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No. 332

July 2003


ISSN 0019-5170



Life and Works of Prof. J.S. Mehta

Dec. 14, 1901 -Aug. 9,1480

Prof. J. K. Mehta was an economist and a philosopher of the first order. Prof. Mehta's scholarship and academic excellence were matched equally by his greatness. It humanism and meticulous concern for detail and truth. Clearly an exception. a person, Prof. Mehta was totally unassuming and his gentle manner and 50ft-spoken words endeared him to all those who had the good fortune to know him.

It is a matter of great honour for us, at the Depal1ment. of Economics, University of Allahabad that Prof Mehta studied here -both as a graduate and a post-graduate student Subsequently, after two years as a research scholar, he joined the Department as a Lecturer in 1927. He became Professor and Head of this Department in 1951. His eminent predecessors were Prof Herbert Stanley Jevons (son of William Stanley Jevons) the first Head of this Department, Prof C. D. Thomson and Prof, S, K. Rudra. At the time of his retirement in 1963, Prof Mehta was the Dean, Faculty of Commerce. He worked as a UGC Professor after relinquishing his post as Head of Economics, and held that position until 1969, He was also a Visiting Professor in the Institute of Gandhian Thought and Peace Studies during 1972-73.

Prof. Mehta's academic brilliance was widely recognized. In the preface of her famous book on Imperfect Competition, Mrs. Joan Robinson acknowledged that Prof. Mehta had arrived independently at the concept of marginal revenue. Prof. Mehta called it marginal demand price. Writing about Prof. Mehta's book A Philosophical Interpretation of Economics, Prof G.LS. Shackle observed: "This is a beautiful, moving and most deeply interesting book, and it is superbly written. It deserves to become a classic."

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  P. K. CHAUBEY: Wants, J. K. Mehta and Wantlessness

Late Jamshed Kaikusroo Mehta (01.12.1901-09.08.1980) made his name in inventing, improving and perfecting tools of neoclassical economics since early thirties of the twentieth century tor nearly forty years. It is clearly demonstrated by acknowledgment about him by his contemporaries. While Joan Robinson (1933, xv) accepted him as an independent originator of the concept of marginal revenue, H. H. Liebhasfsky found his works having 'sober and penetrating ideas of a scholar of much critical ability.' Of the Indian scholars Bhabatosh Datta (1961, p. 33)1 recognized him along with A. K. Dasgupta as one who started theoretical writings in thirties and had devoted four pages only on Mehta's Elements of Economics Mathematically Interpreted 2 in an affectionate manner in his work on Indian Economic Thought (1978).

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  Vulnerability, Networking and Organization


An organization is a nexus of contracts. The family is a classic example. See, for instance, Ben-Porath (1960). Individuals within it seek to maintain self-esteem, aspire to achieve acceptance within the family, and make an attempt to attain self-actualization. Organization, like the modem corporation, are also of the same vintage.
In this enterprise individuals are constrained by their resource base as well as the competence to perceive, obtain, and process information. Much of the information is accumulated in the process of repeated execution of exchange relationship and tends to be specific to individuals within the organization. By implication, such information has little or no value outside the organization. It is also difficult to visualize anyone individual having the foresight about the requisite information over t\1e long run and/or the competence to obtain it even if he knows it. Perforce transactions are subjected to information asymmetry. Individuals would be vulnerable to moral hazard of others in the organization.

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 Commodity Production and Command: Some Observations


The concern of economists for production-centered economic analysis is as old as the birth of economics as a branch of scientific analysis (Chakravarly, 1988; Hicks, 1965. p. 3648; Hicks, 1971, pp. 15-24; Kuznets, 1961, p. 13; Kuznets, 1965, pp. 63, 84, 105; Kerr,1993, pp. 5, 9). Production shows a domain where natural resources are transformed by human labour to yield products. The products, having use-value, become commodities by acquiring the properly of exchange-value. The combined values, namely, use-value and exchange-value, show the concrete shape of production, that is, commodities. The link between natural resources and human labour, on the one hand, as cause and commodities, on the other hand, as final output is technology. As a corollary of what we said earlier, commodity is also seen as the concrete shape of technology.

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The Philosopher Economist

P. R. BRAHMANANDA  & J. K. Mehta

Prof. Jamshed Kaikhusroo Mehta was born in December 1901 at Rajnandgaon, now in Madhya Pradesh. His father, K. M. ]-1ehta, was an employee of-Shaw Wallace Company. J. K. Mehta studied at Muir Central College for the B. A. Degree with English, Mathematics and Economics. He went to Allahabad to study for his M. A. Degree in Economics under Prof. Herbert Stanley Jevons, who was Professor of Economics at Allahabad University. Jevons was succeeded by Prof. C. D. Thomson. He later became a lecturer in 1927 at the Allahabad University and later rose to the position of Reader and Professor of Economics in 1951 in the same University. He retired in November 1963. He used to regularly write in the Indian Journal of Economics. His article in that Journal in 1932 on "The Nature and Intensity of Demand" became internationally famous. He wrote many articles in that Journal dealing mostly with matters of economic theory. His papers were on the classification of wants, problems of distribution, theories of interest, the negative rate of interest, the representative firm, concept of equilibrium, relation between microeconomics and macroeconomics, elasticity of substitution, the measurability of utility, risk and uncertainty, derived demand etc. His unique contribution in the exposition of economic theory was his extension of the Robinson Crusoe model to illustrate many themes. He wrote about 16 books.

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Macro Economic Adjustment, Stabilization and Sustainable Growth in India: Looking Back and to the Future


India after attaining independence adhered strictly to inward looking Import substitution policies behind huge tariff walls and highly restrictive quantitative restrictions and regulations in the different sectors of the economy with actual disincentives for exports due to gradual realization by the then developmental economists that the market forces or signals won't operate efficiently in achieving optimum allocation of resources and could not be relied in the long run, to tackle the fundamental problems of poverty and unemployment and acceptance of broader Keynesian framework, and analysis which accords a leading role to state as an economic actor, to minimize the impact of "market failures", and to foster and sustain rapid rates of economic and social growth. This analysis is based on the assumption that there does exist a strong trade-off between growth and equity i.e. the distribution of the gains would gradually and automatically 'trickle down' to the weaker and lower strata of the society. Hence, numerous interventionist measures, both fiscal and monetary, during the different plans, were initiated by the policy makers both in the product and factor markets for increasing the level and rates of" growth of gross domestic product (GDP) and to achieve the aim of "shared growth"

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Economic Reforms and The Challenge of Social Sector Development


Social sector development comprising education, health, literacy, sanitation and nutrition is important to the long, sustained and wholesome development of an economy. An enduring development of this sector calls for, among other things, honest performance of one's jobs and higher standards of behaviour and commitment on the part of teachers, doctors and government executives looking after these non-commercial (now they are getting business-oriented) activities. It is not in the interest of market of produce and provide primary education, health care, sanitation and safe drinking water for the poorer households living in slums and rural areas. Continuing government interventions in the social sector are designed to provide the poor with easy access to these services. It is the universal provision of education, health care and safe drinking water which help a society in its struggle against poverty and deprivation and contribution to the well-being of the people in a country. As very aptly stated: "The most basic capabilities for human development are leading a long and healthy life, being educated, having access to resources needed for a decent standard of living and being able to participate in the life of one's community" (H. D. R., 2002, p. 13).

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India's Uneven Development: An Analysis of Some Recent Trends and their Implication


Accelerated growth in lagging regions and balanced regional development is an important policy objective in most market economies since there is no clear-cut evidence that market forces, left to their own, lead to a convergence between rich and poor regions within a reasonable period of time. In post-colonial economies such as India, the pattern of inequalities, inherited from colonialism have tended to be very large leading to a major policy focus on amelioration of regional disparities. Balanced regional development has been articulated as a major objective in India's Five Year Plans, particularly the first seven Five Year Plans and sectoral and fiscal policy instruments have been developed to achieve this goal.
However, despite policy concerns aimed at mitigating large spatial disparities in development, there has been a steady increase in disparity in terms of a number of economic indicators. Inequalities in per capita State Domestic Product have shown a steady increase (Dholakia, 1994; Singh, 1999; Ahluwalia, 2000; Dasgupta et al., 2000). The disparities in per capita sectoral net product due to the primary and secondary sectors also show an increase, while there is no indication of any decrease in disparities in per capita State Domestic Product originating in the tertiary sector. Also, the growth in sectoral inequalities have partly reinforced each other, thus accounting for a still more rapid growth in per capita State Domestic Product inequality (Dholakia, ibid.).

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Environmental Challenges of Urban sat ion in India


Almost half of the world population lives in the urban areas and the cities are growing  rapidly, both in size and numbers. The trend is ~specially stronger in developing world, where in the rate of rural-urban migration is high as people flock to cities in search of employment and higher standard of living. Globally, the urban population has grown at an average rate of 4.2% in the past two decades. In Asia, the urban population is expected to reach 2.5 billion level in the year 2025 which is three times 1990 (World Bank, 1999). In the next thirty years, almost all population growth will be concentrated in urban areas, the pace will be fastest in developing countries, where the urban population is forecast to increase from present 1.94 billion level to 3.88 billion and in Asia it will almost double from 1.35 billion to 2.61 billion (World Bank, 2002).

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And Promises to Keep: The Challenge of Gender Disparities in India's Economic Development


The promise of gender equality has been enshrined in the Constitution with Article 14 ensuring Equality Before Law and Article 15(1) asserting non- discrimination on the basis of sex. Furthermore, the country has reaffirmed this promise at various international forums. The UN sponsored Convention on the Elimination of All Forms of Discrimination Against Women (CEDA W) was ratified by India in 1993. Among the International human rights treaties, CEDA W is a milestone, because it brings the female half of humanity into the focus on human rights concerns. It spells out the meaning of equality and notes that discrimination is 'any distinction, exclusion or restriction made on the basis of sex the political, economic, social, cultural, civil or any other field.' It presents an international bill of rights for women and exhorts member countries to guarantee the enjoyment of these rights by taking 'all appropriate measures, including legislation, to ensure the full development and advancement of women, for the purpose of guaranteeing them the exercise and enjoyment to human rights and fundamental freedoms on a basis of equality with men.' The country's commitment to gender equality was reaffirmed at the World Conference on Women in 1975 in Mexico City and again in 1995 UN Fourth World Conference on Women in Beijing.

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Deteriorating Fiscal Health of the States in India: Need for Resource Mobilisation


During recent past, the fiscal situation of the states has continued to worsen .jn view of their growing expenditure on the one hand 'and the revenue receipts far lagging behind (to cope up with the situation) on the other. Under such circumstances, the dependence of the' State Governments on loan finance has continued to increase and in consequence their interest bill is also growing throughout. In this context, the Planning Commission in its approach Paper to the 10th Plan stated that "If reckless borrowing is not kept in check, some states may be forced to declare a financial emergency in the 10th Plan."

The available data as shown in Table I clearly indicate that the total expenditure of the State Governments increased throughout the period 1991-92 to 2000-2001 (Budget) and it became three times during the period. The Table also shows that the expenditure on revenue account increased a little faster. The State Governments have hardly any choice in the matter as they have been assigned various social and development functions which are expensive and expanding in nature. However, what is troublesome and cause of worry is that proportion of development expenditure is falling, while that of non-development expenditure is increasing. Table I shows that non-development expenditure constituted 30.9 percent of the expenditure on revenue account in the year 1991-92 and this percentage increased to 42.5 in 2000-02 (Budget).

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Fiscal Stability and State Finances: A Case Study
of Uttar Pradesh


Macroeconomic stabilization was considered to be a prime objective of the economic reforms initiated in 1991 in Indian economy. While the major responsibility in the areas of monetary management, financial sector reforms and determination and stabilization of foreign exchange rates etc. is of the Union government, states have to play important role in the fiscal stabilization programme due to a federal set up of the government.

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Emerging Scenario of Federal Financial Relations in India


The financial relations between the Union Government and State Governments, which were evolved about 52 years back, have undergone a sea change. New political and economic development have taken place. A single party rule, both at the centre and the state levels has given way to multi-party rules. Regional parties have developed a national outlook. New concepts like cooperative federalism is being propagated. At the economic front, already a decade of new reforms has passed. And now we are talking about the second generation reforms, of which the State reforms are an integral constituent. Privatization or liberalization demands the reduction of micro-economic controls both at the centre and the state levels, so as to unleash the economic forces at the grassroots levels. And globalization is not only throwing a great challenge but also provides large opportunities for agriculture and industrial growth of the economy. Tax harmonization of internal trade through the ultimate adoption of a single commodity tax say Value Added Tax (VA 1) would give rise to a number of problems. But it must be kept in mind that in any federation, much less in a developing federation like ours, no permanent solutions to all inter-state or Union-state economic problems are possible. After 30 years of experience, it was Sarkaria Commission and now after 50 years, it is the National Commission to Review the working of the Constitution that the working of the Union-State financial relations is being reviewed. It may be recalled that federation is a compromise between national unity and regional interests, and this compromise must be maintained at all costs.

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Challenges before the Banking and Financial Sectors in the context of Globalisation


India has made some progress in the field of banking and financial sectors after the policy of globalization adopted during the past decade. There has been development of a competitive financial sector with multiple intermediaries, the movement towards best institutional practices ill regard to capital adequacies, prudential norms and supervisory standards, strengthening the transparency and disclosure practices by banks and other financial institutions and better application of asset-liability and risk management by financial intermediaries. Process has al5o been achieved in reducing non-performing assets and speedier mechanisms have been introduced for settlement of bad debts.

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Indian Financial System: Emerging Challenges

B. S. R. RAO

The Indian financial system has shown remarkable progress and considerable sophistication over time in regard to the establishment and development of new financial institutions, as for example, development financial institutions, mutual funds including UTI and public sector and private sector mutual funds, private sector insurance companies including foreign insurance companies either singly or as joint ventures with Indian Corporate. Likewise, there has taken place proliferation of new financial instruments, such as convertible and non-convertible debentures, warrants, forwards and futures, contracts and options and swap contracts, particularly those that permitted risks to be identified, separated and allocated to the parties able and willing to bear such risks. There has been also improvement in the functioning of financial markets, and strengthening of regulatory mechanism including starting of new regulatory authorities such as Securities and Exchange Board of India (SEBI) and Insurance Regulatory and Development Authority (IRDA) and periodic modification of trading and regulatory rules in the light of Indian and global experience with the avowed purpose of facilitating smooth trading operations and improving the market efficiency. It is also noticed that the volume of transactions effected has increased manifold and the competitive pressures have been growing despite at a slow pace.

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 Intra-SAARC Trade: Challenges and Possibilities


The corpus of literature on trade and development dwells on the wide discrepancy in socio-economic development that exists between the developed and the developing economies. Many developing countries, in order to bridge this developmental gap, have followed the industrialization strategy by adopting internal production and trade policies in which the key element has been the growth of trade. Until the mid-1960s, the development process in many developing countries was characterized as inward-oriented, laying emphasis on the consolidation of internal production base through the reorientation of indigenous investment, material resources, technological capability and protective measures, such as, tariffs, quotas, taxes and exchange rate appreciation. It was soon realized, however, that such industries, which grew under a protective regime of development, also demanded inputs, which could not be met through domestic sources alone. This forced the developing countries to enhance their import capacity through an increase in exports. It was felt that if rising imports were not matched by increasing exports, the growth process was likely to be constrained by the balance of payment bottlenecks, unless the country opts to increase its dependence on foreign aid.

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