EAC Report: A Shoddy Guidebook
for the PM

Feb 8th 2001, C.P. Chandrasekhar

The usually dormant Prime Minister's Economic Advisory Council (EAC) has chosen February, the budget month, to submit a report to the executive head of the nation. But do not be misled. This is not a report providing advice on what the government can do at budget time to resolve the crisis in agriculture, stall the slump in industry, or reduce the appalling deprivation that still haunts the nation. Blandly titled "Economic Reforms: A Medium Term Perspective", it is a collation of policy recommendations of the kind that the World Bank and the IMF have been gratuitously providing India over the last decade, and the official economic establishment has been regurgitating at periodic intervals.
The thrust of the document is that, skepticism about the gains from liberalization in a limited circle notwithstanding, the government should accelerate the pace of economic reform. It is replete with recommendations covering a wider range of areas, but makes little effort to argue the case for individual policies. Most of the recommendations are those routinely advanced by advocates of the view that private investors responding to market signals should be allowed to determine investment and its allocation, in the belief that this would magically deliver growth with equity. It recommends that the average rate of tariff on India's imports, which has come down from 87 per cent in 1990-91 to around 34 per cent in 1998-99, should be brought further down to 12 per cent over a five-year period. It supports the government's privatization drive, and suggests that it should be accelerated. It calls for a reduction in subsidies all round by increasing prices and user charges. It demands that reservation of areas of production for the small scale sector should be withdrawn, allowing existing units in these areas to grow to economic sizes. And so on.
A nation subjected to policies of this kind for over a decade and yet to experience the benefits they were expected to deliver, is unlikely to respond enthusiastically to more of the same. This is not to say that a document on the so-called "economic reform" process in India is not in order. This July, the accelerated reform effort launched in 1991 would be 10 years old. That is a period long enough to make an assessment of its fall-out in terms of both realizing its objectives and triggering unintended consequences that are adverse from the growth and welfare points of view. In particular, it would be useful to understand why the promise of launching India on a new growth trajectory, relative to the 1980s, has not been redeemed; why industrial growth has been sluggish in all but three years during the 1990s; why despite evidence of stagnation in per capita foodgrain production and availability the government is stuck with an embarrassingly high level of foodstocks rotting in its godowns; why exports which were to provide the new stimulus to growth during the last decade have on average languished; why employment growth has been far less than warranted by the rate of growth recorded; and why, if we ignore the extremely controversial and non-comparable data yielded by the NSS 50th Round survey of consumption expenditure relating to 1999-2000, the evidence points to a setback in the process of poverty reduction during the last ten years.
An assessment which honestly addressed these questions could have provided the basis for a more reasoned public debate on the benefits of reform that can be the only basis for generating, if at all possible, what the EAC presumes already exists: a "nation-wide and broad-based consensus" on the need to further accelerate reform. However, elsewhere in the document there is evidence that the EAC is not so sanguine. The fact that it recognizes the growing disillusionment, being expressed, in all manner of forms both within the country and abroad, with the type of policies it seeks to advocate comes through in a small section sub-titled "Misgiving about Reforms". However, while listing some of these misgivings, the report responds to them in a manner that reveals that the EAC's intentions are not all sincere.
For example, while noting that a common misgiving is that reform has not touched the poor, the document states that poverty predates reform and that the latest NSS data for 1999-2000 show a decline in poverty, bearing out earlier surveys conducted by the NCAER. This bland statement conceals the facts that (i) till the 1999-2000 survey the NSS data indicated that the pace of poverty reduction during the 1990s had slowed relative to what was achieved during the 1970s and 1980s; (ii) that the revised questionnaire adopted for the 1999-2000 survey is controversial to a degree where even the Planning Commission had recommended that an expert committee should be set up to examine the comparability of estimates yielded by that survey relative to earlier ones; and (iii) that the NCAER surveys are primarily targeted at gathering data on durable consumption for private sector clients, do not collect much information on necessary consumption and none on food and are completely unsuited to making estimates of poverty in the country. The evidence that the poverty alleviation effort has suffered during the years of reform is still strong and cannot be dismissed.

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