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The ability to build consensus on economic reforms

Ahluwalia’s new book Backstage is a fascinating read. Irrespective of one’s political or economic learning, this book will kindle the interest of economists and policy enthusiasts.

Let me start with the positives: the book seamlessly elucidates the intricacies of policymaking in India. The author has shared the nuances of various policy reforms that have transformed the way India functions. For example, the details of the ”M-document,” which served as the backdrop of the 1990 reforms was intriguing both in its origin and its role in the broader reform process in the early 1990s. That one document seems to have laid the foundation to transform so many sectors in India! Snippets from the background work on the 1990 BOP crisis, phasing out the licence permit – quota raj, deregulation across sectors, trade reforms and even the Indo-US nuclear deal were fascinating.

Another interesting thread through the book has been the continuity of the reform mindset across political dispensations. This includes a variety of reforms that had cross-governmental support, including the GST, Aadhaar/digital integration and tax reforms in the 1990s. The author showcases the ability for Indian socio-political minds to come together with a consensus of sorts, especially on economic reforms despite varied ideological positions. This, despite so much political upheaval!

The third positive about the book is the ability of the author to impact the administration despite being an outsider to the Indian Administrative Service. This exemplifies the diplomatic and strategic suavity of the author besides an extraordinary amount of patience in pushing through reforms in a gradual, albeit systematic, manner.

A MILD PASS OVER OF THE BOOM-BUST PHASE…

On the flip side, there were a few elements where the author could have been more articulate, especially on the critiques of the policies. First up, the ‘boom-bust’ phenomenon, which brought up a huge growth during 2007-11, also had its after-effects, which had affected some sectors. The inflated asset boom during that phase, volatile flows and the unsustainable non-performing loans provided by public sector banks have been given a mild pass by the author. While the servicing of these loans have been costlier with lower growth rates in recent years, it doesn’t really explain the full picture on the viability of these loans. More prudence in giving these loans during that phase would have made the banking sector far more sustainable. A more moderated growth with fewer after-effects could have been thought about.

Another area where more could be articulated is the Monetary Policy Committee (MPC) framework, which the author mentions as a good reform. While the MPC framework was conceptualised during times of high inflation, its purpose in recent years has been often criticised for inaccurate inflation forecasts and creating an inflated cost of capital for companies. One of the big constraints of the recent slowdown has been the enormous cost of capital for firms doing business in India and a large part of it has been due to the RBI’s MPC, keeping rates high even when inflation was low.

I wish Montek had dealt a bit more on the challenges in the agricultural sector through the years and why it has been such a nibbling issue for successive governments. He also has diluted the massive success of the social schemes that the current establishment has pursued in sanitation digitisation and health.
Overall, a great book to read to understand Indian economic policy reforms over the last five decades. It should be appreciated for its balance, honesty and meticulous detail rarely seen in Indian policymakers.

The suave Sardarji

M S Ahluwalia has had rich global experience, having worked closely with World Bank and IMF. He had stints with the PMO, commerce, and finance ministries. He made invaluable contributions to the liberalisation era and with economic reforms. An alter ego of Dr Manmohan Singh, MSA was drafted to function as the Dy. Chairman, Planning Commission, for ten years from 2004. In that period, the economy recorded high growth rates. His suave disposition helped in dealing with the chiefs of states and UT governments for the transfer of Central funds. His ringside seat exposure to reforms have been crystallised in his book Backstage.

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