K.N. Raj: Development with Equity and Democracy

Authors

  • K.P. Kannan

    1. Professor (and former Director) at the Centre for Development Studies, Thiruvananthapuram, Kerala State, India (e-mail: kannankp123@gmail.com). During 2005–09 he was a Member of the National Commission for Enterprises in the Unorganized Sector constituted by the Government of India that submitted a series of reports culminating in a final report, The Challenge of Employment in India: An Informal Economy Perspective (Academic Foundation, New Delhi, 2009). His areas of interest include labour and development, poverty and human development, informal economy and Kerala's development experience. He has authored, co-authored and edited nine books and published many papers in his areas of interest.
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I am grateful to Ashwani Saith for encouraging me to write this paper. I thank Barbara Harriss-White and M.K. Das for detailed comments and editorial suggestions on an earlier version; I also thank Jan Breman, Gerry Rodgers, J. Krishnamurty, T.S. Papola, K.T. Rammohan, and K. Ravi Raman for their comments and suggestions. A special word of thanks is due to Anil Kumar of the Centre for Development Studies Library for his assistance in locating and making available copies of earlier papers and works of Professor Raj. However, the author alone is responsible for views, interpretations and errors, if any.

One of India's finest economists, the late lamented K.N. Raj (1924–2010), was known for his deep concern for the poor. Long before ‘inclusive growth’ became a clichéd byword of growth managers and power brokers, he passionately believed it to be the core of economic growth. That concern lasted till his death.

Raj's initiation as a professional economist virtually coincided with India becoming independent. He landed in Bombay (now Mumbai) in July 1947, after securing a PhD in Economics from the London School of Economics at the preciously young age of twenty-three, and joined the Reserve Bank of India as an economist. In his new capacity he prepared India's first Balance of Payments status paper, but he was soon inducted into the Indian Planning Commission and got himself involved in the formulation of the country's First Five Year Plan.

But Raj had the vocation of a teacher and a researcher which explains why he left a lucrative government job and joined the Delhi School of Economics in 1953. To his multitude of students he was a teacher par excellence but he also established himself as an economist of repute, both nationally and internationally, at an early age. He was closely associated with, and made considerable contributions to, the growth of three major institutions. The first was the creation of the Mumbai-based weekly, Economic Weekly (later renamed Economic and Political Weekly), a unique journal that combined commentaries on contemporary economic and political issues with well-researched ‘Special Articles’ on development issues in general and economic development in particular. The second was the Delhi School of Economics which he took to new heights by attracting brilliant economists to join its faculty. The third, and a much bolder experiment, was the establishment of a centre of excellence, the Centre for Development Studies (CDS), in Trivandrum (now Thiruvananthapuram) in the peninsular tip of India, some 3,000 km away from the national capital of Delhi.

Raj's active intellectual contribution spanned a little less than four decades, from 1947 to 1986. A cerebral thrombosis in 1986 made it difficult for him to continue with the kind of intensive and often gruelling research that he had been engaged in, but he soon recovered from much of its impact and remained active, both in lecturing and advocating on issues close to his heart, prominent among them being the idea and practice of decentralized development.

Space prevents me from discussing the entire range of his intellectual contributions and so I admit here to being very selective in sharing my thoughts particularly in relation to his concern for development with equity and democracy because of its enduring relevance. The fact that many appreciations and tributes appeared following his passing away is a testimony as much to his scholarship as to his contributions on a wide range of issues relating to development.1

PLANNING FOR DEVELOPMENT

Raj plunged into the task of economic planning right from the start of newly independent India's developmental exercise in the early 1950s, when he was still in his mid-twenties. He was acutely aware of the institutional and structural constraints, not to speak of the scarcity of material resources, that India faced at the dawn of its political independence. That, however, did not deter him from visualizing a process of economic development within a framework of democratic decision making. In the draft of the First Five Year Plan — which Raj was widely credited to have drafted — he visualized, under the conditions existing then, an increase in the rate of national saving from 5 per cent in 1950–51 to 20 per cent after seventeen years, and remaining at that level. It would take twenty-seven years to double the per capita income. In turn, this would work out to a rate of growth of national income around 4.25 per cent because annual population growth during this period was assumed to be 1.25 per cent.

The then prime minister and undisputed leader, Jawaharlal Nehru, was impatient with such a slow growth process and asked for Raj to come and discuss the relevant chapter with him. He questioned Raj on his projections for this slow rate of growth. Legend has it that at the end of the initial questioning, the young Raj asked for the Prime Minister's permission to ask him a question to which the latter said: ‘Go ahead’. ‘Would you like to be a Stalin?’, he asked Nehru, who understood the meaning of the question and realized the political, not to mention the social implications of the envisaged growth rate. One should not get an impression that Raj settled for such a rate of growth because he did not want to unsettle the institutional and organizational character of the Indian economy. Far from it: he wanted to achieve a measure of what may be called equitable growth by such radical measures as the state and polity would be capable of initiating but without compromising on the democratic political set-up.

In retrospect, it is indeed remarkable that Raj stressed what is now called development of ‘human capabilities’ when he wrote in Chapter 1 of the First Five Year Plan:

The problem of development of an underdeveloped economy is one of utilizing more effectively the potential resources available to the community, and it is this which involves planning. But the economic condition of a country at any given time is a product of the broader social environment, and economic planning has to be viewed as an integral part of a wider process arising not merely at the development of resources in a narrow technical sense, but at the development of human faculties and the building up of an institutional framework adequate to the needs and aspirations of the people. (Government of India, 1952: 7, emphasis added)

In fact, Raj went beyond advocating the need for developing ‘human faculties’ to anticipate the discourse on the right to development when he stated that:

The problem, therefore, is not one of merely re-channelling economic activity within the existing socio-economic framework; that framework has itself to be remoulded so as to enable it to accommodate progressively those fundamental urges which express themselves in the demands for the right to work, the right to adequate income, the right to education and to a measure of insurance against old age, sickness and other disabilities. (ibid.: 8)

It is important to recall these objectives that India set for herself because they are as relevant today as they were six decades ago. One might even say that they are of greater import today because of the rising tension in India between the emerging politics for more inclusion and the economics of exclusion. These are manifested through the unbridled pursuit of aggregate economic growth on the one hand and scant regard for distributive justice either of an economic or social kind on the other. This is despite the rhetoric of inclusion and the symbolic but half-hearted initiatives in providing some public wage employment and social security of one kind or another as a palliative to the rising expectations and demands of the poor but voting masses.

The First Plan tried to attain a balance between the need for setting up basic goods industries and the provision of employment and food through agricultural and rural development. However, with the advent of the Mahalanobis model for the Second Plan, there was a shift in emphasis to the establishment of basic goods industries with a view to attaining a higher rate of growth in the future and to reducing dependence on foreign aid and investment. When the Third Plan was launched, Raj pointed out some of the serious drawbacks in the implementation of the first and second Plans. He cautioned against the tendency to downplay the timely completion of basic goods manufacturing while being liberal with investment in consumer goods industries in the private sector. He blamed sections of the bureaucracy and the political class for such a tendency, pointing to the class bias in Indian planning. Raj was concerned, right from the beginning, about the availability of wage goods (mainly food) and criticized the existing policy on the price of food which depended ‘so much on the free market mechanism and on imports of consumer goods’ that there was the danger of either a foreign exchange deficit or of ‘inflation endangering the whole basis of the plan’ (Raj, 1959a).

He also pointed out the need for resource mobilization as well as the need to focus on rural development. In a paper reviewing the First and Second Plans, Raj (1959a) advocated several measures for resource mobilization such as progressive rates of taxation including a land tax (a theme that he was to work on in considerable detail in the early 1970s), a tax on agricultural rent as well as the improvement of tax collection from the urban sector. It was in this context that he advocated a system of decentralized governance by forming what he called ‘a new layer of self-government and administration in the rural sector covering about a hundred villages with its own elected body’ and giving it powers to raise revenues. This was to become a passion with him after he moved from New Delhi to Trivandrum. Of course he was not alone in advocating a third tier of government, but this objective took a very long time to realize in the form of two constitutional amendments in 1993.

It would be difficult to contain Raj in terms of the two competing schools of thought in planning in India at that time — Mahalanobis versus the Bombay School, the former exhorting the maximization of long-term growth as against the short-term growth maximization of the latter, essentially based on employment and the production of wage goods. Raj was the first to initiate an analytically significant discussion on the problem of ‘choice of techniques’ in the Indian context (see Raj, 1956a and b), which was later taken up by many others, including Amartya Sen (1960) whose theoretical work essentially posed itself as a dilemma in development planning for the poor countries.

While Indian planning cannot be accused of being one-sided either in terms of too much emphasis on heavy industry or too much orientation towards the urban sector, the weaknesses in implementation, which Raj pointed out more than once from late 1950s onwards, had begun to show by the beginning of the Fourth Plan in the mid-1960s. Writing about the Fourth Plan, Raj (1967a) was of the opinion that ‘it is in rough weather’ due to food deficit, foreign exchange deficit, rising prices and cost of living, all of which he had warned against. The solutions he had put forth were not well received, and this he attributed to the ‘intermediate regime’, i.e. a situation characterized by the domination of intermediate classes who do not belong either to the full-blooded capitalists or the proletariat of poor means. We shall return to this point later. He advocated writing off 1966 and 1967 from the Fourth Plan and starting afresh. The Government of India had come to the same realization, and Raj's advocacy was thus a very timely one.

Raj's method was to subject every Plan to trenchant analysis and examination in terms of its feasibility and conditions for full implementation while putting his faith in the instrumental role of economic planning to achieve what he called ‘economic and social development’ of the people. So when the Fifth Plan was formulated, on which an equally famous economist and his own colleague at the Delhi School, Sukhamoy Chakravarty, made his indelible mark, Raj did not shy away from a penetrating examination. In the Approach Paper, two variants for consumption were put forward: one with no change in the existing consumption pattern and the other with an increase in the consumption of the lowest 30 per cent of the population while reducing the consumption of the top 30 per cent by 5 per cent. The official preference was for the second variant. While Raj (1973a) agreed and even welcomed the preference for the second variant, he did not refrain from raising certain difficult questions. These related, first, to the lack of discussion on the details of implementation, especially on what types of consumption would be subject to curtailment for the top 30 per cent, which included not only the ‘very rich and the upper income groups… but large numbers who would be regarded as among the lower strata of the “middle classes” or even lower’; and second, ‘the very political question of whether these cuts of the order needed will in fact be allowed to be made’ (ibid.: 310–11).

After the mid-1970s, Raj seems to have paid less attention to such details than he did for the first five Plans. He had, by then, turned his attention to the theme of decentralized development and he remained focused on this to the last.

UNDERSTANDING THE FUNCTIONING OF AN AGRARIAN ECONOMY AND ITS CHALLENGES

While Raj devoted a considerable portion of his time to the analysis of planning and its implementation, offering such policy recommendations as he thought appropriate, he was simultaneously working on the dynamics of what he called ‘growth and accumulation in agrarian economies’, arising out of a deep scepticism of transposing theories developed in the context of western capitalist economies. While he never brought his book project, as he called it, to fruition, he did publish papers as and when he dealt with these themes. His intention was to ‘analyse the functioning of land, credit, commodity, and labour markets’ in agrarian economies and he often progressed beyond a focus on the Indian economy per se.

In a thoughtful paper published in 1970, Raj tried to explore the reasons why land ownership is highly skewed and why it is the preferred form of wealth. Using Keynes's insight on the liquidity preference in advanced capitalist economies, he pointed out that land has very negligible depreciation, keeps its capital value over time, offers more security than other assets and yields a rent when leased out. ‘In societies exposed to various kinds of risk’, Raj observed, ‘and with few means of insurance open to them, land is an attractive asset to hold even if the pecuniary rate of return on the investment happens to be low’ (Raj, 1970 reproduced in Raj, 1990: 39). He went on to analyse the conditions under which land would be leased out or leased in. While those with little or no land would be prepared to lease in land even in the presence of various risks because the alternative would be a worse situation, the main constraint they were likely to face could be the supply or willingness of land owners to lease out. In such situations share-cropping would be a preferred option, as he noted in the eastern and southern parts of India, while medium-sized land owners would be leasing in land, as in the northern and western parts of India, because, Raj averred, operating agricultural households might want to preserve a certain ratio between leased-in and owned land. This is akin to the behaviour of business firms seeking to maintain a safe debt–equity ratio in their portfolios. But the important developmental implication of his analysis was to show that excessive preference for land could deter productive investment in poor agrarian economies.

On the subject of credit market functioning, Raj (1979)2 started off from Keynes's idea of land preference leading to a higher rate of interest. He then proceeded to explain the prevalence of high interest rates through other ‘suggestive ideas’ put forward by Keynes. These related to the borrower's and lender's risks and the distinction between the two. For a variety of reasons such as the absence of institutional arrangements for intermediation between savers and investors, and greater risks involved in agricultural production and prices, the lender's risk is likely to be higher than the borrower's risk by a considerable margin. This could, Raj hypothesized, lead not only to higher interest rates but also to ‘credit rationing’ and would result in most of the loans going to higher income and asset groups. At the same time he also added another dimension to the equation, namely, ‘consumption loans’ with high interest rates. This is because in an agrarian community most households have only small operational holdings of land and would require, as well as working capital, loans for their consumption. They would also have the capacity to pay high rates of interest on such loans and still avoid an accumulation of their indebtedness.

In order to explain the high rates of interest in agrarian economies, Raj proceeded to prove why the large majority of small landholding households might not be able to secure loans at lower rates. He also brought the supply side of the market into the reckoning. On the supply side he identified two kinds of agencies: ‘agricultural’ moneylenders and traders. Both these categories are wont to supply credit largely from their own savings. However, the extent of their involvement in agricultural production would determine their scale of operations in lending. If this was low, then their involvement in lending would also be proportionately low. In such a situation, the households engaged in agriculture and in need of loans would have to turn to other sources such as ‘professional’ moneylenders in neighbouring urban areas. Since they have no direct link with agricultural activity they would attach a higher risk premium on the loans extended.

Raj thus posited that if agencies involved in lending in agrarian economies are given the alternative of holding commodity stocks (usually grains) to lending (i.e. to holding promissory notes), then ‘the rate of return realizable on commodity stocks is likely to have a significant influence on the rate of interest charged on loans’ (Raj, 1979 reproduced in Raj, 1990: 85). Raj observed that if the commodity stocks available for holding increase relative to their demand, then there could be a decline in the rate of interest both in commodity and money loans. But the extent of such a decline will not be dependent on the aggregate production surplus relative to aggregate consumption alone, but also on how the increase in income gets distributed across income-groups through changes in the elasticity of demand. The rate of return realizable on such stocks would vary depending on whether the increase in production and consumption took place in the upper or lower income groups.

In conclusion, Raj maintained that:

These are features of agrarian economies that have to be borne in mind when applying Keynesian economics (or any other kind of economic analysis) to them. How the markets are structured, which of them are the crucial ones, and how exactly they function and interact with each other, are likely to differ not only from one phase of historical evolution to another but even as between different regions in the agrarian economy. Further complications are introduced when (as is often the case) a small section of rural society dominates a number of factor and product markets simultaneously and these markets are linked by price as well as non-price links, since the differential positions of the participants in any particular market cannot be fitted into the conventional model of monopoly and monopsony and absorbed into the framework of general equilibrium analysis. While Keynesian economics, as also general equilibrium analysis, have some insights and clues to offer, their uncritical use without paying adequate attention to these vital features of agrarian economies is still unfortunately all too common today, concealing a great deal of superficiality behind a façade of theoretical elegance and sophistication. (Raj, 1990: 87)

Another major shift that we owe to Raj is his emphasis on the value of cattle as an asset in the agrarian economy; he sought to understand the rationale behind its size, composition and surplus, if any. When he wrote his first paper on ‘Investment in Livestock in Agrarian Economics: An Analysis of Some Issues Concerning Sacred Cows and Surplus Cattle’ (Raj, 1969),3 he was perhaps provoked by a suggestion of another well-known economist, V.M. Dandekar (1964), that it might be best to slaughter ‘surplus’ cattle and increase the fodder allowance for those remaining. Of course, this was not a new suggestion: an influential Ford Foundation team in its report on the food crisis in India in 1959 had observed that ‘at least 1/3, and possibly 1/2, of the Indian cattle population may be regarded as surplus in relation to feed supply’ (quoted in Raj, 1969). It was also argued at the time that the Hindu belief in the sacredness of the cow was one of the reasons for the often emaciated-looking ‘surplus cows’ that were to be seen wandering the streets in some parts of the country. As in the case of landholdings, Raj sought to understand the size and composition of the livestock sector in agrarian economies with the available data for India and found that they were consistent with the economic rationality associated with a large peasant economy. He observed that no dramatic changes could be expected in such a holding pattern unless effective substitutes were offered for the various goods and services the cattle provided, both directly and indirectly. In this connection his observation that ‘one must think not only of the milk and traction requirements which are now being met by cattle but the contribution they make to the fuel and fertilizer needs of millions of poor peasants’ (Raj, 1971b reproduced in Raj, 1990: 131) points to his concern for equity when technological solutions are sought and to the power of his systemic approach to the economy. The casual observation of surplus cattle, he averred, could be a pointer to the manner in which such cattle are disposed of.

His work in this area did indeed spur subsequent and detailed work but it also led to a political controversy that sought to disregard the economic logic underlying the cattle stock in various regions in India, some of which did not follow the religious taboo on eating of beef. His views found a favourable echo in the findings and interpretation of Marvin Harris (1966), a renowned cultural anthropologist whom he invited to the Centre for Development Studies, which resulted in further work in this area by some of his students and colleagues.4

LABOUR MARKET

While Raj could not complete his work on the functioning of labour and commodity markets, he made a seminal contribution to the understanding of the concepts of labour force, employment and unemployment in agrarian economies and showed their critical role in any project on planning for development. His contributions in this area started with his Cairo Lectures delivered at the National Bank of Egypt in Cairo in January 1956 (see Raj, 1957), where earlier lecturers had included Ragnar Nurkse, Arthur Lewis, F.A. Hayek, Doreen Warriner and Gunnar Myrdal. The central idea was that one cannot fully understand the concept of ‘labour force’ and, consequently, ‘employment’ and ‘unemployment’ potential without reference to the social organization in existence in agrarian economies. Raj sought a distinction between ‘manpower surplus’ and ‘unemployment’, where the former relates to potential surplus of labour while the latter relates to ‘the phenomenon of the supply of labour actually forthcoming being in excess of the demand within a given social framework’ (1957: 6). This idea was further developed in a subsequent paper (Raj, 1959b) suggesting that the problem could be looked at from the perspective of (a) individuals in a community, and (b) the community as a whole and over the longer period. While talking about women workers, he did not agree with the view that women of working age in households were outside the labour force, as he considered the household as a dominant production unit in an agrarian economy.

Raj's discussion on wage rates in the Cairo Lectures contributed to an understanding of the working of the labour markets in agrarian economies. He considered wage rates as a barometer of the changes in the labour markets. In the second lecture, he dealt with the ways by which surplus labour could be utilized. He made a distinction between ‘revolving employment’ and ‘sedimented employment’ to denote the primary increase in employment as a result of an increase in investment and the secondary increase arising out of the creation of the ‘sediment of the productive capital’ created.5 According to Raj, the saving potential lay not within surplus labour per se but with the classes to whom surpluses accrue from production. He noted that ‘when a large volume of open unemployment is found alongside low levels of productivity and income in the producer households, the answer that the existence of unutilized labour is itself evidence of a saving potential, which is available for being drawn upon, is hardly a correct appraisal of the problem, much less a basis for practical action’ (Raj, 1990: 183). He argued that:

The saving potential, in so far as it exists in underdeveloped economies, is not, in the main, either in the producing households which contain surplus labour or among those who have been displaced. It must be looked for primarily among those classes to which surpluses accrue from production by virtue of the ownership of property or by virtue of status. For not only can these surpluses be tapped without detriment to productive activity in these economies but the classes to which they accrue have incomes that are usually large enough to leave a saving residual after meeting their basic consumption needs. (ibid.)6

In his third Cairo lecture, he dealt with issues of technology and productivity and the conflict they were likely to generate between the objectives of more employment and higher productivity essentially involving a social time preference between growth now vs. growth later. He seemed to favour technical change because of its effects in increasing output but he also supported higher capital accumulation that in turn would contribute to more ‘revolving employment’ in the first instance and to more ‘sedimented employment’ later on. But this called for two necessary conditions: first, that the increased output become really available for sustaining a higher rate of accumulation; and secondly, that there exist, along with labour, sufficient complementary resources to facilitate the undertaking of large investments. Raj pointed out that non-fulfilment of either of these conditions would result in a failure to set in motion the process of growth which would then have re-absorbed the redundant labour.

As Krishnamurty (2007) noted, the subject of disguised unemployment was a hot topic of the day. Both the Nurksian and Lewisian ideas were being widely discussed in both development research and policy circles. Raj was drawing attention to the many difficulties in converting this ‘surplus labour’ into one that could support economic development:

Where this links up with formulations relating to ‘unlimited supply of labour’ is through Raj's rejection of the assumption that potential labour supply is all of one kind and that surplus labour in households can be simply aggregated with the openly unemployed. He did this by highlighting the underlying social and economic processes over time whereby surplus labour increasingly manifested itself in the form of labour available for employment. (Krishnamurty, 2007: 274)

POLICY ISSUES AND CONCERNS

However, Raj was not satisfied with merely analysing and understanding a given situation. He tried to argue for measures that would make a difference to the poor peasantry and landless labour that formed the overwhelming majority in rural India. While he agreed with the proposals for land distribution and consolidation of landholdings through a programme of public works followed by the development of a land market, as proposed by B.S. Minhas, he cautioned that it would not be that simple and neither would it be sufficient, because of the institutional context of Indian agriculture. The main reason, he said, was that ‘the choices open in the land, labour, commodity and capital markets are not independent of each other but very closely interdependent’ (Raj, 1975 reproduced in Raj, 1990: 30) suggesting the phenomenon of what came to be known as interlocking of factor markets.

He also disagreed with some others such as Dandekar and Rath who questioned the desirability of permitting the continuance of holdings below a minimum economically viable size. Raj observed that given the high proportion of rural landless, under-employed and those living at semi-starvation levels, ‘even a toe-hold of land means a great deal to those who are seriously handicapped because they have none, it seems to me that one needs to be more circumspect about taking up a rigid position on this question’ (ibid: 33). Raj's concern for equity, even while admitting the imperative for economic progress and development, was evident from this observation: ‘development’ for him meant the incorporation of equity as an integral concern.

But Raj was no romantic economist, for he was only too well aware of the kind of political economy that prevailed in India at that time which was loaded against the interests of the poor; that has now acquired a new and strident tone in the wake of neoliberal economic reform, with its obsession with maximization of aggregate growth per se. Indeed, Raj was so deeply pessimistic about the prospects of any meaningful land distribution that a longer quote is warranted:

The institutional impediments in the way are still so powerful that one has to be a very considerable optimist to believe that, without an almost revolutionary change in the balance of social and economic forces, any considerable progress can be made in this direction except perhaps by way of isolated demonstrations of what can be done under favourable circumstances. Viewed in this wider perspective, one needs to reflect over the question whether the case for redistribution of land, in a society in which the whole apparatus of exploitation is based on ownership of land, can be judged merely in terms of ‘economic viability’ however defined; mobilization of social and political forces on the basis of radically-conceived programmes of land redistribution is perhaps a necessary condition for the transformation of such societies, whether or not such programmes satisfy the requirements of economic viability. (Raj, 1990: 13)

Raj's interest in understanding agrarian economies was, in my opinion, based on his concern for Indian agriculture and its transformation. This led him to examine closely those policies that were advocated based on powerful ideas backed by international development agencies. One such is the notion that technological solutions can transform traditional agriculture à la Schultz if only such policies are vigorously pursued by governments. The arguments rested on the perceived growth in agriculture in some economies such as Mexico and Taiwan. Raj wished to scrutinize the factual basis of this hypothesis and its policy implications for, he observed, ‘if the facts and the hypothesis are correct one would be justified in assuming that the institutional framework of agrarian economies is not a serious obstacle to growth and that what is needed above all is concentration on specific questions relating to the mechanics of the technological change required in each and the supply of the necessary inputs’ (Raj, 1990: 1). He went on to examine the cases of Mexico, Taiwan and some states in India. He identified the specific conditions that gave rise to high growth rates in agriculture in these areas and also demonstrated, as in the case of Taiwan, the prior institutional changes that had taken place. A common feature to all these regions was the consideration accorded to irrigation facilities as a result of past investments and their extension during the periods of high growth. This would then call for the most efficient use of such resources which in turn should focus attention on institutional changes. Raj lamented the neglect of this aspect of the problem and argued that most policies were based on politically convenient technological solutions. But, he observed, most developing countries do not have such a choice and have to advance on both these fronts for their rapid economic development.

Right from the beginning of planning in India, Raj raised the issue of mobilizing resources by taxing agriculture, which of course was the dominant sector of the economy — but one with a highly skewed distribution of assets. In 1970 he accepted an invitation from the government to chair the National Commission on Agricultural Holdings Tax and subsequently submitted a report in 1971 (see Government of India, 1972). After considering various options such as the land revenue system-based taxation, the computation of income from agriculture for the payment of income tax and so on, he came down in favour of a system of identification of tracts of lands with similar agro-climatic characteristics and the assessment of income based on crop mix and potential productivity. Even while making his recommendations, he was aware of the political impediments in the way of implementing such a system given the political clout of the rich farmers. Later, reflecting on these recommendations, he regretted the government's inability to tax agriculture because he believed that such a measure was needed for widening the base of direct taxation in the country to realize the goals of planning, especially when it sought a mild form of redistribution. His position on taxing agriculture was influenced by his understanding of resource flows from agriculture to the process of industrialization in Japan following the Meiji restoration. In a joint paper with two of his younger colleagues (Mody et al., 1981) Raj identified two kinds of surpluses: the trade surplus and the savings surplus in the agricultural sector. The latter was due to the direct taxation of agriculture and remained positive throughout 1888–1937, sometimes reaching as high as one-fifth of the gross value added. This surplus played a large role in financing investments in the industrial sector in Japan. But for India he found no evidence of a similar contribution, for the reasons mentioned above.

Just as his position on agricultural taxation was a controversial one, many of his other contributions that had an immediate bearing on policies also evoked much debate and controversy. Apparently provoked by persistent arguments to open up Indian industry to the import of raw materials, components and so on, as well for external finance to increase its capacity utilization and enhance growth, Raj wrote an article (1976) on growth and stagnation in Indian industry from the mid-1950s to the mid-1970s. This stirred up a debate on the nature and causes of Indian industrial development centring on supply side and demand side arguments. While contesting the existing concepts and statistics for the measurement of unutilized capacity, Raj argued that even if such excess capacity existed, full capacity utilization would be difficult given the demand constraints operating in the Indian economy. An enquiry into the demand side of the problem would lead to the absence of a broad-based growth in agriculture which could have led to a demand for agro-based industries and manufactured goods. Industrial growth would then depend on luxury and semi-luxury goods demanded by the high-income groups in an echo of the Latin American experience. Subsequent events in the Indian economy resulting in the current pattern of growth in fact tend to confirm Raj's analysis and predictions. He foresaw the dependence on foreign demand, on luxury goods within the country and a pattern of industrial growth powered by foreign technology, capital and markets alongside a domestic market that mirrors demand in foreign markets. Such a process also fails to create jobs within the organized sector of manufacturing resulting in what many scholars have called ‘jobless growth’.

Many of Raj's writings had direct implications for public policy, be it his position on the devaluation of the Indian rupee in the mid-1960s (he took a position against it when the country was dependent on foreign aid, although he was not against exchange rate adjustment when needed), or the nationalization of banks for which he argued convincingly (although the measure was implemented at a politically convenient time). Earlier I referred to his contribution to the understanding of the concept of employment and unemployment and their measurement, which was later reflected in the Report of the Dantwala Committee (see Government of India, 1970), of which he was a member, and subsequently adopted by the National Sample Survey. Raj's commitment to ongoing economic development concerns and their policy implications led him to devote a substantial part of his working life to the research and articulation of those issues — perhaps at the expense of the long-term project of completing a book on growth and accumulation in agrarian economies mentioned above.

TO KERALA

In 1971 Raj decided to move away from Delhi where he had spent two decades and had reached the pinnacle of his career. Despite the pre-eminence of the Delhi School as a centre of excellence in economics, the proximity to political power and the ambience of academic excellence, he was rather disillusioned by his experience as the Vice Chancellor of Delhi University. His decision to move to Kerala was triggered by an invitation from the then Chief Minister of the state, C. Achutha Menon, a communist known for his humanist approach and development vision, to set up a centre of excellence in development studies. The result was the Centre for Development Studies in Trivandrum, the capital of Kerala. Raj experimented with his ideas right from the physical establishment of the Centre, when he secured the collaboration of Laurie Baker, a British-born architect who had settled in Kerala and who specialized in using locally available, less energy-intensive materials for construction, which was also compatible with the ecological setting of the place. Intellectually he actively sought an outlet for some of his ideas and he soon found this in the development experience of Kerala. He discerned, while working with his new team of researchers at the Centre, that Kerala had very high levels of literacy, commendable achievements in the field of health and had reached a phase of demographic transition that was nearly into its third and final stage. These were all elements of what later came to be known as human development, about which he wrote in the First Five Year Plan quoted earlier. But the most interesting finding was that all these were achieved with a very low level of per capita income.

The opportunity to put these findings together in an alternative perspective of development came through his membership in the Development Planning Committee of the United Nations chaired by the renowned economist Jan Tinbergen who, Raj often said, encouraged him to develop the Kerala experience as a case study. In a conversation that I had with him a couple of years ago, Raj told me how this idea germinated. While attending the meetings of the Development Planning Committee in New York, Professor Tinbergen and he used to spend the evenings and weekends walking together in the gardens, since they were not drawn to any of the major attractions that the city offered. During these walks, Tinbergen would share his thoughts regarding his search for alternative development experiences that incorporated redistributive policies to eliminate mass poverty in developing countries. Raj used these occasions to share his experiences and findings on Kerala's development experience which were emerging from ongoing research work at the CDS. Finally, the Development Planning Committee formally requested Raj to undertake a study of Kerala. Thus was born the landmark study Poverty, Unemployment and Development Policy: A Case Study with Reference to Kerala, published by the United Nations (CDS, 1975). This later came to be known as the ‘Kerala Model of Development’, although the study itself did not use such a term.

I think the objective of the study was not always understood in its proper spirit. Raj's idea was to demonstrate the possibility and the feasibility of human development (without of course using this now fashionable terminology) without waiting to attain high levels of income, because this in itself would lead to the next stage in development. He gave precedence to social change and the consequential changes in public policy. While doing so he had no qualms in tracing the roots of public policy to the benign policies of the erstwhile Princely State of Travancore. He also lauded the land reform measures and redistributive and progressive policies of successive governments in Kerala, especially in creating opportunities for education and health for the hitherto excluded as well as in tackling poverty through such public policies as the universal public distribution system. When he drafted the concluding chapter he wrote:

The fact that Kerala is a relatively poor state in India when judged by conventional norms such as per capita income; that the average per capita availability of food is lower in Kerala than in most parts of India; but that nevertheless it has been possible for the state to make fairly impressive advances in the spheres of health and education, and hence bring about improvements that have made a perceptible difference to the quality of life — as also to the acquisition of attitudes and skills that could help to accelerate development at the next stage— has certainly some lessons for similar societies seeking social and economic advance. (CDS, 1975: 153–4, emphasis added)

While some scholars and international development institutions used this ‘model’ as a low-cost route to development, others, especially those within Kerala, were critical of it on the grounds that it de-prioritized the ‘productive’ sectors of the economy. Such a view was reinforced when Kerala was found to be undergoing a rather long period of economic stagnation from the mid-1970s to the mid-1980s. However, subsequent developments vindicated this early emphasis on human development when the Kerala economy was seen to be moving towards a ‘virtuous cycle of growth’ with a long-term trend growth rate of around 6 per cent per annum (Kannan, 2007). What is interesting is the continuing progress evidenced in the state in terms of human development (CDS, 2006).

Over a period of time, Raj was instrumental in generating a wide range of research on the Kerala economy and society from a developmental perspective, be it in relation to health, education, nutrition, the status of women, agriculture or fisheries, turning the CDS into a repository of a large collection of studies on Kerala. A number of studies on other regional economies within India were also added as part of his emphasis on a broad-based interest in the larger matrix of a national economy of sub-continental proportions. He was very keen to emphasize the importance of studying economic history in order to understand the present and draw appropriate lessons from one's own as well as other countries. His legacy has continued (although it cannot be taken for granted).

One of the enduring themes that he promoted to the very end was that of decentralized development. The first Working Paper of the CDS, authored by him, was on ‘Planning from Below’ (Raj, 1971a); it was intended for a national debate, but he sought to get some of the ideas implemented by the state in Kerala so that it did not remain simply a debating theme. Although Kerala was a pioneer in proposing the Panchayat Raj system of governance during the first communist government in 1957, this was watered down because neither ideology nor local power politics favoured a decentralization of political power at that time. States like Maharashtra, Gujarat and Rajasthan implemented the system vigorously in the 1960s, only to reverse the changes later on. Another revival of the issue in the early 1980s saw states like Karnataka and West Bengal implementing the decentralization of governance although, once again, this was followed by a subsequent reversal.

In Kerala, Raj was instrumental in reviving the debate and I distinctly remember the meetings and seminars that he convened with active participation from the political leaders in the state who by then seemed to be warming up once again to the idea of decentralization. He had earlier advocated certain innovative organizational changes to get rural development work implemented, such as the formation of Labour-cum-Development Banks; this was tried on a pilot basis but did not take off. However, this idea is now gaining favour with the new system of decentralized development arising out of the 73rd and 74th amendments to the Indian Constitution, which mandate every state to have a third tier of local governments called Panchayats with the Village Panchayat as the primary unit. The current experience with decentralized development in Kerala seems more positive than ever before (with the devolution of functions, finance and functionaries), and calls for serious study by scholars for its very many innovative features in social organization when implementing development programmes and projects. The system is an evolving one; I remember Raj visiting a number of village Panchayats with great gusto and sharing his thoughts with many of us at CDS. He also presided over a programme of local level development at the CDS that produced a number of studies on the subject.

THE DISTINCTIVENESS OF K.N. RAJ

Raj's distinctiveness as a development economist was his critical use and his adaptation of western knowledge for the problems of developing Asian countries such as India. His sensitivity to political economy, history, sociology and ‘regionality’ in understanding development issues was evident in his writings and he encouraged his students to be similarly sensitive. Social structure and institutions were too important to him to be taken for granted. He was a keen student of Asian economic and social history, especially that of China and Japan, and sought to incorporate the insights he had gained when discussing development issues of India and even of other Asian countries. He was one of the first to embark on comparative research on economic development; his paper on ‘India, Pakistan and China: Economic Growth and Outlook’, delivered as a lecture in 1966, highlighted the usefulness and value of such comparative perspective well before it became fashionable in this part of the world (Raj, 1967b). He also followed the Chinese Plans and the performance of that economy (Raj, 1956c, 1967c, 1983).

His interest in observing and learning from the experience of other countries can also be seen in the background of his contributions to the international development scene. He was closely associated with the International Labour Organization in several capacities. As early as 1959, he was a member of the Group of Experts constituted by the International Labour Office that produced an influential report on ‘Employment Objectives in Economic Development’ (ILO, 1961). The recommendations of this report were instrumental to the adoption of ILO Convention No. 122 on Employment Policy (1964).7 He was also a member of the ILO mission on employment to Sri Lanka in 1971, and later worked as chief of its Asian Regional Team for Employment Promotion that brought into focus the Asian experience in labour-intensive development. Through his ten-year membership of the UN Development Planning Committee (1969–79), Raj also contributed to international development strategy in many ways, especially in relation to employment-oriented development and the elimination of mass poverty. Without going into the details of these contributions, one gets the impression of someone who was quite at ease thinking and researching at the global, national and local levels at the same time.

POLITICAL ECONOMY AND POLITICS OF DEVELOPMENT

Raj was a keen observer of the politics of economics for he was deeply aware of the political economy dimension of economic development of poor agrarian economies. His paper on ‘Nehru, the Congress and Class Conflict’, written in July 1964 — barely two months after Nehru's death — was an attempt to understand the nature of social and economic forces in India through the writings of Nehru. He pointed out that Nehru realized that the class basis of the Congress was petit bourgeois but there were on the other side ‘entrenched forces’ about which Nehru was suspicious. According to Raj:

The socialist programme which Nehru persuaded the Congress to accept was therefore calculated both to make the best use of such revolutionary zeal as could still be aroused in the class which in his opinion it represented most, and to prevent the possibility of the Congress going over to the side of the ‘entrenched forces’ before ‘other forces’ emerged in the country. (Raj, 1964 reproduced in Mody, 2006: 37)

Later, in 1973, Raj wrote about the petit bourgeoisie in some detail following the concept and the analysis of ‘Intermediate Regimes’ propounded by Michel Kalecki (Raj, 1973b). In India, he observed, the state is dominated by the intermediate class which is in turn dominated by ‘the lower middle class and the rich peasantry’. Any policy or programme to benefit the poorest sections (the rural proletariat, urban workers in small enterprises, etc.) will only succeed to the extent of their contribution to promote higher aggregate growth and ‘to the extent they stand to gain from such acceleration of development’. He was indirectly criticizing the Indian Left for their pro-middle class character, often pushing the intermediate class to support the interests of the rich peasantry and the upper-middle class in urban areas and not doing enough to secure the support from lower classes. Of course, such a criticism, even if indirect, invited sharp reactions from some politicians of the Left. However, the reality of the Indian Left's inability to mobilize and organize the poor peasants and rural proletarians along with the urban informal workers continues to be a formidable challenge, exactly as Raj had suggested.

He was equally critical of the ruling Congress Party in the early 1970s when it launched a programme of Garibi Hatao (Poverty Eradication) with an eye on retaining and enhancing the political appeal of the regime. In a paper written in 1977 (just before elections were declared which ended the short-lived suspension of civil liberties imposed in 1975) he wrote about a similar programme which had been authored by the 18th Brumaire Louis Bonaparte of France entitled L’Extinction de Pauperisme (Eradication of Poverty) while in prison in 1844, and used in his election for Presidency after the 1848 revolution. As Raj pointed out:

The scheme was of course totally ignored by Louis after he came to power. Instead he depended on public works programmes of the conventional kind (building railways, roads, boulevards, townships, etc.) newly created financial institutions to mobilise savings and channel them into investment…. And this strategy on the whole succeeded in launching France into a period of moderately effective (even though not very vigorous) capitalist development in the latter half of the 19th century. (Raj, 1977 reproduced in Mody, 2006: 235)

Raj was of course not only showing a historical parallel to the contemporary Indian situation — which he acknowledged differed very much from France in demographic and other dimensions. He was also being critical of such populist programmes which failed to focus on the fundamental structural and institutional problems especially facing rural India. But he went further, by exhorting the politicians who criticized the programme to go beyond it for a meaningful ‘transformation in power relations and in economic organisation in the countryside’.

Raj had many friends as well as foes within the ruling Congress; he also had a fair share of both in the left political spectrum especially in the Communist Party (later Parties). He had close personal friendships with many political personalities and yet he did not spare any when he thought certain policies inappropriate for the Indian situation. In a short but remarkably frank lecture in 1998, organized to commemorate the 150th anniversary of the Communist Manifesto, and later published under the title ‘Has Communism a Future?’, he made his position clear. He said that communism as it came to be known in the Soviet Union and China was essentially an ad hoc political and economic system in two countries that had remained backward in almost every field except the cultural. He said the opportunities provided by the Indian constitution enabled the Communist Party to come to power in a couple of states such as Kerala and West Bengal and that their effort should be to find ‘feasible solutions’ to resolve effectively the problems of extreme poverty and deprivation in the country, in the manner ‘we have done in Kerala’. He went on to state that ‘Communism is, in my view, a totally unrealisable and altogether too romantic an ideal’. (Raj, 1998: 76). Raj was also critical of capitalism and more specifically of global capitalism, especially if it was dominated by one power. He seemed to be constantly searching for a middle path, for, as he said ‘capitalism has within it much to offer that we would all welcome, particularly if tempered by some notions associated now with political liberalism and socialism’ (ibid.). One might wonder whether such a perfect mixture is not as elusive as the ideal of communism.

Raj was an agnostic and he seemed to be leaning on Buddha whom he quoted at the end of his lecture. This sums up, in my view, his approach to life and knowledge:

Believe nothing

Merely because thou have been told it

Or because it is traditional

Or because you yourself have imagined it

Do not believe what your teacher

Teaches you merely out of respect for the teacher

But whatever after due examination, and analysis

You find it conducive to the good,

The benefit,

The well being of all things,

That doctrine believe and cling to and take it as your guide.

(Buddha, sixth century BC).

When K.N. Raj passed away on 10 February 2010, his mortal remains were cremated without religious rites of any kind.

Footnotes

  • 1

    Some that I have seen are: Bardhan (2010), Beteille (2010), Jose (2010), Krishnamurty (2010), Krishnaswamy (2010), Kurien (2010), Omkarnath (2010), Patnaik (2010), Reddy (2010) and Vaidyanathan (2010). See also Kannan (2010).

  • 2

    Reproduced in Raj (1990) under the title ‘Credit and Interest Rates in the Rural Sector in India’. In a footnote to this title, Raj states that ‘the greater part of this paper was written in the first quarter of 1968 and copies were circulated in mimeographed form’.

  • 3

    Reproduced in Raj (1990). The footnote to the title says that ‘this paper was presented first at a Graduate Economic Association Seminar at the Massachusetts Institute of Technology on 14 December 1967’.

  • 4

    An account of Raj's contributions in the context of the larger controversy on this subject along with the subsequent work carried out at the CDS is given in Nair (2007).

  • 5

    These are akin to the concepts of ‘primary’ and ‘secondary’ employment that Joan Robinson talked about (see, e.g. Robinson, 1937). Raj had been greatly influenced by Joan Robinson's ideas and thinking ever since he met her as a student in Cambridge, where the London School of Economics was shifted during the years of the Second World War. This relationship continued till Joan's death in 1981. When the Centre for Development Studies was established in 1971 she was a regular visitor every December. As a young researcher, I was one of those who enjoyed her kindness and consideration when she listened to our research work, tolerated our simple-minded questions when she gave lectures, read some of the drafts of our papers and gave her comments, and often took us with her during her ‘short walks’ in the weekends — which lasted some five to six hours! I was indeed overawed by these kind gestures from a colossus among economists.

  • 6

    The page number here refers to the second of the three lectures, reproduced in Raj, 1990: 178–90.

  • 7

    I am grateful to Gerry Rodgers for drawing my attention to this.

K.P. Kannan is Professor (and former Director) at the Centre for Development Studies, Thiruvananthapuram, Kerala State, India (e-mail: kannankp123@gmail.com). During 2005–09 he was a Member of the National Commission for Enterprises in the Unorganized Sector constituted by the Government of India that submitted a series of reports culminating in a final report, The Challenge of Employment in India: An Informal Economy Perspective (Academic Foundation, New Delhi, 2009). His areas of interest include labour and development, poverty and human development, informal economy and Kerala's development experience. He has authored, co-authored and edited nine books and published many papers in his areas of interest.

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