governance, political economy, institutional development and economic regulation

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Bimal Jalan reflects

Jalan book


exercises the writer’s privilege to box his reflections between three inflection points. The first is 1980, ostensibly because 1977-79 was the first time the Congress lost power at the Centre. The second is 2000, being the start of a new millennium. And 2014 is the bookend when the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) formed a majority government.
Obscure inflection points
Of these, the choice of the first two years as turning points is not immediately obvious. Conventional wisdom regards 1991 to 2014 as a near continuous development period, barring the fractious interregnum of 1997-99. In the 1980s, it is 1984 that dominates, as the end of an era with the assassination of Indira Gandhi and the beginnings of Rajiv Gandhi’s brief “Camelot” phase. The year 1980 is significant only because Sanjay Gandhi died in an air crash in June and Mrs Gandhi aged visibly. The choice of 2000 is similarly obscure, except for broadly coinciding with the start of Atal Bihari Vajpayee’s NDA government.
Dr Jalan – man for all seasons
But this is mere quibbling. The book is unconstrained by structural rigidities. It provides reflections, spanning Dr Jalan’s seven earlier publications since 1992.  It can’t get better. Dr Jalan was in the Rajya Sabha (2003-2009); the longest serving governor of the Reserve Bank of India (1997-2003) since 1992; finance secretary; secretary banking, chief economic advisor and India’s executive director to the IMF and the World Bank.
Seven key reflections
Readers would choose their own favourite reflections. But this reviewer was intrigued by the following seven.
Low public savings retard investment 
First, Dr Jalan favours the conventional view that the persistent gap between India and the fast-growing economies of Asia during the last four decades of the 20th century is explained by our low levels of investment. For this he squarely blames our ideological decision to invest in public sector industries, which failed to generate savings for future investment and instead bled scarce tax revenue to fund financial losses — a familiar story even today.
Colonial style administration ill equipped for challenges
Second, he red flags the fact that from the 1970s, we did very little to enhance the competence and efficiency of public administration. We still lack the required composition of skills and experience in the public space to provide 21st century results.
High expectation, poor execution
Third, he bemoans the fact that we unfailingly adopt best practice priorities — take the national priority for agricultural growth. But we fail miserably in making supportive policies and rules. We have throttled agriculture by ignoring the interest of the farmer to serve the interest of the consumer. Similarly, we prioritise a progressive fiscal policy. But the revenue from direct taxes stagnates while regressive indirect taxes are buoyant.
Sustained, high growth misaligned with political incentives 
Fourth, Dr Jalan’s term in the Rajya Sabha convinced him that deep political reform is the key to change India. And who could disagree? But some caveats apply. Decentralisation, as flagged by Jalan, is certainly desirable for enhanced effectiveness and public participation. But, it will not, by itself, serve to reduce the size of government. In fact, employee numbers and expenses are likely to increase as scale effects disappear.
Union government muscularity erodes state government autonomy 
In a similar vein, it is true that the Union government tends to erode the federal structure by misusing governors for narrow political ends. But constitutionally, we are a “Union of States with a centrist bias”, per political pundits, and not a federal state. Parliamentary norms and conventions are routinely subverted — a self-goal, since this reduces Parliament’s credibility.
Dysfunctional parliament erodes its own credibility
Dr Jalan cites 2006, when the budget was passed without discussion, illustrating political expediency of the worst kind. But it is open to question whether the existing process for annual Budget presentation and examination remains a productive exercise or has become mere form without substance. The cabinet system of decision-making, underpinned by the principle of collective responsibility, was undeniably subverted during the United Progressive Alliance government, since political power was dispersed beyond the government. But this was poor practice rather than a structural flaw. And it appears to have healed itself after 2014.
Judiciary – safeguarding the constitution 
Fifth, the judiciary, rightly, comes in for high praise, for progressive jurisprudence, safeguarding the principle of separation of powers, and the primacy of the Constitution. But entrenched territoriality in the judicial appointments process remains contentious.
Public sector banks – out of control
Sixth, Dr Jalan recounts, financial reforms after the Narasimham Committee report of 1998 enhanced the resilience of Indian banks. But he leaves the reader begging for more on what went wrong over the last decade to inflate stressed loans to crippling levels. Are not politicised leadership and boards the problem in public banks? And given the stakes, can UPSC selection – as Dr Jalan suggests – really be an effective bulwark? Would not ramping up private shareholding, with the government holding only a “golden share” be a more effective solution? More generally, how effective are the existing prudential norms, for limiting exposure to sector, corporate or currency risk?
Tax reform – only half done?
Seventh, Dr Jalan’s view that it is unnecessary to reopen the constitutional scheme for inter-governmental division of taxes is curious. Tax pundits advocate that GST be extended to alcohol and petroleum.
jalan 2
It is a broad canvas on which reflects, as befits one who has helmed public policy since the 1980s. Readers will look forward to his take on the more recent developments — that is, since 2014.


Adapted from the authors Book Review in Business Standard, September 18, 2017


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