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Travelogue of Economic Reforms

The economic slowdown in India made headlines. Naysayers claimed that the ambitious goal of a $ 5 trillion economy by 2024-25 is a pipe dream. Amidst the gloom of such dire predictions, the exciting story of economic reforms of 1991 comes to mind and gives us pause for thought. A sense of cautious optimism kicks in as we recollect the transition of India from a low-income laggard to one of the most dynamic economies of the world. If it could happen then, it most definitely could happen now. Montek Singh Ahluwalia’s book ‘Backstage: The Story Behind India’s High Growth Years’ traces the highs and lows of the Indian economy from 1979 till date with special emphasis on the manner in which the policy reforms of 1991 dismantled a rigid old-fashioned policy regime, integrating India with world economy and making it an economic power to contend with. The book also articulates the belief that a high growth trajectory can be achieved if the government ushers in a new generation of reforms

The format of the book is structured into four distinct parts, but the narrative has a continuity that keep the reader absorbed. Part I of the book is a deftly put together collage of the author’s personal life-the formative years in Secunderabad, the shift to Delhi’s DPS,  graduation from St Stephen’s college, the move first to Oxford as a Rhodes scholar and then to Washington DC as a World Bank Young Professional and finally the return to India in 1979 as the Economic advisor. Part II of the book sums up the state of the Indian economy with Indira Gandhi and Rajiv Gandhi at the helm. Back then, India was fettered by outdated economic strategies that could not deliver rapid growth, resulting in the balance of payment (BOP) crisis of 1990 which forced India into the unenviable position of selling the ‘family jewels’.

Part III of the book engages the attention of the reader completely as it narrates the thrilling story of economic reforms, kickstarted by the Narasimha Rao government with Dr Manmohan Singh, the then finance minister, leading the charge. Devaluation, abolition of the cash compensatory support (CCS) for exporters, liberalization of FDI, trade and industrial policy and tax reforms as recommended by Chelliah committee were effectively implemented despite resistance.  These game changing reforms made India an open and market-driven economy. The author with rightful pride, points out that the 1991 reforms had taken cognizance of most of the proposals enunciated in his 1990 paper called the M document.  Part IV of the book traces the significant improvement in macroeconomic indicators from 2003-04 to 2010-11 with the GDP growth rate averaging a robust 8.4 percent under UPA. The reason for the subsequent decline in 2012-13 is also logically analysed. The author explains that this decline was in part due to environmental and forest clearance delays or reversals in high profile cases and the retrospective amendment of the Income Tax Act to overcome the Supreme Court judgement in the case of Vodafone. The Investor sentiment suffered also because of the 2013 Fed announcement of tapering of Quantitative Easing (QE), leading to outflow of capital from emerging markets like India. 2G and coal block scams and allegations of corruption further muddied the waters.

The author is, however, sanguine that ‘India can return to its high growth years’. Dipping into his vast experience, Dr Ahluwalia flags issues that need corrective action and suggests a way forward. Reduction in combined fiscal deficit by increasing tax revenues should be prioritized. This requires a major overhaul of the GST which has been saddled with too many exemptions and rates. Expenditure restructuring is needed with emphasis on shearing populist expenditure and withdrawing of subsidies. Recapitalization of banks, increased independence of regulatory institutions, use of Public Private Partnership (PPPs) model for infrastructure development et al are some other valid suggestions.

The fact that the author was deputy Chairman of the Planning Commission for a decade and worked in ministry of Finance, Commerce and the PMO made him privy to backstage policy shenanigans. This brings a deep insight and credibility to the narrative. ‘Backstage’ catches and holds the attention of the reader as it does not talk down to the reader but explains complex issues with a rare simplicity. Witty asides and insightful observations on the cast of political characters is the cherry on the cake.

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