ADDRESS BY SHRI K.R. NARAYANAN, VICE PRESIDENT OF INDIA, AT THE VALEDICTORY FUNCTION OF THE SEMINAR ON "INDUSTRIAL REFORMS AND ADJUSTMENT POLICIES" ORGANISED IN CONNECTION WITH DR. P.S. LOKANATHAN BIRTH CENTENARY CELEBRATIONS

MADRAS, DECEMBER 11, 1994

I am honoured to address the Valedictory Session of the Symposium organized to celebrate the Birth Centenary of Dr. P.S. Lokanathan. It is a privilege to do so under the distinguished Chairmanship of Shri R. Venkataraman, the former President of India, whose contributions have been invaluable to the economy and politics of India.

The name of Dr. Lokanathan is synonymous with the advent of applied economics in India. As a teacher he inspired and influenced a whole generation of students to think about the economic problems of India and to apply their knowledge for the development of the country. As an intellectual journalist - he was perhaps the father of economic journalism in India - he disseminated ideas on economic growth and development widely among the intelligentsia in the country. As the founder Secretary General of the National Council of Applied Economic Research he initiated industry-oriented applied economic research directed towards specific subjects of interest to private enterprise and to Government. As the first Executive Secretary of the Economic Commission for Asia and the Far East he pioneered the concept of regional co-operation in Asia in the context of world-wide economic co-operation under the United Nations. His outlook and contributions were at once national, regional and international. To-day when India is undergoing a new phase of economic development, and regional economic co-operation is the order of the day, Dr. Lokanathan's name and ideas stand out prominently as those of a pioneer.

It is appropriate that the series of symposia being held to mark the Centenary are devoted to the review of the current economic situation in India with a view to developing "an agenda for future economic reforms". The policy of economic liberalisation and restructuring followed by India since 1991 has generated a new dynamism in our society and attracted the attention of the world.

At the core of our liberalization is the new revolution in industrial and fiscal policies. Dr. W.W. Rostow expounded in his "The Stages of Economic Growth" and I quote: "The point is that it takes more than industry to industrialise. Industry itself takes time to develop momentum and competitive competence; in the meanwhile there is certain to be a big social overhead bill to meet; and there is almost certain to be a radically increased population to feed. In a generalized sense modernization takes a lot of working capital; and a good deal of this working capital must come from rapid increases in output achieved by higher productivity in agriculture and the extractive industries." In spite of the availability of international capital in the changed world environment of to-day what Dr. Rostow said remains basically true. It is interesting that Dr. Lokanathan had foreseen this. In his well-known speech at the Asian Productivity Organization he said "  very often one finds that notwithstanding large increase in investment the resultant increase in output has been pitifully inadequate .the missing link or the missing factor is what you may call the utilization factor or the productivity element. Unless equal attention is given to this productivity factor i.e. the fuller and more effective utilization of the resources that we put into the whole complex of economic activity, the chances of accelerated development of Asian countries will be dim indeed." He also pointed out the need for increased productivvity in the agricultural sector in view of its contribution to the economic growth of the country  .

It may be recalled here that China's liberalization began first in the farm sector before it spread to the industrial sector. In India too it is our agricultural success especially the Green Revolution, which has enabled us to launch our liberalization process. Indeed India's liberalization is, to my mind, not a turning of things upside down but the acceleration of an evolutionary process of development including learning from our own and world experience and rectifying of errors and shortcomings.

I used the word "evolutionary" because our liberalization and opening up is essentially an outcome of the stage of our economic development and a certain maturing of its technological base. I believe that there is no end to history and human development, and there are no forms of social and economic organization that are immutable and eternal. The march of human consciousness on the one hand and of technology on the other, will continuously, or rather periodically, shape and reshape social and economic policies in response to prevailing conditions and compulsions. As the Harvard group of economists advising President Kennedy argued in regard to India in the 1960's "There are situations in which development must already be firmly established before it is reasonable to expect private investment to take primary initiative for pushing it forward. In such situations insisting that investments must be wholly or largely privately administered from the start, may prevent preconditions for private investment being established."

It is in fact the preconditions established by India's early policies that has facilitated the emergence of the new economic liberalization policy. The industrial and technological infrastructure, the pool of scientific and technical personnel, the managerial expertise, the sizeable private enterprise, a number of major industries, and above all the fundamental agricultural base was built up during this period. To-day we rightly boast of a 200 million strong middle class which contains a substantial core of entrepreneurship. This middle class did not arise suddenly as it were from the head of Brahma but was nurtured in the womb of our mixed economy.

Prime Minister Shri Narasimha Rao has said that what we are following in our bold and broad-based economic liberalization policy is the middle path. In our planned economic development we had followed not some sort of totalitarian central planning but the middle path. Pandit Nehru was the proponent, and if I may say so the prophet of the mixed economy. He once said in the middle of the 50's "Why should I make the choice between the Russian and the American systems? Middle way or mixed economy is inevitable." On another occasion he said : "Capitalism has changed, Marxism has changed -- democratic Socialism is arriving". As Professor Tinbergen once pointed out most countries of Western Europe were, in fact, some kind or another of mixed economy. To-day what the Germans call "the social market economy", the Chinese "the socialist market economy" and what seems to be emerging out of the economic chaos in the erstwhile Soviet Union and in Eastern Europe is some kind of uneasy marriage between capitalist market economy and the social justice and social security principles of democratic socialism.

It is true that the mixed economy did give birth to controls and regulations and bureaucratism which in their overgrowth began to impede the freedom and initiative of enterprise. But then had not modern capitalism itself produced similar bureaucratic regulations and controls? If not why did Prime Minister Margaret Thatcher and President Reagan had to decontrol and liberalise their modern capitalist economies and present their policies as radical departures. As a matter of fact liberalisation and restructuring is a world-wide phenomenon to-day taking place as a result of technological changes and changes in the thinking and aspirations of people irrespective of whether they are in developed capitalist countries, in socialist or erstwhile socialist countries or in economically backward and developing countries. At the same time liberalization cannot be carried out exactly in the same way and at the same pace in every country without regard to the historical background and the specific conditions of each country.

The world has applauded India's liberalisation policy. But there is also impatience with its pace in some quarters outside and perhaps inside also. The London "Economist" has complained about the sluggishness of the Indian reforms observing that half-hearted reforms would only yield half-baked results. Perhaps they are looking mainly at our 200-million strong market and not at India as a whole. They forget that this middle class is an integral part of our 900 million population, indeed enmeshed in this immense majority, and they cannot advance much further by themselves unless they carry this majority along with them. Not only that, their present higher status itself would be in jeopardy if economic or political discontent disturb the delicate balance of our society and the hard-won stability of our nation. That is why we have been talking about the middle path which is in accordance with the facts of our contemporary situation and in tune with the genius of our civilization. But that does not mean that now that we have reached a certain stage of development we cannot move forward faster and that we cannot adopt a policy of creative imbalance with regard to our priorities. But we will have to eschew the break-neck speed of liberalization recommended by some and also hold on to social justice as a sheet anchor of our economic policy.

The results so far achieved by our new policy has been remarkable in the agricultural, the industrial, the technological and the service sectors. India is now projected as an economic giant in the making. However, I should like to lay stress on one or two aspects. The efficiency, the productivity and the competitiveness of Indian agriculture and industry will, to a large extent, depend upon the effective and large-scale application of science and technology. It is well-known that India devotes far too insignificant a percentage of its GNP on research and development. It is less than 1% of our GNP and is incurred largely by the Government. The private sector which is to play leading role in development has not yet awakened to the importance of expenditure on R & D. Will it take on this primary responsibility as a matter of utmost urgency?  

A second point that I should like to make is the need for the private sector to enter the field of human resource development. As the State is progressively withdrawing from direct participation in Industry, it has to concern itself more and more with such issues as education, health care, human resource development and environment. But the private sector with its leadership in economic development cannot afford to keep away from these vital questions. Would it have the vision to involve itself seriously in these areas, not merely as profit-making ventures or as conscience-salving charitable activities. It is now established that human development like education is a critical factor in economic development.

I should like to emphasize one more aspect, that is the role of small scale and ancillary industries. Even in the United States, the home of mass production, small scale and medium units play an important role in the economy. They have been in the fore-front of technology development and employment generation. In India we have always attached great importance to small scale industries. Their contribution would be crucial in income generation, employment creation, export expansion, technology development, wider and more equitable distribution of wealth in society, and generally in the alleviation of poverty. Special attention has to be devoted to small scale, ancillary and village industries with technological upgradation as an important aspect of it.

There is the danger of big industry overwhelming the small scale sector. On the other hand, socially conscious private enterprise can also play the role of encouraging and expanding small scale and village industries contributing to the democratically decentralized development of the economy and to the welfare and prosperity of the people. I am sure that in reviewing the current economic situation and preparing an agenda for future economic reforms, we will bear in mind not only `the magic of the market place' but the welfare of the people. Referring to Gandhiji's ambition to wipe every tear from every eye, Nehru once observed that "it may never be possible to stop completely the unending flow of human sorrow. But it is certainly possible to lessen human want and misery and suffering, and what are politics and all our arguments worth if they do not have this aim in view." And I would add what are all our economics, planning, and liberalization for, if they do not have the aim of the welfare of our people in view?

Thank you.