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on policies, programmes, and approaches that actually deliver quality mass health and education services in rural areas. Now that the Eleventh Plan is focusing on these very areas, Acharya has his task cut out in forthcoming articles to review critically whether the new plan actually addresses these issues in the manner that he would have liked.

It is in this context that he expresses his apprehension on the actual fruition of the demographic dividend, which he views as being crucially dependent on progress in the northern Bimaru (Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh) states (chapter 2). He refers to the Goldman Sachs BRIC (Brazil Russia India China) study that projects high Indian growth over the next 30 to 50 years, but whose assumptions are crucially dependent on how the demographic transition actually pans out. That study essentially relied on the expanding labour force of the country arising from continuing population growth over the next 30 to 50 years. But it had little to say about how demand for labour will expand to employ the burgeoning labour force: unless that happens, the demographic dividend will remain a mirage. “In a nutshell, the ‘demo-div’ of a labour supply bulge will be focused on four populous, poor, slow-growing northern states, with weak infrastructure, education systems and governance. The chances of translating this ‘potential’ of additional labour supply into a ‘reality’ of employment and high growth, appear slim.” Hence, his constant refrain on policies that he perceives to be enhancing demand for labour.

Inadequate Progress

In addressing the inadequate progress being made in economic reforms, Acharya focuses on cessation of privatisation programmes, in both the financial and non financial sectors, on inadequate financial sector reform, on the lack of actual progress in key areas of infrastructure, particularly in power and urban infrastructure. He minces no words: “As envisaged in the CMP, the privatisation process is pretty dead in the water”.

On the financial sector, he would have liked progress on bank privatisation, reduction or elimination of directed bank credit, and raising of the foreign equity cap on insurance companies. Again, his views are stated forthrightly:

Government ownership of public sector banks has been firmly reiterated. A confusing flirtation continues with the issue of higher foreign ownership in private banks. What is patently lacking is a long-term vision of the banking sector. If the dominant elements of the implicit game plan are government control, heavy directed credit, and significant interest rate controls, then the campaign slogans about a modern financial sector should be quietly buried” (chapter 8).

Since this was written, one long-term vision on the financial sector has already become available in the form of the Percy Mistry report Mumbai as an International Financial Centre, which has also not met with Acharya’s approval. Another report by the Planning Commission sponsored Raghuram Rajan Committee will soon become available. It is perhaps time for Acharya to lay out his own vision for the financial sector.

On the efficacy of monetary policy, while holding the view that monetary policy may not always be the magic bullet to slay the inflation dragon, he is quick to admit that “nevertheless, monetary policy matters”. However, he also adds: “What is perhaps more intriguing, are recent official statements promising no upward change in interest rates. How can modern monetary policy operate on the quantity of money without affecting its price?”

Financial Constraints

On the proposals to use foreign exchange reserves for infrastructure, he questions the underlying assumption: is finance the real constraint to higher infrastructure investments? Rather, in his view, the uncertain regulatory frameworks of key sectors and the rampant populism that pervades policies and practices of major public entities providing infrastructure services are the major obstacles to more high-quality infrastructure.

Acharya has become known for his consistently bearish views on India’s potential economic growth. These articles reiterate that view in various ways. I have already referred to his apprehensions

DECemBer 8, 2007 Economic & Political Weekly

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with regard to the Bimaru states. His doubts on the continuation of 8 per cent plus rates of economic growth have been succinctly expressed in chapters 11 to 13. First, he points to some of the infirmities that could bedevil the estimates of service sector growth: the leading sector in terms of growth (chapter 11). Second, “the necessary reforms of labour laws, banking, SSI reservations, FDI policies and infrastructure continue to be impeded by politics and vested interests” (chapter 12).

Conservative on Growth

In revisiting this issue in May 2006, he does do a “mea culpa” and admits that he did not foresee the 8 per cent plus growth that has occurred since he first wrote about these apprehensions. But he reiterates his doubts about the sustenance of such growth in the coming five years. In addition to the infirmities in economic policies mentioned earlier, he adds the continuing problems of infrastructure bottlenecks; the possibility of rising real interest rates; the possible deterioration in fiscal deficits arising partly from continuing populism and the depredations on the tax base that may result from the special economic zones; underutilisation of manpower and labour market distortions; continuing slow growth in agriculture; continuing problems in overall governance; and the inadequate response to rising energy prices.

As of May 2006, he still predicted an average growth rate of 6.5 per cent from 2006 to 2011. Given the 9.4 per cent record of 2006-07 and the current market expectations of 8.5 to 9 per cent growth in 2007-08, would Acharya care to revise his 2006-11 prognostication now? Whereas it is difficult to disagree with him on some of the policy difficulties that will constrain growth, keeping to a medium-term expectation of only 6.5 per cent growth does seem increasingly untenable. First, the significant increase in savings and investment rates to a region of 35 per cent plus on a sustainable basis would suggest the achievement of an 8-9 per cent growth rate in the medium to long-term. Second, the resurgence of the manufacturing sector seems to have escaped Acharya’s attention. Third, the continuing productivity increases that may be expected have also not elicited any commentary from him. It is time for Acharya to revisit this issue once again. He will, however, perhaps find some comfort from the gathering storm clouds in the international scene: rising oil and food prices, slowing global growth, and new-found turbulence in international financial markets.

Subtle Ambiguities

I have one major quibble with Acharya. He has written often on the role of the key personnel being in the right places at the right time in the reform process, and the exemplary “close coordination between the Prime Minister’s Office, the Finance Ministry, the Reserve Bank of India and the Commerce Ministry” (chapter 5). He seems to have missed the original “big bang” reform ministry: the ministry of industry, which started off the reform process in July 1991 with industrial delicensing, the foreign direct investment reform, abolition of the Monopolistic and Restrictive Trade Practices Commission, removal of public sector reservations, disinvestment, abolition of the Directorate General of Technical Development and the like. He has also forgotten the key institutional role of the steering committee on economic reforms housed in the prime minister’s office, which met every Thursday for five years undexr the chairmanship of the then principal secretary to the prime minister, the late A N Verma. It was this institutional coordinating mechanism that carried through the reforms of the early 1990s. Acharya can perhaps be forgiven this amnesia since he was not present at the creation in 1991!

One minor quibble: since these commentaries were written as newspaper articles over a three-year period, it is very important for the reader to place them in the appropriate temporal perspective. It would have helped greatly if the date of each piece was made available with the article, instead of at the end of the book as an annex. Readers would have been saved a lot of irritation.

Overall, the collection provides an excellent insight into the mind and policy proclivities of a significant member of the mandarin dream team of the 1990s. India has been fortunate to have had such clarity of thinking at the top echelons of its policy bureaucracy. The job of the economic adviser is to provide clean economic advice: Shankar Acharya presumably did that in his role as chief economic adviser. Could one have expected any less from one blessed with the hallowed name that he has? He is now continuing in that role as an influential columnist.