Remembering Ambedkar, the accomplished economist

The father of our Constitution disagreed with the great John Maynard Keynes, wrote three books on economics and authored many papers carried in reputed journals.
BR Ambedkar: His principles of public expenditure rested on only three elements -- faithfulness, wisdom and economy. (File Photo | AFP)
BR Ambedkar: His principles of public expenditure rested on only three elements -- faithfulness, wisdom and economy. (File Photo | AFP)

Dr BR Ambedkar, largely remembered as a political leader, was also an accomplished economist. He was one of the few leaders, who made immense contributions to both caste and currency, untouchability and unemployment, public expenditure and poverty eradication.

From opposing John Maynard Keynes's gold exchange standard for the Indian economy in favour of a gold standard, to prioritizing price stability as against exchange rate stability, to modifying labour laws, to championing industrialisation, Ambedkar's economic contributions are remarkable.

He published three books on the Indian economy, namely, Administration and Finance of the East India Company, The Evolution of Provincial Finance in British India and The Problem of the Rupee: Its origin and its solution. Besides, he published papers in reputed academic journals.

On his birth anniversary on Friday, The New Indian Express chronicles some of his key economic contributions.

On rupee:
During 1860s, both paper and silver currencies were legal tender in India, but to cope with the increasing monetary demand, the minting of silver coins was stopped in 1893 and the rupee was adopted as the sole legal tender. Subsequently, during 1898-1916, gold exchange standard was adopted and exchange rate stability became a key metric. However, in 1914-15, as the exchange rate weakened, India fell short of gold to pay back remittances. To make up for the shortfall, the government began printing money, which in turn spiked inflation. This forced Ambedkar to voice against exchange rate stability, which, according to him, benefited the trading class, not the poor.

In his book The Problem of the Rupee: Its origin and its solution, he proposed price stability instead of exchange rate stability, posing a fundamental question about whether the purpose of money was about how much gold or commodities one can buy. Citing the obvious answer, he insisted that currency should be stable in terms of commodities, not gold. He also opposed the concept of linking money supply with gold and argued that the government under the gold exchange standard can manipulate currency value, which he reasoned should be avoided. A strong believer of the quantity theory of money, he loathed the idea of the government managing the flow of currency or even the thought of empowering the government to expand the money supply without expanding national output, which could then lead to currency instability. This entire exchange rate vs price stability debate eventually led to the setting up of the Reserve Bank of India.

On public finance:
In his other book on The Evolution of Provincial Finance in British India, he summarized the history of the financial relationship between the province and the government of India, but it offers useful takeaways to understand and analyse even modern-day Centre-state fiscal relations. The book details his data analysis from 1833-1871 that showed a defective fiscal system with destructive taxes and where government expenditure was unproductive. After 1871, the government began preparing its own revenue and expenditure budget and financial responsibilities were divided among the provincial government and the centre. But Ambedkar found that even that arrangement led to high taxation. Next during 1877-1881, the provincial government produced budgets based on assigned revenue, followed by the next phase, where the budget was based on shared revenue (between imperial and provincial governments) that allowed room for revenue expansion. This arrangement lasted for 38 years. Eventually, in 1921 fiscal reform was introduced.

On public expenditure
Popularly known as Ambedkar's Canon of Public Expenditure, his principles of public expenditure rested on only three elements -- faithfulness, wisdom and economy. Given public investment has long gestation periods, he urged governments to remember the public's immense faith in them and provide services accordingly. Even though, the government's intention of spending may be correct in spirit, but if it's not used wisely, it'll fail. Lastly, he urged governments to ensure public spending is done optimally.

Agri economics: Problem of small holdings
Ambedkar was not only a votary of consolidation of land holdings, but also in favour of state ownership. He proposed the acquisition of all agricultural land from private players, owners, tenants or mortgagers and allocating land in a standard size to original cultivators without any discrimination based on caste, creed and religion. To increase productivity, he stressed that besides land, other factors of production like capital and labour should be rightly mixed. In his paper on Small Holdings in India and their Remedies (1918), he suggested state-owned cooperative farming and industrialisation to tackle unemployment. He viewed industrialisation as a means of increasing agricultural productivity and capital goods production, which in turn could help reduce poverty and inequality.

Caste system hampering economic development
In a speech titled Annihilation of Caste, published in 1937, Ambedkar noted how the caste system was hindering the mobility of labour and capital and how due to caste hierarchy, employment was fixed by birth leading to a reduction in labour mobility. The same year, he introduced a bill in the Bombay Legislative Council to abolish Mahar Watan, which made the Mahar communities in Maharashtra slaves of the feudal lords.

125ft Dr B R Ambedkar Statue near NTR Garden which is inaugurated by Chief Minister K Chandrasekhar Rao on 14th April in Hyderabad. (Photo | Vinay Madapu)
125ft Dr B R Ambedkar Statue near NTR Garden which is inaugurated by Chief Minister K Chandrasekhar Rao on 14th April in Hyderabad. (Photo | Vinay Madapu)

New water and power policy
As a Minister of Public Works during 1942-46, Ambedkar's contributions are many, including the first multipurpose river valley project known as Damodar Valley Project in Bengal and Bihar, establishing the Central Water Commission and Central Electricity Authority, which contributed immensely to irrigation and power supply, and being one of the first to propose the interlinking of major south Indian rivers. Ambedkar was the person behind the development of the National Power Grid.

On labour laws
He introduced several labour reforms including the reduction of factory working hours from 12 to 8 in 1942, established employment exchanges and the collection of statistical data under the Industrial Statistics Act. Some of the laws he helped frame include Mines Maternity Benefit Act, and Women and Child Labour Protection Act. He amended the Trade Unions Act of 1926 and put forth the compulsory recognition of trade unions, besides introducing employee insurance in the country.

State Socialism
He wasn't against private enterprises, but feared inequitable distribution of wealth. In a memorandum submitted to the British government titled States and Minorities in 1947, he proposed a strategy on how the State could plan the economic life of the people along lines that would lead to the highest point of productivity without closing every avenue to private enterprise and also provide for the equitable distribution of wealth. He wanted the public sector to play an active role in economic development, while the private sector should be treated as a passive player.


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