IN REQUIEM for Foreign Aid to India- Dr Mankad

I died this morning, on 9 th February, 2007, at 7.37 a.m., to be exact. A Times of India headline killed me. “India doesn't need aid any more: US” it said. “As Economy Booms, Decades of Assistance Ends”, the sub headline screamed.

The headlines sounded a death knell for foreign aid; announced an end of an era and in a queer way an end of I; at least an end of one of ‘I's, that I tied to foreign aid, 44 years back. As a student, the subject I registered for my Ph.D. was, “External Capital Inflows in India's Economic Development: for the years 1951-52 to 1966-67”. It was all about foreign aid and India's development efforts. Eight years of labour, scores of books and hundreds of articles read, 65 forty page note books of notes and references, hundreds of foolscap pages of drafts, rewrites, more drafts and the final draft, hours, days, months and years in Sydenham College library, in University of Bombay library, hundreds of cups of tea, a trip to New Delhi meeting babus in Ministry of Finance and in Yojna Bhuvan, over 175 statistical tables, hours of data churning, scores of seemingly endless nights with a typist, five copies – an original and four carbon copies; last hardly readable - of a two-volume, 600 page thesis, nearly two years' wait for the result after submission and momentary exhilaration on receipt of the letter from the University of Bombay that the thesis was accepted for the award of Ph.D. degree. All these and more relived and died with me in those few seconds I spent on reading the headline this morning.

Even while the 43 year old I died, the 66 year old I lives the day with unbounded memories of the 1960s and early 1970s. How many ‘I's are there around the I, I wonder. May be there are a hundred or more. May be, one of these days, I will identify and meet each one of them.

Presently let me stay with and feel with I - the Ph.D. student.

The study of foreign aid in 1960s, was depressive. It was hopeless. India was borrowing left, right and center. India borrowed to repay the dues on earlier borrowing. Balance of Payments support loans, these were called. Donor countries even put together a ‘Club', an ‘Aid India Club' that would meet regularly in Paris to decide who will give what, how much and when to India. With passage of time, India learnt the ropes and transformed the otherwise humiliating act of asking for support to an art; with panache and finesse. Finance Ministers and the Sovereign Indian Parliament let the ‘Club' whet or make the first draft of our annual budget.

The war with China, in October 1962, energized and enthused the western world. Now it was the question of backing a ‘democratic' India against a ‘Communist' China. The race was on. After forty five years, the race continues. May be it has taken a different form. The backers of 60s, who provided the steroid shots to India, are today applauding India's speed and strength. Perhaps they are also worried. How long will it be before these backers become hackers?

How different was that world of 1960s! The Cold War was at its height. The arms race and the space race between the super powers was defining agenda for development for them and influencing the agenda for development of the underdeveloped countries, India and China included. [Politically correct term ‘third world countries' was a couple of decades away.] President Kennedy's assertion that aid to underdeveloped countries was in ‘enlightened self interest' of the US, was fuelling the PL 480 ships. While the giants were testing their muscle power in Vietnam, they were testing the economic influence of their respective ideology in India. US was helping build power plants, spruce up roads and railways and prevent the collapse of food short Indian rationing system, Soviet Union was helping India build steel mills and oil refineries.

Both were helping India build armament.

Intellectuals were expressing concerns about development. Ex-Defense Secretary of US, as a Chief of the World Bank, McNamara was pushing for more aid for development. One time Canadian Prime Minister Pearson in his World Bank sponsored study was recommending that the developed world set aside 1 % of their GDP for aid for development. [The target was never reached.] The Club of Rome was drawing the dismal picture of “Limits to Growth” and Doomsdays Sayers all over the world were joining the cacophony.

India's political reaction to foreign aid was understandably, partisan. Right was riding the US bandwagon. (“I am CIA” proclaimed Mr. Piloo Mody in Indian Parliament.) Left was singing the hymns for Soviet help in helping India create ‘real assets'. Indian leaders never tired of grabbing the opportunities for photo shoots with American bigwigs and their Russian counterparts, with White House, Kremlin or Rashtrapati Bhavan as the backdrop. India was high on foreign aid.

Like all addictions, foreign aid had its own after effects. In theory, to please the left and its split masters, and garner votes at hustling, India championed the cause of socialism and expansion of the monolith, inefficient, jobs creating state sector industrial and service units. The then government went on a spree of nationalization. In practice, with very high direct taxation, uncontrolled budget deficits and inflation, proliferated bureaucracy, India wove in the national fabric, black threads of corruption, which still give the dominant colour and depth to her society, her economy and her polity. If India is ‘shining' or ‘poised', does it matter that as a country, we rank 72 nd out of 91 so ranked, by Transparency International in diminishing order of integrity and honour?

From Keynes to Kaldor, from Nurkse to Rostow, from Mahalanobis to Asoka Mehta, From Krishna Raj to Brahmanad, from Gokhle to Gadgil, economists and their thoughts became the ‘flavour of the month' for policy makers and planners. The ideas aimed at molding the future came in handy to distort the future. As a student, I studied them all, and many more. I was thoroughly confused about what development was. Still am. I felt elated. I was in good company of the Prime Minister and the Cabinet Ministers, members of the Parliament and leaders of opposition parties, academicians, journalists and captains of industry and business.

Were not a fragmenting polity, a war won, an atom blast, a clarion call for poverty to ‘quit' - reminiscent of ‘quit India' call to the British by another Gandhi - good enough to go on? Even if the pattern of goings on were akin to that of a dispersing mob in face of not infrequent police firing in any street of any city or any town of India?

And all knew, including the Ph.D. student in me, that foreign aid was inflationary. Import intensive, bi-lateral ‘tied' aid from the west was expensive. We paid a lot more than the competitive international price for aid financed imports. [Loans from World Bank, Canada and Japan were exceptions.] So was the aid from Soviet Union where the quantum for repayment obligation depended on whims of Kremlin vis-à-vis frequently (and overtly) over valuing Rouble.. [Early in 1968, Alexander Dubcek of Czechoslovakia, requested Kremlin to stop the fiction of Rouble rate, and pay the due to his country through financial system in London, Kremlin's response was to send Russian troupes to depose him.] Repayment obligation on Soviet loans, in real exports for which we never got fair price, ended up to be many times more than would have been if the Rouble was a part of the international currency system. The Russian currency fairy tale ended only after the disintegration of the Soviet Union in early 1990s. Even then, the final settlement agreed by Rao government was many times more than was due.

And we had PL 480 counterpart rupee funds in US account with the Reserve Bank of India. These kept on bloating. Government of India borrowed these to camouflage budget deficits, repaid loans on paper with interest to bloat the funds more. Borrowed more and repaid through journal entries and so on and on. With each shipment of PL 480 India twisted a notch higher on spiraling inflation. In early 1970s, this fiction of counterpart funds was ended by a hefty cheque issued by the then Ambassador of the US, Dr. Moynihan to the Government of India; a cheque that found its way in Guinness Book of World Record as the largest amount ever paid by cheque by any one.

IMF then was not what IMF is today. It supposedly oversaw the foreign currency rates. Indian policy makers supported through 1970s and 1980s, an unrealistically overvalued rupee. High import tariff and restricted imports added to the woes of the economy and to inflation. When we accepted that rupee was indeed overvalued, the devaluation called for was large and destabilizing. From Rs. 8.50 to a dollar in late 1980s, rupee moved to Rs. 40 to a dollar in early 1990s. Yet another fairy tale lived, suffered and abandoned.

I do not know whether to laugh or to lament when I think of the process of doing a Ph.D. in 1960s. There were few books, few accessible journals, and poor quality data. IMF Staff Papers came to Sydenham library months after publication. CMIE and other data bases were not conceived. Calculator was unavailable. I churned data on old Facit machine. Move the handle clockwise to add, anti-clockwise to deduct, pull lever and move clockwise to multiply, pull lever and move anti-clockwise to divide. And while you calculated, khat, khat, khat, machine made loud noise. [A neighbour came over and said how he appreciated my doing Ph.D., but requested that I do my calculations at college and not in the dead of the night at home.] I submitted my thesis, one original and three carbon copies with a thousand or more overwritten error corrections and equal number of typographic errors uncorrected.

I want to ask Microsoft Word and Excel, “Why did you not come forty years early”? Google, what took you so long? And then I think, with all the computing and Excel, with Word and its spell check, with Google and on-line data bases and all the magic that the packaged programmes perform, would a Ph.D. student today, feel any less confused, less overworked, less stressed than I did forty years back? Research, including that for a Ph.D., is so much like pregnancy! You plan, you conceive, you nurture, you abort, you go through the thrill and joy of creation, you get the pinks of blushing when complemented and blues of morning sickness, you have mood swings, you worry and you live through the unasked question of when is the big day. Alas, the major difference is that pregnancy has a defined period, Ph.D. is open ended. Pregnancy is nine months; I got my Ph.D. almost nine years after my M.Com..

Ph.D. gave me its own rewards. Besides earning the degree, it helped me define all that I have done since then. I learned to manage frustration, anxiety, difficulties. I learnt to accept adversity and start over again. Three years in my Ph.D. work, I did most of my computing work, started testing my hypothesis, even began writing the introductory chapter when Government of Mrs. Gandhi through its little known and less lamented then Finance Minister Sachhin Chowdry decided to devalue rupee. The exchange rate of Rs. 4.76 to a dollar was now Rs. 7.50 to a dollar. All my calculations with dollar value converted in rupee equivalent needed to be reworked. Back to Facit and thak, thak, thak. And lo and behold, most hypotheses needed to be reworked. It was like starting Ph.D. all over again.

A lasting reward of Ph.D. was to know more closely my guide Prof. K. T. Merchant. He stopped being a threatening, to be feared terror of a Principal and became a principled, genteel and lovable, even if opinionated, person that he was. Our chemistry matched. He was very helpful. He helped me get the scholarship that largely funded three years of my Ph.D.. He referred me to his well placed students in Delhi bureaucracy to seek insiders' views. When I found out about a serious unsavory dimension of aid from one of the principal donor countries, the source of which I could not officially quote, Prof. Merchant investigated the matter more, collected relevant inside information, published an article under his name in the then leading commercial journal. I quoted the article to discuss the matter in my thesis. How many Ph.D. guides would have gone to this extent? This is what perhaps army knows as ‘call beyond the line of duty'.

Ph.D. taught me to keep an open mind. Many of the beliefs, when investigated, turned out to be wrong. Ph.D. taught me to question. It also helped me understand the environment better. I spent hours and hours reading through the verbatim Parliament proceeding records available at the University of Bombay library. I spent more time on reading material totally unrelated to my subject. It made me richer even when it extended the time for my Ph.D.. In social sciences, too much of a focus may be counter productive.

Studying for Ph.D. made me a better teacher and later a better Ph.D. guide in decades that followed.

And the Ph.D. student is now effectively dead. Foreign Aid for India is now, a mere historic reference.

The world now is different, its environment is different, its processes and its aspirations are different. My Ph.D. students now examine M & A and aspects of information technology. One of these days I may receive a request for guiding a Ph.D. student who wants to examine what Thomas Friedman calls democratization of global finance, FII flows and its impact on India's future. I would encourage him/her to do it, will get interested in issues examined. Will I do it myself? No chance. Foreign aid took forty years to die. Most environment trends today are likely to be different, if not dead, in next ten years.