New Delhi: Former chief economic adviser Arvind Subramanian’s new book Of Counsel: The Challenges Of The Modi-Jaitley Economy, based on his days at North Block, has created quite a controversy following his comments on demonetization. On his first visit to India more than five months after demitting office, to release his book, Subramanian took stock of the Indian economy. Edited excerpts:

You have now termed demonetization as “draconian". Why do you call it draconian?

Notice that “draconian" was used to describe the 86% reduction in money supply. You call it a shock, severe or draconian, you choose your word. The point is, it was meant to be a very bold, decisive action. It was not meant to be a soft or mild action.

It has created a stir because you kept silent on the issue for a long time while in office.

As I say in the book what has happened, has happened. I don’t want to get into rights or wrongs. I am stepping back to answer some new and important questions on demonetization--Why was it a political success and why its impact on GDP was limited.

But now that you are out of the government, why can’t you speak your mind?

No. I think there has to be some decorum. I still feel I will never be a free citizen. If you once have held a position in government, then you have to maintain some norms.

But was there any pressure on you after demonetization, and were you asked not speak up?

Never. The finance minister, with whom I have dealt with closely, has never interfered.

Many, even within the government, now say you enjoyed the benefits of the government even after demonetization was carried out, and now speaking against it sounds opportunistic. What would you tell them?

That’s fair, if they want to make that comment, that’s fine. Draconian means severe. I like colourful language, that’s why the (economic) survey got read, otherwise nobody reads surveys.

Congress president Rahul Gandhi is quoting your latest views. He has wondered why you didn’t resign from your post if you disagreed on demonetisation? Did a resignation cross your mind?

All sides will play political football. I know what I wanted to say. As I said in the book, this is not a ‘kiss and tell’ memoir. It’s a book about substance.

How is your view on the new chief economic adviser Krishnamurthy Subramanian? What advice would you give to your successor?

I wish him well. His credentials look good. It’s been the most exciting job that I have ever done. I am hopeful and confident that he will also enjoy it and do a good job. There are so many issues to focus on—banking, agriculture, macro-economy, Universal Benefit Transfers, Reserve Bank of India—India does not lack issues to focus on. He has expertise in banking and corporate governance which are very important areas.

How do you see the growth outlook unfolding from here onwards?

Growth is slowing. We have to brace ourselves for a bit of slower growth. Financial system conditions have been very tight. Now, even NBFCs are more reluctant to lend, interest rates are reasonably high, agricultural incomes are quite depressed because of (low) farm prices. So consumption will be affected by that. The world economy is also slowing. Export performance has not been solid. On investment front, though road sector is doing well, power and telecom are challenged. However, the good news is that the whole macro-economic vulnerability from high oil prices and high inflation has come down. So demand has to be injected now, mostly by the government, but then we have the fiscal constraint. So, the economic situation is going to be a bit tight, but even 6.75-7% growth is not bad.

Do you agree with RBI’s latest policy of retaining its calibrated tightening stance, even as it revised the inflation forecast downward to 2.7%?

I am going to do something very perverse. In government, I shouldn’t have been commenting on RBI policy, but I did. Outside government, I am free to comment, but this is something I am going to pass. There are enough issues between the government and RBI and I don’t need to add to the fire.

How do you see the RBI-finance ministry tussle? Do you think by threatening to use Section 7 of the RBI Act, the government has crossed the redline?

RBI is one of the prestigious and respected institutions and we should try and maintain its autonomy. That’s why I think doing unusual things do raise questions. Politicising the board of RBI kind of chips away that functional autonomy. So we should be very careful about that because in the long-run the costs could be significant. But equally, autonomy does not mean there should not be consultation and cooperation. RBI should be more open in its discussions with the government. We need to get that balance.

Some also see an attempt to make RBI a board-driven organization. How do you see it?

It is more a consequence of a deeper rift and, if you can address that underlying rift, then you can go back to the way the board used to be. Once you start politicizing the board, it could have other consequences which we need to be mindful of.

Do you think the government has politicized the board?

I think certainly the perception is that it has got politicized.

Because of some appointments?

Yes, because of some appointments and also because of the way things have happened. But I am glad that there has been a truce and understanding to move forward cooperatively.

How would you rate the reforms record of the Modi government?

Three big achievements of the government will be GST, the IBC and the alternative vision of the Prime Minister, which is to use state capacity to deliver essential goods and services, especially to the backward, such as cooking gas, toilets and housing. And the use of technology in delivering those. More could have been done in agriculture and power, even financial system. The finance minister has always agreed with me, that more and more, you have to use cooperative federalism to solve problems of India. We need to act very decisively on the financial system. New problems are cropping up like IL&FS.

On the financial system, in the book I have a “grand bargain"—what government should do and what RBI should do. Perhaps now this is going to be the agenda for the next government. It may be a little late in the cycle for this government to act.

On the liquidity situation especially for the NBFCs, the government and the RBI differ quite drastically. Which side are you?

I am not persuaded by the argument that you can lend your way out of this problem. Rather the problem arose because there was over-lending at the first place. So if you are going to repeat that lending without better governance, better incentives, without reforms, then there is a huge risk that you will aggravate the problem. What I do think is that we should have an asset quality review (AQR) for the NBFCs just as we had AQR for the banks. In case you have to provide liquidity or whatever, at least we should start the process of looking at the books of the most important NBFCs. It may take some time and after May 2019, the next government can act on that.

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