Speech

December 17, 2006
New Delhi

PM's address at the Golden Jubilee Celebrations of NCAER

Hindi Version

"I am delighted to participate in the Golden Jubilee celebrations of the National Council of Applied Economic Research. The mid-1950s, when NCAER was set up, was a time of enormous energy and institutional innovation in India. Pandit Nehru took personal interest in the establishment of NCAER, as he did in the establishment and growth of so many other institutions of national excellence. Panditji believed that through focused intellectual and policy effort, India could overcome the economic stagnation of the colonial period and once again take its place as a major economy in the world.

The NCAER represented an imaginative collaboration between the private and public sectors, with an important contribution from the Ford Foundation. I pay tribute to the pioneering role of such stalwarts of that era such as J.R.D. Tata, Ashoka Mehta, T.T. and V.T. Krishnamachari, C.D. Deshmukh, P.S. Lokanathan and John Mathai, who were all founder members of NCAER's Governing Body. I also recall the active interest Douglas Ensminger took in NCAER's work. I must also pay tribute to the leadership provided in subsequent years by S. Bhoothalingam, Prakash Tandon, Idrak Zaman Bhatty, S L Rao and Rakesh Mohan. I am happy to see that NCAER continues to do good work under the able leadership of Dr Bimal Jalan and Suman Bery.

I recall that from its very beginning NCAER encouraged an environment of free debate and intellectual discourse. Under the able and towering leadership of Dr Lokanathan, NCAER attracted a diverse group of talented economists. I recall that Dr Ashok Mitra, who later joined the CPM, Dr Jay Dubashi, who later became an ideologue of the Jana Sangh, Dr Ashok Desai and Dr A Vaidyanathan, were all colleagues at NCAER in the late 1950s, and formed an active team of researchers despite the diversity of their worldviews.

This ability to bring together a diversity of opinion under one roof is one of the great strengths of our liberal and plural democracy. I pay tribute to the intellectual leaders of our country who encouraged and fostered such plurality of thought.

However, while debate is helpful, indeed necessary, it must be informed by facts. That is where NCAER's dharma of "applied economic research", the analysis of data and facts, is so very important. Public policy must be informed by empirical research and shaped by changing reality. And, when facts change opinion, diagnosis and policy must change too. In the realm of public policy there is no virtue in holding on to one's beliefs if these are not based on facts and experience. For all the naysayers and unbending ideologues, John Maynard Keynes had a telling question: "When the facts change, I change my mind - what do you do, sir?"

Circumstances are today favourable for sustained, rapid and equitable growth of the Indian economy. The National Development Council has recently directed that we should aim for a growth rate of 10% by the end of the 11th Plan. Rapid growth is needed to provide hope and productive employment for the millions of young people joining the labour force each year, and to accelerate the reduction of extreme poverty.

India today faces few external constraints on its growth. The responsiveness of the Indian private sector to economic liberalisation and increased international integration has been generally satisfactory, and has imparted tremendous resilience to the economy. What is heartening is that a growth process that began with the external sector and with services has now spread to manufacturing even as services growth continues to be extremely buoyant.

We have certainly made considerable progress in many areas over the last fifteen years. The price signals facing our private sector are now well-aligned with international prices. Greater freedom to invest, together with an improved range of financial options has facilitated entry, competition and dynamism, even as moderate rates of taxation have encouraged entrepreneurial effort. Despite a high level of public debt, inflation has been contained. In brief, the economic environment facing the private sector has been transformed and the results are evident.

However, we must not be complacent. It would be wrong to assume, as some do, that the major development challenges have been solved and that the Indian economy can now effortlessly coast towards becoming a developed country. In this context I would like to articulate five challenges that I believe will engage us over the next decade, both as a prerequisite for fast growth and as a consequence of it. These are:

(i) revitalisation of the rural economy; (ii) improved delivery of essential public services; (iii) improved management of our urban areas; (iv) preparing our financial system for greater inclusion and increased global integration; (v) establishing a regulatory culture to facilitate cost-effective private investment in infrastructure.

On each of these our government has taken several steps, but we have to do more. Firstly, agricultural activity needs to be redirected to higher-value activities so that small-holders can earn a decent income even as non-farm employment supports farm income. Improved rural connectivity and economic and social infrastructure will be critical in this effort as will removal of barriers to domestic trade.

Secondly, India's poor are those most deeply affected by poor delivery of basic education and health care. Individual states need to experiment with a range of models for delivering these services as well as increased monitoring by local communities.

Thirdly, our competitiveness as a nation will increasingly depend on the efficient functioning of our cities. Urbanisation is an expensive business. Our challenge is to modernise the governance of our cities so that they can generate the resources for their own growth and attract private financing in a stable environment.

Fourthly, we have to further extend the reach of our formal financial system to all sections of the society. This is crucial for permitting our small entrepreneurs and producers to realise their potential. At the same time, India stands to gain hugely from greater integration of its financial system with that of the world, in a prudential way.

Lastly, we have made a clear national commitment to encourage public-private sector partnership in our infrastructure sector. Such investments will only materialise if there is confidence in the independence and stability of the regulatory regime; we have made a start in this direction, but establishing a credible regulatory culture will take more effort and time.

I have previously spoken of the need to nurture the elements of what is called the "knowledge economy". This is often taken to apply only to science and technology, but socio-economic research has an equally important role to play. In India, more than in the advanced countries, policy-oriented research has tended to be carried on outside the universities in institutions like the NCAER, which are able to assemble teams of specialised analysts.

These institutions also provide an important forum for informed public debate, so essential in a democracy. The report on rural infrastructure released today is a case in point. While NCAER was perhaps the pioneer, we have today several policy-oriented research institutions. Maintaining and enhancing the capacity of such institutions will be essential as our country moves forward and engages with the world.

While independence and objectivity are essential for the credibility of these institutions, I call upon both government and the private sector to do their part to ensure that this capacity is preserved, modernised and enhanced. NCAER has had a proud record of public-private partnership both in its funding as well as in orienting its research output. The growing demand for informed analysis of on-going economic trends has created a market for the kind of applied research NCAER does.

I am very happy to hear that, as part of its Golden Jubilee celebrations, the NCAER is planning to bring out an authoritative volume of papers by eminent economists on "Applied Economic Research in India since Independence". A workshop is also being held this afternoon to have an in-depth discussion on the present state of applied economic research in India. I hope this workshop, and the volume to be published thereafter, will lay down a detailed roadmap for areas that require further research, particularly in sectors where we have fallen short of our goals.

I have no doubt that better research will further add to our economy's all-round growth through better utilization of resources and higher productivity of investments. This research will also help us, in government, in the formulation of appropriate policies. It should also be able to find a market in the private sector, both at home and abroad.

I once again compliment all those associated with NCAER, especially my friend Bimal Jalan and the Director General Suman Bery, and his colleagues, for the good work you are doing here. I wish you well in years to come."

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