Prof. C. Rangarajan, an Indian Economist and Ex-RBI Governor of India at IIM Ahmedabad

good afternoon uh welcome I'm delighted to welcome you and uh of course professor rangarajan professor rangarajan was my professor when I came here 81 to 83 and the joke we had about Professor Angar Rajan was that he grad uated with us you know professors sometimes don't graduate with students but Professor rangarajan was here 1968 to 1983 and so jant had him uh as his professor as did several of our alumni and uh he's those of us from those years uh and people in our economics area faculty all of us will vouch sa he's the Doan of Indian economist he looks younger and so Professor rangarajan till 2014 was chairman of the economic advisory Council to the Prime Minister a position that he held since uh January 2005 except for a short period during 2008 2009 when he was Member of Parliament in rajas saaba and prior to that he was uh chairman of the 12th Finance commission Dr rangarajan was governor of The Reserve Bank of India during 1992 1997 and you will note from the years that um he was very actively involved in the design and implementation of the reform agenda Professor rangar rajan's uh uh honors degree is from Madras PhD from University of Pennsylvania where he has also taught in the won school he taught as well in The Graduate School of Business Administration at NYU and lyola college in University of Rajasthan as well as isi and uh he is currently chairman of Madras School of economics and Chancellor of University of Hyderabad uh all of which are fabulous but the thing that I really want to highlight is he's our Prof Professor 68 to 83 Professor rangarajan was honored by the Padma vibhushan in 2002 uh but you know all these honors and all the wonderful experiences of his uh academic uh career fail in comparison to the generosity of his temperament and the straightforwardness with which he has often uh taught generations of us and has been a beacon to academics uh on maintaining high quality work and uh through a gentle voice making sure that honest truths are heard far and wide our pleasure Professor angaran to welcome you [Applause] Professor nand distinguished faculty and invitees and my young friends it gives me a great pleasure to be back on IA campus I recall with great fondness the years that I spent here almost a decade and a half I'm happy to meet some of my old friend here on this occasion I left in 1982 and went into public policy making from the Academia of course in the meantime since then this institution has grown stronger Diversified and commands worldwide respect I wish the institution all success in future efforts and I'm sure it will climb to even higher levels of excellence in the coming years this year marks the completion of 25 years of the launching of the reforms and that is why I thought I might take this opportunity that has been given to me to talk about the road that we had traveled by the initial difficulties concerns and obstructions and also to indicate somewhat the road that lies ahead of us in terms of the reforms this is history in some way but I think some history is always useful 1991 is an important landmark in the post-independence economic history of the country many of you here may not have been born even at that time but the country faced an acute economic crisis triggered by a severe balance of payments problem and the crisis was converted into an opportunity to bring about fundamental changes in India's Economic Policy the response to the crisis was to put in place a set of policies aimed at stabilization and structural reform stabilization policies were aimed at correcting the excesses that have happened on the balance of payments and the fiscal side while structural reforms were aimed at removing the rigidities that have entered into the economic system and push the economy forward in the 1950s and 60s the dominant thought in economic literature was that state had an important role to play and that it should take actions to correct what came to be described as market failure market failure was particularly perceived in the area of allocation of resources over time that is in investment because of the myopic character of the participants at the same time the literature also emphasized the advantages that come out of coordinated set of projects and Investments and that led to Nationwide economic planning not only in India but elsewhere in the world but 40 to 50 years of development experience tells us that that can be government failure as well not because of faulty investment decisions which can occur under the private as well as the public sector but because of the multitudes of controls that we imposed which resulted in large number of resources quite a bit of resources being directed towards what used to be called the rent seeking activities can we fault our policy makers for the road that they took in the 1950s and 60s partly the answer is no at that time there was no clear model available in the world as to what roote developing countries or in those days they were called underdeveloped countries could take in order to be able to accelerate growth or speed up growth the only example available at that particular time was a Soviet Union which over a period of 3 to four decades was able to lift the country to a much much higher level in terms of productivity and in terms of quality of life and therefore many people including Neu was attracted to the model That Was Then available and we did not only India but also many other countries follow it but by the end of 1960s and the early 1970s it was clear that this model was not working or this model has some problems with it but I think our policy makers refused to be be cognizant of that and we continued until 1991 when only a b big crisis forces to change track if you look at the per capita income of India and China and and plot it you will see until about 1970 the two countries were almost along the same line it is only after 1970 China which moved away from the uh traditional uh planning model started picking up into in terms of growth and it started wiing therefore the the whole issue is really what is the essence of the new reforms that were introduced there is a common threat running through the various measures introduced since July 1991 and that is to improve the productivity and efficiency of the system by injecting a greater element of competition and this is sought to be achieved by removing the barriers to entry and growth while changes in industrial policy such as the dismantling of controls was aimed at improving the domestic competitiveness of Indian Industries changes in foreign trade polic policy which meant reducing the Tariff levels meant increasing the international competitiveness of Indian firms the New Economic Policy does provide the largest space for the private sector to operate some of the areas which were reserved for the uh for purely the public sector are now been thrown open like Steel power Aviation and so on as I mentioned earlier in the 50s and 60s the view was that the state must occupy the important sectors of the economy and that is what used to be called the theory of commanding Heights namely as in the Warfare you can fight the war only if you capture the commanding Heights and that is what was felt it is this which led to the proliferation of the state into many many areas and this is what sought to be reduced now let me one again say in an economy the state can play three roles as a provider of marketable goods and services as a regulator and as a provider of public goods and services what the New Economic Policy did was to reduce the role of the State as a provider of marketable goods and services if the market can take care and if competitiveness can be maintained in the markets let them do it but simultaneously the role of the state as a regulator the role of the state as a provider of public goods and services public goods and services are like uh Elementary education primary education Primary Health and you know the definition for public goods which have externalities and all those must come under the perview of the of the public sector even there there are various models that are available in terms of the provision of public goods that is that can be a pure public um provision of the services that can be yeah public private participation in the provision of services and so on and so forth therefore there is nothing in the New Economic Policy which completely takes away the role of the state in Sam it expands in some areas it contracts as somebody said more Market does not mean less government but different government and that is really the basis of the New Economic Policy let me come back again to say where the breaks happened but I would also like to take you to 1991 the background against which the reforms were introduced 1990 was a bad year for India dark clouds were gathering all around the possibility of default was imminent the balance of payments deficit the current account deficit which are already high in even in the previous year 1988 89 shot up in 1990 because of the Iraq quate War the Iraq Kuwait war led to the tripling of the oil prices in a short period of time and since we are a major importer of oil it completely wrecked our balance of payments situation and the crisis the and the current account deficit started Rising it was almost at 3% of the GDP in 1990 now the the problem was twofold it was not only that that the current account was rising in 1990 but also it became difficult to finance that current account deficit in 88 889 it was almost 2.7% of GDP and we managed but in 1990 we could not because of several factors India's credit rating was lower and that meant some of the traditional sources of financing were also went away the the for example non-resident deposits which are a source of great strength instead of coming in started going out and that put pressure but also I must say the Iran Iraq crisis complicated the problems not only because not only um because of the rise in the crude oil prices but also because of two several other factors we had to take care of the people who wanted to come back to India I think that was a considerable bill pay on for for paying th those people then remittances from Middle East reduced our export markets in the Middle East also dwindled all of this created a complication in which our our P of payments crisis was very critical and we were finding ourselves very difficult to finance it much of our oil import at that particular time was financed by short-term credit known as acceptance facility and the problem was that we could not roll over the short-term credit this was middle of 1990 I think the VPN government was in power at that particular time in August 1990 we did write to the government saying that the situation is getting critical we need extraordinary resources and therefore you must approach the multilateral institutions but the government didn't take any action and in the meanwhile the political situation itself was getting much M and mudar and which was get getting reflected in the credit rating of of of India by December 1990 the VP Singh government had fallen and the Tandra Shaker government had come back to come to power when the chandrakar government came to power when I met him and said that we need to go and get that money his question was he what he simply said was what option have you left me and there was no way no no alternat so myself and Deepak nayar went to Washington to negotiate I will not go into all the details but we did negotiate and as we were negotiating for several kinds of facilities this simplest of that was what is called the compensatory financing facility which the IMF provides to countries which have been affected because of the sharp increase in the import prices and the crude oil price increase was such one and therefore the IMF was very uh Cooperative on that I mean I think they were willing to to do it and we first started doing that and we were into February of 1991 when the budget could not be presented because of the political situation and a little later the Chaser government also fell the day Chand Shaker government fell I was in Washington and we were negotiating and the next morning when we went to fund they had a strange look with what government are we negotiating I I myself and my colleagues said you don't worry about that let us settle down on the details we will take it to whichever government is there and then we will try to convince that government and get it done so I said we should not stop the negotiations we should continue the negotiations and so on so that is what happened at that particular time but let me say that at that particular time India's foreign exchange reserves was equal only to 3 weeks of India's Imports that is the bottom to which we had gone there was nothing else and we could not really actually pay for many things I remember the managing director of a India walking into my room and said if there is any mishap happens to air India you are responsible I said why you are not reing rece you you are not releasing money even for spare parts how do I run the the airline industry so that was so critical go the situation that came I will cut short the story because I I think there is many many things to be said but I only want you to understand the gravity of the situation that prevailed at that particular time and that in a very important sense influenced our decision making at that time because I will come back a little later let me also tell you at that time when we were asking not only the multilateral institutions but also other private Banks and others to give us credit one question they used kept on saying is you have so much stock of gold in your country why don't you use that and that will show that you are really serious about tackling your problem now this conversation was going on simultaneously and we did think that it was appropriate to do something on that score and that is why we decided that we should sell not sell pledge some part of the goal that we had but it is more easily said than done because we have to abide by the RBI act the RBI act has number of limitations on it first of all we could not pledge the goal which is in the issue Department we could pledge the goal which is only outside the issue Department therefore what we did was we transferred some gold from the issue Department to the banking Department it was kept there the other is that the Reserve Bank of India cannot borrow from anybody other than a central bank so we have to find out which Central Bank will give us credit and thirdly The Reserve Bank of India can borrow only for a short period it cannot borrow for a long period short period being defined as 90 days so we started working on it we did so many things and finally I must say to the credit of the Chandra Shaker government that they were willing to do it but they themselves were a sort of unstable government at that time and while we while they were willing to go along with us the actual shipment of gold happened only after the new narar and Man Singh government came we were ready for all of those things but the actual treatment happened only in July 1991 after manm Singh became Finance Minister and narar became the the prime minister they didn't object anything they they just kept aloof because you have done everything and you do what you want to do so they didn't object but they did not take the initiative to to to to to do it but I can also tell you that the shipment of gold was not such an easy thing the gold that Reserve Bank of India had had all sorts of things as gold Queen Victoria coins some from the 17th century some from earlier period and they were not what they used to call London good delivery that is when you pledge the gold you have to give them in blocks of gold which is on which stamp with on which stamped on which is stamped London good delivery so I we I we negotiated with Bank of England and Bank of Japan and we shipped 44 tons of gold to get what may look like today a partially a small amount which was less than $500 million that therefore we did it but I can tell you it was a very traumatic experience to to do it first we were sending small quantities in small in the commercial airlines but the commercial airlines came back and told us no we won't take anymore people have some idea and we are risky our passengers we won't do it then we chartered a flight and put the gold in the chartered flight and the chartered flight was sitting in Bombay and some nosy journalist CAU wind of it and even as the plane was leaving it was flashed on the newspapers we were we had no intention of hiding it because it cannot be hidden once it goes we will announced because I think it is it will be shown in the balance sheet it will be shown but all that I was interested at that time was that it should reach London and then release the the news but then the noi journalist who became later on a good friend of mine also splashed the news and uh in a sense it is that that brought home to the people of this country what a critical situation in which we are like a family we were pledging the go to get money so that is the the kind of thing that happened so in July 19 July 1 1991 the new government was already there and we had to take some decision on how to correct the balance of payments and we took the decision to devalue the rupee now the decision to devalue the rupee was logical and was the right thing to do but as you know it is always a political decision and the naras government at that time was a minority government and whether a minority government can take this decision or not was a big question but two things happened we decided to do it in two steps we didn't devalue the whole currency one in one whole hog we did it in two steps some people ask why did you do it in two steps well we thought we'll test the waters and do it and the second and the most important thing unlike the previous devaluations it was not announced by the government we in the Reserve Bank did it and in the Reserve Bank we used to in those days we used to determine the exchange rate of the rupe every morning every morning at 9:00 it was my duty to fix the exchange rate of the rupe so as part of the normal routine we made this change and then it shocked the market and we are told now that Mr narar developed cold feet and he wanted to stop the second um U step so what do we do I absconded so they said we are not able to reach him and on the 3rd of July at 9:30 the Finance Minister called and I said I have jumped so it was done on 3rd July 9 9:00 the Second Step was there we used to call it code word was hop skip and jump so the first thing then uh rest and then the second one it was done and I in retrospect always felt that the decision that we should do it rather than the government do it was a right one otherwise we would have been probably stopped the on the on the second day so this much is a background and I think on the Genesis of reforms two or three questions are asked it's part of history but anyway one is what is the role of Nar because narim was always inscrutable so what role did narar the second is reforms have been of some sort have been done in 1980s is this a continuation of what was being done in 1980s and the third question people ask us all those people were involved in making these reforms were also part of the old controll regime what made them change the views or who is responsible or is it dictated by IMF I think that's the key question now let me briefly answer because these questions are banded about all the time narar was not a reluctant reformer I have written a piece entitled Nimar not a reluctant reformer it is true that Dr manm Singh was the torch Bearer he was the one who articulated the rationale behind reforms not only the rational but also the details of the reforms were all set by him but without a political support because at that time Dr Manan Singh was a bureaucrat who was just entered without a political support it could not have been done and narar was well behind it in fact two things I would like to site because it is overlooked the dismantling of the controls in the industrial in the area was done by him because as prime minister he held the post of of Industry so it was he who did it but he always couched the explanations in a language which was which could assar the old gods in Congress so he always said it is a continuation it is nean socialism modified so all that he was saying and he also used the word middle path so all these but the the style in which narar put it because he had to carry the party with him and therefore he did that but I would say that very clearly there are other examples I can give but I can very clearly say that he provided the political support which was needed is it a break or continuation I would say that I was also involved with the various committees in 1980s which opened up a little bit um the Alexander committee on exports and imports and then there was the other committee on uh shifting from uh physical controls to financial controls and so on but they were all in the context of a controlled regime it's not a break from the from the controlled regime and on what was responsible for changing the mind I think that's that I have myself asked I have asked the question to myself and I have asked a question to Dr manm Singh as well and I the only answer that I can find is the enormity of the crisis that really made the change I me I think that there is no other explanation I mean we have been all thinking about it but it is the severity of the crisis that really made us change change now I I think very briefly let me say that the reforms as they were initiated at that time covered a wide area started with fiscal policy cutting the fiscal deficit but please remember there was also another policy which was integrating with the rest of the world and that meant you have to cut the import tariffs therefore we had to do The Balancing Act of cutting the import tariffs and at the same time maintaining a low car deficit that was a big problem the big changes happened in the external sector that first of all the the entire policy towards foreign investment changed the foreign investment earlier on even though allowed into the country uh was under the condition that the Foreigner cannot have a majority control in in India no Foreigner wanted to come under that condition so this was relaxed and that is why we talk about the foreign direct investment now that I mean we had to proceed on a step-by-step basis because we couldn't open it up immediately but that we did we did that and earlier on nobody could invest in the Indian stock market and for the first time the foreign institutional investors the new term that was coined and identified by CB and the RBI to allow them to te Miss and look at the banking system the banking system system underwent a big change it underwent a change in in many respects uh for the first time we introduced the presential nors the capital adequacy ratio was prescribed and so on and many of the terms that we are using today like non-performing assets did not exist at that time because every Bank was identifying according to its own light what is performing and what is not performing there was no definition of non-performing that is what we now call income recognition Norms they they didn't existed at that time so the uh and then we allowed the opening of the new private sector Banks and many of the private sector banks that we talk today I I HDFC were all licensed at that particular time it didn't require actually a statutory change the ACT permitted the setting up of Private Bank in banking institutions but it was not acted upon for I don't don't know maybe three decades or four decades we activate and another important thing that as far as the public sector banks are concerned amending the nationalization act to enable the ownership of the state to come down from 100% to 51% was a difficult exercise because there is an emotional attachment as far as the congress party was concerned with respect to the nationalization of commercial Banks to make them agree to reduce the stake of the government in that uh was a very difficult thing but we I we went on arguing with them that we are not doing away with the public character of the public sector Banks because 51% means the majority ownership is with the with the banks and so on and I can go on with the with all the other areas now very quickly I want to only say that if you look at the record of the performance of the Indian economy you will very clearly see that the growth rate of the Indian economy has picked up much stronger in the post liberalization period you can look at any any set of numbers I will not go into it I already taken a long time so I will say that very clearly the the the rate of growth of the Indian economy since 9293 has been something like 6.8% in the first three decades 1950 to 1980 the rate of growth of the Indian economy was 3.5% and at that time population was growing at almost 2 .2% and the per capita income growth was only 1.3% since 2005 I think the economy had even picked up much more between 20056 and 20078 the average annual rate of the growth of the economy was 99.4% in 20089 because of the international crisis it came down but came down to 6.7 but the reversal was very quick in the next 2 years the average rate of growth was 8.6% and 88.9% then came the decline quite clearly reforms have contributed to a faster rate of growth but we are seeing a decline in the growth rate in the last few years and that is a question that needs to be addressed and if I have the time I will come to that later but one question that people will keep on asking you as far as the reforms is concerned is that is growth the only indicator by which you measure the performance of the economy what about the distribution of income what about uh the uh standard of living of the people so that is why aatos calls his book an uncertain Glory what is uncertain about it and what is the glory that we are talking about the glory I mentioned namely that the rate of growth of the economy picked up tremendously in the impos liberalization period but India is ranked what something like uh 30 in out 188 countries in terms of the hrd index and that clearly indicates that we do not in terms of Social Development really do not rank high and is that not a concern now there are several ways of answering this problem what we need to understand is a relationship between growth let us say and Social Development let us call the Social indicators what is the link between the two can growth happen without Social Development and you can also put the reverse question can Social Development be sustained without growth there is some synergic effect between the between the two which we need to take care of in fact for example if you have Social Development and you have more schools and more graduates coming out and if the economy is not growing and is not able to absorb the people who come out you have created even greater tension in the in the in the system therefore Social Development of the type that we want cannot be sustained unless there is a is a growth growth does help Social Development in an important way as they say the rising tide lifts all boats that for if growth happens and that growth happens in a strong way if you are growing at 3.5% the trickle down will not happen that's not much the one country in the world which you can site the example which eradicated poverty by simply going strong is South Korea South Korea once again South Korea's per capita income and our per capita income in 1951 52 is exactly the same but by growing at 7% Plus for over a three and for for four decades they eliminated poverty growth will help a by for raising the resources for social development areas and growth will also help by trickle down to the extent possible but the point and I also would like to say some indicators you can look at look at the poverty ratio in if you look at the poverty ratio between 1993 94 and 20045 the per capita income grew at 4.3% and the annual rate of reduction in the poverty ratio was less than 1% 0.7 look at the next period 2004 5 to 11 12 the per capita income grew at 6.7% the annual rate of reduction in the poverty ratio is 2.2% so there is enough evidence to show that growth does help but the question can still be asked does growth help enough or adequate to do it even our own committee estimated that the total number of Po people below the poverty line is close to 30% it's a very large number that we need to do it but then growth does play a very important part in this you can look at the NSS consumption expenditure of the two or three periods I find in my I have written elsewhere that in every desile of the population there is a growth stronger growth and in terms of the ratio of growth between any two periods it is stronger for the bottom five desiles rather than the top five desiles but having said all of that I'm not the one to say that we have done well on that score there are many many indicators on which we can see that the economy needs to do much much uh better but growth is certainly an important uh Factor now let me briefly come to two things and conclude there one is what are the areas we should look at in terms of reforms having done all all of this the basic objective that we have in mind is really to improve the productivity and efficiency of the system give better competition anything that goes to improve the efficiency of the system is a primary criteria for example GST is important I think it will may not I mean it will not do as some optimists very much think about GST in the initial years you will have more problems than really solving the problems because the introducing GST is not that uh that easy but it will result in over a period of time in a form of Taxation or a tax structure which will help to allocate resources of Dem and therefore GST is important and you must also heard a lot about the land acquisition act and land acquisition procedures and so on in my view acquisition is antithesis of competition acquisition means what compulsorily acquired that's an opposite of competition and therefore I do not favor a Land Act which really gives a lot of powers for acquisition except for Public Policy of of a particular nature I think we should leave it to the market to to decide and one argument earlier used to be that the farmers do not know the market well and all that I think that argument no longer holds good I think they know the market very well and the land market will operate and therefore it will be and third we think that we have knocked off all controls that is also not true there are still IND indries in our country which have controls reminiscent of the pre-1991 type the classic example is a sugar industry in the case of the sugar industry the sugar cane Growers get what is called the fire and remunerative price and then the state governments on top of it fix another price which is called the state aided price for locating a Sugar Mill that is a distance criteria you cannot not do it within within a certain distance and when and then the sugar Mills have to obtain a monthly release in terms of allocation so there are many things that are there and also molasses which is a byproduct of this is also being controlled and many state governments do not allow the Molasses to be what they call orted to other states should all be consumed inside the state why they have an interest because then the molassus prices will be kept low and then the liquor industry can benefit and they can get more excise duties this is a classic case of subsidizing liquor industry so this there are Industries there are segments where the pre 1991 type of controls exist another is a fertilizer industry we need to to dismantle all of them that is a problem about pricing of natural resources that is not a market that is not always your Market this came up in a big way on gas pricing uh natural gas pricing and if you cannot if Market cannot fix the price I think we need a very transparent method by which the prices are fixed very often we hear the argument that agriculture has not been touched by reforms that is because reforms in agriculture earlier was interpreted in a totally different way land sealing these these were the types of land reforms whenever people talk of land reforms that that is the direction in which we are moving certainly I I believe Agricultural Marketing is archaic in our country and we need to modify it and when some years ago when vegetable prices went up very high it is very C clearly shown that the wholesale Market in vegetables operates in such a way that the prices go up so we really need that that is um the um agriculture prices and Marketing Act which which was originally intended to help the farmers but the way in which it is functioning it is really the opposite because under that thing farmer cannot sell his product except through Mundy now if if you are a big hotel let's say and you want to go and buy vegetables directly from the farmer you cannot do it we had recommended that in the case of perishable products it should be exempt from the ACT I think several states have done it I do not know whether Gujarat has done it or not the those are the things that required and finally the area in which we we need reforms is in the area of governance I think governance reforms are most essential because the state still continues to play an important part and that is in some sense a low hanging fruit and it can be plucked and they that's what they should do now before I conclude let me make only two short comments uh one is the people look at the current status of the Indian economy and have many doubts and raise questions as to what can be done I mentioned about the slowing of the growth Why did the growth slow down and that is simply because of uh as I see it two factors as many of you may be familiar with the famous Herod Omar growth model equation G is equal to S over v g is the growth rate s is a savings rate or in equilibrium it is the investment rate divided by V which is the incremental Capital output ratio iore as we call it that is the investment rate of the economy divided by how much of capital do you require to produce one unit of output say for example if an economy saves 20% and invests 20% and with the incremental Capital output ratio is 4 is to one the growth rate is five so this these are the two I mean there are many complications here in terms of lags and then then the incremental Capital output ratio is a is a term it it has many many other implications one one needs to be sld out but what has really happened is that over the years in 20078 was the best performance the India had that is 9.4 or 99.5% in that year the investment rate of the economy was 38% and the incremental Capital output ratio is 4 is to1 and that is why you got a growth rate of 9 and a half% I'm simplifying I know there are complications but that is that is the the thing that happened what has happened since then two things have happened one the investment rate has fallen it was not falling very very much up to 1213 or 1314 since then it has fallen very sharply and I was surprised to find that in the latest one for 201617 it is 26.9 it's a very sharp fall from what where we were therefore as the investment rate Falls I think the the growth rate suffers the other is simultaneously which we are talking in the afternoon the rise in the incremental Capital output ratio the rise in the incremental Capital output Ratio or let me put it the incremental Capital output ratio is the inverse of the efficiency of capital the higher the iore the lower the the efficiency in the use of capital why does the I or rise because in 2012 20134 if you look at our investment rate and divided by four you would have gotten much higher rate of growth but we didn't get it but we got only less than 5% why because of the several factors one that we really talk about is the delay in the completion of projects the term that is used nowadays is stalled projects and the extraordinary increase in the uh stalled projects has been a complicating Factor but you can ask the question why does the delay occur in the completion of projects it can occur because of two sets of reasons one end endogenous in the sense in terms of the firm itself um and it because a un efficiency in the management or whatever there are also factors outside which could be responsive one is really land acquisition was stalled or environmental clearance did not come after the project was started so all that leads to the delay in the completion of projects it can also happen because of what happened because of complimentary Investments not happening in related sectors um the power sector might have expanded but if the coal sector has not expanded then adequate coal doesn't come in and more importantly is the exent the railway services to carry the coal from the pit to the to the to the factory all these things had happened at that particular time and then of course lack of critical Imports at one time the power sector suffered because of the lack of coal that is not true today I think the coal sector has done is doing well but I do know of many projects in Andhra Pradesh and even Tamil Nadu where power projects set up with the use of gas are all lying idle because gas availability has come down they are all built up on the Assumption of a very high growth rate in natural gas that did not happen so many factors contribute to this and that is the and at one time I I whether I have the numbers are not here yes the total value of the stall in the stalled projects was estimated at 8.8 lakh CR and therefore individual action was required to look at each one of the projects to to to do it but then we have not answered the first question why did the investment rate fall and that is result of So Many Factors if you have been reading the newspapers in 2011 12 1213 and 1314 the one word or the one phrase that used to recur everywhere in the newspaper was policy paralysis namely that we have not been able to push forward because the government is not able to take decisions and that is what is leading to the situation it is true in some sense that at that particular time because of the many levels of complaints on graft and so on the energies of the government will spent on tackling those issues but that by itself does not explain and uh now again the question is why why is the investment rate still falling well investment rate falling is also because of the fall in the growth rate students of Economics would know about the acceleration Theory the acceleration Theory clearly says investment in the teeth period is a function of the output of the previous period and the on the period previous to it that is it is only when output is increasing demand is increasing and therefore investment is happening once a cycle turns down then it has a cumulative effect so that is happening but also there are issues relating to sentiment I do believe non-economic factors play as important a role in creating the investment sentiment as the economic factors and policy makers need to understand that let me conclude if only India grows at the rate of 8 to 9% India's per capita GDP will grow from the current level of $1,800 to $8,000 by 20130 then only India will be classified as a true Middle inome Country therefore we have a long way to go in terms of the growth that we need to achieve as I mentioned earlier it is in a period of high growth we are also able to introduce many of the Social Development projects such as the extended food security rural employment guarantee scheme and so on and so forth therefore we the focus of policy has to be twofold that's a conclusion to which I want to draw your attention development has many dimensions it has to be inclusive it must be poverty reducing and it must be environment friendly all these factors need to be built into the growth uh process but at the same time I would say growth by itself is important and that is the only one that will enable you to be able to really take care of the other factors strong economic growth is the answer to many of our socio economic problem reforms must carry acceptance reforms are not ends in themselves not even growth is an end in itself it is only the growth triggered by reform which spreads all over that is really critically important so we need a two-fold strategy in terms of the growth process one accelerating growth and at the same time second directing addressing directly the problems faced by the vulnerable groups growth and equity in my opinion should not be posed as opposing considerations they must be weaved together to produce an acceptable process of development there in lies if I may use the term economic statesmanship thank you

Channel: INDIAN INSTITUTE OF MANAGEMENT AHMEDABAD - IIMA

Views: 141,977

Keywords: Economy, Management, Business, Research, Education, Leadership

Id: DY6qdEHZrlo

Length: 57min 47sec (3467 seconds)

Published: Fri Mar 17 2017