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Getting It Right on the Indian Economy: A 'Hedgeox' Speaks

Economy: A

Getting It Right on the Indian Economy: A ‘Hedgeox’ Speaks

Arvind Subramanian

ithout doubt, the Reserve Bank of India (RBI) has been and continues to be one of India’s great institutions. Many governors have served the institution with distinction – I G Patel, Manmohan Singh, and Y V Reddy to name just a few – and while India has a lot to atone for in terms of policy choices, financial stability has been one outcome that the RBI has delivered on a consistent basis. And, as we survey the wreck that is the international financial system today, the RBI can take pride for having navigated turbulent waters with dexterity, without succumbing to fad and fashion and demonstrating an independence of action and thinking that has been quite remarkable for its rarity. Individuals surely deserve credit but so too does that elusive and difficult-to-pin-down attribute, “institutional culture”, or “institutional strength,” call it what you will, that has allowed such individuals to flourish.

A lot goes into creating that culture, one of which is intellectual capital. In the future, a Ramachandra Guha kind of history of the RBI should be written.1 This history will probably spotlight a golden age, not in terms of great governors or the good outcomes they presided over, but rather in terms of intellectual and research capability. The spotlight will shine on a trinity of individuals who built up this capability some time way back in the 1970s.

Trinity in RBI

India has had a strong tradition of civilservant academics/intellectuals, from the brilliant trade theorist, V K Ramaswami, to his modern day successor Montek Singh Ahluwalia (with many gifted individuals in between). But my hypothesis is that while such Delhi-based talent has received due recognition, its counterpart in Bombay has been treated less kindly. Why that has come to be is itself worth

book review

Money, Finance, Political Economy: Getting It Right by Deena Khatkhate; Academic Foundation, 2009; pp 386, Rs 995.

investigating but it is time to pay tribute to that trinity of talent that worked in the RBI in the 1970s: Anand Chandavarkar, V V Bhatt and Deena Khatkhate.2

Tucked away in the research department of the RBI, these individuals were churning out academic papers of the highest quality, publishing in the top journals – Quarterly Journal of Economics, American Economic Review, and the Review of Economics and Statistics – which is rare today (not only by RBI researchers, but from academic economists in India more broadly). These papers spanned not just monetary and financial economics – the RBI’s terrain of interest – but broader develop ment issues such as choice of techniques, patterns of investment, and income distribution in developing countries.

What was really distinctive about this trinity, however, was that they were not just academics but intellectuals in the broadest sense of the term.3 One could make the case that they were perhaps even a notch ahead of many of their narrower Delhi counterparts with the exception, of course, of those two great polymaths, P C Mahalanobis and Sukumoy Chakravarti, who, lore has it, knew everything about everything.

This review affords the opportunity to pay tribute to the author of this collection of essays and the youngest of that trinity: Deena Khatkhate. Varied in content (some pieces are book reviews, others are fullfledged essays) and broad in scope, this collection displays knowledge and expertise about specific subjects (money, finance, the international financial system, etc). More importantly, it shows erudition and wisdom about broader themes.

Deena Khatkhate’s strong belief in the value of intellectualism and serious intellectual discourse runs strongly in this collection. His unstinting efforts over decades to support the Economic & Political Weekly (EPW) and ensure its survival speak to this belief. He could himself well be the subject of this quote of Paul Baran that is cited in one of the essays in this collection: Intellectuals have to have “the largest knowledge, the most comprehensive education, and the greatest possibility for exploring and assimilating historical experience, from providing society with such humane orientation and such intelligent guidance as may be obtainable at every concrete junction on its historical journey.”

How can one not be impressed, even awed by someone, who moves comfortably and unflashily between literature, history and sociology, between Bertolt Brecht, T S Eliot and V S Naipaul, on the one hand, to Rosa Luxembourg, Max Weber, and Paul Baran, on the other?

Take the following two quotes.

Paradoxically, the Indian political system operates in a way that, at one extreme, economic policy has punishment as its basis, but without any sanction for enforcing it and, at the other, incentive as its basis without any builtin mechanism to reward success.

Or History may have enabled us to know rath

er too much about leaders but not enough

about leadership.

There is enough in these quotes to send

a small army of bright and aspiring re

searchers in quest of deep verities about

economics and history.

In this collection, the reader will find a lot to pick and choose from. One suspects that some of the technical subjects that Deena Khatkhate discusses may fall victims to the vicissitudes of taste and technique (especially those essays that are largely verbal treatments of complicated issues). But there is a lot that readers can savour and ponder over. My favourites are the collections in the last two sections on governance and the inter national economy.

On Brain Drain

Take, for example, the chapter on the “Brain Drain as a Social Safety Valve”. This

Economic & Political Weekly

june 27, 2009 vol xliv nos 26 & 27


june 27, 2009 vol xliv nos 26 & 27

Economic & Political Weekly


idea anticipates by several decades two distinct strands in the migration literature. The first strand stresses increasingly on the benefits from circulatory human capital flows. India’s information technology (IT) industry could well have been the beneficiary of such a dynamic.

The second strand is the more pure safety valve argument, and has been elaborated in the excellent work of Devesh Kapur. Kapur (forthcoming) has argued that the readjustment of power in India, away from the upper castes to the so-called “backward” castes, happened with much less political and social disruption because of this safety valve of emigration. Denied of opportunities due to sweeping affirmative action, the upper castes fled to the United States, a flight made possible by their having acquired human capital skills at a time of their social dominance. In the absence of this option which allowed the upper castes to retain their economic privileges, it is likely that they would have put up more fierce resistance to the rise of the lower castes, leading to greater strife.

There is also a very acute diagnosis of the decline of public intellectuals in India (Chapter 17), a lament echoed by Ramachandra Guha in these pages (“The Absent Liberal: An Essay on Politics and Intellectual Life”, EPW, 15 December 2001). Deena Khatkhate poses the following questions:

Could it be that the efflorescence in the intellectual activity of the decades before independence was a mere flash in the pan? The challenges of alien rule may have profoundly affected the psyche of the Indian intellectual who, in response, may have sprung up to an ephemeral glory. Once the foreign regime had passed into limbo, the sense of humiliation abated, the complacency of self-rule ensued, and the depletion of the Indian intellectuals may have resumed its long-term course.

Now, for some, this might be a little too pessimistic, and too prone to viewing the past through the distorted prism of nostalgia, but the questions are too important not to be raised in the insistent and analytical manner that Deena Khatkhate does.

Chapter 20 on the reform of the international monetary system is remarkable for its prescient anticipation of the likely future evolution of the International Monetary Fund (IMF). Deena Khatkhate talks about the advantages of having regional monetary arrangements such as the Chiang Mai initiative. Regional arrangements not only have the advantages that Deena emphasises but they may become essential to bring about meaningful governance reform of the IMF itself.4

Deena Khatkhate makes no attempt to hide his ideological predispositions. He is unashamedly on the right of the spectrum on economics. This is reflected in his combative critique of the views of Prabhat Pattnaik (Chapter 8). It is also reflected in these sentences in one of the best essays in this collection, “Intellectuals and Indian Polity”:

This was no more evident than in the lack of intellectualisation of the Indian Communist movement. The Communist Party has been in existence in India for five decades but it has been intellectually barren. K M Panikkar has attributed this to its reliance on “the argument by analogies”. If the linguistic states were important in India, it was because in the Soviet Union Russians had recognised different nationalities; if the Congress Party was bad, it was because the Kuomintang to which they compared it was reactionary. They did not realise that the Indian situation was totally different from the Chinese or Russian and no unthinking application of Communist dogma would work in India.

Area of Contestation

To be sure there are several areas where Deena Khatkhate’s arguments can be contes ted. Somewhat irksome to this reviewer, for example, is the ideological predisposition reflected in his discussion of the Indian growth turnaround and the short shrift given to the view that the turnaround began in the early 1980s. The experience of the 1980s holds important policy lessons for development policy and should not be dismissed because of the rigid view that all growth stems from a certain type of reforms.

But these are all quibbles in comparison to all the other delights and insights that Deena Khatkhate has to offer in this excellent volume. Isaiah Berlin was perhaps too rigid in his dichotomy between hedgehogs and foxes. There are a certain few who belong to the category of what one might call “hedgeoxes” – those who know a lot about a few things but combine it with a broader erudition and wisdom. Deena Khatkhate would be a good candidate to stake a claim to “hedgeox” status.



[I am grateful to Devesh Kapur for excellent comments on an earlier draft.]

1 There is a very good history of the RBI by G Balachandran.

2 All three then moved on to work at the International Monetary Fund in Washington DC, where they ended their professional careers.

3 Anand Chandavarkar, for example, wrote an excellent biography of John Maynard Keynes. 4 See


December 27, 2008

Inequality and Its Enemies in Revolutionary and Reform China –Ching Kwan Lee, Mark Selden

Property Rights and the Social Costs of Transition
and Development in China –Carl Riskin
Rural Industrialisation and Spatial Inequality in China, 1978-2006 –Chris Bramall
Double Movement in China –Shaoguang Wang
A House Divided: China after 30 Years of ‘Reforms’ –Robert Weil
Light and Shadow of an Inarticulate Age: Reflections on China’s Reform –Pun Ngai
Socialism, Capitalism, and Class Struggle: The Political Economy of Modern China –Minqi Li
China’s Rural Reform: Crisis and Ongoing Debate –Dale Jiajun Wen
Globalisation Meets Its Match: Lessons from China’s Economic Transformation –Dic Lo, Yu Zhang
For copies write to
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Lower Parel, Mumbai 400 013.

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