A macro-economist in real time

ECONOMICALLY SPEAKING
Indira Rajaraman
Academic Foundation
290 pages; $69

Papers written carefully, age splendidly. Newspaper columns also age but not so well. But Professor Indira Rajaraman has taken care to carefully annotate this collection of columns that she wrote from 2010 to 2015, making many of them well preserved.

This is particularly true of the set of columns the former RBI chair professor at the National Institute of Public Finance and Policy (NIPFP) has written on the annual Budgets and those on the two Finance Commission awards. Considering even finance ministers are apt to forget what they spoke about a year ago, this is an interesting exercise. It is worth wondering, however, if it is fruitful one since one of India's premier economists remains careful in her introductions not to offer any comments on the relative importance of any year's Budget against what passed before or after. She is far more painstaking, though, in the updating exercise on the columns she wrote about the Finance Commissions. Her experience as the key member of the 13th Finance Commission, chaired by Vijay Kelkar, that virtually drew the Goods and Services Tax road map for India, shows in these exercises.

Her better works as a columnist for newspapers, including the Business Standard and the Mint, is the commentary she provides on the challenges of the Indian economy in this century. In this group the best column is easily the analysis on Indian engineering colleges. Taking the Indian Institute of Technology, Roorkee, as an example, her short piece on "Skills and Growth" drives home a basic point; the loss to the economy by splitting engineering education between the rarefied engineers with a degree and those with a pedestrian diploma. Writing about why Roorkee junked its shorter but effective course for technicians in 1964 she writes: "The real reason was that a slew of Indian Institutes of Technology had come up in the 1950, with integrated science and engineering departments, and an academic aspiration that was wrongly thought to demand an appropriate distance from training in manual engineering skills". She concludes that the university "was pushed into shedding the very features that had made it closely integrated into the skill requirements of the Indian economy".

Professor Rajaraman's advantage in this segment she classifies as "Reforms, Inequality and Growth" is her willingness to leverage her skills as a macro-economist to analyse current controversies. And unlike the sections on "Budgets and Taxation" or "Institutions and Governance" these seem timely but where informed analysis like hers is lacking.

For instance, she has used her knowledge as a member of the quinquennial Finance Commission to examine an area that is rarely touched on: that of inequality within states instead of the more popular inter-state inequality. Yet, as she points out, it has more impact on why toilets gets built and managed well in a slum while another set in a corresponding town deteriorates. Some of the reason for the scarcity of work here is the lack of data. And in the absence of such data and lack of monitoring states discriminate often without intending to. "The allocation of funds between districts would of course be subordinated to some kind of administrative guidelines... but these are not hung out in the courtyard for all to see," she notes.

The former IIM Bangalore professor makes the hypothesis that to reduce administrative complexities the physical size of the districts within a state can be made comparable. "The only objection to this," she says tongue in check, "might come from economists, for whom geographical redefinition introduces an unwanted discontinuity in time series data at district level". Reading the piece just after four states have got themselves a new state government and another four a year before seems about the right time to start this revision as it would make their social sector expenditure much more targeted. It is, however, vaguely dissatisfying to note that she among all economists does not take forward the argument about the link between the weakness in local administration and financial capacity. It is something that is plaguing even mega cities like Delhi with few solutions in sight.

Another good column in this set is "Wanted: New Financial Instruments" where she analyses the need for the financial sector to devise new ways to monetise the two most valued stocks in India, gold and real estate. As her detailed epilogue mentions, the Land Acquisition and Rehabilitation and Resettlement Act of 2013 which has replaced the vintage Land Acquisition Act of 1894 is, in fact, retrograde in giving rights to the land owners and throwing an unnecessary protective ring of state control around them. "With its provision for overlapping layers of diligence by committee, it will markedly slow down the pace of land acquisition and lead to further choking of supply and escalation in the price of land". Pushing for a developed market for land rights may have been a far better alternative in this context; but Professor Rajaraman limits herself in terms of offering solutions. These issues, however, are areas the governments of the day will have to work on and going out on a limb to offer clear alternatives is what one would expect from an economist of her stature. It is in such issues that the continued salience of such eclectic collections of columns would be measured.