Economic
Highlight
New Delhi, 25 June 2018
Exit of CEA
POLITICS Vs ECONOMISTS
By Shivaji Sarkar
The third high
profile departure, now of Chief Economic Advisor (CEA) Arvind Subramanian
coming shortly after the decision to withdraw support to the PDP government in
Jammu and Kashmir is a bit of a surprise. The exit of Raghuram Rajan, an
appointee of the UPA government from the Reserve Bank of India was expected and
Arvind Panagariya from the NITI Ayog was less of a surprise.
The common thread in
the exit of the three Tamilians, is another south Indian leader Subramaniam
Swamy, and sections of the people who were opposed to “western imports”. They all came from institutions in the US and
have gone back there.
Indeed there was
opposition within the folds when Arvind Subramanian was named for his job. It
was not for his economic belief but for his sharp views on the Gujarat model
and even Prime Minister Narendra Modi. He had debunked the Gujarat model in
July 2013 and in a column on April 5, 2014 wrote: “Prime Minister Modi will
expose a paradoxical tension between his mandate and mission”. It was a big surprise
that with such sharp views he was appointed the CEA in October 2014. His
predecessor Raghuram Rajan had moved to the RBI and the post lay vacant for 13
months.
Subramanian’s major
contribution was in the presentation of the annual Economic Survey. He made it
an immensely readable document. There was open discussion on critical issues
that also marked the path for the economy. The Survey itself brought out how 50
big houses were responsible for large PSU bank NPAs.
One could get from
the Survey an analysis of the twin balance sheet problems affecting the banking
sector credibility, disparate agricultural patterns and productivity stressing on
different irrigation strategies, impact of gender inequality and ineffective
export subsidies for textiles. He is the creator of JAM – jan dhan, aadhar and
mobile – for direct transfer of public benefits. But he also came under
criticism for promoting aadhar for banking and other services, as many consider
it to be risky, throwing millions to an unsecured system, where privacy is
compromised. To this effect a legal battle is on. Further, he is accused
perhaps inappropriately for the manifold increases in bank charges on
withdrawals and taxes on interest accrual.
Since June 2016, Swamy
has been targeting him by even doubting his patriotic credentials. However, Finance
Minister Arun Jaitley had stood by him and while Subramanian hailed Jaitley as
a “dream boss”, Jaitley too returned the compliment saying he came out with new
ideas. “He participated in every meeting of GST, gave his independent views and
was heard in rapt attention by almost every finance minister”, said Jaitley,
appreciating his early diagnosis of the twin balance sheet problem as it had
led the government to adopt macro-economic strategy of higher public investment
in the 2015-16 Budget.
Despite such
appreciation, his say in policy-making possibly was limited. The Economic
survey denotes how a Rs 6,000 crore government package did not boost exports of
readymade garments. His recommendations for a simplistic GST were also not
heard and one reason may have been because he suggested a minimum rate of 18
per cent.
Apparently, Panagariya
had cautioned against the fiscal spending spree and he too was not heard.
Similarly, Raghuram Rajan’s views on demonetisation were ignored. Such high
profile economists and political pragmatists always have differences. Finally,
the political players have the last say as they also have to care of their vote
bank politics. Subramanian obliquely says in an interview: “Politicians have
their reasons for not doing things. And one has to understand that”.
The three -- Rajan,
Panagariya and Subramanian -- are considered fine economists. Despite
apprehensions of some hardcores like Swamy and others they wittingly are not
known to have given inappropriate advice. But having come from the US they were
all at the butt of criticism. Rajan was a hardliner in the RBI and Subramanian
ensured transparency in understanding the government functioning, though
possibly at a cost.
Subramanian was a
critic of RBI’s failure to assess inflation and openly demanding interest rate
cut. This later did not prove beneficial for the economy and Subramanian was
found a bit off the mark. Moreover, RBI was found to be on track on inflation.
A rate rise that has ensued now following the US rate revisions is being
considered as the appropriate move to save the banks and prevent many
undesirable borrowers from accessing bank funds.
The latest monetary
policy committee meeting is unanimous on growth and inflation. An MPC member Ravindra
Dholakia justifying decision for rate hike said that inflation at 4.8- 4.9 per cent
is a concern and needs to be addressed at a time when economic growth is on a
path to recovery. This is in contrast to the view of Subramanian. So economists
stationed at different places can have different perceptions and the chief’s
view need not always be correct. But Subramanian has sanguine advice in not
“risking the hard-earned macro-economic stability.”
The recent four-year
high profit margin of 50 per cent of companies in the last four quarters is an
indicator perhaps of the turnaround, even though it’s just the beginning of the
process after a long recess. The time for a let-up has yet to arrive. Whether
the economists contribute or can do so, remains a matter of discussion, however,
their advice has importance for framing up the policy. But no politician goes
fully by the advice of either an economist or any expert. Politics has its own
grammar and every player tries to stick to that.
Now the challenge is how
to create more jobs, a critical economic and political necessity. It requires a
far higher pace of growth, says Subramanian and “the global economic situation
is lot less favourable. There is no magic wand to solve the job crisis and it
is linked to investment, growth and exports”. These are all not easy solutions.
Politically too, job
growth is crucial. Economists so far have not been able to solve it. With the
exit of another economist, it is only expected that there would be more
political decisions to solve some of the critical issues. Some crash programmes
to create jobs in the next few months as also solve some of the volatile
problems like Jammu and Kashmir may be on the cards.—INFA
(Copyright, India
News & Feature Alliance)
|