Problems and Prospects of Developing Countries

By S. JAGANNATHAN, I.C.S. (RETD.)

Summary

This 1980 A. D. Shroff Memorial Trust booklet prints a lecture S. Jagannathan, I.C.S. (Retd.) and former Governor of the Reserve Bank of India, delivered in Madras on 30th October 1980. After tributes to A. D. Shroff and an introduction by N. A. Palkhivala, Jagannathan opens by re-framing the development debate along North-South rather than East-West lines, invoking Nehru’s reminder that the salient divide runs between the industrialised North (whether centrally planned or market economy) and the South that is still struggling to develop.

The bulk of the rendered pages walks through the two oil shocks and their fallout. Jagannathan splits the developing world into oil exporters and oil importers, then divides the importers between middle-income and low-income groups; the latter, he reminds the audience, contains the four South Asian countries that house half the world’s absolute poor. He argues the 1979-80 doubling of oil prices is in absolute terms a bigger blow than the 1973-74 quadrupling, and traces how commercial banks bulging with recycled petro-dollars, together with the IMF’s new “oil facility”, carried much of the adjustment after 1973-74. He warns that this recycling cannot be repeated on the same scale now that lending banks face debt-service strain and portfolio-concentration limits.

A long autobiographical section recounts India’s response. He credits the post-1966 devaluation, the Green Revolution (citing the F.A.O. CERES award in 1971), the build-up of foreign-exchange reserves, the paying off of IMF short-term debt, and the fall in debt service from 20.9 per cent of export earnings in 1970 to 9.4 per cent in 1978, alongside diversified exports into engineering goods, garments, gems, and Gulf-region construction contracts and remittances. He revisits the notorious 1964 World Bank “Bell Mission” — whose hostile reception in the Finance Ministry he treats as a cautionary tale — to underline how Indian policy ultimately moved toward most of what the mission recommended on devaluation, agriculture, exports and family planning.

The closing pages register an intellectual convergence: Northern donors and economists now accept the importance of basic needs, education, nutrition, and well-targeted food subsidies (citing the World Bank’s World Development Report and the Brandt Commission), while Indian and developing-country economists have grown more pragmatic about exchange rates, export promotion and family planning. Jagannathan defends the basic-needs agenda against suspicions in some Southern capitals that it is a capitalist conspiracy to derail the New International Economic Order, quoting a “thoughtful Indian” on the irony of accepting trickle-down internationally after rejecting it nationally. The rendered chunk breaks off mid-discussion of what the World Bank and IMF must do next to carry oil-importing l.d.c.s through the second shock.

Key points

• Reframes the development debate along North-South (industrialised vs developing) lines rather than the older East-West or capitalist-vs-socialist axis, following Nehru.

• Splits the developing world into oil exporters (housing roughly a fifth of the developing population) and oil importers, then further between middle-income and low-income groups, with India and three other South Asian states housing half the world’s absolute poor.

• Argues the 1979-80 oil price doubling (about $15 to $32 per barrel) is in absolute terms a heavier blow than the 1973-74 quadrupling, even though percentage growth was higher then.

• Describes how commercial bank petro-dollar recycling and the IMF’s new “oil facility” cushioned the 1973-74 shock but cannot be repeated on the same scale now that debt service, portfolio concentration and regulator concern have piled up.

• Documents India’s recovery: 1966 devaluation, Green Revolution (F.A.O. CERES award in 1971), repayment of IMF short-term debt, reserve build-up, and a fall in debt service from 20.9% of export earnings in 1970 to 9.4% in 1978.

• Recounts the 1964 World Bank Bell Mission and its hostile reception in the Finance Ministry as a cautionary tale about resisting honest external diagnosis.

• Tracks a convergence in development thinking: Northern aid donors now embrace basic needs, education, nutrition and targeted food subsidies, while Indian policy has become more pragmatic on exchange rates and exports.

• Defends the basic-needs approach — invoking the Brandt Commission — against fears in the South that it is a capitalist ploy to displace the New International Economic Order.

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