Felicitous exposition of ideas that stay

The words ‘exuberant’ and ‘economist’ shouldn’t coexist. It is not the job of any self-respecting economist to be a part of the cheer-leading squad. That should be left to the nubile nymphets at 20-20 cricket matches. Economists worth their salt will always look at grey linings in silver clouds; and think of 50:50 as half empty. Even in the best possible situation, any decent economist will look at possible flaws, risks and try to decipher early signals of things going awry.

Looked at this way, Shankar Acharya is a very sound economist indeed. Throughout his long tenure at the ministry of finance as the Chief Economic Adviser (1993-2000), Acharya never behaved as a high-spirited vanguard of the government in power. There was never a question about his commitment to economic reforms. It was just that he was too careful and too realistic to ever proclaim that the race was close to the finishing line.

 

This book is a collection of 33 essays that Acharya penned between 2007 and 2008 which appeared in Business Standard and Outlook. Twenty-eight of these are divided across six specific sections; and the remaining five are more general. Let me briefly discuss some of these articles to highlight Acharya’s approach to economics and his almost unerring perspicacity.

In January 2008, when the Indian government and corporates were outdoing each other to headily celebrate two back-to-back years of over 9 per cent growth, and a third in offing, Acharya penned his early warning notes: rising oil prices, the possible global effects of sub-prime lending (at a time when the word was unknown in India), growing fiscal deficits, poor growth of infrastructure, lacklustre agricultural performance and widening economic disparities. “The party may still be swinging,” writes Acharya, “but it’s not for everybody. How long before the widening economic and social disparities fuel serious strife, which shreds the remnants of reasonable governance and impedes the overall momentum of development?”

In ‘The Triple Punch’, an article penned in August 2008, Acharya clearly predicts lower growth in 2009-10. “The world economy’s punch to Indian growth has not yet landed with full force. It will have done so by 2009... All things considered, it should not be a surprise if India’s economic growth dips below 7 per cent in 2009-10.” By December 2008, he writes, “a 6 per cent economic growth in 2009-10 will be pretty good... if we achieve it.” Few wrote so then.

Another example of Acharya picking up signals early is his article, ‘RBI Should Cut Rates Now!’ — a rare instance of the author flirting with an exclamation mark. Written in February 2008, when the RBI was still aggressively pursuing an anti-inflationary tight monetary policy and maintaining its repo rate at 8 per cent, Acharya made a very coherent case for easing monetary policy. I consider this article particularly important in the present collection. Instinctively, Acharya has been conservative, especially regarding monetary policy. He is no Surjit Bhalla, who believes that almost all ills of India’s real economy stem from the Reserve Bank of India. Yet, one sees him changing tack — analysing the data and taking a stance in favour of easing rates.

Acharya is at his finest in his essays on fiscal policy. In ‘Reality Rules’, he writes, “In the 21st century you just have to get used to dull, real (not “dream”) budgets... The sober truth is that any decent budget won’t make waves. If you want waves, go to Goa.” In another delightful essay called ‘The Year of the Carp’, Acharya trashes the loan waiver of Budget 2008: “Just think of what this move does for the future climate of sound credit systems and subsidy containment when famous reformers like Manmohan Singh and Chidambaram are seen blessing government-sponsored loan waivers... This move will encourage more competitive populism and undermine sound economic policies.” And in ‘Subsidies to Perdition’ he concludes, “The lesson is clear: subsidies pave the road to perdition. If we want to rescue India’s poorly performing sectors, we have to free up prices, phase out subsidies and allow free entry. It has worked before. It will work again.”

Reading this slim volume of Acharya’s selected essays brings out two delightful aspects of his writings. The first is what I started this review with: the fact that he questions, he analyses and refuses to be a thoughtless reform groupie. He also does not speak in dead certitudes. The other is his writing itself. In these days, it is rare to read the words of someone — least of all an economist — who has such natural felicity with the English language. Simple, straight prose, with wry twists of phrase that are a delight to read. The more so, when it is so well-ensconced within the bounds of sense. As much a wonderful read for practitioners as it is for the laity.

The author is Chairman, CERG Advisory Private Limited

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INDIA AND THE GLOBAL CRISIS

Shankar Acharya
Academic Foundation, New Delhi
pp.i-viii, 9-171; Rs 495