Indian Planning Commission
deputy chairman Montek Singh Ahluwalia's plans to
include representatives from the World Bank and other
multilateral agencies in its consultative committees set
up for the 10th five-year plan's mid-term appraisal has
stirred a hornet's nest. The leftist economists in these
committees promptly put their foot down, saying they
could not work with representatives from the likes of
McKinsey and Boston Consultant Group.
With the
Congress-led United Progressive Alliance (UPA)
government heavily dependent on the support of the left
parties for numbers in the Parliament, the leftist
economists calculated that the showdown would send a
clear message to the Congress as to what kind of
economic policy the communists expect from their
newfound partner. But finally, in a master stroke,
Ahluwalia disbanded all of the commission's consultative
committees, getting rid of both the communists and the
World Bank-types.
The Planning Commission was
set up in 1950 to oversee the country's socio-economic
development. A vestige from the socialistic era, the
commission has now become more of an ornamental
institution, mired in its own primitive mindset that
prevents it from grasping the realities of modern-day
business. At a time when the Indian government is trying
to reduce its role in the economy and allow market
forces to take over, the very idea of a Planning
Commission seems to many as an anachronism.
The
socialistic goals that were adopted after India's
independence were not misplaced, but clearly the
planning process did not work. India's progress in its
50 years of planned economic development has been much
less than satisfactory, with other countries that
started out with a similar level of development
galloping past India on all major economic indicators.
There is thus no gainsaying, therefore, that the
Planning Commission does need a copious dose of dynamism
and out-of-the-box thinking. But the left, which revels
in raising a hue and cry at the sign of the slightest
deviation from the Soviet-style command economy program,
would have none of it. It just couldn't allow the 14
foreign (not by birth - 13 of them are Indian - but by
affiliation) consultants to corrupt the chaste ideology
of the 415 other "pure Indians" who would sit on the
panels with them.
But what about the left
economists themselves? Well, two of the most vehemently
protesting left economists are founding members of the
International Development Economics Associates (IDEA)
set up in New Delhi, with generous funding from the Ford
Foundation. IDEA claims to be a pluralist network of
progressive economists across the world, seeking to
undertake and promote a range of activities including
research, teaching, dissemination and application of
critical analyses of economic policy and
development.
Accusing the commission of
compromising the country's sovereignty, the outraged
comrades' letter to Ahluwalia maintained that "a
sovereign state is necessarily exclusionary in the sense
that its organs must exclude personnel owing allegiance
to, or under the control/patronage of a foreign
sovereign state ... The US administration routinely uses
the threat of withholding World Bank loans as a means of
putting political pressure on foreign governments." It
charged that firms like McKinsey have been getting
consultancy contracts across the world because they
enjoy the patronage of the US administration and other
developed countries. The left, incidentally, had no
problems with representatives of capitalists Reliance
and ITC in the panels.
Double
standards The fact is that the commission has
historically received intellectual backing and technical
support not only from socialist planners but also from
economists from the United Kingdom and the US. Richard
Eckaus, a professor from MIT, joined hands with
commission member Kirit Parikh to build what is known as
the Eckaus-Parikh model - the cornerstone of the fourth
five-year plan.
Going by the left's
prescription, India should not have had Bimal Jalan as
the governor of the Reserve Bank since not only had he
studied abroad but worked for the World Bank and the IMF
as well; or for that matter Vijay Kelkar, who did his
PhD at Berkeley and worked for the IMF; or Rakesh Mohan,
who did his PhD at Princeton and worked for the World
Bank; or Ashok Lahiri who worked for over a decade at
the IMF; or Parthasarathi Shome, who also worked for the
IMF. One can go on and on. Ahluwalia himself has been an
old World Bank-IMF hand. One wonders why the left has no
problems working under him.
What made the entire
controversy all the more pointless was the fact that
these "foreigners" were not full-time officials of the
commission, only members of the consultative committees.
The consultative machinery has no executive powers.
Moreover, even if the proposals of the foreign team did
get accepted at the primary stages, these would still
have to pass the National Development Council, which
comprises all chief ministers.
The inputs from
these consultants would have given a global perspective
to India's development agenda. The presence of foreign
experts would have brought in constructive criticism and
saved India of the pitfalls of lopsided approaches.
Incidentally, the state-owned China Construction Bank
has recently added a foreign director to its board, and
Bank of China, also state-owned, is following suit.
While representatives of all four left parties
registered their protest with the UPA government, their
comrades in Kolkata (capital of the state of West
Bengal, ruled by the communists for over 25 years) have
long realized that they do not have a monopoly on
economic wisdom. In Delhi, the left does not trust
McKinsey, but in Kolkata, the West Bengal Industrial
Development Corporation's (WBIDC) reports proudly detail
McKinsey's role in giving the state a boost.
The
WBIDC director's annual report for 2002-2003 details how
McKinsey had been engaged on the suggestion of the state
government to study agro-business and the IT sector and
report on the state's industrial potential. The study
has been completed and the West Bengal government is
reflecting on the recommendations. During the first nine
months of 2003, the WBIDC started negotiating with
agro-business leaders across the country and managed to
implement 40 projects in this field, with investment
totaling Rs12.5 billion (US$273 million). Not only this,
McKinsey is even helping to market the state to
investors in other parts of India.
One of the
leftist West Bengal government's biggest successes so
far has been its "restructuring" of the state public
sector units. The PSUs were divided into different
categories and the state eventually decided to close
down 16 perpetually sick and bleeding loss-making PSUs.
It realized that its money could be better spent
elsewhere. Workers were offered early retirement
schemes. The ones forced to go were offered a
"re-skilling program" that trained them for other jobs.
And, guess who the consultant was behind all this? Price
WaterhouseCoopers.
Encouraged by its success,
the state government has decided to extend the program
into its second phase - with assistance from British
funding agency, the Department for International
Development. "A Vision of West Bengal's Industrial
Future" was prepared for the leftist government by
Arthur D Little. Others working on similar projects
include Toyo Corporation, Itochu and Marubeni. No
problems with foreign consultants at all.
If
consultation seems a bad word to leftists in Delhi, then
nothing stinks like the "conditionalities" imposed by
external funding agencies. But it's a completely
different story in West Bengal. The Asian Development
Bank's soft loans and a British Department For
International Development grant are behind the Rs17
billion project for Kolkata's renewal. Some of the
"conditionalities" accepted by the Kolkata Municipal
Corporation are: putting in place at least 100,000 new
water connections by 2006-07; metering all water
consumers; reforming taxes; improving property tax
collection to 80% by 2004-05 and submitting audited
accounts. Most of these are on target and none seem to
have harmed Kolkata. Some 7,300 industrial and
institutional water connections have been metered.
Yet, when it comes to policy change at the
center, the left is the loudest in protest. It's a
mindset like this that has denied India the opportunity
to come into its own. As the most important partner of
the central government, the left's attitude to change
will largely determine the pace of change of India's
economic thinking. Indeed, for India to change, the left
will have to change. Going by the Planning Commission
episode, that seems unlikely.
Kunal Kumar
Kundu is a senior economist with a leading bilateral
Chamber of Commerce in India. He has a Masters in
Economics with specialization in econometrics from the
University of Calcutta.
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