MY banker friend was too hasty in his judgement. He would have done well to read Jalan's writings on the economy or examine his professional record. Jalan was one of the team of advisers that goaded finance minister V.P. Singh in 1985 to dismantle some of the worst controls on the Indian economy. He was the author of the long-term fiscal policy, perhaps the first official document to sound a warning against uncontrolled fiscal deficits. And his six-year stint at the RBI showed that he did not backtrack on financial sector reforms either.

His background is worth going over. In 1941, Jalan was born into one of Kolkata's most influential Marwari families. Unlike the Bengali bhadralok, this community aligned itself with Mahatma Gandhi. G.D. Birla is the best-known example. Jalan's grandfather, Ishwar Das Jalan, too, was a follower of Gandhiji, and later the first speaker of the Bengal legislative assembly. His father was an eminent lawyer.

Jalan went to Presidency College, the intellectual grooming ground for Kolkata's elite. The economics department there was, perhaps, the best in the country in the 1950s. "The educational excellence... (there) was captivating. My interest in economics was amply rewarded by... outstanding teaching. I was particularly influenced by the teaching of Bhabatosh Datta and Tapas Majumdar, but there were other great teachers as well, such as Dhiresh Bhattacharya," Amartya Sen fondly remembered many years later. Sen was in the same class as two other men who would shape economic thinking in India: Sukhamoy Chakravarty and Mrinal Datta Chaudhuri.

Jalan graduated a few years after this outstanding trio. From there, he went to Cambridge University (and Oxford). Jawaharlal Nehru and P.C. Mahalonobis - though not economists - were also Cambridge men. The influence of this university on our public life, especially on our economic policy, is truly remarkable.

It was from Cambridge that John Maynard Keynes and his followers overturned the world of economics. Their work inspired the men in charge of India's economy in the 1950s and 1960s. That's not all. Ashok Desai, economist and a columnist for this magazine, once told an interviewer: "What I think we all learned at Cambridge was to think clearly, how to cut out nonsense."

But not every Kolkata boy who went to England made a mark. Nobel Prize winning economist Friedrich von Hayek once caustically wrote: "I have a profound dislike for the typical Indian students at the LSE, which I admit are all of one type - Bengali moneylender sons."
After a short stint at teaching at the Delhi School of Economics, Jalan followed his family into public life. He joined the government in 1973 as an economic adviser in the ministry of industry. His rise was meteoric - chief economic adviser, banking secretary, executive director of the International Monetary Fund, chairman of the prime minister's economic council, executive director of the World Bank, head of the Planning Commission and governor of the RBI.

AT the RBI, Jalan succeeded a giant - C. Rangarajan. This scholarly man had done more than any other one person to modernise India's rickety financial system. In 1986, he was a member of the committee headed by Sukhamoy Chakravarty to examine the working of the monetary system in India. It is said Rangarajan virtually wrote the final report that brushed away the cobwebs around Indian monetary policy, and pushed the RBI towards modern monetary management.

As RBI governor, Rangarajan in Mumbai brilliantly flanked finance minister Manmohan Singh in Delhi. The rupee was freed. The current account was liberalised. The cleaning-up of the banking sector commenced. Along with P. Chidambaram, he finished the malignant practice of automatically monetising the government's deficits. The RBI would no longer be the finance ministry's printing press.

Rangarajan was both a fine monetary economist and a master practitioner. He had taught economics at the Indian Institute of Management-Ahmedabad and, as deputy governor, spent long years at the RBI. Jalan had neither done any major academic work in monetary economics nor had any direct experience of central banking. He had to work with finance ministers who did not have Singh's abilities. Also, the dramatic, headline-grabbing reforms in finance were already over by the time Rangarajan stepped down.

This did not seem to deter Jalan. Early on, he overturned the very basis of monetary policy. Rangarajan and his deputy governor, S.S. Tarapore, strongly believed in the core tenet of monetarism - that there is a strong link between inflation and money supply. In 1995, with inflation entering double-digits, they had slammed the monetary brakes. Interest rates shot up. Industrial growth, then zooming at 10% a year, screeched to a halt. This decision remains the one big question mark against Rangarajan's tenure: did he overreact in 1995?

Hidden deep in Jalan's first monetary policy announcement was a paragraph saying that the demand for money function in India is not stable. It seemed like academic quibbling. Most of the financial press did not catch its significance. The monetarist claim - that inflation can be brought down by reducing money supply - worked only if this function is stable. Rangarajan had insisted it was. The new governor was now saying something quite the opposite.

Monetarism was being buried. Jalan told me several years later that he had nothing to do with the intellectual revolution at the central bank. The RBI's internal research had independently come to this conclusion. But it was the new governor who knew how to use the academic research to change policies. The shift from monetarism has allowed him to keep interest rates low despite occasional spikes in inflation. During some of these inflationary episodes, he was slammed by some of the old guard - especially Tarapore - for letting the RBI forget its dharma of inflation control.

JALAN IS NOT a man anchored in any particular ideology. He is practical in his approach to issues and crises. You could say he is more focussed on the ends, not the means. In an introduction to a book he edited in 1992, The Indian Economy: Problems And Prospects, he warned against what Argentinian economist Albert Hirschman called "ideological certainty". Jalan wrote: "In India too, there is now a need for an open-ended, eclectic and pragmatic approach on questions of economic policy."

He cannot be identified with any of the schools of central banking, either. "Which economists have left the most lasting impression on you as far as monetary economics is concerned?" I asked him a few weeks ago. "There is no one particular influence that I would stress. I have been influenced by various things - from the work of Milton Friedman to some of the recent research done by the Bank of International Settlements," he said.

Yet, there are some concerns that can be gleaned from various discussions with him. He is wary of the currency markets, especially the tendency of speculative herds to indulge in momentum trading. Jalan also says he is fascinated by the policy trade-offs that mainstream literature often disregards. And then there are the ambiguities. Falling interest rates have not led to higher inflation; in fact, many countries are on the verge of deflation. The fastest growing economies are the ones with current account surpluses. Or there is the problem of targetting inflation in nations like India, as inflation often results due to shortages in a few commodities rather than excess money supply. All these feed his fear of ideological certainties and his preference for eclecticism.

Jalan is a political economist in the best sense of the term. He is deeply conscious that public policy affects different sections of society differently. Jalan often talks about his intellectual debt to Mancur Olson, the Swedish institutional economist who did pioneering work on how political and social coalitions impinge on government policy.

An economist who worked with Jalan in the Planning Commission recounts this story. Jalan summoned him before the Plan size was being finalised and asked him to walk down the corridors of the building and see who occupied the offices there. "This is the public's money. Ask yourself whether you would be comfortable giving out so much money to these people," he said.

LAST FORTNIGHT, when it was already clear that he would be moving to the Rajya Sabha soon, a group of industrialists went to see Jalan at the RBI. They were concerned that the rising rupee would harm their competitiveness. One does not know what Jalan told them. But the subject of the meeting was in stark contrast with that first meeting with Mumbai's senior financial journalists. The issue now is not of how to protect the rupee, but of how to protect the dollar. This is Jalan's legacy.

True, the rising rupee and the burgeoning foreign exchange reserves are not the RBI's unique achievements. It's the same all over Asia. What the RBI can claim is of having won the intellectual argument. Central bankers across the world now realise there is no point blindly defending a fixed exchange rate. And the IMF now warns against premature capital account convertibility. The Indian position on these two issues has been vindicated. Both Rangarajan and Jalan have reason to be pleased.

Is this his most significant achievement? "In retrospect, I feel that we were right in many ways. The RBI remained flexible and did not try to defend any one particular exchange rate," he says. "But I would not say it was my contribution. It was done by the RBI in close consultation with the government."

The cheers have not been universal. In a controversial paper, Deepak Lal and Suman Bery say the RBI's decision to hoard dollars has reduced economic growth. Others like Ila Patnaik say Jalan has let interest rate policy be subservient to exchange rate policy. And then there are those in the money market who accuse him of killing the yield curve, as there is hardly any difference between short-term and long-term interest rates today.

Has Jalan been too conservative just as Rangarajan is said to have been too aggressive in hiking interest rates in 1995? I asked him what he thought of these criticisms. "Eventually, we have to balance various interests. Savers want higher interest rates while borrowers want lower... rates. Exporters want a weak rupee while importers want a strong rupee. We have to make choices," he said.

I asked Jalan one last question when I met him in early July, when it had been announced that he would be succeeded by Y.V. Reddy. What, according to him, are the major issues facing the Indian economy today? "The delivery of infrastructure and more investment," he said. And fiscal deficit? "That's a medium-term issue," he said.
Was that the next FM of India speaking?