Dr C RANGARAJAN,CHAIRMAN, ECONOMIC ADVISORY COUNCIL TO THE PM

Dr C Rangarajan, Chairman, Economic Advisory Council to the Prime Minister was the speaker for the month of June, 2008 and he spoke on the topic of “The Indian Economy and the Challenges Ahead”.

The CGDA, Smt Bulbul Ghosh introduced the distinguished guest to the audience duly highlighting his accomplishments as an economist of immense repute both academic and professional.

Dr Rangarajan began his address by lauding the critical role being played by the Defence Accounts Department in maintaining the fiscal discipline in defence expenditure. Reviewing the overall economic scenario in the country, he said the various economic surveys threw up some interesting facts, like –
· A strong economy indicated by an average growth rate of 8.9%
· A good external situation reflected by good forex reserves
· A good investment climate
· Increased life expectancy – a good social indicator

While lamenting the fact that India ranked a lowly 108 in the Human Development Index, he was still optimistic that a sustained 8% annual economic growth rate, if maintained could contribute to four- fold increase in the economy in a couple of decades, besides expanding employment prospects and improving productivity, and reducing economic disparity across regions.

One of the main challenges facing the Indian economy to ensure rapid growth concurrently with reduction in equalities. Challenge lies in converting a crisis into an opportunity like the Government did in 1991, - an event which continues to be a landmark in our economic history.

The New Economic Policy is not whether the Government, will intervene, but is all about the nature and quality of intervention – and the major thrust would have to be towards improving productivity and efficiency in the system by injecting competition through giving greater space for private sector operators as well.

Earlier the role of the Government was seen to be a :
(a) Producer/provider of marketable goods/services;
(b) Regulator;
(c) Provider of public goods – parks etc. ( where of course Government’s role still hasn’t diminished ).

In three ways the New economic Policy makes a break with the past.

Firstly, it did away with controls/industrial licences altogether, modified foreign trade policy to increase competitiveness in industrial/service sectors;

Secondly, effected a paradigm shift in the role of the state – from a regulator to a facilitator;

Thirdly Indian economy integrated with the rest of the world.

All these steps ensured that the economy continues on a higher growth trajectory.

While lauding the positives of the economy, he listed six concerns or six challenges to the growth of the Indian economy which if not tackled adequately could instead of aiding growth, could actually impede its growth.

The six challenges briefly are:
1st Challenge: To step up the growth of agriculture and agricultural productivity . More than 60% population living on agriculture contributing to less than 20% of national income. Output, therefore, not commensurate with the composition of the population. To improve upon low productivity improved agricultural practices and technological breakthroughs are required – like – dry-land farming techniques etc. Balanced regional development, improved marketing facilities, broad-based growth are other deficient areas where we should be looking at.

2nd Challenge: Infrastructural development (Physical) – especially power- putting appropriate legal and administrative structure in place, encouraging private-public sector participation etc.

3rd Challenge: Fiscal consolidation – Reduction of fiscal deficit extremely important in the long run – could be met by borrowing. However, elimination of revenue deficit by 2008-09 does not seem to be feasible at the moment.

4th challenge: Social infrastructure – It’s importance need hardly be stressed – this being a function of total expenditure and the efficiency with which the expenditure is incurred.

5th challenge: Managing Globalization – It is a brave new world now without barriers, skies being open, borders porous and there is free flow of capital and services. We ought to ensure that we wrest advantages and benefit from globalization and develop areas where we have advantages like in the fields of IT & Bio-tech where we are leaders in the global economy.

6th challenge : Finally, the good governance. Maximisation of the welfare of its people depends on the manner in which the Government implements its policies.

Administration should be:
· clean (corruption free)
· transparent (Rules of governance are adhered to )
· accountability (holding people responsible for action or inaction)

What separates success from failure of a government is “GOOD GOVERNANCE”.

After listing the challenges to the economic growth of India, he posed a question as to whether we could sustain the growth rate. Affirming that we can, he said technology is the major driving force throughout the world. Therefore, strengthening technology and scientific base is the way forward. Investing in more R&D, promoting inventions, encouraging innovation, promoting collaboration between scientists and entrepreneurs, would be the way forward.

The talk was extremely scholarly in its analysis of economic events and facts and was wonderfully interlaced with interesting anecdotes of relevance.

The question-answer session followed the great speaker’s superb and brilliant exposition which was very lively and spontaneous answers given by him only served to highlight the superb command he had over his subject.