B. Chandrasekaran, a regular contributor to Pragati — The Indian National Interest Review, details the life of the great Indian economist B R Shenoy, who in the words of the Milton Friedman was a ‘prophet without honour in his own country’. The article was published by the Ludwig Von Mises Institute in its Mises Daily, below is the excerpt:
In July 2011, India will celebrate the completion of 20 years of the economic reforms initiated in the 1990s. In the early decades of independent India’s command-and-control economy, Shenoy vehemently questioned the ideology of India’s centralized planning and argued for fundamental changes in economic policy on the premise of deregulation and a market-determined price system.
Shenoy advocated sound economic policies based on a free-market system decades before the economic crisis of 1991. Alas, his voice was ignored. His contemporaries had blind faith in centralized planning of private enterprises. These policies were responsible for creating crises in India’s foreign exchanges in the 1990s.
Indeed, Shenoy and Professor Peter Bauer “are the only economists who opposed the ‘deficit financing’ carried out to fund Nehru’s ambitious Second Five Year Plan.” Shenoy’s warnings were prophetic: only a year later, “India faced a serious balance of payments problem in 1957, just as Shenoy had predicted.” The government of India invited Shenoy as a member of the Panel of Economists for advising the Nehru government in 1956. When other panel members proposed deficient finance, Shenoy wrote his famous “Dissent Note” on the Second Five Year Plan (1956-1961). He said, “I am unable to subscribe wholly to the views of my colleagues on…deficit financing as a means of raising real resources for the Plan.” Unsustainably high levels of deficit financing continued for many years, eventually creating the catastrophe in 1991, thus forcing the government to take the free-market measures advocated by Shenoy.
Shenoy wrote voluminous articles and books defending free-market economics and integration with the world economy. Indeed, India’s current initiatives of economic reform are nothing but what Shenoy had recommended for decades!
Delhi-based B. Chandrasekaran blogs at Hayek Order.