would fall and the Cold War would be over within a decade. It was academic suicide at the time to argue in favour of classical liberal economics even in the West. As a 22-year-old Visiting Assistant Professor at the Delhi School of Economics in 1977, I was greeted with uproarious laughter of senior professors when I spoke of a possible free market in foreign exchange. Cambridge was a place where Indian economists went to study the exploitation of peasants in Indian agriculture before returning to their friends in the well-known bastions of such matters in Delhi and Calcutta. It was not a place where Indian (let alone Bengali) doctoral students in economics mentioned the unmentionable names of Hayek or Friedman or Buchanan, and insisted upon giving their works a hearing.

My original doctoral topic in 1976 “A monetary theory for India” had to be altered not only due to paucity of monetary data at the time but because the problems of India’s political economy and allocation of resources in the real economy were far more pressing. The thesis that emerged in 1982 “On liberty and economic growth: preface to a philosophy for India” was a full frontal assault from the point of view of microeconomic theory on the “development planning” to which everyone routinely declared their fidelity, from New Delhi’s bureaucrats and Oxford’s “development” school to McNamara’s World Bank with its Indian staffers.

Frank Hahn protected my inchoate liberal arguments for India; and when no internal examiner could be found, Cambridge showed its greatness by appointing two externals, Bliss at Oxford and Hutchison at Birmingham, both Cambridge men. “Economic Theory and Development Economics” was presented to the American Economic Association in December 1982 in company of Solow, Chenery and other eminences, and then Pricing, Planning and Politics: A Study of Economic Distortions in India published by London’s Institute of Economic Affairs, provoking the lead editorial of The Times on May 29 1984. The Indian High Commission sent the editorial to the Finance Ministry where it caused a stir as the first classical liberal attack on post-Mahalonobis Indian economic thought since B. R. Shenoy’s original criticism decades earlier. The “perestroika-for-India” project was to follow at Hawaii starting in 1986. New Delhi was represented at the project’s conference held between May 22-27 1989 by the accredited Ambassador of India to the USA, the accredited Consul General of India to San Francisco, and by the founder-director of ICRIER (see photo).

All this I brought into that first meeting with Rajiv Gandhi on September 18 1990. That first day he came to the door to greet me. He was a handsome tall man with the most charming smile and manner, seemed pleased to see me and put me at ease at once. I gave him my books as well as the manuscript of the “perestroika for India” project. He gave me a celebratory volume that had just been published to mark his grandfather’s centenary. He began by talking about how important he felt panchayati raj was, and said he had been on the verge of passing major legislation on it but then lost the election. He asked me if I could spend some time thinking about it, and that he would get the papers sent to me. I said I would and remarked panchayati raj might be seen as decentralized provision of public goods, and gave the economist’s definition of public goods as those essential for the functioning of the market economy, like the Rule of Law, roads, fresh water, and sanitation, but which were unlikely to appear through competitive forces.

I distinguished between federal, state and local levels and said many of the most significant public goods were best provided locally. Rajiv had not heard the term “public goods” before, and he beamed a smile and his eyes lit up as he voiced the words slowly, seeming to like the concept immensely. It occurred to me he had been by choice a pilot of commercial aircraft. Now he seemed intrigued to find there could be systematic ways of thinking about navigating a country’s governance by common pursuit of reasonable judgement. I said the public sector’s wastefulness had drained scarce resources that should have gone instead to provide public goods. Since the public sector was owned by the public, it could be privatised by giving away its shares to the public, preferably to panchayats of the poorest villages. The shares would become tradable, drawing out black money, and inducing a historic redistribution of wealth while at the same time achieving greater efficiency by transferring the public sector to private hands. Rajiv seemed to like that idea too, and said he tried to follow a maxim of Indira Gandhi’s that every policy should be seen in terms of how it affected the common man. I wryly said the common man often spent away his money on alcohol, to which he said at once it might be better to think of the common woman instead. (This remark of Rajiv’s may have influenced the “aam admi” slogan of the 2004 election, as all Congress Lok Sabha MPs of the previous Parliament came to receive a previous version of the present narrative.)

Our project had identified the Congress’s lack of internal elections as a problem; when I raised it, Rajiv spoke of how he, as Congress President, had been trying to tackle the issue of bogus electoral rolls. I said the judiciary seemed to be in a mess due to the backlog of cases; many of which seemed related to land or rent control, and it may be risky to move towards a free economy without a properly functioning judicial system or at least a viable system of contractual enforcement. I said a lot of problems which should be handled by the law in the courts in India were instead getting politicised and decided on the streets. Rajiv had seen the problems of the judiciary and said he had good relations with the Chief Justice’s office, which could be put to use to improve the working of the judiciary.

The project had worked on Pakistan as well, and I went on to say we should solve the problem with Pakistan in a definitive manner. Rajiv spoke of how close his government had been in 1988 to a mutual withdrawal from Siachen. But Zia-ul-Haq was then killed and it became more difficult to implement the same thing with Benazir Bhutto, because, he said, as a democrat, she was playing to anti-Indian sentiments while he had found it somewhat easier to deal with the military. I pressed him on the long-term future relationship between the countries and he agreed a common market was the only real long-term solution. I wondered if he could find himself in a position to make a bold move like offering to go to Pakistan and addressing their Parliament to break the impasse. He did not say anything but seemed to think about the idea. Rajiv mentioned a recent Time magazine cover of Indian naval potential, which had caused an excessive stir in Delhi. He then talked about his visit to China, which seemed to him an important step towards normalization. He said he had not seen (or been shown) any absolute poverty in China of the sort we have in India. He talked about the Gulf situation, saying he did not disagree with the embargo of Iraq except he wished the ships enforcing the embargo had been under the U.N. flag. The meeting seemed to go on and on, and I was embarrassed at perhaps having taken too much time and that he was being too polite to get me to go. V. George had interrupted with news that Sheila Dixit (as I recall) had just been arrested by the U. P. Government, and there were evidently people waiting. Just before we finally stood up I expressed a hope that he was looking to the future of India with an eye to a modern political and economic agenda for the next election, rather than getting bogged down with domestic political events of the moment. That was the kind of hopefulness that had attracted many of my generation in 1985. I said I would happily work in any way to help define a long-term agenda. His eyes lit up and as we shook hands to say goodbye, he said he would be in touch with me again.

The next day I was called and asked to stay in Delhi for a few days, as Mr. Gandhi wanted me to meet some people. I was not told whom I was to meet but that there would be a meeting on Monday, 24th September. On Saturday, the Monday meeting was postponed to Tuesday because one of the persons had not been able to get a flight into Delhi. I pressed to know what was going on, and was told I was to meet former army chief K.V. Krishna Rao, former foreign secretary M. K. Rasgotra, V. Krishnamurty and Sam Pitroda.

The group met for the first time on September 25 in the afternoon. Rasgotra did not arrive. Krishna Rao, Pitroda, Krishnamurty and I gathered in the waiting room next to George’s office. The three of them knew each other but none knew me and I was happy enough to be ignored. It seemed mysterious while we were gathering, especially when the tall well-dressed General arrived, since none of us knew why we had been called by Rajiv, and the General remarked to the others he had responded at once to the call to his home but could not get a flight into Delhi for a day.

Rajiv’s residence as Leader of the Opposition had a vast splendid meeting room, lined with high bookshelves on one or two walls, a large handsome desk on one side, two spacious comfortable sofa sets arranged in squares, and a long conference table with leather chairs occupying most of the rest of the room. The entrance to it was via a small 10 ft by 10 ft air-conditioned anteroom, where George sat, with a fax machine, typewriters and a shredding machine, plus several telephones, and a used copy of parliamentary procedures on the shelf. Getting to George’s office was the final step before reaching Rajiv. There were several chairs facing George, and almost every prospective interviewee, no matter how senior or self-important, had to move from one chair to the next, while making small talk with George, as the appointment with Rajiv drew near. Opening into George’s office was a larger and shabbier waiting room, which is where we sat, which was not air-conditioned, and which opened to the outside of the building where a plainclothes policeman sometimes stood around with a walkie-talkie. There were large photographs of Mahatma Gandhi, Nehru and Indira Gandhi on the wall, and a modern print also hung incongruously. A dozen or more plastic chairs lined the walls. There were faded torn issues of a few old magazines on the plastic coffee-table, and on one occasion there was a television playing the new sporadic domestic cable news and weather information for the entertainment of the many visitors waiting. Via this waiting room went the vast majority of people who were to meet Rajiv in his office. To reach the waiting room, one had to walk a hundred yards along a path lined by splendid high hedges from the initial reception desk at the rear-gate, manned by Congress Seva Dal volunteers in khadi wearing Gandhi-caps. These persons were in touch with George’s office by telephone, and would check with George or his assistant Balasubramaniam before sending a visitor along. The visitor would then pass through a metal-detector manned by a couple of policemen. If someone’s face came to be known and had been cleared once, or if someone acted to the policemen like a sufficiently important political personage, such a person seemed to be waved through. Outside, the front-entrance of the premises were closed unless extremely important people were entering or exiting, while at the rear-entrance there were usually two or three jeeps and several plainclothes policemen, who might or might not challenge the prospective visitor with a kind of “Who goes there?” attitude before the visitor reached the Seva Dal reception desk. The whole arrangement struck me from the first as insecure and inefficient, open to penetration by professional assassins or a terrorist squad, let aside insiders in the way Indira Gandhi had been assassinated. I could not imagine counter-terrorist commandos would suddenly appear from the high hedges in the event of an emergency.

On that Tuesday when Rajiv finally called in our group, we entered hesitantly not knowing quite what the meeting was going to be about. Rajiv introduced me to the others and then spoke of why he had gathered us together. He wanted us to come up with proposals and recommendations for the direction the country should take on an assumption the Congress Party was returned to power in the near future. He said it would help him to have an outside view from specialists who were not party functionaries, though the others obviously had been closely involved with Congress governments before. Rajiv said we were being asked to write a draft of what may enter the manifesto for the next election, which we should assume to be forthcoming by April 1991. I asked what might have become of the “perestroika” manuscript I had given him at our previous meeting. He said he had gotten it copied and bound, and that along with my 1984 monograph, it had been circulated among a few of his party colleagues who included P. Chidambaram and Mani Shankar Aiyar.

The initial meeting left us breathless and excited. Yet within a few days, the others became extremely tied up for personal causes, and I found myself alone in getting on with doing what we had been explicitly asked to do. I felt I should get done what I could in the time I had while keeping the others informed. Rajiv had said to me at our first meeting that he felt the Congress was ready for elections. This did not seem to me to be really the case. He actually seemed very isolated in his office, with George seeming to be his conduit to the outside world. I decided to start by trying to write a definite set of general principles that could guide and inform thought about the direction of policy. I spent the evening of October 26 in the offices at Rajiv’s residence, preparing an economic policy memorandum on a portable Toshiba computer of his, the first laptop I ever used. After Rajiv’s assassination, this was part of what was published in The Statesmen’s center pages July 31-August 2, 1991.

Rajiv read the work and met me on October 30 or 31, even though he was down badly with a sore throat after his sadbhavana travels around the country; he looked odd clad in khadi with a muffler and gym shoes. He said he liked very much what I had written and had given it to be read by younger Congress leaders who would discuss it for the manifesto, for an election he again said, he expected early in 1991. I said I was grateful for his kind words and inquired whom he had shown the work to. This time he said Chidambaram and also mentioned another name that made me wince. In December 1990, I was back in Hawaii when I was called on the phone to ask whether I could come to Delhi. With the rise of Chandrashekhar as Prime Minister, Rajiv had called a meeting of the group. But I could not go.

In January 1991, the Gulf War brought an odd twist to my interaction with Rajiv. On January 15, the UN deadline for the withdrawal of Iraq from Kuwait passed without Iraqi compliance, and American-led forces started the heavy aerial bombardment of Iraq. The American media had built up the impending war as one of utter devastation and mass killing, especially when the American infantry became engaged. Estimated casualties on the American side alone were being wildly exaggerated by the number of “body-bags” being ordered by the Pentagon. An even larger conflagration was being imagined if Israel entered the fighting, while Saddam Hussein had vowed to set fire to Kuwait’s oil-fields before retreating. I like everyone else erroneously believed the media’s hyperbole about the impending regional catastrophe. On January 16, just after the bombing of Iraq had begun, I called an American family friend who had retired from a senior foreign policy role and who had known me from when I was an infant. In informal conversation, I mentioned to him that since other channels had by then become closed, an informal channel might be attempted via India, specifically via Rajiv who was still Leader of the Opposition but on whom the Chandrashekhar Government depended. The sole aim would be to compel an immediate Iraqi withdrawal without further loss of life. What transpired over the next few days was that a proposal to that effect was communicated at Rajiv’s decision to a high level of the Iraqis on the one hand, and evidently received their assent, while at the same time, it was mentioned to the authorities on the American side. But nothing came of it. Rajiv initiated a correspondence with Chandrashekhar beginning January 19, demanding a coherent formulation of Indian policy in the Gulf war, and faxed me copies of this. By February 8, the Times of India led by saying Rajiv’s stand “on the Gulf War demonstrates both his experience and perspicacity … in consonance with an enlightened vision of national interest”, and urged Rajiv to “give the nation some respite from [the] non-government” of Chandrashekhar. I taped my phone conversations with Rajiv during the Gulf War because notes could not be taken at the necessary speed; in late December 1991, I was to give his widow a copy of the tape for her personal record.

I returned to Delhi on Monday, March 18, 1991 as new elections had been announced. Rasgotra said I should be in touch with Krishna Rao, and the next day March 19 Krishna Rao met me for several hours. I told him what I thought were the roots and results of the Gulf war. He in turn generously told me what had happened while I had been away. He said the group had met Rajiv in December with the proposal that Rajiv better organize his time by having an “office manager” of larger political stature than George. The name of a UP Congressman of integrity had been put forward, but nothing had come of it. Rajiv had been advised to keep Chandrashekhar in power through the autumn of 1991, as Chandrashekhar was doing Rajiv’s work for him of sidelining V. P. Singh. The idea was to cooperate with Chandrashekhar until he could be pushed up to the Presidency when that fell vacant. Rajiv had been advised not to work in a Chandrashekhar cabinet, though in my opinion, had we been like the Scandinavians, it was not impossible for a former prime minister to enter another cabinet on the right terms in the national interest of providing stable government, which was imperative at the time. Things seem to have slipped out of control when Chandrashekhar resigned. At that point, Rajiv called the group together and instructed them to write a draft of the manifesto for the impending elections. I had advised readiness back in September but the lack of organization had prevented much tangible progress at the time. Our group was to now report to a political manifesto-committee of three senior party leaders who would report to Rajiv. They were Narasimha Rao, Pranab Mukherjee and Madhavsingh Solanki. Krishna Rao liased with Narasimha Rao, Krishnamurty with Mukherjee, Pitroda with Solanki. While Rajiv would obviously lead a new Congress Government, Mukherjee was the presumptive Finance Minister, while Narasimha Rao and Solanki would have major portfolios though Narasimha Rao was expected to retire before too long.

Krishna Rao said I should be in touch with Krishnamurty who was preparing the economic chapters of the draft of the manifesto. Krishnamurty told me he had brought in A. M. Khusro to the group, and there would be a 5 p.m. meeting at Khusro’s office at the Aga Khan Foundation. I arrived early and was delighted to meet Khusro, and he seemed pleased to meet me. Khusro seemed excited by my view that India and Pakistan were spending excessively on defence against each other, which resonated with his own ideas, and he remarked the fiscal disarray in India and Pakistan could start to be set right by mutually agreed cuts in military spending. (Khusro was eventually to accompany Prime Minister Vajpayee to Lahore in 1999).

Krishnamurty had prepared a draft dated March 18 of several pages of the economic aspects of the manifesto. After our discussions, Krishnamurty was hospitable enough to open the draft to improvement. That evening, the 19th, I worked through the night and the next morning to get by noon copies of a revised version with all the members of the group. At 4 p.m. on the 20th there was a meeting at Andhra Bhavan of the whole group except Pitroda, which went on until the night. The next day the 21st , Krishnamurty, Khusro and I met again at Andhra Bhavan for a few hours on the economic aspects of the draft. Then in mid-afternoon I went to Rasgotra’s home to work with him and Krishna Rao. They wanted me to produce the economic draft which they could then integrate as they wished into the material they were dictating to a typist. I offered instead to absorb their material directly on to my laptop computer where the economic draft was. Rasgotra was reluctant to let go control, and eventually I gave in and said I would get them a hard copy of the economic draft, which they then planned to re-draft via a stenographer on a typewriter. At this, Rasgotra gave in and agreed to my solution. So the work began and the three of us continued until late.

That night Krishna Rao dropped me at Tughlak Road where I used to stay with friends. In the car I told him, as he was a military man with heavy security cover for himself as a former Governor of J&K, that it seemed to me Rajiv’s security was being unprofessionally handled, that he was vulnerable to a professional assassin. Krishna Rao asked me if I had seen anything specific by way of vulnerability. With John Kennedy and De Gaulle in mind, I said I feared Rajiv was open to a long-distance sniper, especially when he was on his campaign trips around the country.

This was one of several attempts I made since October 1990 to convey my clear impression to whomever I thought might have an effect that Rajiv seemed to me extremely vulnerable. Rajiv had been on sadhbhavana journeys, back and forth into and out of Delhi. I had heard he was fed up with his security apparatus, and I was not surprised given it seemed at the time rather bureaucratized. It would not have been appropriate for me to tell him directly that he seemed to me to be vulnerable, since I was a newcomer and a complete amateur about security issues, and besides if he agreed he might seem to himself to be cowardly or have to get even closer to his security apparatus. Instead I pressed the subject relentlessly with whomever I could. I suggested specifically two things: (a) that the system in place at Rajiv’s residence and on his itineraries be tested, preferably by some internationally recognized specialists in counter-terrorism; (b) that Rajiv be encouraged to announce a shadow-cabinet. The first would increase the cost of terrorism, the second would reduce the potential political benefit expected by terrorists out to kill him. On the former, it was pleaded that security was a matter being run by the V. P. Singh and then Chandrashekhar Governments at the time. On the latter, it was said that appointing a shadow cabinet might give the appointees the wrong idea, and lead to a challenge to Rajiv’s leadership. This seemed to me wrong, as there was nothing to fear from healthy internal contests for power so long as they were conducted in a structured democratic framework. I pressed to know how public Rajiv’s itinerary was when he travelled. I was told it was known to everyone and that was the only way it could be since Rajiv wanted to be close to the people waiting to see him and had been criticized for being too aloof. This seemed to me totally wrong and I suggested that if Rajiv wanted to be seen as meeting the crowds waiting for him then that should be done by planning to make random stops on the road that his entourage would take. This would at least add some confusion to the planning of potential terrorists out to kill him. When I pressed relentlessly, it was said I should probably speak to “Madame”, i.e. to Mrs. Rajiv Gandhi. That seemed to me highly inappropriate, as I could not be said to be known to her and I should not want to unduly concern her in the event it was I who was completely wrong in my assessment of the danger. The response that it was not in Congress’s hands, that it was the responsibility of the V. P. Singh and later the Chandrashekhar Governments, seemed to me completely irrelevant since Congress in its own interests had a grave responsibility to protect Rajiv Gandhi irrespective of what the Government’s security people were doing or not doing. Rajiv was at the apex of the power structure of the party, and a key symbol of secularism and progress for the entire country. Losing him would be quite irreparable to the party and the country. It shocked me that the assumption was not being made that there were almost certainly professional killers actively out to kill Rajiv Gandhi — this loving family man and hapless pilot of India’s ship of state who did not seem to have wished to make enemies among India’s terrorists but whom the fates had conspired to make a target. The most bizarre and frustrating response I got from several respondents was that I should not mention the matter at all as otherwise the threat would become enlarged and the prospect made more likely! This I later realized was a primitive superstitious response of the same sort as wearing amulets and believing in Ptolemaic astrological charts that assume the Sun goes around the Earth — centuries after Kepler and Copernicus. Perhaps the entry of scientific causality and rationality is where we must begin in the reform of India’s governance and economy. What was especially repugnant after Rajiv’s assassination was to hear it said by his enemies that it marked an end to “dynastic” politics in India. This struck me as being devoid of all sense because the unanswerable reason for protecting Rajiv Gandhi was that we in India, if we are to have any pretensions at all to being a civilized and open democratic society, cannot tolerate terrorism and assassination as means of political change. Either we are constitutional democrats willing to fight for the privileges of a liberal social order, or ours is truly a primitive and savage anarchy concealed beneath a veneer of fake Westernization.

The next day, Friday March 22, I worked from dawn to get the penultimate draft to Krishna Rao before noon as planned the night before. Rasgotra arrived shortly, and the three of us worked until evening to finish the job. I left for an hour to print out copies for a meeting of the entire group, where the draft we were going to submit would come to be decided. When I got back I found Rasgotra had launched an extended and quite unexpected attack on what had been written on economic policy. Would someone like Manmohan Singh, Rasgotra wanted to know, agree with all this talk we were putting in about liberalization and industrial efficiency? I replied I did not know what Manmohan Singh’s response would be but I knew he had been in Africa heading something called the South-South Commission for Julius Nyrere of Tanzania. I said what was needed was a clear forceful statement designed to restore India’s credit-worthiness, and the confidence of international markets. I said that the sort of thing we should aim for was to make clear, e.g. to the IMF’s man in Delhi when that person read the manifesto, that the Congress Party at least knew its economics and was planning to make bold new steps in the direction of progress. I had argued the night before with Rasgotra that on foreign policy we should “go bilateral” with good strong ties with individual countries, and drop all the multilateral hogwash. But I did not wish to enter into a fight on foreign policy which he was writing, so long as the economic policy was left the way we said. Krishnamurty, Khusro and Pitroda came to my defence saying the draft we had done greatly improved on the March 18 draft. For a bare half hour or so with all of us present, the draft was agreed upon. Later that night at Andhra Bhavan, I gave Krishna Rao the final copy of the draft manifesto which he was going to give Narasimha Rao the next day, and sent a copy to Krishnamurty who was liaising with Pranab Mukherjee. Pitroda got a copy on a floppy disc the next day for Solanki.

In its constructive aspects, the March 22 1991 draft of the Congress manifesto went as follows with regard to economic policy: “CHAPTER V AGENDA FOR ECONOMIC ACTION 1. Control of Inflation …. The Congress believes the inflation and price-rise of essential commodities… is a grave macroeconomic problem facing the country today. It has hit worst the poorest and weakest sections of our people and those with fixed incomes like pensioners. The Congress will give highest priority to maintaining the prices of essential commodities, increasing their production and supply using all appropriate economic instruments. 2. Macroeconomic Policy Framework To control inflation of the general price-level, the Congress will provide a predictable long-term policy framework. The average Indian household and business will not have their lives and plans disrupted by sudden changes in economic policy. Coherent monetary policy measures will be defined as called for by the Report of Experts of the Reserve Bank of India in 1985. The Long-Term Fiscal Policy introduced by the Congress Government of 1984-1989 will be revived. Medium and long-term export-import policies will be defined. The basis for a strong India must be a strong economy. The Congress believes a high rate of real growth is essential for securing a strong national defence, social justice and equity, and a civilized standard of living for all. As the party of self-reliance, Congress believes resources for growth must be generated from within our own economy. This means all wasteful and unproductive Government spending has to be cut, and resources transferred from areas of low priority to areas of high national priority. Subsidies have to be rationalized and reduced, and productivity of investments already made has to be improved. The widening gap between revenue receipts and revenue expenditure must be corrected through fiscal discipline, and the growing national debt brought under control as a matter of high priority. These policies in a consistent framework will create the environment for the freeing of the rupee in due course, making it a hard currency of the world of which our nation can be proud. Public resources are not unlimited. These have to be allocated to high priority areas like essential public services, poverty-reduction, strategic sectors, and protection of the interests of the weaker sections of society. Government has to leave to the initiative and enterprise of the people what can be best done by themselves. Government can now progressively vacate some areas of activity to the private, cooperative and non-government sectors. Black money in the parallel economy has become the plague of our economic and political system. This endangers the social and moral fabric of our nation. Artificial price controls, excessive licensing, capacity restrictions, outmoded laws on rent control and urban ceiling, and many other outdated rules and regulations have contributed to pushing many honest citizens into dishonest practices. The Congress will tackle the problem of black money at its roots by attacking all outmoded and retrograde controls, and simplifying procedures in all economic spheres. At the same time, the tax-base of the economy must be increased via simplification and rationalization of tax-rates and coverage, user-fees for public goods, and reduction of taxes wherever possible to improve incentives and stimulate growth. 3. Panchayati Raj India’s farmers and khet mazdoors are the backbone of our economy. Economic development is meaningless until their villages provide them a wholesome rural life. The Congress will revitalize Panchayat Raj institutions to decentralize decision-making, so development can truly benefit local people most effectively. 4. Rural Development Basic economic infrastructure like roads, communications, fresh drinking water, and primary health and education for our children must reach all our villages. The Congress believes such a policy will also relieve pressures from migration on our towns and cities…… Through the Green Revolution which the Congress pioneered over 25 years, our farmers have prospered. Now our larger farmers must volunteer to contribute more to the national endeavour, and hence to greater equity and overall economic development. Equity demands land revenue should be mildly graduated so that small farmers holding less than one acre pay less land revenue per acre…. 9. Education and Health The long-run prosperity of our nation depends on the general state of education, health and well-being of our people. Small families give themselves more choice and control over their own lives. Improving female literacy, promoting the welfare of nursing mothers and reducing infant mortality will have a direct bearing on reducing the birth-rate and improving the health and quality of all our people. Primary and secondary education has high social returns and is the best way in the long-run for achievement of real equality. Efforts will be made to reduce the cost of education for the needy through concessional supply of books and other study materials, scholarships and assistance for transportation and residential facilities. The Congress Party pledges to dedicate itself to promoting education, especially in rural areas and especially for girls and the weaker sections of society. The next Congress Government will prepare and launch a 10-year programme for introduction of free and compulsory primary education for all children of school age. It will continue to emphasize vocational bias in education, integrating it closely with employment opportunities…. 11. Industrial Efficiency Our industrial base in the private and public sectors are the core of our economy. What we have achieved until today has been creditable, and we are self-reliant in many areas. Now the time has come for industry to provide more efficiency and better service and product-quality for the Indian consumer. The public sector has helped the Indian economy since Independence and many national goals have been achieved. Now it has become imperative that the management of public sector units is made effective, and their productivity increased. Major steps must be taken for greater accountability and market-orientation. Failure to do this will make our country lose more and more in the international economy. Budgetary support will be given only for public sector units in the core and infrastructure sectors. Emphasis will be on improving performance and productivity of existing investments, not on creating added organizations or over manning. Units not in the core sector will be privatised gradually. Even in core sectors like Telecommunications, Power, Steel and Coal, incremental needs can be taken care of by the private sector. The Government-Enterprise interface must be properly defined in a White Paper. The Congress believes privatisation must distribute the profits equitably among the people of India. In order to make our public enterprises truly public, it is essential that the shares of many such enterprises are widely held by the members of the general public and workers. Congress pledges to allot a proportion of such shares to the rural Panchayats and Nagarpalikas. This will enhance their asset-base and yield income for their development activities, as well as improve income-distribution. 12. Investment and Trade Indian industry, Government and professional managers are now experienced enough to deal with foreign companies on an equal footing, and channel direct foreign investment in desired directions. Foreign companies often bring access to advanced technological know-how, without which the nation cannot advance. The Congress Government will formulate a pragmatic policy channelling foreign investment into areas important to the national interest. Every effort must be made also to encourage Indians who are outside India to invest in the industry, trade and real estate of their homeland. Because of the protected and inflationary domestic market, Indian industry has become complacent and the incentive for industrial exports has been weakened. When all production is comfortably absorbed at home, Indian industry makes the effort to venture into exports only as a last resort. This must change. A Congress Government will liberalize and deregulate industry to make it competitive and export-oriented, keeping in mind always the interests of the Indian consumer in commercial policy. Export-oriented and predictable commercial policies will be encouraged. Existing procedural constraints and bottlenecks will be removed. Quotas and tariffs will be rationalized. Thrust areas for export-development will be identified and monitored. Efforts will be made to develop a South Asian Community. Trade and economic cooperation among South Asian countries must be increased and simplified.”

This March 22 1991 draft of the Congress’s intended economic policies got circulated and discussed, and from it rumours and opinions appeared that Congress was planning to launch a major economic reform in India. Economic Times said the manifesto “is especially notable for its economic agenda” and Business Standard said “if party manifestos decide election battles” Congress must be “considered home and dry”. A senior IMF official told me three years later the manifesto had indeed seemed a radical and bold move in the direction of progress, which had been exactly our intended effect. When I met Manmohan Singh at the residence of S. S. Ray in September 1993 in Washington, Ray told him and his senior aides the Congress manifesto had been written on my computer. Manmohan Singh smiled and said that when Arjun Singh and other senior members of the Congress had challenged him in the cabinet, he had pointed to the manifesto. Yet, oddly enough, while the March 22 draft got discussed and circulated, and the Indian economic reform since July 1991 corresponded in fundamental ways to its contents as reproduced above, the actual published Congress manifesto in April 1991 was as tepid and rhetorical as usual, as if some party hack had before publication put in the usual nonsense about e.g. bringing down inflation via price-controls. Certainly the published manifesto was wholly undistinguished in its economic aspects, and had nothing in it to correspond to the bold change of attitude towards economic policy that actually came to be signalled by the 1991 Government.

On March 23, our group was to meet Rajiv at noon. There was to be an event in the inner lawns of Rajiv’s residence in the morning, where he would launch Krishna Rao’s book on India’s security. Krishna Rao had expressly asked me to come but I had to wait outside the building patiently, not knowing if it was a mistake or if it was deliberate. This was politics after all, and I had ruffled feathers during my short time there. While I waited, Rajiv was speaking to a farmers’ rally being held at grounds adjoining his residence, and there appeared to be thousands of country folk who had gathered to hear him. When it was over, Rajiv, smiling nervously and looking extremely uncomfortable, was hoisted atop people’s shoulders and carried back to the residence by his audience. As I watched, my spine ran cold at the thought that any killer could have assassinated him with ease in that boisterous crowd, right there in the middle of Delhi outside his own residence. It was as if plans for his security had been drawn up without any strategic thinking underlying them.

Krishna Rao arrived and graciously took me inside for his book launch. The event was attended by the Congress’s top brass, including Narasimha Rao whom I met for the first time, as well as foreign military attaches and officers of the Indian armed forces. The attaché of one great power went about shaking hands and handing out his business card to everyone. I stood aside and watched. Delhi felt to me that day like a sieve, as if little could be done without knowledge of the embassies. One side wanted to sell arms, aircraft or ships, while the other wanted trips abroad or jobs or green cards or whatever for their children. And I thought Islamabad would be worse — could India and Pakistan make peace in this fetid ether?

Proceedings began when Rajiv arrived. This elite audience mobbed him just as the farmers had mobbed him earlier. He saw me and beamed a smile in recognition, and I smiled back but made no attempt to draw near him in the crush. He gave a short very apt speech on the role the United Nations might have in the new post-Gulf War world. Then he launched the book, and left for an investiture at Rashtrapati Bhavan. We waited for our meeting with him, which finally happened in the afternoon. Rajiv was plainly at the point of exhaustion and still hard-pressed for time. He seemed pleased to see me and apologized for not talking in the morning. Regarding the March 22 draft, he said he had not read it but that he would be doing so. He said he expected the central focus of the manifesto to be on economic reform, and an economic point of view in foreign policy, and in addition an emphasis on justice and the law courts. I remembered our September 18 conversation and had tried to put in justice and the courts into our draft but had been over-ruled by others. I now said the social returns of investment in the judiciary were high but was drowned out again. Rajiv was clearly agitated that day by the BJP and blurted out he did not really feel he understood what on earth they were on about. He said about his own family, “We’re not religious or anything like that, we don’t pray every day.” I felt again what I had felt before, that here was a tragic hero of India who had not really wished to be more than a happy family man until he reluctantly was made into a national leader against his will. We were with him for an hour or so. As we were leaving, he said quickly at the end of the meeting he wished to see me on my own and would be arranging a meeting. One of our group was staying back to ask him a favour. Just before we left, I managed to say to him what I felt was imperative: “The Iraq situation isn’t as it seems, it’s a lot deeper than it’s been made out to be.” He looked at me with a serious look and said “Yes I know, I know.” It was decided Pitroda would be in touch with each of us in the next 24 hours. During this time Narasimha Rao’s manifesto committee would read the draft and any questions they had would be sent to us. We were supposed to be on call for 24 hours. The call never came. Given the near total lack of system and organization I had seen over the months, I was not surprised. Krishna Rao and I waited another 48 hours, and then each of us left Delhi. Before going I dropped by to see Krishnamurty, and we talked at length. He talked especially about the lack of the idea of teamwork in India. Krishnamurty said he had read everything I had written for the group and learned a lot. I said that managing the economic reform would be a critical job and the difference between success and failure was thin.

I got the afternoon train to Calcutta and before long left for America to bring my son home for his summer holidays with me. In Singapore, the news suddenly said Rajiv Gandhi had been killed. All India wept. What killed him was not merely a singular act of criminal terrorism, but the system of humbug, incompetence and sycophancy that surrounds politics in India and elsewhere. I was numbed by rage and sorrow, and did not return to Delhi. Eleven years later, on 25 May 2002, press reports said “P. V. Narasimha Rao and Manmohan Singh lost their place in Congress history as architects of economic reforms as the Congress High command sponsored an amendment to a resolution that had laid credit at the duo’s door. The motion was moved by…. Digvijay Singh asserting that the reforms were a brainchild of the late Rajiv Gandhi and that the Rao-Singh combine had simply nudged the process forward.” Rajiv’s years in Government, like those of Indira Gandhi, were in fact marked by profligacy and the resource cost of poor macroeconomic policy since bank-nationalisation may be as high as Rs. 125 trillion measured in 1994 rupees. Certainly though it was Rajiv Gandhi as Leader of the Opposition in his last months who was the principal architect of the economic reform that came to begin after his passing.

Milton Friedman’s extempore comments at the 1989 Hawaii conference: on India, Israel, Palestine, the USA, Debt and its uses, Erhardt abolishing exchange controls, Etc

May 21, 1989 — drsubrotoroy

Preface by Subroto Roy October 31, 2008:

As recorded elsewhere here, I met Professor Milton Friedman for the first time at the Mont Pelerin Society meetings at Cambridge in the autumn of 1984. I there asked him for his November 1955 memorandum to the Government of India, which had been suppressed since then; when he returned to Stanford, he had the original document sent to me in Blacksburg. In January 1989, I invited him to the University of Hawaii conference on India’s modern political economy due to be held in May. I was determined to see publication of his 1955 memorandum and did so (despite opposition from “senior” Leftist professors). Milton agreed to come for two days, and what follows are his extempore comments on May 22 1989 as recorded on tape.

Milton Friedman’s extempore comments at the 1989 Hawaii conference: on India, Israel, Palestine, the USA, Debt and its uses, Erhardt abolishing exchange controls, Etc

“I don’t believe the term GNP ought to be used unless it is supplemented by a different statistic: the rate of growth of the average consumption basket consumed by the ordinary individual in the country. I think GNP rates of growth can give very misleading information. For example, you have rapid rates of growth of GNP in the Soviet Union with a declining standard of life for the people. Because GNP includes monuments and includes also other things. I’m not saying that that is the case with India; I’m just saying I would like to see the two figures together.

I have wondered about the following question for decades. What would have happened if the initial decision had been to make English the official language, and the Government had made no official statement about any of the other languages, had just allowed, as it were, free language competition? The reason I raise that is because many years ago when I was in India originally it seemed to me, that a lot of conflicts would have been eliminated, because everybody could have been opposed to English. You would have had a common opposition to it, and yet it was, in fact, the operating language of the country. If in time Hindi or any of the others had spread, they could have taken over the function. But it wouldn’t have been the subject of a political fight from then on. That may be wholly wrong, it’s just an off-hand impression. I am curious about what answer you would give the counterfactual question.

I’m just going to support Brass on the question of whether the modes of organization of the economy had anything to do with the political difficulties that were arising. I want to emphasize how important that is as an issue to be investigated, and I am not going to illustrate it with India which I don’t know enough about; I am going to give you a different even more dramatic example. I have no doubt whatsoever that a major part of the present difficulties between the occupied states in Palestine, the Palestinian organization and the Israeli government, derive from the structure of Israeli economic policies, from the socialist structure. When the occupied areas were first taken over, the generals were very wise in treating them in a completely laissez-faire manner, and they didn’t have many troubles. As you started to impose in those areas the same socialist techniques of the Israeli state, you get increasing conflict, and those conflicts have arisen until today. I think that this may be relevant to the study of political conflicts of the kind of you’re describing. Many of these difficulties arose because you were adopting economic policies which created them.

I think you have to distinguish sharply between a redistributive state and a regulatory state. I give you Sweden, which is a very highly redistributive state, but is not a highly regulatory state. As I understand it, the original Constitution of India called for a redistributive state. The ethos called for a regulatory state, and they turned out to be both very different and I would say ultimately incompatible.

I was interested in some of Dattachaudhuri’s remarks about the situation at the time of Independence and particularly about his summary of what he regarded as traditional economic development theory. I think there was an enormously important point that needs to be added to those you mentioned. That was the almost universal acceptance at that time of the view that there was a sort of technologically fixed capital output ratio. That if you wanted to develop, you just had to figure out how much capital you needed, used as a statistical technological capital output ratio, and by God the next day you could immediately tell what output you were going to achieve. That was a large part of the motivation behind some of the measures that were taken then. Secondly, you are quite right that one of the things that India inherited was a good civil service. I came back from India on my first trip there saying that in my experience, I had never met a class of civil servants who were as able as the Indian Civil Service. However, they weren’t in accord with the principles that were going to be followed. Many of them, particularly Mr HM Patel, would not have gone along, I suspect he would not have been an enthusiastic participant of the Mahalanobis Plan. I don’t know….you tell me. Am I wrong? There were people at the time who recognized fully what the consequences were going to be, the most notable example is BR Shenoy in his dissenting view on the committee of experts examining the Second Five Year Plan.

Essentially, your paper was in this great tradition of the hero theory of history versus the deterministic theory of history. Does a great man make a difference? Do personalities make a difference? Either extreme is untenable. In the particular case of India, I would say that in the early days, I have no doubt that personalities made an enormous difference. If Mr Mahalanobis for example had had a slightly different background, had been persuaded to slightly different things, you might have had a different result. You don’t have to look at the whole structure.

In my opinion, the most serious problem of India in the economic sphere can be pinned down very quickly. It has to do with the pegging of the exchange rate and the existence of change controls. My view on this is based not only on India alone; it is based on country after country. There is no other measure which opens itself so much to corruption than to spreading from one regulation to another. In some ways, if you could pull that pin out, much of the rest of the superstructure would collapse. On that particular issue, it was initially an open issue in India.

Now I agreed completely that in order to make reforms, you have to establish a base of support. You have to get a political basis to support you. But one mustn’t take that to mean that this is the best of all possible worlds and you can’t do anything about it. Let’s be clear about what our role is. Our role as economists and intellectuals is not to figure out what is politically feasible and then recommend it. Our role as economists and political scientists, in my opinion, is to look at what could be. Given the background, given the institutional limitations. It’s wrong to go to utopian solutions, but we ought to lay out what are alternative possible changes in the circumstances, whether we think at the moment or not that there is any possibility of getting backing for it. What you find in history time and again is that major changes almost never come except when you have a crisis. And when you have a crisis, things become feasible that you would have dismissed in advance as not feasible. I think you’re much too unadventuresome in your willingness to conceive of rather radical departures.

I don’t believe floating exchange rates will solve all the problems, far from it. But I do believe that exchange control is a particularly pernicious and widespread form of control.

I might be mistaken about this but I think the exchange control was ended in 1950 when they adopted the Dodge Plan for monetary reconstruction, and their recent progress might be traced from that date. Yet over and over, in country after country, you find that exchange control is the answering wedge for widening controls. I believe that the most important thing China could do right now would be to end exchange control.

The other point is that it’s an open invitation to corruption.

I want to comment on both papers also.

With respect to the debt, a balance sheet has two sides. One side is the assets and one side is the liability. A consideration of a debt problem that considers only one side is bound to be incomplete. The question of whether a high debt ratio is good, bad, or indifferent depends on what the debt was accumulated for. It is no different for a nation than it is for an individual. If I go out and borrow in order to maintain a stable of mistresses, I’m going to get into trouble. I’m a little old for that, but think of a younger person. On the other hand, if a man goes out and borrows in order to build a plant which is going to be very productive, he is not in trouble at all.

Similarly for a nation. The talk in the U.S. about the U.S. being a foreign debtor is a bunch of nonsense, because we have always had net private savings, and the debt isn’t debt, anyway, it’s acquisition of assets in the U.S. by foreigners. That acquisition has been of productive assets, and thus has increased our total capital. Similarly, if we go back to India, the question of whether the debt ratio is too high or too low is a question of what assets there are that have been created in the process of accumulating the debt, and what income they generate. We don’t ask in the U.S. or anywhere else what the private debt ratio of a country is without asking what is the private asset ratio. You don’t look at a particular individual company and say what’s the ratio of debt, you look at debt to assets. Similarly, therefore, it seems to me your paper needs to be (this really ties very much into what Seiji Naya said before about inefficient public enterprises.) If the debt was accumulated in order to finance public enterprises….I don’t like the word public; let me be precise….government enterprises….(Stanford University is a public university, but it’s not a government university.)… If debt was created to build government enterprises which were yielding a net income, the debt would be no burden at all. It would be a source of strength. It would provide the government with additional funds for other purposes. The plain fact is, of course (and I shouldn’t be saying this because I’m not up to date on the situation in India) but my impression is that the plain fact is that most government enterprises are a drain on the budget rather than contributing to it. Therefore, the debt is a real problem regardless of whether it’s 10 percent of the GNP or 60 percent of the GNP. Not because it’s 60 percent or 10 percent, but because you have to look at the other side of the balance sheet and see whether it’s been created for productive or nonproductive uses.

On a very different subject that you touched in your comment, I share completely with you the outrage at the picture of extraordinary ostentation in the midst of extraordinary poverty. I venture to predict that if you ask where the money comes from that finances that ostentation, you will find in almost every single case it comes from government favour. It is created by the present system of planning. The idea that the present system of planning is directed at egalitarianism is, I think, an absurd idea… I remember an incident which I think is very amusing. I once was in Hong Kong ten years ago, and I was entertained at the home of a very wealthy Hong Kong Indian businessman. He’s the person who owns the Hilton, Hare Nina. It was at his home. This is a man who has 50 people to dinner every night. One of the people who was present there was an Indian capitalist who would be an absolutely perfect image for a New Yorker cartoon of a bloated capitalist sitting on a pile of money. He was big, fat and just looked the image.

We ended up the evening with a vigorous argument between him and me, me defending capitalism and him defending socialism, and for understandable reasons. He was fat because of socialism. If you really want to attack that unproductive ostentation, and improve the lot of the individual people, there’s only one way that’s ever been proved to do it. That’s by setting those people free, to use their own resources as they see fit and not having around them the kind of controls that are involved in the Indian planning process. We have to separate objectives from means.

I want to go back for a moment about two comments about T.N.’s. One is, there are certain words which are red lights to fallacies. One of those words is “need”. I do not know any sentence that anybody ever uses with “need” which doesn’t turn out to have a fallacy embedded in it. The word that leads me to is not need but “essential”. “Essential import”. Every economist knows that if you have adjusted your resources properly, every item you buy is essential at the margin. It is a distinction between marginal and average. The word “essential” is a meaningless word, and any place you see it used, you can be sure there is a fallacy. The same thing with the word “shortage”. I noticed that when T.N. came to the word shortage, shortage of foreign exchange, he hesitated. He said an “alleged shortage”. Economists may not know much, but there is one thing we know very well. That is how to create shortages and surpluses. Tell us what you want a shortage in, and we’ll create it. The only thing you have to do is set a maximum price that is below the market price, and you’ll have a shortage. If you want a surplus, we’ll produce that, too. We’ll give you a case in which we’ll offer a price higher than the market price. We’ve got a surplus of wheat for that reason in the United States, and we’ve got a shortage of housing in New York for that reason. The talk about a shortage of foreign exchange is always an evasion of a problem. Some how or other, economists ought to get into the practice of never using the word shortage without accompanying it by at what price.”

One more point and I’ll be through. You say that you want to dismantle the exchange rates over a ten year period. I think you’re wrong. There are some things you want to do immediately overnight and some things you want to drag out. There are two aphorisms that bring out the point. One is: don’t cut a dog’s tail off by inches, and the other is haste makes waste. They’re the opposite of one another, but each is right in some occasions. It seems to me as a generalization with respect to any price control that it should be done instantly. You should cut the dog’s tail off at once. If you’re going to abolish exchange control, it ought to be announced on a Friday or Saturday night to be done on Sunday morning. Just as Ludwig Erhardt in the German reform announced overnight, over a weekend, he did it on Sunday because the American and British control offices were closed and so they couldn’t countermand his order. That is why he did it on a Sunday. He did it at one full stroke, all price controls abolished. Margaret Thatcher abolished exchange control in Britain overnight. Exchange control, it seems to me, is one of those things you have to abolish overnight. If you stretch it out, you will never abolish it.

With power, the product is sold. Power is something that can be provided by the private sector, it is sold, you are not giving it away. It may be infrastructure, but it’s the kind of infrastructure which ought to pay its way.

I don’t think we ought to get involved in words, and I don’t mind if we drop the word socialism. I would say that a system of detailed controls or whatever you call it, is a system which generates inequality. The private ownership of property is not enough. Some of the main beneficiaries from your controls are private enterprises and moreover as I cited in my example, they also support the system of controls and regulation. What I say is that the combinations of controls and regulations, whatever you call it, produces inequality, and chief among them is the foreign exchange control. If you could eliminate the foreign exchange control, you will eliminate a good bit of the harm which is currently being done by all your regulations.

If I might say, I have enormous sympathy with this view that it’s the same old story. It is! Exactly, and that’s what’s distressing about it. It’s a shame that in 40 years, there been no real major change in the structural characteristics of the Indian economy. That’s the real tragedy.”

My review of Sukhamoy Chakravarty’s Development Planning 1987

November 5, 1987 — drsubrotoroy

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 (the Perse School for Girls) 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 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

Sukhamoy's @RBI report (authored he told me mostly by C Rangarajan) was the first attempt in 🇮🇳 to comprehend monetary and fiscal policy together… @DasShaktikanta @nsitharaman @PMOIndia https://t.co/xZD0lkAPux pic.twitter.com/10LtbbaZ0T
— Dr Subroto Roy (@subyroy) November 4, 2021

(see https://independentindian.com/thoughts-words-deeds-my-work-1973-2010/rajiv-gandhi-and-the-origins-of-indias-1991-economic-reform/did-jagdish-bhagwati-originate-pioneer-intellectually-father-indias-1991-economic-reform-did-manmohan-singh-or-did-i-through-my-e/  https://independentindian.com/2013/08/23/did-jagdish-bhagwati-originate-pioneer-intellectually-father-indias-1991-economic-reform-did-manmohan-singh-or-did-i-through-my-encounter-with-rajiv-gandhi-just-as-siddhartha-shan/  )

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

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 politicization 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.”

My response to The Times’ editorial of May 29 1984

June 16, 1984 — drsubrotoroy

In August 1980, I went to Blacksburg in Virginia from Cambridge to work with James M. Buchanan’s Center for Study of Public Choice and to be Visiting Assistant Professor and later Assistant Professor at the Economics Department. When The Times editorial appeared in London on May 29 1984, I did not come to know of it for several days until foreign newspapers reached the Virginia Tech library and a friend phoned me with having seen it there. The Times (then under the editorship of Charles Douglas-Home) had been laudatory but also inaccurate as to what I did or did not have to say. My letter dated June 16 1984 corrected what was said about my work. The editorial is republished elsewhere here.

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Pricing, Planning & Politics: A Study of Economic Distortions in India (1984)

May 29, 1984 — drsubrotoroy

Pricing, Planning & Politics: A Study of Economic Distortions in India Subroto Roy

First published on May 29 1984 as Occasional Paper No. 69 of the Institute of Economic Affairs, London

Preface March 2007

A quarter century has passed since my 1982 doctoral thesis at Cambridge University under Frank Hahn, examined by Christopher Bliss and Terence Hutchison, and titled “On liberty and economic growth: preface to a philosophy for India.” I wrote what follows shortly afterwards in Blacksburg, Virginia, and Ithaca, New York, and it was published on May 29 1984 in London by the Institute of Economic Affairs as Occasional Paper No. 69, ISBN: 0-255 36169-6. The day it was published it turned out to be the subject of the main editorial of The Times, then London’s leading newspaper. (I learnt later this had been due to Peter Bauer, and also that 700 copies sold in the first month, a record for the publisher.) The Times editorial though laudatory was misleading, and I had to clarify the contents of the monograph in a letter published on June 16 1984; both documents are available elsewhere at this site.

This work was the first explicit critique of post-Mahalanobis Indian economic thought from a classical liberal perspective since B. R. Shenoy’s initial criticism decades previously. I was 29 when it was published, I am 52 now. I do not agree with everything I wrote back then and find the tone a little puffed up as young men tend to be; it was five years before publication of my main “theoretical” work Philosophy of Economics: On the Scope of Reason in Economic Inquiry (Routledge: London & New York, 1989, also now republished here). My experience of life in the years since has also made me far less sanguine both about human nature and about America than I was then. But I am glad to find I am not embarrassed by what I said as a young man, indeed I am pleased I said what I did in favour of classical liberalism and against statism and totalitarianism well before it became popular to do so after the Berlin Wall fell. (In India as elsewhere, former communist apparatchiks and fellow-travellers became pseudo-liberals overnight.)

The famous November 1955 Milton Friedman memorandum is referred to herein for the first time as “unpublished” in note 1; I was to meet Milton and Rose Friedman at the Mont Pelerin Society meetings held at Cambridge later that year, where I gave them a copy of this monograph; when Milton returned to Stanford he sent to me in Blacksburg his original 1955-56 documents on Indian planning. I published the 1955 document for the first time in May 1989 during the University of Hawaii perestroika-for-India project that I was then leading, it appeared later in the 1992 volume Foundations of India’s Political Economy: Towards an Agenda for the 1990s, edited by myself and WE James. The results of the Hawaii project reached Rajiv Gandhi through my hand in September 1990, as told elsewhere in “Rajiv Gandhi and the Origins of India’s 1991 Economic Reform”. The 1956 document was published in November 2006 on the front page of The Statesman, on the same day my obituary of Milton appeared in the inside pages (both are republished here too).

It is apparent from this monograph that I knew almost nothing then about Pakistan or Islam; that has changed as may be seen especially from the other book I created with WE James at the University of Hawaii, Foundations of Pakistan’s Political Economy: Towards an Agenda for the 1990s, as well as my more recent work on Pakistan and Islam. It is of course impossible to understand India without understanding Pakistan and vice versa.

In general, this monograph had to do with India’s microeconomics and theory of value and resource allocation while my latest work – “India’s Macroeconomics”, “Fiscal Instability”, “India’s Trade and Payments”, “Our Policy Process”, “Fallacious Finance”, “The Dream Team: A Critique” . “Against Quackery”, “Growth & Government Delusion” etc – has to do with India’s macroeconomics and monetary and fiscal theory and policy. Part of the criticism of “distorted incentives” prevailing in Indira Gandhi’s India may still be relevant to India today, while the discussion of ethnic problems, agriculture, the “public choice” factors that stymie Indian progress, misgovernance etc will almost certainly be found so.

Pricing, Planning and Politics:

A Study of Economic Distortions in India

First published on May 29 1984 as Occasional Paper No. 69 of the Institute of Economic Affairs, London

“The economic laws which operate in India are the same as in other countries of the world; the causes which lead to wealth among other nations lead to prosperity in India; the causes which impoverish other nations impoverish the people of India. Therefore, the line of enquiry which the economist will pursue in respect of India is the same which he adopts in inquiring into the wealth or poverty of other nations.” Romesh Chunder Dutt, 1906, The Economic History of India

“Satyameva Jayathe” (“Let truth be victorious”), Motto of the Indian Republic

I. INTRODUCTION

IN THE last 15 years, considerable evidence has accumulated to suggest that the most important policies pursued by successive governments of independent India have not been conducive to economic development, and have indeed gone against some of the most basic lessons that political economy has to offer. Forewarnings of the present predicament of India had come from a few economists in the late 1950s and early 1960s, but their arguments were either ignored or maligned as dogmatic and motivated by`ideology’.[1] My thesis in this Occasional Paper will be that, if the basic and commonsensical lessons of political economy had been acknowledged early on in the history of the Indian Republic, we might have found today a much more prosperous economy and a much healthier body politic than is the case.

To argue this, it is first necessary to describe an economy where the pursuit of the individual good by rational agents is conducted within some set of orderly political institutions which is conducive to both civil peace and sustained mass prosperity. Accordingly, Part I of this short Paper begins by describing the broad and familiar features of what may be called a neo-classical or liberal model, and then proceeds briefly to contrast it with a model in which individual incentives and public institutions have been distorted from their efficient characterizations.

The practical question that arises is: Where in practice have independent India’s policies led most conspicuously to distorted incentives and institutions? This will be the subject of Part III. Part II places the discussion in context by briefly describing a few relevant aspects of the political history of the Indian Republic.

I have argued elsewhere that every normative proposal for action is, in principle, open to question and criticism on the logical and factual grounds upon which it is founded. Whenever two people disagree about what ought to be done, it will be found either that at least one of them has made a mistake of logic or that they are also in disagreement about the facts of the case.[2] In Part IV, a tentative manifesto for political and economic reform in India is proposed, and I hope these proposals too will be subjected to critical scrutiny on the positive grounds upon which I shall seek to establish them.

Part I: Theory

2. EFFICIENT INCENTIVES AND INSTITUTIONS

A `FACT’ may be understood as the opposite of that which could have been the case but is not. A basic fact of the study of men and society – one which was acknowledged first by Aristotle and then, very importantly, by Adam Smith, and which has been emphasized in modern times by Friedrich Hayek – is that, while we are able to study and speak of the nature of human decision and action in general terms, we do not and cannot have a knowledge of how particular actions are moved by particular causes and circumstances.[3]

We might certainly know, for instance, that every household in an economy views some horizons, wants to fulfill some aspirations, and faces some constraints. But if we were asked to specify what all these characteristics happened to be as a matter of fact at any one moment, we would certainly not be able to do so. Men are concerned almost wholly with (and are experts at) living their own lives as best they can – foraging for food, shelter and work, celebrating weddings and births, rearing children, and mourning deaths. For the most part, they are neither interested in, nor competent at judging, what others happen to be doing in their private lives. Neither benevolence nor envy extends much beyond a man’s immediate vicinity, and, certainly, neither can extend to people he does not know or come to know of in the course of a lifetime.

This fact is also acknowledged in modern microeconomics, when it is said that, for the individual agent to be able to make decisions and act upon them, it is sufficient for him to know (besides his own desires, abilities and constraints) only of the relative prices prevailing locally of the goods and skills he wishes to trade.`Efficient incentive’ defined We might then provisionally define an `efficient incentive’ as a set of relative prices and wages such that, when economic agents act upon them, three conditions are fulfilled:(i) the difference between the total demand for and the total supply of every good and skill is zero; (ii) every consumer succeeds in trading the amounts of different goods that he desires, and so obtains the highest utility he can within the constraint of his budget; (iii) every private enterprise maximizes the difference between its total revenues and total costs, that is, its profits. [4]

Rational action, however, occurs within a particular institutional context. Which action is rational and which is not will depend on what institutions there are and how well or poorly they function. As both classical liberals and Marxists argue, the neo-Walrasian tradition in modern economics – as exemplified by the Arrow-Debreu model – is practically devoid of any explicit institutional description, and so may best be regarded as a useful but grossly incomplete metaphor in the economist’s inquiry.

The institutions most relevant to economic activity are those of government. We might therefore add a fourth condition to characterize an efficient economy, namely, that government institutions work in such a way as to allocate tax revenues towards providing public goods in the amounts desired by citizens. This must be an institutional assumption implicit in the general equilibrium construction, without which it would be impossible to see the sense of that model.

The question that follows is how we are to ascertain the composition of the set of public goods to be provided. As is commonly known, this seems to confront the economist with numerous conceptual and practical problems. I propose here to circumvent all the typical difficulties of how to discover and combine individual preferences for public goods, or how to prevent free-riders, and to take a somewhat different route.

Functions of civil government: protection, public goods, education

To answer the question `What should be public goods first and foremost? I suggest we look for the kind of answer Adam Smith or Jeremy Bentham or J. S. Mill might have given to a related but different question : `What should be the functions of government in a large civil society, regardless of whether or not it is constituted democratically?’ This was the relevant question before the modern era of mass democracy. And it is still interesting because, first, it probably remains the appropriate question for the many countries today which either do not have democratic governments or do not have long histories of democracy, and, secondly, because the kinds of answer given by classical authors were very similar to those we might expect from individual citizens in modern democracies as well.

The most important practical functions of civil government include defence against external aggression, the dispensing of civil and criminal justice, the protection of life, property and trade – broadly, the Rule of Law – and the pursuit of a judicious foreign policy. All are different aspects of the same broad objective of ensuring the survival of the community and the security of individual life.

Yet no pretext has been more common than that an imminent danger to the security of the community requires the government to take despotic measures. The guarantee by a civil government of the freedom of inquiry, discourse, criticism, and historical research should take precedence, therefore, even over ensuring security and survival, for it is probably the only final check there can be on whether what a government says is or is not in fact the case. Where this freedom is forcibly denied, or where it exists but people are too apathetic, ignorant or busy with their daily lives to exercise it, public life soon becomes self deceptive and absurd, with propaganda taking the place of discourse, and pretensions and appearances diverging more and more from attainments and reality. Wherever the questions `What is true?’ or `What is the case?’ are not asked frequently enough, there will be fewer and fewer correct answers as to what the case happens to be.[5]
After collective and individual security, the functions of government include the building of dams, embankments, bridges and canals, the provision of roads and fresh water, and so on – activities which, as Adam Smith put it, “. . . though they may be in the highest degree advantageous to a great society, are, however, of such a nature that the profit could never repay the expence to any individual or small number of individuals, and which it, therefore, cannot be expected that any individual or small number of individuals should erect or maintain.” [6]

Each may be more or less a “pure” public good in the modern sense :“that each individual’s consumption of such a good leads to no subtraction from any other individual’s consumption of that good”.[7]

Such a list could be extended to include activities as diverse as: the prevention of soil erosion; the public finance of school education, and’ of measures of basic public health such as vaccinations against contagious diseases; the issuing of currency; sewage disposal; population censuses; the standardization of weights and measures; and so on. It is unnecessary to be more specific here since some people will find even this list controversial. Dogmatists will deny the need for free inquiry; pacifists will dispute that defence is a public good; communists will protest against the public protection of private property; `anarcho-capitalists’ will contest the public dispensation of justice; and so on. To these critics, I would offer merely the following short and incomplete reply.

First, a sound argument can be made that what functions civil government should have can be ascertained, without prejudice, by reasonable citizens, though which particular functions these are may well vary according to circumstances. Secondly, if we could spend time in thoughtful and leisured conversation with every citizen of a large community, it might be predicted – as a matter of cold, empirical fact – that practically everyone would agree with the suggestion that the first destinations of tax revenues should indeed be activities like defence, civil protection and the Rule of Law, the provision of roads, and so on. If such a prediction is correct, my thesis is plainly much more democratic than it might appear to modern economists, though I shall later claim that an objective defence of democratic institutions can be made on quite different grounds as well.

If there is a clear family resemblance between classical liberal authors – from Smith and Mill through to Hayek, Robbins, Friedman, Buchanan, Bauer and many others – it has to do, not so much with the denunciation of government activity in the market-place, as with the recognition of the existence of certain duties of government outside it, the fulfillment of which are indispensable to civil life, let alone the pursuit of economic prosperity. Their protest is at the high opportunity cost of the alternatives foregone.

This raises the question of how we might tell whether government is working well or badly in a particular country at a particular time, or, generally, how we might tell whether different public goods are provided in too small or large amounts. For present purposes it will again be sufficient to suggest a very rough and common sense way of proceeding: let us look first, and think second.

For example, the Iran-Iraq war has clearly been a perfect public bad as far as the ordinary citizenry in either country are concerned. Similarly, if there happen to be millions of cases queuing outside the courts waiting to be heard, or if crime is rampant and police protection ineffective, that may constitute prima facie evidence that too few public resources have been devoted to civil order and justice. Or, if heavy rainfall annually causes landslides in the hills and floods in the plains, devastating crops and leaving innumerable citizens destitute, that also might prompt us to ask whether sufficient public resources have gone towards precautions against such havoc. And so on.[8]

Which goods happen to be public goods depends on the circumstances and the level of government being discussed. For similar circumstances and levels, similar goods will most likely be public goods in different countries. The state ordinarily consists not only of the national government but also of several provincial governments and a myriad of local governments. In particular, a premise of the liberal state would be that public goods should in fact be provided by various levels of government, financed through taxes paid respectively at those levels. The citizen is a taxpayer at a variety of levels, and accordingly public goods are due to be provided at a variety of levels. Just as the national government may not usurp the power to tax for, or spend money on, a public good which is best provided by a provincial government to the citizens of a province, so a provincial government may not tax for, or spend on, a public good best provided by a local government to the citizens of a locality.

The broad principle involved has two aspects: first, a recognition that knowledge of particular circumstances – and hence the ability to act – is infinitesimally dispersed within a population; and, secondly, as direct and visible a matching as possible of the benefits a citizen receives from a particular public good with the taxes he pays towards it, thereby perhaps reducing his incentive to be a free rider on the contributions of others.8Uncertainty and ignoranceProvisionally, therefore, efficient incentives may be thought to consist of a set of market-clearing relative prices and wages, occurring within an institutional context in which the basic and indispensable functions of government have been adequately performed at a variety of appropriate levels.

Such a definition would still be seriously incomplete in one major respect. For we must now recognise: (i) that history is unique and irretrievable, that the present consists only of the fleeting moment, and that the future, by its very nature, cannot be fully known; (ii) that such a thing as human freedom exists; and (iii) that, as a consequence, uncertainty and ignorance are ubiquitous.

Some of the uncertainty derives from the unfolding of natural events (like the rains) over which man has little or no control. The rest derives from the fact that the individual is a free agent who is affected by the actions of others but who cannot predict those actions completely because they too are free agents like himself. Game theory would have had no appeal for the economist if the existence of human freedom had not been a fact. It is this which makes it impossible to read everything in another person’s mind and thus makes it impossible to predict everything he might do. The lasting contribution of Keynesian economics could be its emphasis that such uncertainty and ignorance are important to the economist’s inquiry.

Mathematical economists have been saying for several years that what is required if we are to be realistic are models which reflect the sequential character of actual decision-making and account for the past being immutable and the future uncertain.[9] However, they have proceeded to write even more complex mathematics than we already have – disregarding Aristotle’s advice not to seek more precision from the subject of an inquiry than it may be capable of yielding.[10] My question is the more mundane one of what becomes of the classical liberals’ concept of efficient incentives and institutions in a dynamic world. I shall answer it too in a pedestrian way.

The single overwhelming reason why uncertainty and ignorance are relevant to the economist’s descriptions is that they make real the possibility of mistakes by economic agents. To extend the previous discussion to a dynamic context, what we can do is to ask which institutions are most likely to reduce or mitigate the social consequences of mistaken decisions, whether made by private agents or by those in public office. And it is here that the classical liberals advocate two important institutional features: competition and the decentralisation of decision-making.

The major value of democratic institutions over authoritarian ones is that they encourage these two principles to be put into effect. Because, in a large economy, particular knowledge is infinitesimally dispersed, it may be better for adjustments to a multitude of variables to be made continuously in response to changing circumstances by a vast number of small economic agents, rather than for adjustments to a few variables to be made at political intervals by a small group of very powerful agents. The concentration of power to make major decisions among a few fallible men is a much more ominous prospect than the distribution of power in small amounts among a large number of fallible men. It is much more dangerous for a monopoly of ideas to be claimed about where the political good of a country lies than for there to be free and open competition among such ideas at the bar of reason.

D. H. Robertson put it well when he warned “that all the eggs should not be in the same basket – that in this highly uncertain world the fortunes of a whole trade, or a whole area, should not depend on the foresight and judgement of a single centre of decision”.[11] The presumption in favour of democratic institutions is that they reduce the potential damage from wrong political decisions damage which can be rationally expected in an uncertain world.[12] Elections, in the liberal understanding, are then not so much the means to promote the interests of one’s confederates as to remove from office without bloodshed rulers who fail to do what they are entrusted with, and to replace them by those from whom better is expected. Economic efficiency in an uncertain worldThe economic notion of efficient incentives is also modified by uncertainty and ignorance. In the theory, a set of prices is market clearing only relative to unchanging preferences, resources and technologies. In a dynamic world, however, demand and supply functions are themselves changing and the notion of efficient incentives must accordingly be adapted to one in which relative prices move in the direction of the excess demand: that is, if the parameters change so that the total demand for a good or skill comes to exceed the total supply, we should want to see its relative price rising (and, conversely, if total supply exceeds total demand, we should want to see its relative price falling). During such a process of adjustment, many people may suffer very considerable hardship – something which reasonable Keynesians do well to emphasise.

If changing preferences, resources or technologies cause the demand for a product to diminish, we should want to see the firms which manufacture it either entering different markets, or improving its quality by technological innovation, or lowering prices. Similarly, we should want to see workers in these firms whether blue- or white-collar – who have skills specific to a product whose price is falling either increasing their productivity or retraining themselves in different skills more specific to the manufacture of goods whose prices are rising. Numerous enterprises can go bankrupt, and numerous workers can find themselves unable to sell the skills they possess, if they fail to adapt quickly enough to changing market conditions. The more specialised the product and the more specific the skill, the more hardship there may be. There could well be orthodox Keynesian consequences whereby laid-off workers reduce their consumption expenditures and firms on the verge of bankruptcy reduce their investment expenditures, leading to lower incomes for others, and thus to lower expenditures by them too, and so on. An anti-Keynesian who denied the existence of such hardship would be closed to the facts. He might also not be doing his own theory justice: for it is not unreasonable to argue that, while adjustments are inevitable in an uncertain world, the classical response of prices moving in the direction of excess demand probably minimises the hardship in the transition from one equilibrium to the next.

In a dynamic world, therefore, in which supply and demand functions are shifting continually and unpredictably (though probably incrementally, and not drastically), efficient incentives are better thought of as relative prices which are not stagnant but which are moving – and moving quickly – in the direction of excess demand. It should, in general, be continually profitable at the margin for firms and workers to be innovating technologically and improving productivity. As everyone knows from experience, the principle goad to such activity is fair and free competition. If a job or contract is sought badly enough, and if better quality or lower price are known to be the only criteria of selection, the expected outcome is a differentiation and improvement by competitors of the individual quality or price of what is sold.

In broad summary, the liberal understanding of how material well-being can be improved rests on the assumption that the basic functions of civil government are performed satisfactorily. Government provides the backdrop of civil order and protection necessary for private citizens freely and fairly to conduct their own lives and their transactions with one another. It is a theory which acknowledges a fundamental fact in the study of society, namely, that the individual household : (a) most commonly defines its own horizons; (b) knows the particular opportunities available to it to produce, trade and consume; (c) recognises the particular constraints which prevent it from doing all that it may desire; and(d) perceives how these opportunities and constraints may be changing. Where, as in the liberal picture, there are large numbers of producers and consumers, sellers and buyers – each family acting more or less independently – the efforts of one family do not directly make for other than its own success, while at the same time the repercussions of its mistakes are felt by itself and do not reverberate throughout the whole community. Such has been, as I see it, the American secret to mass prosperity.

3. DISTORTED INCENTIVES AND INSTITUTIONS

DISTORTED INCENTIVES are the logical opposites of efficient ones. Relative prices and wages send distorted signals to individual economic agents when they do not move in the direction of excess demand, so that there is no general tendency for markets to clear. A long-run or endemic excess demand for a good reveals itself in rationing, queueing and black markets. The price at which trade nominally takes place is too low and shows no tendency to move upwards.

Conversely, in a product market, a long-run or endemic excess supply reveals itself in surpluses and spoilages. In a labour market, it reveals itself, on the one hand, in armies of tenured employees who have no incentive to improve productivity, and, on the other hand, in lines of involuntarily or disguised unemployed who cannot sell all the skill they possess and have to settle for selling their less-specialised ones. The price at which trade nominally takes place is too high and shows no tendency to move downwards. In practical terms, firms do not find it profitable to be continually entering new markets or improving quality or enhancing technology or reducing price in order to attract and retain customers. Farmers in particular may face output and input prices which make technological improvements unprofitable.

In politics, distorted incentives are ones which make it profitable for politicians and government officials to be corruptible and taxpayers to be evasive. Because corruption is not penalised and honesty not rewarded, the pursuit of private interest may make it rational to be corrupt and irrational to be honest.

Individualism and statism

A neo-classical economic model like the one outlined above presupposes among citizens a political attitude of individualism. This may be defined as a condition in which citizens have the idea (a) that it is the individual household itself which is principally responsible for improvements in its own well-being, and (b) that government merely “is, or ought to be, instituted for the common benefit, protection and security of the people …”, and that government officials are merely the citizens’ “trustees and servants, and at all times amenable to them.” [13]

Its logical opposite may be called an attitude of statism – defined as prevailing when various classes of citizens have the idea that it is government which is and should be principally responsible for improvements in individual and public well-being. A good sense in which `power’ can be defined in political and economic contexts is as “the capacity to restrict the choices open to other men”.[14] An attitude of statism entails a willingness, or at least an acquiescence, on the part of citizens to relinquish to those in government, with little or no questioning, the power to make decisions which may affect their lives intimately. At the same time, responsibility for relapses or lack of progress in individual well-being is also thought to be the consequence of governmental and not private decision-making. Whereas individualism is a self-assertive attitude, statism is a self abnegating one. For those in government to have a statist mentality is the same as saying they are paternalistic, that is, making the presumption that the citizen is often incapable of judging for himself what is for his own good.

The suggestion that government should have the principal responsibility for improvements in individual and collective economic well-being – in the sense that the collectivity can and should satisfy the material aspirations of every individual – appears straightaway to be self contradictory. An individual can have enough difficulty trying to articulate his own horizons, aspirations and constraints, let alone trying to do the same for others. For a politician (or economist) to claim (or imply) not only that he knows(or can know) the relevant characteristics of everyone at once, but also that he knows how to ameliorate the condition of humanity at a stroke, as if by magic, would have been considered ridiculous in more candid times than ours. If we understand `collective effort’ to mean the sum of individual labours engaged in a common pursuit or endeavour, then for the collectivity to try materially to satisfy every individual would amount to imposing a duty on everyone to try materially to satisfy everyone else – an absurd state of affairs, flying in the face of the fact that most people most of the time do not wish to, or cannot, cope with much else except their private lives.

Exhorting government directly to improve the material wellbeing of `the people’ cannot mean what it seems to because it cannot refer to literally all the people but only to some of them perhaps only a majority, or only the well-organised. That the state is endogenous to the polity implies that no government has resources of its own out of which to disburse the amounts a politician may promise or an economist recommend. To fulfil new promises, given an initial condition of budgetary equilibrium, a government is only able either to print more fiat money or to tax the resources of individual citizens more heavily. Leaving aside the first alternative, fulfillment of the exhortation amounts to using public institutions to transfer resources from some people in order to keep promises made to others.

When the attitude spreads that, in politics, one man’s gain is another man’s loss, and where political control is to be had by winning majorities in elections, the citizen comes to face a perverse incentive to try to coalesce with more and more others in the hope of capturing the public revenues in his favour – instead of thinking critically about the nature of the political good as the institutions of democracy require him to. Political power becomes less dispersed, and the size of the polity diminishes in the sense that it comes to have fewer and fewer constituent agents, each of which is a larger and larger coalition of like-minded confederates intent on acquiring control for its own benefit.

Perhaps the worst consequence of a general attitude of statism, however, is that the basic, commonsensical functions of government are obscured, ignored, and neglected. Instead of requiring politicians and government officials to fulfill these functions, a citizenry allows its public agents to become brokers and entrepreneurs – trading not only in the products of government controlled industries but also in an array of positions of power and privilege, all in the name of directing a common endeavour to help the poor. The state places itself at every profitable opportunity between private citizens who might otherwise have conducted their transactions themselves perfectly well. The result is that governments do, or try to do, what either does not need to be done or ought not to be done by government, while they neglect that which only governments can do and which therefore they ought to be doing.

Part II: History

4. INDIVIDUALISM AND STATISM IN INDIA

AN ATTITUDE of statism has probably been present in India since Mughal times at least. If anything, it spread during the British period since the raison d’être of British rule in India would have vanished without paternalism (as in the course of time it did) and the existence of British rule was the raison d’être of the nationalist movement. Paternalism towards India was espoused even by those Englishmen known for their liberal views at home. Thomas Macaulay, for instance, declared to the House of Commons in 1833: “It may be that the public mind of India may expand under our system till it has outgrown that system; that by good government we may educate our subjects into a capacity for better government; that having become instructed in European knowledge, they may, in some future stage, demand European institutions. Whether such a day will ever come I know not. But never will I attempt to avert or retard it. Whenever it comes, it will be the proudest day in English history.”[15]

Less than a hundred years later, in 1930-31, the Indian National Congress – to the considerable chagrin of the British Government – resolved to bring about an independent India in which every citizen would have the right to free speech, to profess and practise his faith freely, and to move and practise his profession anywhere in the country. There would be universal adult suffrage and no-one would be unjustly deprived of his liberty or have his property entered, sequestered or confiscated. In particular, all citizens in the future republic would be `equal before the law, irrespective of religion, caste, creed or sex’, and no disability would attach`to any citizen by reason of his or her religion, caste, creed or sex, in regard to public employment, office of power or honour, and in the exercise of any trade or calling’.[16]

These resolutions were made in the thick of the battle for independence, and underscored the fundamental argument of the nationalists that, in spite of the infinitely diverse characteristics of the inhabitants of the sub-continent, a free and secular India was possible in which all would be ruled by a common law. That argument had been in contradistinction to the frequent taunt from British Conservatives that an
India without Britain would disintegrate in internecine bloodshed, and also to the later `two nations’ theory of the Muslim League which led eventually to the creation of
Pakistan. With the departure of the British and the Pakistanis, in 1950 the Constitution of the first Indian Republic was finally able to bring into force the idea of secularity which had inspired the nationalist cause. Thus, among the Fundamental Rights established by the Constitution, Article 14 provided that the state `shall not deny to any person equality before the law or the equal protection of the laws within the territory of
India’. Articles 15.1, 15.2, 16.1, 16.2 and 29.2 went on to prohibit discrimination on the arbitrary grounds of religion, race, caste, sex or place of birth in matters of public employment or access to publicly-funded education.

The century between Macaulay and the resolutions for independence was by far the most important to the country’s intellectual history since earliest antiquity. While it took its turbulent course, long severed since the time of the early Greeks – came to be re-established. The common interest and the common contribution became one of admiring and learning from Europe and from India’s own past what there was to be admired and learnt, whilst forsaking and resisting what was self contradictory or base. The maxim for a century might have been : learn the good and let the evil be buried in history. As Tagore wrote :`The lamp of Europe is still burning; we must rekindle our old and extinguished lamp at that flame and start again on the road of time. We must fulfill the purpose of our connection with the English. This is the task we face in the building up of a great India.’[17]

The ideal aspired to was swaraj, or `self rule’. It literally meant not only a government of India by Indians accountable to Indians, but also the governance of the individual by himself. Not only was the country to be sovereign vis-à-vis other states; its individual citizens were to be free vis-à-vis each other and equal before its laws. Swaraj meant, in other words, a condition of political autonomy where the citizen constrained his own free actions so as not to harm others, and where the Rule of Law would protect him when he acted autonomously and resist him when he did not. Given a backdrop of civil order, the infinite number of ways to individual happiness and prosperity in an infinitely diverse sub-continent could then be pursued. Statism all pervading

An attitude of statism, however, has pervaded all public discourse in independent India, and has been reinforced by the social and economic policies pursued by successive governments.

In the first place, a ghost from earlier controversies with the British was to remain in the 1950 Constitution. Immediately after the provisions establishing equality before the law and equality of opportunity in public employment and publicly funded education, the following caveats appeared. Article 15.3 said that the state could make “any special provision for women and children”; and then, of more significance, Article 15.4 allowed the state to make “any special provisions for the advancement of any socially and educationally backward classes of citizens or for the Scheduled Castes and the Scheduled Tribes”.

Article 16.4 allowed it to make “any provision for the reservation of appointments or posts in favour of any backward class of citizens which, in the opinion of the State, is not adequately represented in the services under the State.” Lastly, Article 335 said that “the claims of the members of the Scheduled Castes and the Scheduled Tribes shall be taken into consideration, consistently with the maintenance of efficiency of administration, in the making of appointments to services and posts [under the State] . . .” Who was to decide who was `backward’ and who was not, or which group was to be `scheduled’ and which not? Article 341.1 said that `The President may . . . by public notification specify the castes, races or tribes which shall for the purposes of this Constitution be deemed to be Scheduled Castes’, and Article 341.2 added that `Parliament may by law include in or exclude from the list of Scheduled Castes specified under 341.1 any caste, race or tribe or part of or any group within any caste, race or tribe . . .’ Articles 342.1 and 342.2 said the same for the Scheduled Tribes.

Subsequently, two Presidential Orders named no fewer than 1,181 different groups in the country as `Scheduled Castes’ and more than 583 other groups as `Scheduled Tribes’. Roughly a sixth of the population thus came to be termed `backward’ by executive decree and were segregated by statute from the rest of the citizenry.

The direct precursor of these provisions was the `Communal Award’ by the British Government in 1932, who had taken it to be their duty “to safeguard what we believe to be the right of Depressed Classes to a fair proportion in Legislatures ”.[18] (`Depressed Classes’ was the official name for those misleadingly called `untouchables’ outside the Hindu fold.)

The complex customs of the Hindus call for endogamy and commensality among members of the same caste, thus making anyone outside a caste somewhat `untouchable’ for its members. In marriage and dining habits, many orthodox Hindus would hold foreigners, Muslims, and even Hindus of other castes at the same distance as those formally classified as `Depressed Classes’. Indeed, non-Hindus in India -including the British often maintained social protocols that were equally as strict.

No serious Indian historian would doubt that members of the `Depressed Classes’ had been oppressed and had suffered countless indignities throughout Indian history at the hands of so-called`caste Hindus’. At various times, persecution had led to mass conversions to the more secular faiths. But the ancient wrongs of the Hindu practices had to do not so much with the lack of physical contact in personal life which the word `untouchability’ connotes for Indian society has always consisted of a myriad of voluntarily segregated groups – but rather with open and obvious inequities such as the denial of equal access to temples, public wells, baths and schools.

Gandhi, who by his personal example probably did more for the cause of the `Depressed Classes’ than anyone else, protested against the Communal Award with one of his most famous fasts. Privately, he suspected that `…the communal question [was] being brought deliberately to the forefront and magnified by the government because they did not intend to part with power’.[19] Publicly, he argued that the pernicious consequence would be a further exacerbation of the apartheid under which the `Depressed Classes’ had suffered for so long, when the important thing was for their right to be within the Hindu fold to be acknowledged by `caste’ Hindus.[20]

The Fundamental Rights in the 1950 Constitution establishing the equality of all citizens before the law evidently had the 1930-31 resolutions as their precursors; while Article17 – which specifically declared `untouchability’ to be `abolished’ and its practice `forbidden’ – was part of Gandhi’s legacy, placing those who had for centuries been denigrated and persecuted on exactly the same footing in the eyes of the laws of the Republic as their denigrators and persecutors. The subsequent clauses authorizing the state to discriminate in favour of `Scheduled Castes’, and allowing it to define by executive decree who was to be so called, were evidently the remnants of the Communal Award of 1932. Discrimination by the state was initially to last for a period of 10 years only. It has, however, been extended three times -for another 10 years on each occasion – and so continues to the present day. We shall examine a few of the consequences in Part III.‘A socialistic pattern of society’As for economic policy, while the original 1950 Constitution had ambiguously stated certain ends – such as that government was `to strive to promote the welfare of the people’ – it made no mention at all of any specific economic institutions, statist or liberal, which the new Republic was to nurture as means towards those ends. In spite of this omission, successive governments have explicitly avowed their espousal of` socialism’ as the means to the good and prosperous society.

For instance, a “socialistic pattern of society where the principal means of production are under social ownership or control” was declared to be a national objective at the ruling Congress Party’s convention in 1955; and, in 1976, the notorious 42nd Amendment purported to change the very description of the country in the preamble to the original Constitution from the sober `Sovereign, Democratic Republic’ to the awkward `Sovereign, Secular, Socialist Democratic Republic’. It is an open and important issue of constitutional practice whether a temporary majoritarian government can change the legal description of a republic so fundamentally that it necessarily begs every question now and in the future about the efficacy of socialism as the route to mass prosperity.[21]

Even so, `socialism’ is a vague and equivocal word, meaning different things to different people. Briefly, what happened in the Indian context seems to have been that the Nationalist Government explicitly took upon itself the responsibility of becoming the prime mover of the economic growth of the country. This was in addition to its other fundamental and urgent political responsibilities at the time, namely, to establish peace and civil order in the aftermath of a bloody partition, re-settle several million destitute refugees, integrate into the Republic the numerous principalities and fiefdoms run by the princes and potentates, re-draw provincial boundaries on a sensible linguistic criterion, and generally educate people about their rights and responsibilities as individual citizens in a new and democratic republic.

In a poor country which had just ended a long period of alien rule, it was understandable, if in advisable, that a nationalist government led by cultured, educated men among unlettered masses should take upon itself the responsibility for economic growth. Part of the nationalists’ critique of British rule had been precisely that it had worked to the considerable detriment of the Indian economy. And, certainly, whatever the exact calculation of the benefits and costs of the British presence in India, while there had been obvious benefits, there had also been obvious costs such as iniquitous taxes and overt racial discrimination in employment. [22]Thus, when the nationalists practically swore themselves to provide better government for the economy, it was certainly a very praiseworthy aim; 1947 would indeed be the year of India’s `tryst with destiny’.

Better government not necessarily more government
What the Nehru Government came to believe, however, was that better government for the economy necessarily meant more government activity in the economy. A similar nationalist government led by cultured, educated men among an unlettered public had chosen differently in 1776 at Philadelphia, but the times and circumstances were very different. The Indian nationalists, and most especially Prime Minister Nehru, had just witnessed what they took to be, on the one hand, the collapse of the market economy in the Great Depression and, on the other, the rapid growth to greatness of Bolshevik Russia. In his presidential address to the Congress in 1936, for instance, Nehru spoke of the immediate past in these terms: `Everywhere conflicts grew, and a great depression overwhelmed the world and there was a progressive deterioration, everywhere except in the wide flung Soviet territories of the USSR, where, in marked contrast with the rest of the world, astonishing progress was made in every direction . . .’ Thus, it seemed to him, there was`. . . no way of ending the poverty, the vast unemployment, the degradation, and the subjection of the Indian people except through Socialism”. Socialism meant, inter alia, ` the ending of private property, except in a restricted sense, and ttte repla emenr of the ,private profit system by a higher ideal of co-operative service. It means ultimately a change in our instincts and habits and desires. In short, it means a new civilisation, radically different from the present capitalist order. Some glimpse we can have of this new civilisation in the territories of the USSR. Much has happened there which has pained me greatly and with which I disagree, but I look upon that great and fascinating unfolding of anew order and a new civilisation as the most promising feature of our dismal age. If the future is full of hope it is largely because of Soviet Russia and what it has done, and I am convinced that, if some world catastrophe does not intervene, this new civilisation will spread to other lands and put an end to the wars and conflicts on which capitalism feeds’.[23]
Equally as certain and deep as his admiration for the liberal values of the West was Nehru’s evident misunderstanding of the causes and consequences of Stalin’s Russia. The political and economic history of India in the past 30 years cannot be understood without regard to her most powerful leader’s ambivalence about the nature of the political and economic good.
By the mid-1950s, many of India’s other prominent statesmen had died or retired from public life, and there was hardly a public figure of’ stature left (with the exception of Rajagopalachari) to challenge Nehru’s socialist vision of the country’s future. Moreover, men who were ostensibly `expert economists’, but whose writings revealed no knowledge of prices or markets or the concept of feasibility, were encouraged to endorse and embellish this vision, which they did without hesitation in the secure knowledge that they were shielded from critics by the intellectual patronage of a charismatic and elected leader.[24]
The choice between alternative models of mass economic prosperity must have seemed quite clear at the time. The cold fact did not, however, vanish that one of the oldest objective lessons of political economy has been that more government is not necessarily better government. It is to the consequences of ignoring this lesson that we now turn.

Part III: Practice
ECONOMIC POLICIES IN INDEPENDENT INDIA

INDIA TODAY is a bizarre maze of distorted incentives, which I (and no doubt others) have found very difficult to untangle and understand. I shall, however, list and discuss the most significant of them as methodically as I can.

(i) Industry
The Indian Government has declared a large `public sector’ in commerce and industry to be a national objective. Towards this end, it has therefore progressively acquired numerous enterprises, large and small, so that it now has either a full monopoly in an industry or is one of a few oligopolists. These industries range from banking, insurance, railways, airlines, cement, steel, chemicals, fertilisers and ship-building to making beer, soft drinks, telephones and wrist-watches. There are no explicit penalties for indefinite loss-making; indeed, bankrupt private enterprises have often been nationalised to serve politicians’ ends. And, certainly, there has been no general rule of marginal-cost pricing. In public utilities, like electricity generation and distribution or city buses and trams, prices appear to be well below marginal cost, leading to severe rationing and queueing. Sudden stoppages of electricity for hours at a time and monumental congestion on buses and trams have become endemic facts of life for millions of urban Indians.
At the same time, private industry in India has been made to face labyrinthine controls. The government has continually exhorted private firms to work in the `national interest’ – which means accepting the constraints of centralised planning. It has left no doubt that, while there is a `role’ for the min the growth of the economy, they exist at the sufferance of government and had better realise it, otherwise the dark forces of revolution which have so far been kept at bay will inevitably sweep them away altogether, as happened in Russia and China.
The constraints imposed on the operation of a private business are legion, and would make a businessman from the West or Far East reach for a psychiatrist or a pistol. An entrepreneur may not enter numerous industries without government approval of the `technical’ viability of his project; once it is approved, he cannot find credit except from a government bank; and he cannot buy raw materials and machinery of the highest quality at the lowest price since, if they are produced in India, he will be denied a licence to import better and/or cheaper foreign substitutes. The onus is on him to satisfy the government that no production occurs within India of the input he requires; only then will an import licence conceivably be granted, subject to periodic review by the government. He may be compelled to export a specified proportion of his output as a condition for the renewal of his import licence, which therefore places him at a disadvantage with foreign buyers who, of course, are aware of this restraint. He may be unable to compete internationally because the rupee is priced above its likely equilibrium and some of the inputs he uses are high-cost, low-quality domestic substitutes. As a result, he may be compelled practically to dump his output abroad at whatever price it will fetch.

The entrepreneur’s factory may be subject to random cuts in electricity for hours at a time. He may require government approval before he can increase his fixed capacity, modernise his plant, change a product-line, or even change the number of labour shifts. He may face minimum-wage and stringent unfair dismissal laws on the one hand, and price controls on the other. If he fails to meet credit obligations to the nationalised banks, he may be penalised by the appointment of one or more government directors to his board – a form of `creeping’ nationalisation. Further, he may be subjected to a constant threat of full nationalisation as and when the government decides that his industry should be in the public sector in the interests of national planning.[25]

The consequence of all these controls has been a monumental distortion of incentives away from encouraging private firms to try to attract customers by improving technology and quality or reducing prices towards encouraging them to concentrate on `rent-seeking’, in the term made familiar by Professors Gordon Tullock and James Buchanan.[26]

As Anne Krueger says in her excellent study of the automobile ancillary industry, the very notion of entrepreneurial efficiency changes in such circumstances: `Under conditions in India, the most important problem confronting entrepreneurs is that of assuring that production will continue. The combined effects of import licensing and investment licensing give virtually every firm a monopoly or quasi-monopoly position. The entrepreneur who is most successful in getting licences of greater value and/or in getting licences more quickly than his fellow producers will have higher profits. `The producer who does not compete successfully for licences cannot produce at all, no matter how skilled he is in achieving engineering efficiency, unless he enters the “open market” and pays a premium to the successful licence applicant for some materials . . . Successful entrepreneurs are therefore those who are best at obtaining the greatest number of licences most expeditiously . . .’ [27]

Moreover, firms which are low-cost and efficient (in the free market sense) and which are successful at rent-seeking as high-cost, inefficient firms may still not be able to compete the latter out of business because government will not usually allow a particular firm to expand – regardless of its efficiency – if there is excess capacity in the industry of which it is a part. High-cost firms can thereby rationally count on staying in business simply by maintaining significant excess capacity.

(ii) Foreign trade
The Government of India has always claimed that foreign exchange is a `scarce’ resource which must be rationed by fiat in the national interest. The total foreign-exchange revenue (at an exchange rate which was fixed until 1971 and has since been on a managed `peg’) has been allocated in the following order of priorities: first, to meet foreign debt repayments and government expenditures in the conduct of foreign policy, such as the maintenance of embassies (G1); secondly, to pay for imports of defence equipment, food, fertilisers and petroleum (G2); thirdly, to meet ear-marked payments for the imported inputs of public sector industries so that they may achieve projected production targets (G3); fourthly, to pay for the imported inputs of private sector firms which are
successful in obtaining import licences (P1); and, lastly, to satisfy the demands of the public at large for purposes such as travel abroad (P2).
Foreign exchange is `scarce’ in India, or elsewhere, in precisely the same sense that rice or petrol or cloth is scarce. Just as there exists some positive price for rice, petrol or cloth which, at any moment, will match total supplies with total demands, so there exists some positive price for rupees relative to dollars which, at any moment, will match the transaction and asset demands of Indians for dollars with the transaction and asset demands of foreigners for rupees. Underlying that market-clearing price would be (a) the demands of Indians for foreign goods whose f.o.b. prices were lower than those of domestic substitutes, and, similarly, the demands of foreigners for goods in which India has had a comparative advantage; and (b) the expectations of Indians and foreigners about the future purchasing power of the rupee relative to the dollar, using as a proxy, say, the difference between interest rates in India and abroad.

A free market in foreign exchange would first have encouraged India’s traditional exports, like jute manufactures and textiles, and then (if the positive theory of international trade is broadly correct)progressively encouraged the export of other non traditional goods which used India’s relatively inexpensive labour relatively intensively and thereby enabled Indian entrepreneurs to compete successfully in foreign markets. At the same time, capital flows into and out of India would have given the monetary authorities an incentive to keep domestic interest rates in line with the real opportunity cost of forgoing consumption in favour of savings.

Thus, the case against a free market in foreign exchange has always been, to say the least, far from obvious.[28] But even if, for the sake of argument, we accept the presumed superiority of rationing, the elementary theory of optimisation which underlies the so-called theory of `planning’ dictates that the government should allocate dollars between alternative uses such that the marginal dollar yields the same increase in social utility in any use. The Indian Government, however, appears to have allocated foreign exchange simply on the basis of giving a higher priority to its own foreign expenditures (categories Gl, G2 and G3) than to private foreign expenditures (categories Pl and P2). That is to say, regardless of how much social utility might have been derived from a particular increase in private-sector imports, it would not be considered until after the government had met all its own expenditures abroad.[29]
Jagdish Bhagwati and T. N. Srinivasan put it as follows : `The allocation of foreign exchange among alternative claimants and users in a direct control system . . .would presumably be with reference to a well-defined set of principles and criteria based on a system of priorities. In point of fact, however, there seem to have been few such criteria, if any, followed in practice.’[30]
With respect to imported inputs for private- and public-sector industries, a rule of `essentiality’ (that is, the input must be technically `essential’ to the production process) and a rule of `indigenous availability’(that is, there must be absolutely no domestically-produced physical substitutes, regardless of cost and quality)seem to have been followed. But, as Bhagwati and Srinivasan report, `. . . the sheer weight of numbers made any meaningful listing of priorities extremely difficult. The problem was Orwellian: all industries had priority and how was each sponsoring authority to argue that some industries had more priority than others? It is not surprising, therefore, that the agencies involved in determining allocations by industry fell back on vague notions of “fairness”, implying pro rata allocations with reference to capacity installed or employment, or shares defined by past import allocations or similar rules of thumb’. [31]

Clearly, in abjuring the free market and claiming a monopoly over foreign-exchange transactions, government planners have accepted certain premises as unquestionable: (a) that government sponsored industrialisation is the best means to mass prosperity; (b) that a policy of indefinite import-substitution is the best means to industrialisation; and (c) that such a policy requires all foreign expenditures by government to take precedence over all private foreign expenditures. The trade and foreign-exchange policies pursued cannot be understood except by reference to domestic economic policies and, in particular, to the view held about the proper functions of government in and out of the market-place.

In addition to a plethora of controls, tariffs and outright bans on imports, there have been erratic policies, subsidising the export of `new’, non-traditional manufactures like engineering goods, and taxing- and even banning – the export of goods in which India has traditionally enjoyed a comparative advantage.[32]

Moreover, the rupee has been continuously over-valued. From 1949 to 1959, the official exchange rate of Rs. 4.76 to the US dollar was, on average, 12..3 percent above the black-market rate, a figure which rose to 61 per cent between 1960 and 1965. From 1966 to 1970, the devalued official rate of Rs. 7.50 to the dollar was above the black-market rate by an average of 47.6 per cent, while from 1971 onwards the managed-peg rate has been above the black-market rate by an average of 24.3 per cent.[33]

Simple economics suggests that a free-market equilibrium rate would be somewhere between the black-market and official rates. An official exchange rate for the rupee fixed above that warranted by underlying relative demands for Indian and foreign goods, as well as by relative degrees of confidence in the rupee and the dollar, subsidises imports at the expense of exports. By discriminating in favour of its own foreign expenditures and against those of the private sector, the government has been the principal beneficiary of an over-valued rupee. If capital-intensive goods are the main imports and labour-intensive ones the main exports, an over-valued rupee further distorts incentives so as to favour the use of capital-intensive production processes over labour intensive ones – in a country with a demonstrable abundance of relatively inexpensive labour!
With an eye to India, Krueger has argued the general issue in these terms:`Subsidies can make any industry an export industry, even one that would not produce at all in an efficient allocation. Similarly, taxes can be levied on an industry that has comparative advantage which will penalize it enough to render domestic production entirely unprofitable. When taxes and subsidies are used, therefore, it is possible not only to distort the structure of production, but to distort it so much that the “wrong” commodities are exported.”[34]

The Indian Government’s planners have had the idea of forcibly effecting a reversal in the comparative advantage of the country, as if by magic overnight. The hope might have been that a forced pace of industrialisation would somehow allow economies of scale to be reaped and thus soon make Indian industrial goods competitive enough in international markets to be the country’s principal source of foreign exchange, displacing traditional manufactures like jute and textiles. In practice, however, as the evidence given by Bela Balassa
and other economists demonstrates, such a policy has not succeeded to date and is most unlikely ever to do so.
India’s import bill has risen continuously, most drastically after the 1973-74 quadrupling of petroleum prices; non-traditional manufactures have hardly been able to compete successfully in foreign markets; and the traditional exports of jute and textiles have suffered very severe setbacks. Balassa contrasts the consequences of the freer, outward-looking trade policies of South Korea, Singapore and Taiwan with those of the inward-looking, controlled regime of India as part of a study of 11 countries(including Argentina, Brazil, Colombia, Mexico, Chile, Israel and Yugoslavia) which, along with Hong Kong, account for most of the manufactured exports of developing countries. India’s share of the total manufactured exports of these countries has fallen steadily from 65.4 per cent in 1953 to 50.7 per cent in1960, to 31.2 per
cent in 1966 and to a mere 10.3 per cent in 1973. The proportion exported of India’s total manufactured output fell from 9.7 per cent in 1960 to 9.4 per cent in 1966 and to 8.6 per cent in1973. In contrast, during the same two periods, the proportion of manufactured output exported rose from1 to 14 to 41 per cent in South Korea, from 11 to 20 to 43 per cent in Singapore, and from 9 to 19 to 50 per cent in Taiwan.[35]
Balassa cogently argues that the adverse effects of a sudden change in external factors, such as the quadrupling of petroleum prices in 1973-74 or the 1974-75 Western recession, were absorbed much more easily by developing countries with large foreign-trade sectors than by those like India with relatively small ones: `Outward orientation is associated with high export and import shares that permit reduction in non-essential imports without serious adverse effects on the functioning of the economy. By contrast, continued inward orientation involves limiting imports to an unavoidable minimum, so that any further reduction will impose a considerable cost in terms of growth. Furthermore, the greater flexibility of the national economies of countries pursuing an outward-oriented strategy, under which firms learn to live with foreign competition, makes it possible to change the product composition of exports in response to changes in world market conditions, whereas inward orientation entails establishing a more rigid economic structure.’[36]
In other words, if imports are both high in total value and diverse in composition, a rise in the relative price of a particular import for which home demand is relatively inelastic (like petroleum and its products) can be accommodated by a substitution of expenditure towards it and away from inessential imports for which demand is relatively elastic. A similar argument had typically been advanced by advocates of import-substitution when they maintained that the exports of a small country should be diverse and not concentrated on only a few goods since a decline in world prices would otherwise lead to serious falls in export revenues. This suggests that both critics and advocates of import substitution might agree that, for a country which is a price-taker in world markets, the encouragement of a large foreign-trade sector is a way of diversifying the risk of adverse effects from changes in world prices. The question remains as to whether the positive theory of trade is correct in saying that the encouragement of comparative advantage is superior to import-substitution as a means of achieving a large foreign sector. From the contrasting experiences of, say, South Korea on the one hand and India on the other, the answer seems overwhelmingly to be that it is.

(iii) Agriculture
The Indian Government has instituted a multiple-pricing system for the major food-grains, especially rice and wheat. Farmers are compelled to sell a specified fraction of their output to the government, at a price fixed by the government which is significantly lower than that warranted by underlying supply and demand conditions. Farmers may sell the remainder of their output freely. The quantities the government acquires in this way, plus any it imports (imports being subsidised by the over-valuation of the exchange rate), are sold by ration at lower than free-market prices in the so-called `fair-price’ shops – which happen to be mainly in urban areas. Urban consumers may purchase part of their requirements from such shops and the remainder on the open market at higher prices. Astute middle-class urban housewives know that rationed grain is often of poorer quality than that sold on the open market. Accordingly, the former often constitutes part of the wages of the domestic servants of the urban household, while the family consumes the latter. Insofar as this is true, it suggests that farmers distinguish quality much better than do government officials, and that they use this advantage somewhat to partition their output into low- and high-quality, selling the first under compulsion to the government and the second on the open market.
While such is the general food policy of India, the compulsory procurement of grains and their distribution to the ration-shops is implemented by individual State governments and not by the Union Government. There have usually been numerous restrictions on inter-State movements of grain, so the States do not form a full customs union; instead, the Union Government tries to be a central clearing-house, matching the desired imports of one State with the desired exports of another.[37]

Economic effects of ban on futures contracts
Furthermore, futures contracts in grains have been banned by law, in the belief that futures trading is conducive to speculation and that speculation is undesirable. A futures contract in grain consists simply of a promise by a seller to deliver an amount of grain to a buyer at some specified date in the future in return for payment at a price agreed today. The seller’s incentive to enter into the contract is the guarantee of a certain sale, and the availability of funds now; the buyer’s incentive is the guarantee of a certain price for future deliveries. The contract may be entered into because buyer and seller have different expectations about what the spot price will be in the future. The buyer minimises his expected costs and the seller maximises his expected revenues; both are able to balance their budgets inter-temporally. Even if they have the same expectations about future spot prices, buyer and seller may still find it mutually profitable to enter into a futures contract as a way of insuring against risk. Forbidding such contracts by decree thus forces more risk onto both buyer and seller than they would normally be prepared to carry, and also induces them to balance their accounts in each period rather than it inter-temporally. Alternative kinds of credit markets become it relatively more lucrative, with the potential seller and buyer of futures wheat respectively borrowing and lending more than they would otherwise have done.[38]
The government has also expressed its determination to keep prices in ration-shops low. It has accordingly stockpiled large inventories of grain, apparently regardless of the costs of storage and spoilage or the alternative of holding larger foreign-exchange reserves to permit increased imports when necessary.

The ostensible, declared objective of all such policies has been to ensure that the poor do not suffer severe adverse income effects from sudden rises in the price of food resulting (it has been thought) from the contingencies of rainfall and the actions of speculative traders. It is, however, an open secret that the policies have really been a means of (a) taxing farmers, who pay a smaller percentage of their income in direct and indirect taxes than do urban dwellers, and (b) subsidising urban consumers, who broadly comprise the industrial working class and the middle in classes.
At the same time, however, the government and its advisers — after the considerable hesitation recorded by David Hopper [39]- have also accepted that the best long-run prospects for increasing agricultural productivity lie in modernising traditional farming techniques. Given the outstanding results of the Green Revolution in wheat, they could hardly have arrived at any other conclusion. The problem from the government’s point of view has been, as a sympathetic economist puts it “…how to procure a sufficient quantity of food grains at reasonable prices without jeopardising the farmers’ incentives to produce more”.[40]

Thus, while taxing farmers de facto on their output, on the one hand, the government has tried, on the other, to promote the use of modern inputs by subsidizing them both directly and through low-interest loans from the banks for such investment.
Distortions of incentives in agriculture
The distortions of efficient incentives caused by such policies are not difficult to see. First, the low output prices of wheat and rice have, in effect, been discriminatory taxes on wheat. As Edward Schuh remarks, these discourage the production of `. . . the very crops that policy-makers believe the vulnerable groups should have greater access to . . .’[41]

Vasant Sukhatme and Theodore Schultz have argued that, even between wheat and rice, there has been severe discrimination in favour of the former. At the official over-valued exchange rate, the price of domestic wheat has been significantly higher than imported, while at open-market rates for the rupee, the domestic price approximated the import price. For rice, however, the domestic price has been consistently below the import price. Sukhatme estimated that the dead weight loss in welfare from the under pricing of rice amounted to 8.5 per cent of total agricultural income in 1967-68 and to 2.2 per cent in 1970-71. He also calculated effective rates of protection, which were strongly negative for rice whether at official or open-market exchange rates and positive for wheat at the official exchange rate. Both he and Schultz conclude that the discrimination against rice has been a major factor in explaining the absence of a Green Revolution in rice on the scale of that in wheat.[42]
Secondly, the main beneficiaries of government subsidies for modern inputs have evidently been not the many small farmers but the fewer relatively large ones. As Gilbert Brown reports :`Large-scale farmers buy most subsidised inputs. Poorer farmers usually lack the money to buy adequate amounts of fertiliser and pesticides, and are commonly unable to get credit except at near-prohibitive rates of often 60% to 100% per year. Even in countries with subsidised bank credit for agriculture, rich farmers get most of the credit because of legal or administrative restrictions and/ or through open or disguised bribery. Credit and subsidy programmes for tractors, tube wells and other fixed investments also go mostly to the largest and richest farmers . . .Water is also a subsidised input . . . The farmers who receive this subsidised water generally have substantially higher incomes (because of the water) than farmers without access to public irrigation. Thus, claims that water should be subsidised to help small farmers misses the point that most farmers with irrigation have higher incomes than those who do not.’[43]
Brown argues that subsidies for inputs have been made necessary only to offset the forced depression of output prices. Moreover, the social benefit from subsidising inputs is limited to when the input is first introduced: ‘Once the benefits and technique of using the input are widely known, however, the continuation of such subsidies serves largely to increase the benefit-cost ratio of using the input . . .’.
Whether it is better to continue with artificially low input and output prices or to adjust towards a free market in both must take into account that the subsidies have encouraged more capital-intensity in production, and also that the `. . . low prices of certain inputs, particularly water, are often associated with widespread waste and inefficient use of the resource’.[44]
Thirdly, the farmer who is too small to find investment in storage facilities profitable may also consider it not worth his while to hold any of his output for sale on the open market. He will then sell it all to the government – at a below-market price.
A general conclusion would seem to be that, if the combined effect of input subsidies and forced grain sales to government has been a net subsidy to agriculture, then it has been a progressive subsidy; whereas if the combined effect has been a net tax on agriculture, then it has been a regressive tax. The Marxists may be quite right to protest that what gains there have been in agriculture have accrued to the relatively larger farmers, while smaller peasants and farmers are becoming landless labourers in growing numbers as a result of bankruptcy (that is, there has been increasing `rural proletarianisation’, to use the Marxists’ picturesque phrase). But if this is true, the cause can be traced unambiguously to the Indian Government’s belief – vociferously shared by the Marxists – that the way towards the declared objective of helping the poor is by extensive interference in the price system. Besides, the industrial working class demonstrably benefits from low food prices, so the honest Marxist must face up to being torn by divided loyalties between the rural and the urban proletariats.

Srinivasan put it as follows in a 1974 survey article :`The public distribution system with respect to foodgrains . . . operated to the benefit of all those living in metropolitan cities and other large urban concentrations while all others, including rich and poor in relatively small urban and almost all rural areas, did not benefit at all. When one recalls that the rural population includes the most abject among the poor, namely landless workers, the inequity of the system becomes glaring. And in urban areas, the existence of the system and the fact that the ration is often inadequate provides incentives for a household to falsify the data on its size and age composition given to the rationing authorities, as well as to create bogus or ghost ration-cards, not to speak of the corruption of the personnel manning the rationing administration.’[45]

The history of the extensive control of agriculture – which has included a partial government monopsony, forcibly-depressed output prices, inter-State restrictions on grain movements, and urban ration-shops – can be traced to the last years of British rule, as an attempt to bolster the popularity of the imperial regime. [46] The continuation and reinforcement of statism in agriculture in independent India has evidently rested on certain premises, namely, that the private market would be grossly inefficient and would be dominated by a few traders continually reaping large speculative profits, with both the small farmer and the ordinary consumer suffering in consequence.

Uma Lele’s fine study of the private grain trade, however, shows the real picture to be quite different. She found that the trade was highly competitive, that individual traders were rational agents (given the constraints of technology and government policy), that location price differences closely reflected transport costs, and that temporal price differences closely reflected storage costs. She argued that, while there was considerable scope for government activity, it should be in the form, not of interfering in the competitive market, but rather of encouraging the market to work – by, for example, disseminating relevant information such as crop forecasts, standardising weights and measures, constructing or improving roads and encouraging efficiency in the market for the transport of grain, etc.[47]

The evident neglect of such findings as these, and the continued application of policies inimical to competition and the free market, suggest that successive governments of independent India have been hardly more concerned for the rural poor – whether as farmer or consumer – and hardly less concerned with bolstering their popularity in the urban areas than were the British.

(iv) Employment
An obvious consequence of the economic policies described above has been the distortion of the individual citizen’s calculation of the expected benefits and costs of living and working in urban areas compared with the rural countryside. The forced depression of output prices in agriculture and the plethora of foreign-trade policies which discriminate against agriculture certainly seem to have artificially depressed the expected incomes of farmers. At the same time, a large `public sector’ in industry, plus the array of foreign-trade policies which have protected private industry, plus the indirect subsidisation of food sold in urban ration-shops certainly seem to have artificially raised expected urban incomes. Predictably, the reaction has been a vast and continuing net migration from the villages to the towns and cities, even after adjusting for the seasonal nature of agriculture. This drift has been the subject of much inquiry and discussion by development economists.[48] I propose to set it aside and examine instead a different aspect of employment policy which has not received nearly as much attention, namely, the consequences of putting into effect the clauses in the 1950 Indian Constitution mentioned above which authorised discrimination in employment and public education in favour of the `Scheduled’ castes and tribes, as well as other policies which discriminate on grounds of ethnic origin.

The consequences have been similar in several respects to those in America of `affirmative action’ towards so-called `racial minorities’, and it will be useful to draw out the analogy a little. As Thomas Sowell has cogently argued in recent years, the racial composition of contemporary American society is a complex mosaic, and no-one can say with certainty how it has come to be what it is today. In such circumstances, for the government to try to isolate a single contingent characteristic like `race’, partition society on the basis of census data according to this characteristic, and then construct public policies accordingly, is to introduce an enormous arbitrariness into economic life. By merely defining a group by reference to a single contingent characteristic, which all its members seem to possess, the intrinsic complexity of the individual person is lost or overlooked. Two members of the same race may be very different from each other in every relevant characteristic (income, education, political preference, and so on), and indeed resemble members of other races more closely in them. A policy which introduces a citizen’s race as a relevant factor in the assignment of jobs or college places partitions the citizenry into vague groups : members of groups who are very different from members of other groups in characteristics other than race rarely competing with each other anyway, while the burden and beneficence of the state’s policies fall on members of groups who are not very different from members of other groups in characteristics other than race: `. . . costs are borne disproportionately by those members of the general population who meet those standards with the least margin and are therefore most likely to be the ones displaced to make room for minority applicants. Those who meet the standards by the widest margin are not directly affected – that is, pay no costs. They are hired, admitted or promoted as if blacks did not exist. People from families with the most general ability to pay also have the most ability to pay for the kind of education and training that makes such performance possible. The costs of special standards are paid by those who do not. Among the black population, those most likely to benefit from the lower standards are those closest to meeting the normal standards. It is essentially an implicit transfer of wealth among people least different in non-racial characteristics. For the white population it is a regressively graduated tax in kind, imposed on those who are rising but not on those already on top.’[49]
At the same time, there is, in effect, a progressively graduated subsidy for members of the `minority’ group in favour of those who are already closest to meeting the general standards. Those in the mainstream of each group are largely unaffected; it is at the margins of competition that the bitterness caused by such policies will be felt and will manifest itself. It would seem that the situation in India – where the racial mosaic is if anything more complex than in America – is somewhat analogous. In recent years there has been civil tension and violence in the streets as poor Muslims, `caste’ Hindus, Sikhs and others have protested at being edged out of jobs and promotions by equally poor, or wealthier, members of the `Scheduled Castes’. In March-April 1981, for instance, there was widespread civil tension and violence in Gujarat over the reservation of places in the State’s medical colleges. A quarter of these places were statutorily reserved for members of the `Scheduled Castes’, with any not taken up by qualified candidates from these groups accruing to them in the future, thereby rapidly excluding from general competition as many as half the total number of places.[50]

The cruel paradox is that, while the position of many members (perhaps the vast majority) of the `Scheduled Castes’ vis-à-vis `caste’ Hindus remains one of degradation and persecution – quite regardless of the constitutional guarantees of equality in the eyes of the law – the relatively few who have succeeded in taking advantage of the discriminatory statutes have aroused the indignation of those who have not -causing even more animosity towards the `Scheduled Castes’ in general. One commentator observes the emergence of a `new elite’ among the `Scheduled Castes’ which `ceases to identify with its caste brethren’; while, at the same time, the law on equality `is so widely flouted precisely because the Scheduled Castes have not the means or courage to seek its protection . . .’ He concludes :`Contrived gestures such as are now popular will either not benefit [the Scheduled Castes] . . . or will do so only by further lowering already deplorable academic and administrative standards’. [51]
Moreover, when all government posts are advertised with a caveat that 10 or 15 per cent of themare reserved for members of the `Scheduled Castes’ and `Scheduled Tribes’, there is a considerable incentive for people to persuade Parliament to declare them as being such. And that also has happened. Discrimination in employment on the ground of caste has not been the only kind of discrimination practised by the Indian state. In what may be the most thorough study currently available on the origins, consequences and legal history of official discrimination in India, Weiner, Katzenstein and Rao have described the plethora of policies pursued by the central and state governments which have used not caste but ethnic origin as a criterion for public employment (with the private sector also often being `encouraged’ to follow suit) :`Preferences are given to those who belong to the “local” community, with “local” understood as referring to the numerically dominant linguistic group in the locality.’ [52] The authors conclude that what is emerging in India is`. . . a government-regulated labour market in which various ethnic groups are given a reserved share of that market. Competition for employment is thus not among all Indians, but within specified linguistic, caste, and tribal groups.`. . . various ethnic groups, therefore, fight politically for a share of that labour market. The major political struggles are often over who should get reservations, how the boundaries of the ethnic groups should be defined, and how large their share should be. There are also political struggles over whether there should be reservations in both education and employment, in private as well as in public employment, and in promotions as well as hiring. The preferential policies themselves have thus stimulated various ethnic groups to assert their “rights” to reservations.’[53]

It is not difficult to understand the general economic argument against discrimination on grounds such as caste or ethnic origin. If a private employer indulges a personal preference to hire only people of an kind A when there are more able or better qualified candidates of other ethnic kinds B, C, D, . . . ,available, and if the product of his firm is subject to competition in the market from other enterprises which do not discriminate on criteria which are irrelevant to economic efficiency, we may confidently expect the discriminating employer’s product to become uncompetitive and his profits to fall. The best and most obvious example of this would be in the professional sports industry in the USA : a `whites-only’ basketball or football team would be immediately vanquished on the games-field into bankruptcy. If government pursues employment policies which discriminate according to economically irrational criteria such as caste or ethnic origin, or if it forces all private firms to do likewise, there will certainly be inefficiency resulting in a loss of real aggregate output in the economy. In the terms of modern economics, a vector of total outputs which would be feasible given the parameters of the economy, and which would leave everyone either better off or at least no worse off, would not be achieved. In sum, the consequence of direct and widespread government interference in the labour market in India appears to have been, not only a disregard for the principle of equality before the law for every citizen (in a nascent republic of immensely diverse peoples), but also a loss of real output and an enormous `politicisation’ of economic life whereby individual success becomes increasingly tied to political power and increasingly removed from personal merit, enterprise and effort. In addition, the composition of occupations in the economy has been indirectly distorted by the set of industrial, agricultural and foreign-trade policies pursued by successive governments.

6. THE MALFUNCTIONING OF GOVERNMENT

IT MIGHT be thought that a large and flabby `public sector’ in industry and commerce, labyrinthine controls on private industry, a government monopoly of foreign-exchange dealings, the overvaluation of the currency, indefinite import-substitution, forcibly depressed output and input prices in agriculture, enormous politicization of the labour market, disregard for equality before the law, and distortion of the composition of occupations would constitute a sufficient catalogue of symptoms of grave illness in the political economy of a nation. Sadly, however, there are in modern India other symptoms too which I can mention only briefly here.
An opinion frequently encountered among urban Indians (as well as among the majority of Western development economists) is that government control over the size of the population is a necessary condition for economic development, and indeed that it is the failure of government to do this that has dissipated the economic growth that would otherwise have resulted from the economic policies pursued. The urban Indian witnesses the hovels and shanty-towns inhabited by migrant families from the countryside attracted by the policies discussed previously, and he experiences the resulting congestion. So does the Western development economist when he ventures out of his hotel into the city streets. Very often, that is his only personal experience of the legendary `poor masses’ of India. It is understandable that such princely discomfiture should lead him to the opinion that the poor are mindless in their breeding habits and that they must be persuaded, bullied or compelled to change. If this opinion were true, it would seem to point to a neat and simple solution to many of the woes of poor countries, and India in particular. But if the opinion is false and yet widely believed, it would cause governments to be, as it were, barking up the wrong tree.
It is, however, far from established, and certainly not at all obvious, that demographic control is either necessary or desirable in India or elsewhere. In the first place, when the rate of infant mortality is known and experienced by rural people to be high, there will be mare births than there would have been otherwise. Secondly, it is perfectly clear that children are an investment good in traditional societies such as those of rural India. Even young children are a source of family income, either directly by working outside the home or indirectly by working at domestic chores and thereby releasing adult members of the family for outside work. For a child to be absent from primary school or to drop out within a few years is not necessarily truancy; it may be the outcome of a rational economic calculation about where his time may be better spent towards increasing the household’s income. Furthermore, in traditional societies adult children are the principal source of support for elderly and retired parents.
To know of the existence of artificial measures of contraception certainly enlarges the alternatives open to a couple. Assuming that such knowledge is not in itself a cause of unhappiness (as it can be if there are conflicting religious commitments), a couple may certainly be better off with that knowledge because of their ability to control the number and timing of their children. The couple might also have fewer children – though there is no necessary or causal connection between a knowledge of contraception and the number of children born to a couple. Rational calculation may produce the same number of children as the caprice of nature, the implication being that in general there is no causal connection between the availability of contraceptives and the rate of growth of the population. The value of a public policy which encourages the use of artificial contraception is not so much that it reduces the number of births as that it may allow couples more control over their own lives. Whether or not artificial contraception should be publicly subsidised is quite another question.
The Indian Government has expended considerable resources in propagating and subsidizing artificial birth control. The results appear to have been, at best, indifferent (coupled as birth control has been with indirect incentives for large families and, at worst, cruel – as when frenetic zeal spilled over into demands for, and the implementation of, compulsory sterilisation. For this author, however, the important consideration would seem to be not so much the exact costs and benefits of the demographic policies pursued as the critical acknowledgement that they have little or nothing to do with the fundamental causes of mass economic development.[54]
It remains a stark paradox that, with a general literacy rate of perhaps 30 per cent [NB: In 2007, this has grown to 73% for males and 48% for females] India still produces the third largest absolute number of science and engineering graduates in the world. This reflects the lopsidedness of the educational system, continued from British times, in which higher education is enormously subsidised relative to primary education. In addition, entry into the civil services requires a college or university education, which in turn requires a good private secondary school education, which in turn requires a good preparatory school education. Strenuously competing to enter prep. school, with the help of outside tutoring, is the unhappy fate of many a five- or six-year-old in the towns and cities, followed by strenuous competition in secondary school, college and university, and finally at the doorstep of government (or a foreign university).
A job in government – any job in government – has carried prestige since Mughal times. In addition to the prestige and the obvious benefits of tenure where ether `decent’ jobs are scarce, there has been in recent times the inner satisfaction from a belief that a person can truly do his best for his country only by being in government. Tens of thousands of youths spend significant personal resources (such as whole years in cramming schools) to compete for a few annual openings in government. It is only to be expected that the competent, ambitious, patriotic youth who succeeds will mature into a respected mandarin with an unshakeable conviction in the good his government has done for the masses, and in the further good yet in prospect.
Failure to anticipate monsoon damage and disarray of the judicial system
The most serious examples of the malfunctioning of civil government in India are probably the failure to take feasible public precautions against the monsoons and the disarray of the judicial system. Official estimates, for instance, of the damage caused by flooding to homes, crops and public utilities in a few weeks of July-August 1981 alone amounted to over Rs 1 billion, with 10.8 million people `affected’, 35,000 head of cattle lost, and 195,000 homes damaged. The full magnitude of the devastation which annually visits vast areas can be understood perhaps only by those in rural India, although the towns and cities also regularly suffer considerable chaos. [55] [NB 2007: Monsoon prediction appears far better today than it was when these words were written.]
As for the disarray of the judicial system, The Statesman lamented in July 1980:`The simplest matter takes an inordinate amount of time, remedies seldom being available to those without means or influence. Of the more than 16,000 cases pending in the Supreme Court, about 5,000 were introduced more than five years ago; while nearly 16,000 of the backlog of more than 600,000 cases in our high courts have been hanging fire for over a decade. Allahabad is the worst offender but there are about 75,000 uncleared cases in the Calcutta High Court in addition to well over a million in West Bengal’s lower courts.”[56] Such a state of affairs has been caused not only by lazy and corrupt policemen, court clerks and lawyers, but also by the paucity of judges and magistrates. In addition, however,`. . . a vast volume of laws provokes endless litigation as much because of poor drafting which leads to disputes over interpretation as because they appear to violate particular rights and privileges. Land legislation offers an example of radical zeal running away with legal good sense, giving rise to thousands of suits against the Government . . .’ [57] When governments determinedly do what they need not or should not do, it may be expected that they will fail to do what civil government positively should be doing. In a sentence, that has been the tragedy of modern India.

Part IV : Reform
A LIBERAL AGENDA

IT WILL by now have become evident to the reader from the descriptions and arguments given above that, in the judgement of the present author, only a set of radical changes in policy can put the Indian economy on a path to higher mass prosperity within a free and healthy body politic. I shall therefore put forward a tentative manifesto for reform, adding some predictions about which classes of citizens would be most likely to support or oppose a particular proposal. The scope and intention of such a manifesto should be made clear at the outset. As Aristotle taught, a set of actions which are the means towards certain ends may themselves be the ends towards which other prior means have to be taken.[58]
The ultimate ends of economic advice in India are to seek to bring about mass prosperity under conditions of individual freedom. The proposals I which follow are to be construed as means towards those ultimate ends. But they also constitute a set of intermediate ends, and their implementation would require further judgement about the best means towards achieving them. In economic policy, for instance, a firm but gradual phasing-in over a period of three or four years may be the best way to minimise the hardships entailed by the adjustment. For reasons which will become clear, however, I shall not here try to answer the question as to how the proposals might best be implemented.

(a) Effects of foreign policy on the domestic economy
It will be useful to begin with a short and very incomplete consideration of foreign policy insofar as it may bear upon domestic economic policies. It is a settled fact of international politics that, while there is no obvious connection between a nation’s economic and political institutions and the choice of strategic allies it faces, people’s subjective perceptions and opinions of the social arrangements in a foreign country can be deeply influenced by whether that country is seen as a potential ally or adversary. A related and equally settled fact is that war, or the fear of war, can make for the most incongruous of bed-fellows. In contemporary India, it is quite evident that the antipathy and pessimism towards market institutions found among the urban public, and the sympathy and optimism to be found for collectivist or statist ones, has been caused to a very significant extent by the perception that the United States is relatively hostile towards India while the Soviet Union is relatively friendly. This was not always so. The official affection between the United States and India in the early years of the Republic was grounded in sincerity and goodwill. The roots of its demise are probably to be found in the split between the Soviet Union and China in the late 1950s which, in a short period of time, made the latter a valuable strategically for the United States against the former. By the early 1970s, the spectre of a joint military threat to India from a totalitarian China and a militarist Pakistan – and especially a threat which it was perceived democratic America would do little or nothing to thwart – made it prudent for democratic India to become the virtual ally of totalitarian Russia.
Such a configuration on the international chess-board need not have been detrimental to India’s economic development. It is possible to imagine a liberal state allied to a totalitarian one for strategic reasons, yet maintaining liberal economic policies domestically and internationally. In practice[58], however, the extent of `economic collaboration’, bilateral trading arrangements, `joint ventures’, barter agreements, `cultural exchanges’, and the like into which the Indian Government has entered with the Soviet bloc, appears significantly to exceed what it has achieved with the Western powers. In particular, Soviet arms have in recent years been purchased more often and then manufactured under licence. This too need not have been economically detrimental if the Soviet products had in practice been competitive on international markets in terms of price and quality. As is common knowledge, however, this is often not so. It therefore appears that part of the price India has had to pay for the strategic support of the Soviet Union has been the foisting on her of low-quality, high-priced Soviet goods, whether arms or steel mills or technical know-how. At the same time, for reasons which are partly historical and partly related to these considerations, direct foreign investment by private Western firms has been treated with, at best, coolness and, at worst, open hostility.

A change in India’s foreign policy
If the economic liberalisation that will be proposed here for India is to be effective, a truly independent yet prudent foreign policy may be required to accompany it. A change in the present strategic configuration – in which the United States is perceived in India to be virtually the ally of both China and Pakistan, while India is perceived in the United States to be virtually the ally of the Soviet Union – is unlikely until and unless the United States finds it in her best interests in the region to distance herself from China and Pakistan, which is unlikely to happen without a rapprochement between the Soviet Union and China. A drastic alternative way for India to reduce her dependence upon the Soviet Union would be the kind of divorce Egypt effected some years ago, followed by an alliance with the Western powers. This might, however, undermine once more the independence of foreign policy and be perceived in India as a move from the devil to the deep sea. The prudent remaining alternative would appear to be an earnest and vigorous pursuit of serious no-war pacts with Pakistan and China, combined with an appropriately small independent nuclear deterrent. It seems to the author that the reasons which commend this course are closely analogous to those offered by the present American and British governments for pursuing serious no-war negotiations with the Soviet bloc whilst simultaneously improving the Western nuclear deterrent.
(b) Liberalisation of foreign trade
Not only would the truly independent foreign policy proposed in the preceding paragraph allow India to distance herself from the Soviet Union; it would probably also prompt the Western powers to end the intergovernmental transfers which go by the name of `foreign aid’. For reasons that Peter Bauer has emphasised over many years, an end to such transfers might be a boon in disguise for India.[59] In particular, it would require the government to seek to balance the foreign-exchange accounts without becoming obligated to the Western powers, and this in turn would require a major economic transformation from a closed and protectionist economy to an open one which harnessed India’s comparative advantages.
An initial liberalisation of foreign trade, involving a transition from quotas to tariffs, would probably be supported by private industry as a whole. It would, however, be opposed by incumbent politicians and government officials since it would dissipate the rents they receive under the closed regime. A subsequent reduction in tariffs, a withdrawal of export subsidies, and the free floating of the rupee would be opposed by those private firms (and their labour unions) which would be uncompetitive internationally – probably those in `non-traditional’ industries. The measures would, however, be supported by ordinary consumers, by private firms in traditional industries like jute manufactures and textiles, and particularly by farmers.
Once private industry became subject to the strict discipline of international competition again, there would be no reason whatsoever for government-imposed internal controls which were not conducive to free and fair competition among firms for the consumer’s rupee. The repeal of the plethora of licensing policies would dissipate the large rents attached to the controls under the present regime. Since these rents are paid by private industry and received, directly or indirectly, by incumbent politicians and government officials, the former could be expected to welcome repeal and the latter to oppose it vigorously.

(c) Privatisation of `public-sector’ industries
At the same time, for the so-called `public-sector’ industries to face international competition, when they are currently monopolists or oligopolists, would demand such an improvement in economic discipline as probably to require the shares of most of them to be sold on the open market, with marginal-cost pricing imposed on the remainder. There is no economic reason why the Government of India shouldbe engaged in commercial or merchant banking and insurance, or in industries from steel, machine-tools, ship-building and fertilisers to wrist-watches, hotels and beer. Nor is there any cogent reason why it should be a major producer, let alone a monopolist, in the road, rail, air and sea transport industries. Large-scale privatisation would be supported by private citizens in general, and would also draw out the reputedly vast private funds which circulate in the untaxable underground economy. But such measures would probably be opposed vigorously by the government officials who currently manage these industries, aswell as by the public-sector labour unions.

(d) Free-market pricing in agriculture
With the repudiation of the mistaken premise that government sponsored industrialisation is the best means to mass economic development, the free-market pricing of agricultural outputs and the removal of all controls that are not conducive to free competition among farmers should follow. This would be welcomed by all farmers and perhaps by the rural population in general. It could also be expected to provide much encouragement to the technological transformation of traditional agriculture. The abolition of ration-shops in urban areas would be opposed by the industrial working class, by the urban middle classes in general, and by government officials and employees engaged in the present regime of public distribution. Further, farmers, especially relatively large ones, might be expected to oppose the concomitant free-market pricing of agricultural inputs, including credit and fertilisers, as would those government employees presently charged with distributing these inputs.
The ending of the distortions in agricultural output and input prices would establish a conclusive case for uniform systems of taxation in the economy, and especially for income from agriculture to be treated on a par with income from other occupations. These systems could locally include direct subsidies to those (whether in rural or urban areas) who are unable to provide any income for themselves, such as the insane and the severely disabled – all of whom are currently cared for, if at all, by private charity, and none of whom, strangely enough, appears to enter the moral calculations of socialist and Marxist economists.

(e) Tax revenues for public goods
The first and most important destination of tax revenues, whether raised centrally, provincially or locally, must be the provision of public goods – central, provincial and local. In an earlier section, we have seen what kinds of goods these should be. Among the most urgent in India are more effective precautions against the monsoons and improvements in the efficiency of the systems of civil and criminal justice. The former might include measures to prevent soil erosion and the building of better dams, embankments, canals and roads. Such programmes would be likely to command practically unanimous support in the localities in which they were implemented.
Reforms of the judicial system might include raising the salaries of judges and policemen, as well as the penalties for their misconduct; improving the training and morale of the police, with the object of increasing public confidence in them (especially in the villages); and expanding the number of courts, at least temporarily until the monumental backlog of cases has been reduced and brought under control. A general reduction in the political and administrative direction of economic life would lead to fewer lawsuits being brought against the government itself, and thus provide further relief for the judiciary. Widespread prison reform may also be required if the reports are true that a large proportion of those held prisoner for a number of years have yet to be brought to trial, and that potential prosecution witnesses, if they are poor and uneducated, are themselves sometimes kept in jail until a case comes to court. Such reforms would command the support of everyone except criminals, capricious litigants and corrupt or incompetent members of the police and judiciary, none of which groups, it must be supposed, comprises apolitical constituency.

Together with improvements in the system of justice, the principle of equality before the law would have to be taken seriously. This would require the dispensation of justice by the state to be, as it were, a process blind to the infinitely diverse caste and ethnic characteristics of the citizenry, which in turn would imply the repeal of all laws – whether central, provincial or local – permitting governmental authorities to discriminate in favour of a particular politically-specified caste or ethnic group. Merely to have written `equality before the law’ into the Constitution without really believing it either possible or desirable is to allow the mutual caste and ethnic bigotry of private citizens to be exploited for political ends. That innumerable members of a caste, or religious or ethnic community have suffered at the hands of another, and that members of the `Scheduled Castes’ in particular have been victims of enormous cruelty, should not prevent acknowledgement of the sober fact that the past is irretrievable, or that it is similar cruelty in the present and future against any citizen at the hands of any other, or the state, that the declaration of Fundamental Rights was intended to prevent.

(f) Other reforms
Other proposals could also be suggested : the introduction of vouchers for primary and secondary education; a serious assessment of the benefits from and costs of subsidies to higher education; an end to the government monopoly of radio and television; a revision of government pay-scales to make them competitive with the private sector, together with equivalent reductions in non pecuniary benefits; a decentralisation of public spending decisions from New Delhi to the State capitals and from there to the districts; and so on. However, it is hardly necessary to go further, since even a limited liberal agenda would appear doomed to be still-born.
Incumbent politicians, government officials, and the public sector unions in general would vigorously oppose any reduction in government intervention in the economy for fear of losing the rents and sinecures of the status quo. Indeed, professional politicians in general could be expected to be averse to any lessening of the politicisation of economic life.
In other countries, a political party proposing such a reduction in government intervention would usually enjoy the backing of private industry. In India, however, private industry in general would probably see it in its own interest to support only the reduction of internal controls, whilst vigorously opposing reductions in the neo-mercantilist external controls. In July 1981, for example, I asked a prominent industrialist to imagine first a free-market regime at home : `That would be very welcome indeed’, he replied enthusiastically. I then asked him to imagine a policy of free trade : `That would wipe us out’, he replied gravely. His answers indicate very well what is perhaps the single most important feature of the equilibrium that has emerged in India: by accepting without significant protest the constraints and costs imposed upon it by the government and its `planners’, the private corporate sector has traded the freedom of enterprise for mercantilist monopoly profits in the home market.
When Indian Marxists rail about collusion between the `national bourgeoisie’ (that is, the governmental class) and the `comprador bourgeoisie’ (that is, the private sector), they make a cogent point as old as Adam Smith’s critique of mercantilism.[60] But, again, they fail to see that the fortunes of the industrial working-class have also risen with those of the private and public industries that have gained from the present regime. Moreover, a large proportion of industrial workers and blue-collar government employees are migrants with families left behind in rural areas; these rural families might also oppose reductions in the transfers currently received by their migrant relatives. Finally, while joining other farmers in welcoming a free market in grain, the politically influential larger farmers could be expected to oppose the direct taxation of agricultural incomes and the elimination of subsidies for inputs.

Who is left who would gain from the kinds of reforms proposed here? Only the ordinary citizen qua consumer, the rural poor and the residuum of severely disabled citizens unable to create any income for themselves. None of these has been or is likely to become an effective political force.

India’s `unhappy equilibrium’
The economy of the first Indian Republic has tended towards a broad and increasingly unhappy equilibrium. Distortions of efficient relative prices and wages lead to both substitution and income effects. Those who lose from one distortion rationally seek another from which they may gain; those who lose from the second seek a third; and so on ad infinitum until a maze of distorted incentives are in place and a60Adam Smith, host of income transfers are in progress – sometimes offsetting losses, sometimes not. Tullock has emphasised that the problem is not only that there are dead-weight losses in welfare, but also that people are led `. . . to employ resources in attempting to obtain or prevent such transfers.’[61] In modern India, the waste of productive resources put to the pursuit of such transfers has been incalculable. The reforms pro-posed here would cut through the maze of distorted incentives and institutions all at once – for which very reason it seems unlikely they can come to be implemented.

The economic significance of a political attitude of individualism is that it clearly recognises the relationship between individual effort and reward, and the relationship between cause and consequence generally. An attitude of statism obscures or obliterates this relationship. In republican India, statism has pervaded all public discourse and prompted most public policy. Successive groups of politicians and government officials seem never to have recognised the fundamental nature of those functions of government which are the indispensable prerequisites of civil peace and mass prosperity. Nor have they understood that it is no part of government’s agenda to be the driving force to mass prosperity, and that this can come (if it will) only from innumerable individual efforts in the pursuit of private rewards. This is not at all to say that those in government have been ill-intentioned. On the contrary, they may have sincerely sought the public good whilst introducing a Leviathan government into the market-place and neglecting the proper duties of government outside it. As Bauer has remarked in a related context :`Their financial benefits may appear to be fortuitous, as if Adam Smith’s invisible hand were to work in reverse, so that those who sought the public good achieve what was no part of their intention, namely personal prosperity.’[62] It is indeed possible that the basic fact of human nature that individual households every where ordinarily know most about, and are only concerned with, their own well-being has never been acknowledged in modern India. The simple secret of a stable and prosperous polity is to create institutions which harness the universal pursuit of individual self interest, and not ones which pretend that men are selfless saints. A polity where this fact is acknowledged would not have to depend for the viability of its institutions on mere exhortation, as the institutions of the Indian Republic seem perpetually fated to do, even while the competitive pursuit of self interest is everywhere manifest.

The logic of economic reasoning and the adducement of economic evidence have in the past had little effect in India because the distribution of gains and losses from the policies pursued has been closely matched by the distribution of effective political power. This distribution seems most likely to continue, and so the prospects of significant and sustained endogenous reform seem, to this author at least, very small. Changes in external constraints seem to be the only likely source of a major disturbance to the equilibrium, and there can be no guarantee that the results will be for the better. This is a sad and troubling conclusion to come to, for a citizen of India or anyone else who has loved the country. It places this author in the paradoxical position of believing his arguments to be broadly correct – while hoping they are not.

ENDNOTES (The original monograph in 1984 had footnotes, which have had to be transformed since pages, in this new HTML age, no longer have to be linear as in a book nor have to be turned in order to be read).

[1] The early studies notably include: B. R. Shenoy, `A note of dissent’, Papers relating to the formulation of the Second Five-Year Plan, Government of India Planning Commission, Delhi, 1955; Indian Planning and Economic Development, Asia Publishing, Bombay, 1963, especially pp. 17-53; P. T. Bauer, Indian Economic Policy and Development, George Allen & Unwin, London, 1961; M. Friedman, unpublished memorandum to the Government of India, November 1955 (referred to in Bauer, op. cit., p. 59 ff.); and, some years later, Sudha Shenoy, India : Progress or Poverty?, Research Monograph 27, Institute of Economic Affairs, London, 1971. Some of the most relevant contemporary studies are: B. Balassa, `Reforming the system of incentives in World Development, 3 (1975), pp. 365-82; `Export incentives and export performance in developing countries: a comparative analysis’, Weltwirtschaftliches Archiv, 114 (1978), pp. 24-61; The process of industrial development and alternative development strategies, Essays in International Finance No. 141, Princeton University, 1980; J. N. Bhagwati & P. Desai, India: Planning for Industrialisation, OECD, Paris : Oxford University Press, 1970; `Socialism and Indian Economic Policy’, World Development, 3 (1975), pp. 213-21; J. N. Bhagwati & T. N. Srinivasan, Foreign-trade Regimes and Economic Development: India, National Bureau of Economic Research, New York, 1975; Anne O. Krueger, `Indian planning experience’, in T. Morgan et al. (eds.), Readings in Economic Development, Wadsworth, California, 1963, pp. 403-20; `The political economy of the rent-American Economic Review, 64 (June 1974); The Benefits and Costs of Import-Substitution in India : a Microeconomic Study, University of Minnesota Press, Minneapolis, 1975; Growth, distortions and patterns of trade among many countries, Studies in International Finance, Princeton University, 1977; Uma Lele, Food grain marketing in India : private performance and public policy, Cornell University Press, Ithaca, 1971; T. W. Schultz (ed.), Distortions in agricultural incentives, Indiana University Press, Bloomington, 1978; V. Sukhatme, “The utilization of high-yielding rice and wheat varieties in India: an economic assessment”, University of Chicago PhD thesis, 1977.

[2] S. Roy, “On liberty and economic growth: preface to a philosophy for India”, University of Cambridge PhD thesis, 1982a, Chapters I and II; “Knowledge and freedom in economic theory: Parts I and II”, Centre for Study of Public Choice, Virginia Tech, working papers, 1982b. My epistemological arguments have closely followed those of Renford Bambrough, Moral Scepticism and Moral Knowledge, Routledge and Kegan Paul, London, 1979.

[3] Aristotle, Ethica Nicomachea, in Richard McKeon (ed.), The Basic Works of Aristotle, Random House, New York, 1941. We read: `. . . the whole account of matters of conduct must be given in outline and not precisely, as we said at the very beginning that the accounts we demand must be in accordance with the subject matter; matters concerned with conduct and questions of what is good for us have no fixity, any more than matters of health. The general account being of this nature, this account of particular cases is yet more lacking in exactness; for they do not fall under any art or precept but the agents themselves must in each case consider what is appropriate to the occasion, as happens also in the art of medicine or of navigation.’ (1,104a2-a9.)`. . . we do not deliberate even about all human affairs; for instance, no Spartan deliberates about the best constitution for the Scythians. For none of these things can be brought about by our own efforts. We deliberate about things that are in our power and can be done.’ (1,112a28-30.) Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations(1776), eds. R. H. Campbell et al., Liberty Classics, Indianapolis, 1981. We read: `What is the species of domestick industry which his capital can employ, and of which the produce is likely to be of the greatest value, every individual, it is evident, can, in hislocal situation, judge much better than any statesman or lawgiver can do for him.’ (Book IV. ii. 10, p. 456.) In modern times, Friedrich Hayek has always kept this fact in the foreground of his thinking. In his Individualism and Economic Order, Routledge and Kegan Paul, London, 1949, we read, for example, of `. . . the constitutional limitation of man’s knowledge and interests, the fact the he cannot know more than a tiny part of the whole of society and that therefore all that can enter into his motives are the immediate effects which his actions will have in the sphere he knows . . .’ (p. 14.) The individual agent has a `special knowledge of circumstances of the; thus `. . . practically every individual has some advantage over all others because he possesses unique information of which beneficial use might be made, but of which use can be made only if the decisions depending on it are left to him or are made with his active co-operation.’ (p. 80.)

[4] The mathematical economist will recognise these three conditions as the characteristics which define a multi-market general equilibrium in the Arrow-Debreu model: Gerard Debreu, Theory of Value, Yale University Press, New Haven, 1959; K. J. Arrow and F. H. Hahn, General Competitive Analysis, Oliver and Boyd, Edinburgh, 1971.

[5] This argument is discussed further in Roy (1982a), pp. 96-107, pp. 133-43.

[6] Adam Smith, op. cit., Book V. i. c., p. 723.

[7] P. A. Samuelson, `A pure theory of public expenditures’, Review of Economics & Statistics, 36, 1954,reprinted in K. J. Arrow & T. Scitovsky (eds.), Readings in Welfare Economics, R. D. Irwin, Homewood, Ill., 1969.

[8] The idea I have in the background is of some implicit public goods function endorsed more or less unanimously by citizens – but not necessarily by those with political power – with commonsense dictating the elements it should contain. Thus Let U = U (π1, π2 , …, πn) be such a function with δU/δπi > 0, δ2U/δπi2 < 0 i=1,2,…,n, where πi = 1,2,…n, is a lateral index of a public good or service like defence, civil protection, roads, dams, or the finance of basic education. Each of these is “produced” by an expenditure of public resources: πi = πi (τi ), δπi/δτi > 0, δ2πi /δτi2 < 0 i=1,2,…,k, Σ i=1,2,…,n τi = τ* where τ* is the total level of public resources available (whether by taxation or borrowing). An efficient condition, i.e., one in which given public resources are efficiently allocated among alternative public goods or services, would be δU/δπi/ δπi/δτi = δU/δπj / δπj/δτj for every i,j = 1,2,. .,n. So, if the marginal tax-rupee was put towards the production of any public good, the increase in social utility should be the same; otherwise we would find an excess supply of some public goods (e.g. bureaucrats) and an excess demand for others (e.g. courts, dams, police protection, etc.).

[9] Two examples are F. H. Hahn, On the notion of equilibrium in economics : an inaugural lecture, Cambridge University Press, Cambridge, 1973, and J. M. Grandmont, “Temporary general equilibrium theory : a survey”, Econometrica, vol. 46, 1977.

[10] Aristotle, op. cit., 1,094b12-1,094b27

[11] D. H. Robertson, `The Economic Outlook’, in his Utility and All That, Allen & Unwin, London, 1952, pp.51-52.

[12] Karl Popper made a similar point in The Open Society and its Enemies, Princeton University Press, Princeton, 1950, when he suggested that Plato’s question `who should rule?’ should be discarded for the question:`How can we so organise political institutions that bad or incompetent rulers can be prevented from doing too muchdamage?’ (p. 120). There is relevant discussion by Renford Bambrough in `Plato’s modern friends and enemies’, Philosophy, 37, 1962, reprinted in R.Bambrough (ed.), Plato, Popper and Politics : some contributions to a modern controversy, Barnes and Noble, New York, 1967. I have discussed the relationship of expertise to democracy in Roy (1982a), pp 80-95.

[13] Virginia Bill of Rights, 1776, in The Constitution of the United States, ed. E. C. Smith, Barnes & Noble, New York, 1979, p. 21.

[14] P. T. Bauer, Dissent on Development, Harvard University Press, Cambridge, Mass., 1971, p. 72, n. 2. The term `statism’ suggested itself to the author after he read M. R. Masani, “Post-Sanjay outlook: where salvation does not lie” The Statesman, 9 July 1980.

[15]G. M. Young (ed.), Macaulay: Prose and Poetry, London: Macmillan, 1952, p. 718. Some 20 years later, in Considerations on Representative Government, ed. H. B. Acton (London: J. M. Dent), J. S. Mill claimed that rule by`a superior people . . . is often of the greatest advantage to a people, carrying them rapidly through several stages of progress’ (Ch. IV, p. 224). Ironically, a few years ago a distinguished retired member of the Indian civil service (who happens to be a recipient of the Lenin Peace Prize) used very similar words in a newspaper article – in defence of the Soviet occupation of Afghanistan!

[16] Resolution of the Indian National Congress, August 1931, reprinted in B. N. Pandey (ed.), The IndianNationalist Movement : 1885-1947, Macmillan, London, 1979, p. 67.

[17] S. Radhakrishnan, The philosophy of Rabindranath Tagore, Macmillan, London, 1918, p. 232. For an excellent account of the intercourse between ancient India and ancient Greece, H. G. Rawlinson, `Early contacts between India and Europe’, in A. L. Basham (ed.), A Cultural History of India, Clarendon Press, Oxford, 1975. For excellent accounts of the growth of liberalism in India in the l9th and carly 20th centuries : Anil Seal, The Emergence of Indian Nationalism : Competition and Collaboration in the later l9th Century, Cambridge University Press, Cambridge, 1971, Chs. 1, 3-6; J. R. McLane, Indian Nationalism and the Early Congress, Princeton University Press, Princeton, 1977; Gordon Johnson, Provincial Politicsand Indian Nationalism,Cambridge University Press, Cambridge, 1973, Ch. 1.

[18] Ramsay Macdonald’s letter to M. K. Gandhi, 8 September 1932, reprinted in Pandey (ed.), op. cit., p. 74.

[19] Devdas Gandhi’s letter to Jawaharlal Nehru, 2 October 1931, reprinted in Pandey (ed.), op. cit., p. 71

[20] Gandhi’s protest succeeded to the extent that the Award itself was superseded; and in unusual, euphoric displays of fraternity, `caste’ Hindus threw open temples to members of the `Depressed Classes’ and embraced them with
garlands. The compromise Pact which replaced the Communal Award removed separate electorates but still guaranteed special political representation for some years following the agreement. For an account of Gandhi’ s position on the Communal Award, Judith M. Brown, Gandhi and Civil Disobedience, Cambridge University Press, Cambridge, 1977, pp. 313-21.

[21] For an eminent lawyer’s commentary, N. A. Palkhivala, The Light of the Constitution, Forum of Free Enterprise, Bombay, 1976.

[22] There is reason to think the Mughals before the British had done no better and had probably done much worse. T. Raychaudhuri, `The State and the Economy: the Mughal Empire’, in T. Raychaudhuri & I. Habib (eds.), The Cambridge Economic History of India, vol. I, Cambridge University Press, Cambridge, 1982.

[23] V. B. Singh (ed.), Nehru on Socialism, Government of India, Ministry of Information and Broadcasting, Publications Division, Delhi, 1977, pp. 56-57, 67.

[24] `Draft recommendations for the formulation of the Second Five Year Mahalanobis;`The Second Five-Year Plan – A tentative framework’, drafted by the economic ministries; and a `Memorandum’ written by a panel of prominent Indian economists – all contained in Papers relating to the formulation of the SecondFive Year Plan, Government of India: Planning Commission, 1955 – were the principal influences on the actual Second Plan. No significant understanding of markets, prices or the concept of feasibility is evident on the part of any of the authors. Shenoy’s lonely dissent has already been noted (note 1).

[25] The best descriptions of Indian industrial policy are still to be found in Bhagwati and Desai (1970), op. cit. Also C. Wadhwa, `New Industrial Licensing Policy: An Appraisal’, in C. Wadhwa (ed.), Some problems of India’seconomic policy, Tata-McGraw Hill, Delhi, 1977, pp. 290-324.

[26] Gordon Tullock is generally credited with introducing the notion of rent-seeking in `The welfare costs of tariffs, monopolies and theft’, Western Economic, Journal, 5 (June 1967), while Krueger (1974), op. cit., introduced the term itself. The collection edited by J. M. Buchanan et al., Toward a theory of the rent-seeking society, Texas A&M Press, College Station, 1980, contains reprints of both papers as well as other studies.

[27] Krueger (1975), op. cit., p. 108 ff.

[28] The classic argument for a free market is in M. Friedman, `The case for flexible exchange rates’, in his Essays in Positive Economics, University of Chicago Press, Chicago, 1953, pp. 157-203. Also V. S. Vartikar,Commercial policy and economic development in India, Praeger, New York, 1969, based on his PhD at Wayne State University; and D. Lal, A liberal international economic order : the international monetary system and economic development, Essays in International Finance No. 139, Princeton University, October 1980.

[29] An additive sub-utility function might be defined within each set of categories UG= ∑ ai vi (Gi) a1 ≥ a2 ≥ a3, ∑ ai= 1UP= ∑ bj wj (Pj) b1 ≥ b2 ∑ bj= 1where the vi (.) and the wj (.) are further sub-utility functions defined on each category, etc. None of these has ever been spelt out by the Indian Government and certainly no amount of UP has seemed substitutable for an iota of UG.

[30] Bhagwati and Srinivasan, op. cit., p. 38.

[31] Ibid.,p. 38

[32] In 1980, for example, exports of pig-iron and of sheep- and goat-meat were banned; an export duty on jute manufactures was imposed on 18 February and lifted on 8 September. (Annual Report on Exchange Controls, International Monetary Fund, 1981, pp. 205-13.) The Import and Export Policy (April 1982, March 1983)announced by the Commerce Ministry reported the banning of exports of cane, paraffin wax, mustard and rape-seedoil, and `certain
wild-life items’, including lizards and robins. An embargo on the export of CTC (cut, tear and curl) tea was announced by the Ministry of Commerce on 24December 1983. CTC is high-quality tea which accounts for about three-quarters of India’s tea exports. The ban followed a doubling of domestic prices over the previous year, compulsory registration of tea dealers holding more than 1,000 kg. to prevent hoarding, and agreement by manufacturers to reduce their profit margins and cut prices ofpackaged tea by about 20 per cent (Financial Times, 14 December 1983). The Indian Government apparently feared that the supply of tea for the domestic market was going to run out (The Times, 5 January 1984). The effect of thesemeasures is artificially to depress prices in the domestic market whilst raising them overseas (The Economist, 14 January 1984).

[33] Pick’s Currency Year-book, various editions

[34] Krueger (1977), op. cit., pp. 27-28.

[35] Balassa (1978), op. cit., p. 39; Balassa (1980), op. cit., p. 16.

[36] Ibid.,p. 22.

[37] Short surveys of the relevant practices can be found in Lele, op. cit.,Appendix 1, pp. 225-37, and Sukhatme, op. cit., pp. 29-37. Also Gilbert Brown, `Agricultural pricing policies in developing countries’, and G. E.Schuh, `Approaches to “basic needs” and to “equity” that distort incentives in agriculture’, in Schultz (ed.), op. cit.,pp. 84-113 and pp. 307-27 respectively.

[38] Theoretical economists have long recognised that a fundamental flaw in, for example, the Arrow-Debreu model is its assumption that all conceivable futures contracts are practicable. The longest futures price actually quoted at
the Chicago Board of Trade, however, would be for silver, at about two years; for grains, the longest would be only about three months. Since the natural market outcome is a far-cry from the theory, the Indian Government’s fears about the effects of speculation appear to be much exaggerated. To see the risk-dispersing character of a futures contract, let us suppose that both buyer and seller place a probability of one-half on prices being either in 8 or 2; if they are risk-averse, they may prefer to trade at a certain futures price of 5 now, rather than wait for the future to unfold.

[39] David Hopper, `Distortions of agricultural development resulting from Government prohibitions,’ Schultz (ed.), op. cit., p. 69 ff.

[40] K. Prasad, `Foodgrains policy 1966-1976′, in Wadhwa (ed.), op. cit., p.479.

[41] Schultz (ed.), op. cit., p. 309.

[42] Sukhatme, op. cit., pp. 74-86; T. W. Schultz, `On the economics and politics of agriculture’, in Schultz(ed.), op. cit., p. 15 ff.

[43] Schultz (ed.), op. cit., pp. 92-93.

[44] Ibid.,p. 95.

[45] T. N. Srinivasan, `Income Distribution: A survey of policy-aspects’, in Wadhwa (ed.), op. cit., p. 265. That the small farmer may not find it profitable to invest in storage, and that (if it has been taxed) agriculture has been taxed regressively, are also remarked upon by Srinivasan.

[46] Lele, op. cit., p. 2, where reference is made to Sir Henry Knight, Food Administration in India, Stanford University Press, Stanford, 1954.

[47] Lele, op. cit., pp. 214-24

[48] For example, M. Todaro, `A model of labor migration and urban unemployment in less developed countries’, American Economic Review, March 1969, 59, pp. 138-48; J. P. Harris & M. Todaro, `Migration,unemployment and development: a two-sector analysis’, American Economic Review, March 1970 60, pp. 126-42.The best paper known to the author is by Jerome Rothenberg, `On the economics of internal migration’, Working Paper No. 189, Dept. of Economics, MIT, July 1976.

[49] Thomas Sowell, Knowledge and Decisions, Basic Books, New York, 1980, pp. 268-69.

[50] `The logic of protection’, The Statesman, Editorial, 19 March 1981; also the Editorial, `Danger of caste ethnic

[51] S. K. Datta Ray, `Backlash to protection: fancy gifts ignore real reform’, The Statesman Weekly, 21 March 1981.

[52]M. Weiner, M. F. Katzenstein, K.V.N. Rao, India’s preferential policies : migrants, the middle classes and ethnic equality, University of Chicago Press, Chicago, 1981, pp. 16-17.

[53] Ibid. p. 5

[54] P. T. Bauer, `Population explosion: myths and realities’, in Equality, the Third World and Economic Delusion, Harvard University Press, Cambridge, Mass., 1981, pp. 42-65, contains some of the clearest arguments known to the author about this question; also M. Weiner, India at the Polls : the Parliamentary Election of 1977, American Enterprise Institute, Washington DC, 1978, pp. 35-39.

[55] 10 8 million people affected by floods’, The Statesman Weekly, 22 August 1981; also `Down the drain’, Editorial in The Statesman, 8 July 1981.

[56] Justice with speed’, Editorial in The Statesman, Calcutta and New Delhi, 21 July, 1980

[57] Aristotle, op. cit., 1,094a1-1, 094b11.

[58] There are few thorough studies known to the author that are relevant. One such is Asha L. Dattar, India’s Economic Relations with the USSR and Eastern Europe 1953-1969, Cambridge University Press, Cambridge, 1972.

[59] Bauer (1981) op. cit. Chapters 5 & 6.

[60]. Adam Smith op cit Book IV; also B. Baysinger et al.,`Mercantilism as a rent-seeking society’, in Buchanan et al (eds) op. cit. pp. 235-68.

[61] G. Tullock in Buchanan et al. (eds.), op. cit., p. 48.

[62] Bauer (1981), op. cit., p. 144.

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Alfred Marshall (1842-1924)

January 1, 1976 — drsubrotoroy

Alfred Marshall (1842-1924), founder of modern economics, master of Maynard Keynes, concluding his 1885 Inaugural Lecture: “It will be my most cherished ambition, my highest endeavour, to do what with my poor ability and my limited strength I may, to increase the numbers of those, whom Cambridge, the great mother of strong men, sends out into the world with cool heads but warm hearts, willing to give some at least of their best powers to grappling with the social suffering around them; resolved not to rest content till they have done what in them lies to discover how far it is possible to open up to all the material means of a refined and noble life”.

Posted in Academic economics, Academic research, Alfred Marshall, Cambridge Univ Economics, Cambridge University, Cambridge University Philosophy, Economic inequality, Economic Policy, Economic Theory, Economic Theory of Value, Epistemology of Economics, John Maynard Keynes, Political Philosophy, Positive-Normative Distinction. Leave a Comment »

Independent Indian: Work & Life of Professor Subroto Roy

Bibliography, Books, Public Lectures, Memoranda, Memoirs

Some Recent Work

My Recent Tweets

drsubrotoroy

Index of Names and Subjects

Is “Cambridge Philosophy” dead, in Cambridge? Can it be resurrected, there? Case Study: Renford Bambrough (& Subroto Roy) preceded by decades Cheryl Misak’s thesis on Wittgenstein being linked with Peirce via Ramsey…

“What is the use of studying philosophy if all that does for you is to enable you to talk with some plausibility about some abstruse questions of logic, etc., & if it does not improve your thinking about the important questions of everyday life?” Wittgenstein, letter to Malcolm, 1944

Part I Cambridge, Massachusetts 1: Peirce 2: James 3: Bridges across the Atlantic Part II Cambridge, England 4: The Anti-Pragmatism of Pre-War Cambridge 5: The Pull of Pragmatism on Russell 6: Ramsey 7: Wittgenstein: Post-Tractatus Conclusion

I have not seen the book, I enjoyed her talks published at YouTube, and I look forward to seeing results of her original archival work with Ramsey’s papers.

Bambrough sent me, then in Blacksburg, the proof of his article reproduced below; a clearer copy of the published article may be found at

http://onlinelibrary.wiley.com/doi/10.1111/j.1475-4975.1981.tb00439.x/abstract.

To repeat:

Before we had met, Alexander wrote in support of my work:

When we did meet, as he drove me around MIT in his car, Alexander joked how it used to be bad form in his time to make comparisons about a trio of pairs: Cambridge vs Cambridge, baseball vs cricket, and “American English” vs (what is now called) “British English”!

I asked whom he had referred to as the “prominent Cambridge ethical philosopher”, he said C D Broad and decades later I found Broad’s condescending passage

“… all good fallacies go to America when they die, and rise again as the latest discoveries of the local professors…” Five Types of Ethical Theory 1930, p. 55.

No wonder Alexander found “piquant” that I had reached via Wittgenstein and Bambrough an equivalent position to his own decades earlier via American pragmatism. [Besides by Alexander, a most perspicacious review of my book is by Karl Georg Zinn.]

4. Last week I wrote to Professor Misak at the University of Toronto:

“Dear Professor Misak, I do hope you accounted for Renford Bambrough’s 1979 linking of Peirce, Wittgenstein and Ramsey, here http://onlinelibrary.wiley.com/doi/10.1111/j.1475-4975.1981.tb00439.x/abstract

My 1989 book Philosophy of Economics applied both, and Sidney Alexander of MIT recognized it. Of course my book was viciously attacked in America. Your U of T colleague (GBC) was an old friend from Cambridge days and knows all about me. Cordially Suby Roy …”

I expected to hear back something like: “Dear Dr Roy, Thanks for this. Yes I have acknowledged your 1989 book in a footnote, though I was unable to locate the earlier Bambrough piece and will do so now.” Instead Professor Misak replied

“Dear Suby, Some Americans don’t like anyone to have had thoughts similar to those of their heroes! Thanks for these references. Cheryl”

Excuse me? “Some Americans don’t like anyone to have had thoughts similar to those of their heroes”?

I have had to take this to mean

“Subroto Roy (doubtless an American national, surely he isn’t still an Indian? Answer: He is) objects to Cheryl Misak having had ‘similar thoughts’ to his hero Bambrough”.

A puzzling response from an eminent Professor of Philosophy at the University of Toronto. I wrote back: “Hello, I’m afraid your paragraph is too enigmatic for me”. Professor Misak’s second reply was even more curious than the first:

“Apologies. I just meant that some Peirce scholars don’t like to think that Ramsey and Wittgenstein might have been promoting the same ideas. The reasoning behind their aversion is enigmatic to me! Cheers, Cheryl.”

Bambrough’s path-breaking works of general epistemology and ontology are two three four humble papers in Proceedings of the Aristotelian Society

“Universals and Family Resemblances” https://www.jstor.org/stable/4544648

“Unanswerable Questions”

https://www.jstor.org/stable/4106729?seq=1#page_scan_tab_contents

“Objectivity and Objects”

https://www.jstor.org/stable/4544817?seq=1#page_scan_tab_contents

“Thought, Word and Deed”

https://academic.oup.com/aristoteliansupp/article-abstract/54/1/105/1779886?redirectedFrom=PDF

In 2007 I added:

Single-handedly I have over a few decades restored the philosophical work of John Wisdom and Renford Bambrough. That there was good reason to do so is now obvious.

Will Cambridge Philosophy wish to revive “Cambridge Philosophy” within Cambridge?

Well if so, here’s a reading list from this Indian economist… yes in India (get over those racist thoughts at once!):

John Wisdom (1904-1993), Main Philosophical Works:

Interpretation and Analysis, 1931

Problems of Mind and Matter 1934

Other Minds, 1952

Philosophy & Psychoanalysis, 1953

Paradox & Discovery, 1965

Logical Constructions (1931-1933),1969

Proof and Explanation (The Virginia Lectures 1957), 1991

Secondary literature:

Wisdom: Twelve Essays, R. Bambrough (ed) 1974

Philosophy and Life: Essays on John Wisdom, I. Dilman (ed) 1984.

Renford Bambrough (1926-1999), Main Philosophical Works: “Socratic Paradox”, Philosophical Quarterly, 1960

“Universals and Family Resemblances”, Proceedings of the Aristotelian Society 1960-61

“Plato’s Modern Friends and Enemies”, Philosophy 1962

The Philosophy of Aristotle, 1963

“Principia Metaphysica”, Philosophy 1964

New Essays on Plato and Aristotle (edited by R. Bambrough), 1965

“Unanswerable Questions”, Proceedings of the Aristotelian Society Supplement 1966

Plato, Popper and Politics (edited by R. Bambrough), 1967

Reason, Truth and God 1969

“Foundations”, Analysis, 1970

“Objectivity and Objects”, Proceedings of the Aristotelian Society 1971-72

“How to Read Wittgenstein”, in Understanding Wittgenstein, Royal Institute of Philosophy 1972-3

“The Shape of Ignorance”, in Lewis (ed) Contemporary British Philosophy, 1976

Introduction & Notes to Plato’s Republic (Lindsay trans.), 1976

Conflict and the Scope of Reason, 1974; also in Ratio 1978

“Intuition and the Inexpressible” in Katz (ed) Mysticism & Philosophical Analysis, 1978

Moral Scepticism and Moral Knowledge, 1979

“Thought, Word and Deed”, Proceedings of Aristotelian Society Supplement 1980

“Peirce, Wittgenstein and Systematic Philosophy”, MidWest Studies in Philosophy, 1981

“The Scope of Reason: An Epistle to the Persians”, in Objectivity and Cultural Divergence, Royal Institute of Philosophy, 1984

“Principia Metaphysica: The Scope of Reason” also known as “The Roots of Reason”; a work and manuscript mentioned several times but now unknown.

If so, People, not to worry…. enjoy all this “Cambridge Philosophy” at your leisure… and come to see me… in India…

[Postscript 1 from Twitter 22 November 2017: I was still not in Kindergarten

when Wisdom delivered his Virginia Lectures:

Part I Cambridge, Massachusetts
1: Peirce
2: James
3: Bridges across the Atlantic
Part II Cambridge, England
4: The Anti-Pragmatism of Pre-War Cambridge
5: The Pull of Pragmatism on Russell
6: Ramsey
7: Wittgenstein: Post-Tractatus
Conclusion

“Universals and Family Resemblances”
https://www.jstor.org/stable/4544648

Renford Bambrough (1926-1999), Main Philosophical Works:

“Socratic Paradox”, Philosophical Quarterly, 1960