A prime reader on the Indian economy

A review of 'Pre-Liberalisation to GST - Essays in Honour of Raj Kapila'

India’s Economy

Pre-Liberalisation to GST — Essays in Honour of Raj Kapila 

Edited by Uma Kapila 

Academic Foundation

725 pages; Rs 1,295 

Raj Kapila, who passed away in 2016, was one of the leading figures in Indian economics, thanks to his wide circle of friends and colleagues within the economics profession and his long stewardship of the publishing house he founded in 1990 and called Academic Foundation. His close interest in the structure and effects of Indian economic policy has now been honoured in a festschrift published by Academic Foundation and edited by Uma Kapila, titled India’s Economy: Pre-Liberalisation to GST. 

The scope of this book is, naturally, enormous, and the list of those who have contributed essays vast. It includes C Rangarajan, Y V Reddy, Vijay Kelkar, Ashok Gulati, M S Swaminathan, M Govinda Rao, and Bibek Debroy. It is not, I would say, the usual collection of papers — it is distinguished particularly by K L Krishna’s opening essay on the Delhi School of Economics (DSE), where Kapila was a student in the mid-1950s. The DSE, particularly in its golden years before the early 1970s, was a truly world-class institution, and this is amply brought out in the first part of this volume. Particularly evocative is the story of how Jawaharlal Nehru, the president of the “Fraternity” of DSE students and teachers, would turn up on Founders Day — November 14, his birthday — and talk to students casually, sitting on a high desk with his legs swinging. 

There are too many essays in this volume for a clear summary in the space available for this review. However, some of them stand out in particular. Y V Reddy, the former governor of the Reserve Bank of India (RBI), writes a clear summary of the challenges facing monetary policy going forward. There are several arguments in this chapter that are relevant to policy issues of the moment today: For example, Dr Reddy says that “the stability in terms of the external sector is a matter in which RBI, more than any other institution, has focus, expertise and capacity”. It is likely that the current approach of the RBI’s monetary policy committee, which has de-emphasised exchange rate management in favour of its legal mandate for inflation targeting, does not meet with Dr Reddy’s wholehearted approval. In general, Dr Reddy worries that the RBI’s new and clear mandate “creates uncertainties about the role of RBI as a monetary authority and the RBI in regard to other functions”. 

M Govinda Rao, in his chapter on the goods and services tax or GST, is very clear that the GST is not the end but a beginning: “Instead of viewing the GST as a game-changer, it is useful to see it merely as the next stage of consumption tax reform in the country.” There is no question in that author’s mind that, first, the GST was hastily introduced and needed greater clarity in the transition; that movement to one or two rates instead of the current multiplicity must not be too long delayed; and that first real estate and finally petroleum must be brought within the GST’s ambit. 

Indira Rajaraman’s chapter deals with a review report on the Fiscal Responsibility and Budget Management Act, and thus on deficits and public debt more generally. Dr Rajaraman rightly points out that one grave stumbling block to true fiscal management — which would enable counter-cyclical adjustment automatically based on various “departures of growth indicators from the expected trend”, is the “somewhat brittle state of GDP estimates in India, and the proclivity to fairly radical revision of GDP estimates”. This is another important reason to invest in better indicators of GDP going forward — it will enable more credible fiscal planning in a medium-term framework. 

Vijay Kelkar argues in his chapter for greater power for the NITI Aayog, including in particular the ability to allocate development or transformational capital grants across the states. He says that this is one important way to deal with ongoing geographical disparities in development, and one that is fitted to the political economy of India more than fiddling around with Finance Commission mandates. He also is critical of the GST’s initial transition, saying that it was “a disappointing beginning which could have been otherwise; a thundering take off to shock and awe the domestic and international community and capital markets”. 

These are just a few of the 31 rewarding and useful chapters in this book; others examine bank debt, sustainable infrastructure, the water crisis, commercialisation of agriculture, conditional cash transfers, and digitisation and demonetisation. As is always the case with Academic Foundation books, the data is up to date and relevant, and the graphs clear and usable. I have no hesitation in recommending this book both as an excellent reader on the state of the Indian economy 25 years after liberalisation and also as a resource for reference going forward.