ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

A+| A| A-

Trajectory of a Life in Political Economy

Windows of Opportunity: Memoirs of an Economic Adviser by K S Krishnaswamy; Orient BlackSwan in Association with Sameeksha Trust, Hyderabad, 2010; pp 190, Rs 440.

Trajectory of a Life in Political Economy

Deena Khatkhate

ay back in 1947 when Indians of all hues were stirred with the momentous event of independence, a new crop of economists was rising on the horizon of the Bombay University. An era of descriptive, though useful, narrative of the institutional context of economic events, and their cataloguing and chronicling as they impacted on Indian society was coming to an end and the young economists were on the hunt for new methods of learning economics, both micro and macro, in mathematical language.

Young K S Krishnaswamy was a leading light of that generation. Hardly out of his teens, he was taken by C N Vakil, his research guide, as an executive assistant when he joined as an economic adviser to the late Ardeshir Dalal, a member of the viceroy’s executive council. The choice of KSK, as he was popularly known, created a halo around him amongst the students and teachers not only in the Bombay School of Economics but also elsewhere in other uni versities. On his return from London, he briefly taught the postgraduate class in economics at the School where I was a student. I wrote later about what his students felt about KSK’s charismatic personality (Khatkhate 1992).

Young K S Krishnaswamy, first as a researcher and then as a teacher, thrilled his students with his esoteric flights along the slippery indifference curves of Hicks and theories of Oskar Lange. Being a high-flyer who could talk about economics in a mathematical language to students who were fashioned by a curriculum which treated mathematics as an alternative to logic, he had a mystique about him. His limpid prose, easy delivery and captivating style of presenting the intricate and abstract theory of value made him the darling of his students who were in search of a hero. But all this came to an abrupt end with KSK’s departure for England to pursue his research in economic theory at the London School of Economics.

KSK’s aura as a scholar and intellectual did not emanate merely from his academic qualifications; it was a reflection of his

review article

Windows of Opportunity: Memoirs of an Economic Adviser by K S Krishnaswamy; Orient BlackSwan in Association with Sameeksha Trust, Hyderabad, 2010; pp 190, Rs 440.

deep study of modern developments in economic theory. Keynesian economics was just making its presence felt in the I ndian academia. But students as well as economists and economic policymakers in the country, except for B P Adarkar, J K Mehta, A K Dasgupta and few others, had not yet grasped the revolutionary i mport of the General Theory and its significance for the Indian economy. It was J J Anjaria, KSK’s contemporary in the Bombay School of Economics who wrote a seminal article in 1947 titled “Limits of Full Employment”.

Using Oskar Lange

In the same volume was an equally original and thought-provoking article by KSK, inspired by Oskar Lange, a great Polish economist but little known in India. At a time when ideas about planning were hazy and undefined, KSK teased out the essence of planning from Lange’s Price Flexibility and Employment which had important implications for planning even in a poorly industrialised country like India. Lange’s argument was, KSK valorised, “The price of a good is said to be flexible if it falls whenever there is excess supply and rises whenever there is excess demand for the good” and then he showed by impeccable logic why this idea found favour with both planners and anti-planners.

KSK’s pithy comment was

Anti-planners argue that governmental

intervention makes for rigidity and there

fore is reprehensive. Planners argue that

since perfect competition is impossible, any

policy which aims at removing all rigidity

is doomed to fail – hence the alternative of

planning with more or less of price regulation

(Krishnaswamy 1947).

In a way this discourse on Lange’s work by KSK made him a strong advocate for planning to which he devoted a major part of his professional life.

In consonance with his disposition for theoretical research, he had chosen a highly abstruse but important topic for his PhD dissertation, “Variation in Relative Shares of Productive Factors in National Income”, which strikingly contrasted with the more common and well-entrenched theory of constant factorial shares in output. However, before he could complete his thesis, he was awarded a prestigious scholarship to advanced research in the United Kingdom (UK), mainly on the basis of his expertise and his stint at the viceroy’s executive council. At the London School of Economics (LSE), he completed his work under Phelps Brown on the same topic he was working on in the Bombay School. His thesis was approved by G L Shackle, the high priest of theory. The novelty of his thesis was in showing that the relative shares of the factors of production in national income vary and that finding struck at the fundamental Marxian dogma. Considering that he received plaudits for his thesis from an economist like William Baumol, author of Economic Dynamics, it remained an enigma for his numerous admirers why he never published his thesis or even an article based on it in a leading academic journal, thus shuttering one of the windows of opportunity in his life.

With these impressive credentials, KSK returned to India to join the newly set-up Planning Commission which marked the beginning of his long and chequered professional career. He later first gravitated to the Reserve Bank of India (RBI) as a researcher. Thereafter there had been a frequent toing and froing between the World Bank, RBI and the Planning Commission, every time moving up the ladder in the bureaucratic hierarchy with ever expanding responsibilities. All this has been impressively captured in his memoirs.

Economic & Political Weekly

july 24, 2010 vol xlv no 30


He has preferred to weave the main threads of his experience in planning at the Planning Commission, monetary management and policy at the RBI and a semiacademic training programme at the World Bank into an alluring mosaic. In the process, it has become more of a biography of vicissitudes in planning philosophy and ideas, his own perspective on monetary policy and his life’s belief system. At a subterfuge level, his memoirs are a balance sheet of his virtues and failings, exhilaration and resentment, achievements and unfulfilled dreams, friendship and clandestine hostility.

Fifth Memoir

By a somewhat curious coincidence, KSK is the fifth economist in the research department of the RBI to come out with his memoirs. (The others before him who have written their memoirs are M Narasimham, V G Pendharkar, S L N Simha and V V Bhatt.) KSK’s memoirs, rather uniquely, are a medium to convey the radical changes in his ideological stance on planning and monetary policy living up to the famous dictum of Keynes that “One changes his views when facts before him change”. This makes KSK’s memoirs panoramic and relevant even in contemporary India where the battles on planning versus free market economy are still ferociously fought in academic corridors.

When KSK joined the Planning Commission as a senior economist on his return from the UK, he found his niche consistent with his predilection in favour of democratic socialism. He was excited to be at the right place and at the right time where he could translate his insights into economic theory into applications to solve the problems of the real world. But the first major obstacle was the absence of a database, which could indicate the magnitude of plan and its structure. National income statistics were rudimentary and there was no way of knowing the size of resources necessary to finance the projected investment. The commission therefore proceeded with imaginary figures by a ssuming that

domestic savings could not be more than 5% of national income estimates which were obviously subject to errors of unknown magnitude. This was not a level of savings which would permit the aggregate investment required for all-round development of the kind the country desired (p 40).

The exasperation and frustration of A njaria, KSK and his fellow planner, K N Raj, are reflected in KSK’s rather cynical remark,

within the Planning Commission, we often felt as if we were part of a debating society where persons of enormous power and responsibility discussed issues of political economy, technological and social change, economic possibilities and limitations, indeed a myriad of topics of both practical and intellectual import (p 41).

The final document of the First Five-Year Plan, 1951-52–1955-56 issued with fanfare was thus a metaphor for a jejune budgetary exercise with guesstimates galore. Since the size of the plan was relatively small, not involving any large-scale draft on consumption to raise resources to finance the modest planned investment, the political class could pat its back for successfully meeting the planned targets.

Soon after, in 1952, KSK left the Planning Commission to join the research department of the RBI, with a full grasp of the hiatus between the airy-fairy theoretical tenets and their unpredictable practical ramifications for policy formulation. He philosophically ruminates,

After having spent many years in academic pursuit of obtuse questions of economic analysis, the year or more I spent with the Planning Commission helped me appreciate the need for quantification and executability of logically valid propositions. When in January, I moved to the RBI in Bombay, my strengths and limitations were much clearer to me than earlier (p 43).

Romance with Planning

But KSK’s romance with the Planning Commission and his fascination for planning as an instrument of development continued and he returned to the commission in his new “avtar” in 1961 as the head of a new division on economic policy and growth. By then, the Second Five-Year Plan had completed its time span, traversing a bumpy road with half-achieved t argets. The strategy that underlined the Second Plan was more thoughtfully worked out with the active participation of P C Mahalanobis as the guardian angel. His new strategy of a physical plan was a

july 24, 2010

stylised version of the Soviet model implemented in the 1920s, which emphasised a high level of investment in the capital goods sector with its high capital intensity. The time lag between the initial investment in capital goods and the ultimate production of consumption goods would of course create inflationary pressure, as money income generated could not be matched by the equivalent rise in real income. To overcome that, the Second Plan envisaged the production of consumption goods – wage goods – through quickyielding small-scale industries. However, that strategy was unravelled by the lack of a rise in domestic savings, leading thereby to the balance of payments crisis. India thus became a supplicant with a begging bowl for foreign aid from the rich countries and the multilateral lending institutions. Much of the labour of the Planning Commission and the finance ministry was expended on negotiating for foreign assistance.

It was during those perilous times that the Third Five-Year Plan strategy was evolved and KSK had to play a crucial role in the planning process. Instead of getting wiser from the danger signals given by the severe problems faced in implementing the Second Plan, the commission followed more of the same policy. Soon their task was complicated by the border conflict with China, resulting in a humiliating defeat of the Indian army, which called for a quantum jump in defence expenditure. But Nehru, the dreamy socialist that he was, remained stubbornly addicted to a larger size of the Third Five-Year Plan on the plea that “the government promised many other freedoms from poverty, disease and ignorance – and shortages of roads, houses, electricity, etc” (p 83). This prompted Nehru to coin a quixotic slogan “Let us go for defence with development”.

One can understand Nehru indulging himself with such slogans but the economist experts at the Planning Commission were too timorous to tell him upfront that the size of the pie being limited, the commission could do so only by causing greater damage to people’s aspirations. KSK mentions in his narrative that some members of the Planning Commission like V K R V Rao were not enthusiastic about the “Big Push” strategy. The inevitable consequence was

vol xlv no 30


that the Third Plan became unsustainable without more foreign aid, which the government started negotiating with the World Bank and other foreign d onors. The donors knew full well that unless there was a radical change in economic policy, nothing would change in India and they insisted that a beginning should be made by a drastic devaluation of the Indian rupee and liberalisation of the “Licence Raj” regime.

On Devaluation

KSK refers to his involvement along with the vice-chairman of the Planning Commission in negotiations with the World Bank, but suggests that he was not in f avour of devaluation in 1966, without specifying any alternative course of action. In retrospect, devaluation at that critical juncture was the right policy, though its timing and mode were wrong. Indian planners for long worked on the assumption of constant prices, which was seemingly absurd when India’s exports were stagnant or declining. Reliance on imports was critical and their prices were variable. Had India agreed to devalue, but after the monsoon season had ended with crop prospects becoming clearer, and had it pursued a dual exchange rate policy first articulated by Nicholas Kaldor under which the essential imports would have been available at the overvalued exchange rate and other imports at a devalued floating rate, the country would have surmounted the economic crisis in 1966.

KSK being a insider gives a cogent and lucid account of the higgledy-piggledy g yrations in the Indian economy with his usual command of logic and clarity and in the process does not shirk from mending his thinking when necessary. His “Final Word” in the book reflects this change where he states that,

Other hotly debated issues were regarding import substitution versus export promotion and the barrage of controls and regulations on private enterprise. It was during Indira Gandhi’s r egime in the 1970s that controls became rampant. Since then, many of them have been eased or removed altogether with the 1991 reforms and globalisation of Indian trade and industries. As a result, there has been a significant growth of exports as well as a sizeable accumulation of foreign reserves (p 147).

That KSK was not a diehard believer in dogma, unaware of the pathologies of the interventionist regime is denoted by his beautifully worded epigrammatic expression in the Preamble that “Though as T S Eliot says, time past and time future are both in time present, it seems clear that time past does not wholly determine time present” (p 2).

At the RBI

KSK’s long encounter with the RBI poses a counterpoint to his experience at the Planning Commission. The traipse from planning to monetary policy and management is often problematic as an economist faces bipolarity in decision-making. He has to deal with “quantity signals” endemic in planning and with “price signals” in designing monetary policy. However, KSK’s task was smoothened by his experience at the Planning Commission. When he and his colleagues faced the problem of a shortage of savings, they thought of the budgetary deficit which oddly was equated with a “resource”! But it was soon realised that deficit financing far from being a manna from heaven was a mechanism of money creation with inflationary consequences – it was not known then that there was something like a non-inflationary level of deficit financing until KSK’s junior colleagues in the RBI conceptualised it in the early 1960s.

A reckoning of the flip side of deficit financing placed him on a familiar ground during his early years in the RBI where he moved in 1952. He together with another brilliant economist, V K Ramaswami, were asked to work on the “detailed exploration of (the) likely effects of budget deficits on the money supply and related aspects” (p 48). His work in this area was something new to the research department, which was putting out only the tautological balance sheet-based analysis of money supply variations for policy design, though there was an absence of clarity about money multiplier and the behavioural aspects of m onetary ratios which determine what monetary instruments need to be used in a given situation (account of this in Bhatt 2008).

Another very important role KSK along with Ramaswami played was in regard to designing a new format of the RBI’s annual report presented to its board which until then was a “a look back, go forward” kind of document. KSK thought of modifying it to make it an assessment of the overall economic situation in the country foregrounded in economic theory from the perspective of the RBI. His report so fashioned made such a hit that Governor Rama Rau promoted him in 1955 over the heads of many other claimants.

An equally pioneering task assigned to KSK, leaving permanent footprints in RBI history, concerned the private-public sector partnership under a semi-planned economy with consequences for the role of the financial system. The main problem was “how bank finance on a large scale could be made available to the private sector for both fixed and working capital purposes” (p 54). On the committee to pursue this mission, known as the Shroff Committee, named after its chairman A D Shroff, KSK worked as one of the two joint secretaries. It was no secret that KSK was the real brain behind this report, though he is modest enough not to use it as an outlet for “bragging rights”. As a consequence of the implementation of its recommendations, the I ndustrial Credit and Investment Corporation of India (ICICI) was born.

Second Coming to RBI

His second coming in 1972 to the RBI, this time as a principal adviser after an interlude during which he headed the World Bank’s Economic Development Institute was more challenging. It was one of the most turbulent periods in India’s economic history. The lawless regime of Indira Gandhi replete with an army of “turncoats” among politicians and bureaucrats having a field day was in full array. As someone with deep insights into how Indian government works wrote, “The Indian government has been a kleptocracy

available at

Variety Book House

35, Bhad Bhada Road, T. T. Nagar Bhopal - 482003, Madhya Pradesh. Ph: 2556022, 2554057

Economic & Political Weekly

july 24, 2010 vol xlv no 30


– a government of patronage, and spoils – and has been made subject to largesse. The game of snakes and ladders which those around play with such ferocity... such flair was not the game for decent people” (Desai 1993: 3-4). Nationalisation of the banks made the RBI a handmaiden of the government and, even worse, the setting up of the banking department for the ostensible purpose of guiding the operations of the public sector banks forced the RBI to be a helpless bystander. The government and its henchmen interfered even in determining the credit flows, cost of credit and its allocation when bank credit started gushing forth like the Niagara Falls with serious price disturbances, threatening the stability of the economic system.

The RBI’s arm was twisted to redirect credit flows on the pretext of reducing the volume of money supply through raising the net-liquid assets and cash-reserve ratios. But it was only an alibi for redirecting credit to the government from the private sector without reducing its volume. As if this was not enough, the prime minister and her minions tried to employ tactics and strategies for channelising bank loans to the political super-class even without the knowledge of the RBI.

KSK, being the major monetary policy wonk advising the governor on monetary management, often despaired, “Every time we put up a memorandum”, he wrote on the file, “regarding opening of foreign branches by Indian banks or of Indian branches of foreign banks, we are merely asking the Central Board to endorse the government. This is not right for either the RBI or the government” (Reserve Bank History, Vol III, 2005: 325). Even with this unsavoury experience, KSK, perhaps still under the spell of the ideology of planning, noted on the file,

Clearly after nationalisation, it (RBI) has willy-nilly been subjected to political influences of various kinds and this is a situation that we have to accept because I do not think that it is correct for anybody to imagine that in a modern society, he can live outside politics. It would be wrong for us to argue or behave as if we can live outside of politics (Reserve Bank History, Vol III, 2003: 393-94).

KSK in a way did not appear to put a premium on the RBI’s independence within. However, as a transparently honest intellectual that he was, he changed his belief system retrospectively. His policy schizophrenia ended, however, towards the end of his career when he was convinced that planning and the RBI independence was of paramount importance. In his article published in Commerce, which is reproduced as Appendix III in his memoirs, he ruefully introspects that with nationalisation

A phase of ‘dyarchy’ commenced, accelerating the process of the politicisation and emasculation of the Bank in succeeding years... the Emergency settled once and for all the issue in favour of the government, by force majeure. No doubt was left about who was master, and the long process of requiring the Reserve Bank to seek formally or informally the ‘approval’ of the Government of India on matters of banking administration and




july 24, 2010 vol xlv no 30


policy, including internal administration, was complete (pp 185-86; see also on this controversial issue of independence of the RBI, Chandavarkar 1996: 240).

Bypassed for Governor

The government’s interference did not remain confined only to the policy domain but had a painful impact on the pride and honour of KSK. When a “seat-warming” temporary vacancy of the RBI governor

o ccurred, pending the delayed arrival of I G Patel, the government at the centre a fter the end of Emergency in early 1977, instead of appointing the senior-most deputy governors to hold that position as was the prevailing convention, brought in a secretary, M Narasimham, from the ministry of finance, though KSK had a legitimate claim on it. KSK, known for his quiet demeanour who always pulled his punches, reacted to this painful episode in his life in a manner uncharacteristic of him. He writes in his memoirs, “Narasimham’s attitude towards me had always been one of subdued hostility – and may be that he got the job because of his wangling” (pp 123-24). Rather a strong expression! Perhaps, KSK’s somewhat unusual declamation was because he was offended by Narasimham’s insinuations in his own memoirs. Narasimham wrote there:

To the query of H M Patel (then fi nance minister) as to who was the senior-most deputy governor, I indicated that it was Dr Hazari but his name was immediately rejected by Patel as he was perceived to be close to the previous government. Nor were the other two deputy governors at that time considered on grounds of suitability and seniority. One of them was rejected on grounds of lack of executive experience and the other’s stature was not considered suitable – that in any case I had superseded these officers in the Reserve Bank as early as 1967 when I was appointed head of a department when they were not (Narasimham 2002: 95-96).

These are patently egregious misstatements. KSK was undoubtedly one of the top economists by any criterion – high academic reputation, executive experience and policy involvement in planning, monetary policy and industrial finance. As regards seniority, KSK was the seniormost as well.1

Human that KSK is, one can understand his rather exceptional departure from

restraint in his strictures. KSK felt as he unpleasant trait of “One-Upmanship”
records in his memoirs that he should even when he disagreed with his col
have resigned from the RBI. If he had leagues or superiors. He scrupulously
done so he would have followed the avoided ad hominem in his interlocution
exemplary p recedent set by governor with friends and non-friends alike. He,
B Rama Rau who put in his papers when like his illustrious contemporary econo
an imperious T T Krishnamachari fulmi mist I G Patel, perfectly matched the pro
nated publicly against him for internal file of an economist by Robert Solow that
policy disagreement, throwing all deco the economist should not intertwine ide
rum to the winds. But to the dismay of his as with egos and should not let down the
friends, KSK funked. It is a writ, though team he works with. At the same time,
rarely followed that there arise some KSK has been frank enough to mention at
moments in the roller-coaster of human several places in his memoirs where he
life when one cannot succeed unless one fell short of the standards he set for him
is prepared to lose. self. He lives up to his guiding creed
KSK had many colleagues in the RBI like learnt from Joseph Campbell which he
Dharma Kumar, a bright and highly gift cites at the beginning of the Preamble
ed economist who respected and admired that “All you have are significant remains
him. Dharma Kumar was one of KSK’s of one kind or another. You can extrapo
seniors in the research department whom late backward, but it is dangerous.” If a
KSK s uperseded in 1955. When someone memoirist elides solipsism from his nar
among her colleagues asked her about her rative as KSK so admirably does, memoirs
r eaction, she said charmingly that with can be a “Possible Art”.
KSK’s elevation merit scored over a
chrono logical order. How nice could it Deena Khatkhate (
have been if KSK had referred in his worked in the Reserve Bank of India and then
memoirs to this splendid gesture of one of in the International Monetary Fund.
his admiring colleagues.
Memoirs as Art [The author is grateful to Anand Chandavarkar for his
I wrote some time back in a review of memoirs by one economist, where I comments and suggestions on the earlier draft of this article, adding the usual disclaimer that views expressed or the errors, if any, are all his.]
d efined the autobiography 1 Narasimham mentions that he superseded him
as an impossible art in which the ‘auto’ in 1967 when he held a position of secretary to the Reserve Bank Board. But at that time KSK was di
invariably dominates a narrative to the exclusion of ‘biography’ which encapsulates the surrounding environment – social, rector of the World Bank’s Economic Development Institute and not in the RBI. In fact, it was Narasimham who was superseded by KSK in 1955 when he was appointed a deputy director in the
political, sociological and intellectual. A research department for his signal performance.
memorialist often tends to be a fabulist by
situating herself at the centre of the uni- References
verse rather than contextualising her per- Anjaria, J J (1947): “Limits of Full Employment” in
sonality. The yarns spun out in the general run of autobiographies are no more than grandma’s beguiling tales of family to her grandchildren or worse, smack of curri- C N Vakil (ed.), S ilver Jubilee Memorial Volume, School of Economics and Sociology, University of Bombay. Bhatt, V V (2008): Perspectives on Development: Memoirs of a Development Economist (New Delhi:
culum vitae of job aspirants embellished with a phony halo (Khatkhate 2005). A cademic Foundation). Chandavarkar, Anand (1996): Central Banking in Developing Countries (London: Macmillan).
It redounds to the credit of KSK that he Desai, A V (1993): My Economic Affairs (New Delhi: Wiley Eastern).
has disproved this caricature of memoirs. His is an intellectual history of ideas in Khatkhate, D (1992): “D T Lakdawala: Man’s Truest Monument” in Economic Political Weekly, 11 July. – (2005): “Memoirs as a Medium and Not the
planning, money and finance in post-inde- M essage”, Economic Political Weekly, 27 August.
pendence India and not of his persona. Krishnaswamy, K S (1947): “Price Flexibility and E mployment” in C N Vakil (ed.), Silver Jubilee Me-
Whatever he achieved in his life was on morial Volume, School of Economics and Socio
his own capabilities without any dynastic connections or hobnobbing with political logy, University of Bombay. Narasimham, M (2002): From Reserve Bank of India to Finance Ministry and Beyond: Some Reminiscences
nabobs. He always posited himself as one among equals and rarely displayed the (New Delhi: UBS Publishers) . Reserve Bank of India (2005): Vol III, published by the Reserve Bank of India, Mumbai.

Economic Political Weekly

july 24, 2010 vol xlv no 30

Dear Reader,

To continue reading, become a subscriber.

Explore our attractive subscription offers.

Click here


To gain instant access to this article (download).

Pay INR 50.00

(Readers in India)

Pay $ 6.00

(Readers outside India)

Back to Top