T N Srinivasan is one of India's brightest economists; I often had lunch with him and other bright boys of Mahalanobis in my brother Mahendra's room in the Planning Commission in the 1960s. When an intellectual blight descended on Delhi after the sudden death of Lal Bahadur Shastri, T N left for Yale. This column in Business Standard of 26 June was a review of lectures he came and gave in India in 1998.
AN EXPERT JUDGMENT
Nehru made Professor P C
Mahalanobis deputy chairman of the Planning Commission in the mid-1950s. To
give the Planning Commission an intellectual underpinning, Mahalanobis set up a
planning unit of the Indian Statistical Institute in Delhi and housed it in the
top floor of the Planning Commission. He put Pitambar Pant in charge of it.
Pitambar Pant was a remarkable
man. He was a politician and had been an active Congressman; he knew Nehru
well. But he was extremely intelligent, articulate, and quick on the uptake; he
had none of the intellectual insecurity of a typical Congress leader. He
attracted to the planning unit a set of the brightest young economists
available at that time; Jagdish Bhagwati, Mrinal Datta Chaudhuri, Suresh
Tendulkar, all spent time in the unit. One of the brightest was T N Srinivasan.
Sitting on the top floor of the Planning Commission, he had literally a bird’s
eye view of the march of socialism.
Unfortunately, Pitambar Pant died
early, and the planning unit was orphaned. The birds flew away one by one.
Srinivasan went to Yale, where he is chairman of economics department today,
and teaches a highly regarded course on development economics amongst other
things. In 1998 he came to India and gave eight lectures, which have now been
published (Eight Lectures on India’s
Economic Reforms, Oxford Paperbacks). For a layman who wants a flavour of
the argument on reforms, this short book of a hundred pages, shorn of equations
and tables, is just right.
Srinivasan refers copiously to
the international experience of development and advances in its analysis; and
this is where his strength lies. Reading him advanced my own understanding on a
number of points. Let me indicate some.
·
Whilst all liberals plead for a change in Indian
labour laws to make dismissal easier, all realists know that this is a pipe
dream. Employees of the governments – and many large firms – regard their jobs
as fiefdoms; not only do they keep their jobs for life, but they secure jobs
for their kin and friends. In the circumstances, Srinivasan resuscitates
Mahalanobis’s idea of a labour reserve: surplus employees would be paid out of
it, and would be absorbed in new jobs being created. The basic idea is to
remove the incumbent employees’ fear of unemployment. It has two elements which
need to be promoted: first, that every employee – especially government
employee – should be subject to redeployment, and that the cost of retrenching
an employee should not fall on the employer alone. It is an alternative to the
idea of paying off the employees once and for all, embodied in the National
Renewal Fund and the voluntary retirement schemes. Is it better? I do not know.
But at least the idea that anyone who expects permanent employment must be
prepared to be redeployed is very valid; and the larger the set of
organizations within which he can be redeployed, the better for him and for
organizations.
·
Srinivasan points out that even if agriculture
is to be subsidized, input subsidies are the worst way to do it. If one wants
to increase output, it is better to subsidize production. If one wants to help
poor farmers, one should do so directly. To my mind, one remedy would be to
extend income tax to farmers, and to have a negative income tax below a certain
income limit. An even simpler remedy would be to give all adults a lump sum
every year equal to the average of all subsidies being given today. I reckon it
would come to Rs 3000 a year. It could be treated as a negative income tax
below a certain income limit – say, the current income per family of about Rs
20,000. It would mean nothing to middle-class people, but a lot to the poorest.
It could equally well be used to give a flat rate subsidy to children and old
people.
·
Srinivasan correctly points out that with the
coming of wireless telephony, telecommunications have ceased to be a natural
monopoly, and the old arguments for its regulation no longer hold. Licence fees
are no longer a way of appropriating its monopoly profits, but are simply a
lumpsum tax on expected revenue, collected in advance. The question to ask is,
how far does such a tax reduce the demand for telecommunications? Did it do so
to such an extent as actually to reduce the revenue? He suggests complete
abandonment of licence fees, and proposes instead a sales tax on all phone
calls; to prevent it from becoming regressive he suggests exemption of public
pay phones from the tax. And he proposes that entry into the industry should be
left completely free, and the setting up of integrated companies providing
service all over the country should be encouraged. He is in favour of
transferring all powers to TRAI. Whilst I agree on the eventual passing of
monopoly, it will be many years before a number of companies come to provide
parallel nationwide service. In the meanwhile, it is important to ensure
interconnectivity; for that, TRAI will have to fix interconnexion charges.
There will also have to be enough investment in switching and thick enough
pipes between nodes. Thus I think there will be a transitional need to
distinguish between the central network which must be run as a common carrier
and which must charge a fair price in some sense, and the peripheral extensions
where full competition can prevail.
·
Srinivasan points out that the weak finances of
the state electricity boards make them unreliable buyers from independent power
producers, and welcomes the fact that competitive bidding has been made
mandatory for new private power projects. However, the logic that Srinivasan
applies to telecommunications must be applied to electricity as well. There is
no wireless power transmission, which remains a natural monopoly. It must be
separated from the rest of the power business, and must be run as a cost-plus
common carrier. A number of states have done this under the World Bank’s
prodding. But the World Bank does not see the corollary: that the grids must
buy from the cheapest source, and that distribution must be divided up between
many local companies to create competition amongst buyers.
Srinivasan’s thirty-year
absence from India gives his lectures a certain Rip Van Winkle quality. He
refers in some detail to the personages of the past – Dadabhoy Naoroji, Sir M
Visvesvaraya, Sir Purshottamdas Thakurdas, Prashanta Chandra Mahalanobis,
Pandit Jawaharlal Nehru, etc. He thinks that the perversities of government
policy cannot be understood today without going to its intellectual roots in
the writings and speeches of these great pre-independence figures. To me, this
is like saying that the present troubles of Colombia cannot be understood
without harking back to Simon Bolivar. That small-scale reservations reflect
Gandhi’s preference for small industry is a fact, but it is boring and
irrelevant. Reservations persist today because small industrialists’ lobbies have
politicians in their pocket. Political economy is a better guide to present
Indian reality than intellectual history.
