A third generation of policy economists
India has till now had two generations of policy economists. Is a third generation taking over?
The first generation had men such as C.D. Deshmukh, P.C. Mahalonobis, V.K.R.V. Rao, D.R. Gadgil, J.J. Anjaria, B.S. Minhas and I.G. Patel, who advised the government during the planning era. They passed the baton on to the next generation that was deeply involved in the process of economic reforms—Manmohan Singh, Montek Singh Ahluwalia, Shankar Acharya, Vijay Kelkar, C. Rangarajan and Bimal Jalan, for example.
A new generation is now stepping into their shoes. Here are some examples: Urjit Patel and Viral Acharya at the Reserve Bank of India, Arvind Subramanian and Sanjeev Sanyal in the Union finance ministry, Rathin Roy at the National Institute of Public Finance and Policy (NIPFP), Bibek Debroy at NITI Aayog, Chetan Ghate and Pami Dua in the monetary policy committee, Shamika Ravi and Ashima Goyal in the Prime Minister’s economic advisory council (PMEAC). There are clear signs of a generational shift. Some of the third generation of policy economists have been nurtured by the previous generation. Some have not.
The task for each generation has been radically different. The first generation had to design policies that sought to rapidly create industrial capacity as well as build a heavy industry base for strategic depth. The initial success of the planning strategy gave way to industrial stagnation. The second generation had to push through a policy agenda that made the Indian economy more dynamically competitive by linking it to the booming global economy. The third generation is coming into its own in an India that is already a middle-income country, but needs to advise the government on how economic growth can generate adequate high-quality jobs as well as help build an efficient system of social interventions.
Successful policy advice depends on a working model that integrates various aspects of policymaking. Such a policy framework helps communicate government policy to citizens. As the NIPFP’s Roy pointed out in a typically perceptive column published in Business Standard in September 2016, Indian economic policy right now lacks a simple macro framework: “An explicit, simple and public analytical macro framework imposes accountability on macroeconomic policymakers. Conversely, the absence of such a framework does not allow for a common benchmark around which people can agree, disagree and utilise the collective wisdom of the policy community to the maximum extent. It disciplines the policy community by forcing them to articulate their vision, ideology and analytical habits rather than what happens now, which is the use and manipulation of data to establish the case for one’s favourite stylised facts.”
Some of the recent debates in Indian policy circles are interesting in this context. The Indian central bank is committed to New Keynesian models of the economy to pursue its inflation-targeting task. The finance ministry sometimes comes closer to more traditional Keynesian models. In a recent paper—Macroeconomic Policy In An India In Transition—published in the Economic And Political Weekly, Goyal from the PMEAC has used the aggregate demand-aggregate supply framework to implicitly question recent monetary policy.
There is no reason for every institution to follow the same technical model, given their different policy goals, but there continues to be a strong case for an overarching policy framework that integrates fiscal policy, monetary policy, exchange rate management, farm support price policy, etc. India seems to lack such an overarching macro framework right now, and definitely so in comparison to the planning and economic reforms frameworks.
Economists in general—and economic policymakers in particular—have lost a lot of credibility over the past decade. There are good reasons for this loss of faith. Yet, it would be wrong to swing to the other fashionable extreme by believing that policymakers can function without good policy advisers—as long as the division of labour between policy advice and policy making is clear. No modern government functions without seeking economic advice. In that sense, the Narendra Modi government has done well to resurrect the PMEAC for professional economic policy advice.
The cultural theorist Marshall McLuhan famously said: “The medium is the message.” We could not resist the temptation to close this editorial by paraphrasing him: The model is the message.
Does India need an overarching macro policy framework? Tell us at email@example.com