With Arvind Panagariya’s exit, the cause of reform loses another champion in India
The departure of one of the few high-profile economists advising India’s government is a reminder of how greatly expectations have changed since the first heady days after Narendra Modi took office in May 2014. Then, the government’s unprecedented legislative majority and Modi’s own rhetoric raised expectations that he would focus on opening up India’s economy to the world. Today, the government feels more like it’s turning inward, seeking growth in the traditional manner through state action and spending, and allowing social and political considerations to dominate the policy conversation.
Columbia economist Arvind Panagariya’s decision to leave government encapsulates those worries. In January 2015, when hopes for big-bang reforms were still high, the government eliminated one of the most prominent remnants of India’s socialist past: the Planning Commission, set up by former Prime Minister Jawaharlal Nehru during the high noon of central planning in the 1950s. The body became instead the National Institution for Transforming India, or NITI “Aayog”—Hindi for “policy commission”. (Modi has a well-known weakness for acronyms and bilingual puns.) Panagariya was named its first administrative chief.
The move seemed to confirm hopes that the government intended wholesale changes to India’s sclerotic economy. Panagariya was a highly regarded theorist of international trade who had written several books on openness, markets and the state in India. He seemed to have a clear vision of the sort of constraints that the state has imposed on the Indian economy. His criticism was particularly on point when it came to the manufacturing sector, which he argued had been artificially stunted in India by over-regulation, particularly of the labour market.
Many expected NITI Aayog to serve as an incubator within the government for reformist, outward-looking economic ideas. Instead, hopes that the revamped commission would lead to a transformation of India’s economy on Panagariya’s preferred lines—with coastal states adopting business-friendly regulations and plugging into global supply chains to generate jobs—have been belied. These are seen increasingly as “Western” ideas that should be rejected; Panagariya’s successor wrote just last week, “Policymaking [is] being liberated from external, more specifically deeply ingrained Anglo-American influences.”
The few reform-minded outsiders in Modi’s government seem to have found themselves fighting rearguard actions against components of the ruling Bharatiya Janata Party, or others from its stable of right-wing Hindu nationalist organizations. One of those, the Swadeshi Jagran Manch, has gone after NITI Aayog for its supposed “pro-corporate” agenda, accusing the institution of “lobbying” for pharmaceutical companies. Meanwhile, the BJP’s associated trade union has firmly blocked labour reforms—even arguing that laws allowing women to work after dark were Western-influenced and not right for India.
Nor have the government’s few experts managed to restrain some of its odder policies. None of them, for example, were consulted about Modi’s disastrous decision to suddenly withdraw 86% of India’s currency last November. Even changes like the goods and services tax, or GST—one of the government’s most worthy reforms—betray through their complexity a decision to prioritize politics over sound economics. One of Panagariya’s fellow economists at NITI Aayog recently pointed out that “we should have been much closer to the ideal GST.” He added “the government is slightly upset with me” for holding that view.
While no one can know Modi’s mind for certain, the prime minister at least hasn’t intervened in favour of the pro-market “side” in such disputes. The result: deadlock.
Panagariya, who announced last week that he would soon return to Columbia, wasn’t forced out. But he’d long been marginalized. Before he took over NITI Aayog, he served briefly as an adviser to Rajasthan’s government, which took his ideas far more seriously; it implemented an entire set of major changes he’d proposed, including to labour laws.
By contrast, in New Delhi, more and more power has been given to career bureaucrats. Whatever policy influence NITI Aayog boasts appears to come from the fact that it is run by one of Modi’s favourite civil servants.
Indian bureaucrats aren’t generally supporters of effective reform—particularly changes that reduce the power of India’s state. Judging by the rhetoric surrounding Panagariya’s exit, the government now seems to believe that India doesn’t need a Margaret Thatcher or even a Deng Xiaoping; just cleaning up administration and a few tweaks to existing law are enough to supercharge growth. “Outsiders” with all their “Western” ideas don’t get Indian realities, and try to do too much. This distrust sounds a lot like the socialist India of the 1960s and 1970s.
This is bad news. If the government now sees reformist thinking as inherently “Western” and alien to Indian tradition, the chances of sustained high-growth—the sort that would turn India into a middle-income country in a few decades—is off the table. That’s not the outcome any true patriot should be seeking. Bloomberg View