GLIMPSES OF INDIAN ECONOMIC POLICY - AN INSIDER'S VIEW By I.G. Patel, Oxford, Rs 395 The volume of I.G. Patel's memoirs is a book that delights and instructs. A brief review cannot do justice to its sweep and depth. Patel's reminiscences are naturally interesting and are related in a limpid style, laced with subtle humour. Patel had worked with some of India's great personages like Jawaharlal Nehru, Lal Bahadur Shastri, Morarji Desai, T.T. Krishnamachari and H.M. Patel. His narrative covers a critical period of Indian history, from independence to the Seventies. Patel figures in many of the crucial decisions that have shaped India's recent economic history. Patel's role in the formulation of the second plan frame, devised by P.C. Mahalanobis, is not too well-known. He had a limited but important role, together with J.J. Anjaria, in bringing out the draft, while the main idea was that of the professor. Mahalanobis had assembled some of the world's brightest economists at the Indian Statistical Institute in Calcutta. Patel does not throw much light on whether Mahalanobis's plan was formulated in spite of, or because of, such fine intellects assisting him. Turning to India's love affair with heavy industries, Patel refers to a revealing exchange between Russia's prime minister, A.N. Kosygin, and India's ambassador at that time, T.N. Kaul, in which the former had said that India did not need any more heavy machinery plants. 'What the Soviets had supplied was enough for us for many years to come and all we needed was to use well what we already have.' Patel's view seems to be that the Soviets are too often blamed for selling us a wrong model whereas the mistake was in our implementation. Patel's recollections of the 1966 devaluation of the rupee confirm the notion that 'the decision was inevitable' and supported by most economists in the country. The attempts of the World Bank's Bernard Bell to exercise too much pressure provoked Krishnamachari's strong adverse reaction. As Patel points out, the decision had in fact been taken during the last days of Shastri, and Indira Gandhi implemented it. Patel reflects on the fact that the substantial non-project aid which was promised to India if it decided to devalue was finally denied. The richer countries, led by the United States of America, reneged - a familiar phenomenon. In Patel's view, it would be wrong to blame the 1966 devaluation for the subsequent hardships India faced - they were primarily due to food shortages, successive bad monsoons and the accumulated impact of bad policies. The system of exchange controls, industrial licensing and control of capital issues, along with a distaste for private foreign investments, which the Fifties and Sixties led to, remained a part of the Indian economic environment until recently. Patel traces the roots of this deadly combination to the impact of war, the legacy of the nationalist struggle, the fear of foreign domination and politicians' implicit demand for economic power. Ironically, in the Fifties, the US administration sent Milton Friedman to advise India on economic policy. Unfortunately, his advice, which was in favour of freedom in economic matters, fell on deaf ears. Patel admits that he is an old-fashioned socialist - not a Marxist, but a democrat. He and his associates played a critical role in the formulation of policies that inadvertently led to our economic straitjacket, although on many occasions Patel himself had serious doubts - on the policy of state dominance and the culture of political intervention, for instance. The political leadership, represented by the likes of Indira Gandhi and Krishnamachari, did not leave room for strong dissent. Dissenters, like the economists, B.R. Shenoy and C.N. Vakil, were either ignored or were too obsessed with their pet points of view to be effective. Patel narrates how he was given 24 hours to draft the cabinet note and legislation on the nationalization of India's banks by Indira Gandhi. It was clearly a political decision. Politics, in this case, dominated economics. In an ironic sequel, during his term as governor of the Reserve Bank of India, Patel had to recommend the nationalization of a few banks left out in the first exercise. 'They had become the personal fiefdoms of individuals who disregarded all rules and advice with impunity.' He decided on nationalization as the way out. A return of the old-fashioned socialist perhaps? Would India's economy have fared differently if Patel and people of his eminence had been able to press for a freer play of market forces and against state dominance? This is a question which has the benefit of hindsight. The economists' voice would then have been overwhelmed by a cacophony of political forces. Aid negotiations and the successful completion of a framework for India's relationship with the Bretton Woods institutions must surely be counted among Patel's important accomplishments. In particular, one must acknowledge his role in the evolution of the Aid India Consortium. There are, however, limits to economic policy. Politics, especially in donor countries, had a great deal to do with decisions on both the quality and quantity of aid. Patel is, however, generous in accepting the positive role of successive US administrations in simplifying, softening, enlarging and restructuring aid, particularly to India. Special mention is to be made of the US's treatment of PL-480. Patel played an important role in this issue. Reflecting on how import restrictions came into being, Patel says that they started during World War II and intensified after the 1956 foreign exchange crisis. The multiplication of bureaucratic restrictions on business activity was embedded in this regime of controls. For its consequences, Patel blames not only the government but also businessmen, who used the control system for their own benefit. Talking about his role as the RBI governor, Patel emphasizes the need for independence, but concedes that in a democracy, the central bank cannot be totally independent of government control. He pleads for greater autonomy in appointments, particularly of deputies. But, in the central banks of many other countries, appointments of deputies are matters under the purview of government or external bodies, albeit in consultation with the governor. Patel recalls his reluctant association with the gold control order of the Sixties, which was an important byproduct of the Chinese conflict. It was an impractical piece of legislation. The gold control order failed and had to be withdrawn. The withdrawal followed the recommendations made by a committee, of which Patel was the secretary. In his view, gold bonds may not be an answer to the problem of the lure of gold. He is in favour of other attractive savings instruments which can substitute for gold. Patel's book will fascinate anyone interested in India's economic history over the last five decades. The lessons he draws from his survey bear the mark of his wide experience and wisdom.