Prime Minister of India - Dr. Manmohan Singh

PM Inaugurates Golden Jubilee Year of the Institute of Economic Growth

"I am delighted to be here in your midst today to inaugurate the Golden Jubilee Celebrations of the Institute of Economic Growth. Last year the National Council of Applied Economic Research celebrated its golden jubilee. These anniversaries remind us that the 1950s were indeed an exciting time for economics research and teaching in our country. It was the era of institution building in more senses than one.

Our country was fortunate to have had in that era a generation of great institution builders. Our discipline of economics was particularly fortunate to have had many distinguished economists who built many institutions of national importance and international repute. The Institute of Economic Growth was certainly one of them. Of course, due to its inter-disciplinary nature, IEG has also been home to distinguished social scientists from other disciplines as well.

I am honoured today to pay tribute to the memory of a great institution builder Professor VKRV Rao, who was the founder of the Institute of Economic Growth. I would also like to place on record our debt of gratitude to such distinguished social scientists as Dr. P.N. Dhar, the late Dr. AM Khusro, Dr. PC Joshi, Dr Raj Krishna, Prof. Dharam Narain, Dr. Ashish Bose, Dr. CH. Hanumantha Rao, Dr. TN Madan, Dr. K. Krishnamoorthy, Dr S R Hashim, Dr BB Bhattacharya and Prof Bisaria, J.N. Sinha and several of their colleagues who have contributed magnificently to the growth of this institution over this past fifty years. I compliment Dr. Kanchan Chopra for carrying forward this glorious tradition.

The Institute of Economic Growth has played an important part in strengthening research in applied economics and in promoting inter-disciplinary social science research. It has also been an important training ground for members of the Indian Economic Service and for others in government engaged in economic policy making. The IEG has an impressive record of research in demography, agriculture, environment, industrial development, technology policy, project evaluation and health, economic to name many of few discipline. In each of these areas it has contributed substantially to our planning processes and to the task of policy making in our country. In doing so, the IEG has emerged as an important link between the ivory towers of the academic world and the real world of policy making. This institutional commitment to change in the real world has enabled many at this institutions to combine an academic career with participation in policy making. Indeed, Professor VKRV Rao best symbolised this dual identity of the applied economist. Others like Dhar Saheb, Khusro Saheb and Hanumantha Rao followed his example. They were all scholars in their own right but also active participants in the world of policy making and seriously concerned citizens interested in the well being of our people at large.

In enabling specialists to play this role, economics has evolved as a discipline. This has enabled economists to become agents of social change in society. Few other disciplines in the humanities and social sciences have so benefited from this link between research and policy. Indeed, as a discipline, economics, or "political economy", as it was initially called, was the product of a live interaction between philosophers and policy makers. Adam Smith and David Ricardo, as well as the French Physiocrats, and later the Utilitarians, were all thinking people who were grappling with public policy issues of the day. This tradition was very much alive at the Delhi School when Professor Rao and Professor Raj were heading it. However, over time, it appears Delhi School became the home of more theoretical work, and the IEG focused more on applied economics. I do believe that for economics to grow as a discipline, it must walk on both these legs. We should be grateful to Professor VKRV Rao for building both these magnificent institutions next to each other. Good neighbourliness has benefited both institutions and our discipline as well!

As an economist, I do feel proud of the role that economists have played in nation building processes in the post-independence era. When I spoke at the Delhi School of Economics, at National Council of Applied Economic Research and at the Platinum Jubilee celebrations of the Indian Statistical Institute, I paid tribute to the patriotic role of several distinguished economists in the building of modern India. I recall economists from distant lands, including those from developed countries, coming to India to study and learn from the Indian experience. Our academic world was open to new ideas even in those early days. Our opposition to foreign rule never extended to an opposition to ideas from outside. As a civilisation, as a society, we have always been open to new ideas from distant lands. This campus was a fertile field of such new thinking and it was indeed bliss to be here in that early dawn!

It is fashionable these days to run down the past. But I must place on record the fact that under the leadership of Jawaharlal Nehru, free India performed impressively in the first fifteen years after Independence. It was not just our rates of growth but our ability to deal with the challenge of rural development and industrialisation that set us apart in the 1950s. It was only in the 1960s that the economy faced a series of setbacks. The wars with China and Pakistan, the drought years of the mid-60s and the political uncertainty after the demise of Pandit Jawaharlal Nehru somewhat unsettled the economy.

It was only in the mid-70s that we recovered from the setbacks of the mid 1960s. And then came the oil crisis. I wonder sometimes whether we could have mimicked the East Asian and South East Asian experience if we had adjusted our policies in time. China, for example, launched on its liberalisation and modernisation programme in 1978. We took some tentative steps in the 1980s but took more decisive steps only after 1991. Thus, while in the 1950s we were ahead of East and South East Asia, by the early 1990s we had fallen behind.

Today we are engaged in a process of catching up. I am convinced that if we stay the course, and if we implement the strategy for the XI Five Year Plan, we will in fact be able to catch up with South East and East Asia. The world expects India to succeed. Our people have similar expectations. There is great optimism today about India's prospects, and this is based on recent performance. Expectations play their own role in their fulfilment. But, if expectations run ahead of ability, there can be frustration. Our task in government is to invest in our people's abilities and capabilities, so that they can perform to their fullest potential.

To sustain the current resurgence in the Indian economy, the acceleration of our rates of investment and savings must be maintained and pushed forward. Nobody could even imagine in a decade ago that India would not have an investment rate of 35% of our GDP. The productivity of such investment and of all factors of production must be further enhanced. We need massive investments in social and economic infrastructure. We need policies that will make public investment more productive and encourage private investment. We need rapid expansion of labour intensive manufacturing industries. We need new pathways to increase agricultural output and productivity. Our development path must be environmentally sustainable. We must pay more systematic attention to issues related to energy security. All of this requires a constant renewal of our commitment to economic reform and to serious hard work. Economists will, therefore, continue to play a very important role in shaping our future possibilities and our future performance.

While the performance of the Indian economy has certainly improved in recent years, I am particularly concerned about two imbalances that persist in our growth process. First, the rural - urban divide, and second the inter-regional divide. Our Government has initiated several policies aimed at bridging the rural - urban divide. The investment we are making in rural infrastructure, rural education and healthcare and in promoting non-farm employment in rural areas should help. But, the task is Himalayan and there is much that State governments will have to do in this regard.

Inter-regional imbalances in developments have both economic and political causes and consequences. There seems to be a historic continuity, going back by over a hundred years, in the pattern of regional development in India. Parts of North Western India and Western India and Southern India are marching ahead of Central India and Eastern India and North Eastern India. We cannot allow these regional imbalances to persist. A large part of our population in fact lives in the less developed parts of our country. This is contributing to increased migration of labour force and with all its attendant social consequences. We have to move from a situation where people are migrating to where jobs exist, to a situation where jobs migrate to where people live. This means taking development - in particular industrial development - to backward regions. This means increasing avenues for non-farm employment in rural areas. This means investing in better social and economic infrastructure in backward regions.

Our government has taken several steps in each of these directions. But, the government alone cannot alter the dynamics of regional imbalance. Nor, indeed, can the Central government alone reduce that imbalances if concerned States will not do their bit. What is it that our less developed States can learn from the experience of our more developed states? What are the critical gaps in our processes of governance which affect our ability to reduce regional imbalances in levels of development? I pose this as a question of the highest priority for economists in our country. I hope the Institute of Economic Growth will come forward with solutions both to the problem of the rural- urban divide and that of inter-regional imbalances in development. I believe any long term strategy for addressing both challenges must focus on agricultural development and agrarian change, on the development of human resources and on promoting labour intensive industrialisation in backward regions.

In the early years of planning there used to be a debate between those who emphasised the importance of agriculture and those who focused on industrialisation. The so-called Delhi School and Bombay School divide, between Prof. Mahalanobis and Raj, on one side, and Prof. Vakil and Bramhananda, on the other. I do not think we can any longer pose the issue as "agriculture vs industry". We need a strategy for "agriculture and industry", for "rural and urban", for "town and country" to use the language of Classical Political Economy.

Our agricultural economy cannot continue to provide livelihood to over two-thirds of our population. Along with the decline in the share of agriculture in national income, there must be a decline in its share in employment. Non-farm employment must increase. We need policies that can and will help to promote that outcome.

I find there is inadequate creative thinking on how we can address some of these challenges. The debate about State vs Market addresses these issues only up to a limited point. By liberating private enterprise from the stranglehold of the "licence-permit-control-inspection Raj", we have succeeded in creating new incomes and new employment. But, this alone cannot address the two imbalances in development to which I have referred to. Our Government has tried to combine the virtues of public and private investment by launching public-private partnerships as a possible third way. This is as yet a nascent initiative and there is much "learning-by-doing" to be done.

What are then the other pathways to progress? How can we reduce the persistent imbalances in development? How can we increase rural incomes and modernise the rural economy? How can we empower our farming community and invest in its capabilities and productivity? I think we need a new wave of creative thinking on these issues. Old ways of thinking seems to have run their course. Equally, I would say, moving from one strait-jacket into another, from the ideology of the "State" to that of the "Market", may also not help, especially in addressing these kinds of challenges.

In fact, that is how we in India began to look at "mixed economy" models. Regrettably the "mixed economy" often became a "mixed up economy"! But this experience of the past should not discourage us from once again looking for a new Middle Path to development that combines the efficiency considerations of the market with the equity considerations of a liberal polity.

There are no simple answers. Equity does not always imply offering subsidies. If such subsidies do not reach the poor, they do not in fact address the objectives they are meant to address. I find we spend far too much money funding subsidies in the name of equity, with neither equity objectives nor efficiency objectives being met. Can we find more rational solutions to the problems of imbalances and inequities in growth? I leave this thought with you and I hope institutions like IEG will find answers that policy makers can make use of with thought.

I would like institutions such as the IEG to apply themselves to finding creative answers to some of these problems. You should augment your academic resources to be able to build on your excellent track record of social science research. You are indeed a rare institution that has been able to maintain academic excellence while closely influencing processes of public policy making.

I once again compliment all those associated with the Institute for their dedication, for their commitment and for their professionalism. I hope the Institute will attain new heights of professional excellence in next fifty years. I wish the Institute many more years of productive service to the parts of our nation."