The ideas of economists

Former RBI governor C Rangarajan's memoir is a testament to the crucial role economists can play in shaping public policies and people's lives

- T T RAM MOHAN

Do economists matter? Can they make a big difference to public policy? Economists will find answers that are gratifying in Forks in the Road, the memoir of C Rangarajan. Yes, they do. And, yes, they can make a big difference to public policy, provided they can get political masters to align with their thinking.

Dr Rangarajan's memoir is about the economic events and decisions in which he was an active participant for nearly three decades, starting in the early 1980s. He wore several hats: Deputy governor and governor of the Reserve Bank of India (RBI); member of the Planning Commission;, chairman of the Twelfth Finance Commission; and chairman of the Prime Minister's Economic Advisory Council (with Cabinet rank). Somewhere in between were stints as governor of two states and member of the Rajya Sabha.

Unlike most memoirs, Dr Rangarajan's is less about himself and more about issues. It is replete with tables and statistics. But it doesn't just tell us what transpired. It examines the alternatives that were open to policymakers and explains why a particular course was chosen and what outcomes followed. The result is a fascinating piece of economic history.

Dr Rangarajan joined the RBI in 1981. As deputy governor and governor (with a break in between), he dealt with two of India's biggest balance of payments (BOP) crises, the overhaul of monetary policy and banking reform.

The first BoP crisis, in 1981, was handled largely within the then economic paradigm. Yet, operating within the paradigm, Dr Rangarajan and his colleagues at the RBI managed a steady depreciation of the rupee in both nominal and real terms. They were very clear that it would be difficult to manage the current account deficit without boosting exports and curtailing imports. The economists at RBI seem to have had a free hand in managing the exchange rate even before the reforms of 1991.