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Memoirs of a Development Economist:
FOR all his formidable credentials as an economist, Dr Vinayak Vijayshanker Bhatt’s name has not figured either among the academic economists or leading government economists in the group of policy advisers. The reason being that for most of his career he was a researcher with large institutions at the national level or a trainer at international institutions. Unavoidably, he suffered the anonymity that goes with large government bodies and international institutions. With a first class M.A. in economics from the Bombay School of Economics, he went to Harvard in conscious preference over British Universities because he was greatly impressed with the faculty at Harvard such as Schumpeter, Leontief, Hansen, Haberler and Gerschenkron, not to mention Paul A. Samuelson and Rosenstein Rodan at the nearby MIT. Before leaving for Harvard, he qualified for the Indian Foreign Service but was lucky to be rejected medically on account of his weak eyes. He did his Masters and Ph.D. at Harvard with credit. The author has written at length in the first chapter about his family’s association with the freedom movement whose objective was to achieve economic development, productive employment and removal of poverty. His choice of research was guided by this consideration. His guide Leontief advised him to study the question of choice of technology that would maximise employment. The choice of techniques and its implications for the rate of growth of income and employment, therefore, formed the core of his thesis. He was wisely cautioned by Gerschenkron that a prerequisite for the success of these ideas would be the framing of development-oriented state policies and an entrepreneur friendly environment. As the author elaborates in the chapter relating to his tenure with the Reserve Bank (1953-72), these requisites were not realised when the plan process got underway. After a year of teaching, he joined the Reserve Bank of India as a Research Officer. During this period in the friendly environment and the high quality infrastructure, he evolved into a mature and a fearless economist. C.D.Deshmukh, the first Indian Governor of the RBI and later India’s Finance Minister, provided imaginative leadership. Moreover, the bank was known for meticulous collection, analysis and dissemination of data on various aspects of the Indian economy, including rural development. It attracted a large flow of bright economists, which became available to the Planning Commission and the Finance Ministry and in general was an institutional nursery for the various inputs in developmental planning. While much of what the bank or its officials advised did not come into public view, they can claim credit for having sounded warning signals on important matters. Among the highlights of his tenure in the RBI may be mentioned his clash with Pitamber Pant of the Perspective Planning Division of the Planning Commission. The second Five Year Plan was based on the Mahalanobis model that formalised Pandit Nehru’s idea on the development of basic industries. The failure in this exercise lay in a gross underestimate of the financial resources required for sustaining the physical targets, which could not materialise, the inflationary pressures from deficit financing and a severe foreign exchange constraint. Bhatt criticised such planning as a crudity much to the annoyance of Pitamber Pant. The only economist on the Advisory Panel of Economists who dissented was B.R.Shenoy. Other perceptive minds did not see through or trimmed their sails to the prevailing wind and remained silent. This sorry example was repeated at the time of the fourth Five Plan whose ambitious targets could not be matched by the required financial resources compelling a three-year plan holiday. Another interesting point that Bhatt mentions is the visit of the Bell Mission of the World Bank that openly and arrogantly aired its views on a sensitive and confidential matter like devaluation of the rupee. Bhatt advocated a dual rate of exchange but the decision to devalue had already been taken. A populist measure that has come in for severe criticism from the author is his comment on Dr R.K.Hazari, a Deputy Governor of the RBI recommending stoppage of credit to industries directly or indirectly connected with large business houses for the ostensible purpose of checking the concentration of economic power with deleterious consequences for industrial production. The author is critical of the decision to nationalise commercial banks. The Boards of Directors were, according to the author, packed bodies. Apparently R.K. Hazari and Bakshi, Secretary in the Department of Banking agreed that before the Board of Directors met, the Government nominee and the RBI nominee should meet and agree to take a common stand. The Department of Banking functioned as chief executive of the banks, without accountability. "The result was that by 1990 the banks had become bankrupt." Bhatt shifted to the Industrial Development Bank of India when long and medium term credit for industry sought to shape industrial priorities and promote industrial development, especially of the backward areas. The author has not expressed himself on whether the stated objectives of the IDBI were achieved. The book is written with lucidity and elegance but has sought to pack a lot of matter in just about 128 pages. The lay reader is bound to be at a loss to understand the many things in the contemporary debate, which the author assumes he would know. Even so the book shows the tremendous institutional resource and contribution of the RBI till it got denuded after 1969 when it was reduced to a department of the Ministry of Finance.
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