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Home >Opinion >Columns >Tamil Nadu turns to star economists. Will it work?

The recent announcement that the newly-elected Dravida Munnetra Kazhagam (DMK)-led Tamil Nadu government of chief minister M.K. Stalin will create an economic advisory council (EAC) peopled by well-known economists has rightly been welcomed. Its members include luminaries such as Nobel economist Esther Duflo, former Reserve Bank of India governor Raghuram Rajan and former chief economic adviser Arvind Subramanian. Other members include economist Jean Drèze, who was a member of the now-defunct National Advisory Council set up under the previous Congress-led Union government, and former Union finance secretary S. Narayan.

Perhaps the most immediate value of the creation of Tamil Nadu’s new EAC is a signal from its Stalin government that domain expertise and intellectual excellence matter when it comes to the state’s economic policy. The fact that the new body would presumably liaise closely with the state’s finance minister, P.T.R. Palanivel Thiagarajan, bodes well, considering that the new minister has considerable domain expertise himself, including postgraduate degrees in operations research and financial management from reputed universities.

Of course, whether the EAC’s creation has a meaningful impact on policy will depend on the extent to which the state government solicits its inputs and heeds its advice. As my last column noted, policy decisions ultimately involve political judgement and are not made purely on the basis of technocratic advice. Thus, while truly ‘evidence-based’ policymaking remains a chimera, policymaking in the real world should, at the very least, be informed by the latest knowledge and insights from the relevant disciplines—in this case, economics and finance.

On this score, the varied membership of the EAC shows a good mix of ideological and sub-disciplinary perspectives in economics. Thus, while Duflo and Drèze are development economists who tilt toward the centre-left, Rajan, a professor at the University of Chicago, boasts impeccable free-market credentials, and Subramanian may be described as a classic pragmatic centrist. How they filter possibly differing views on potentially contentious issues—like the debate of cash-based versus in-kind entitlement schemes—might help shape how the government tweaks its social welfare programmes.

Caution is always in order while extolling the creation of a new advisory body such as this. Its success or failure will depend on the receptivity of the government it advises. While the Congress-led Union government that was in power from 2004 to 2014 boasted of many well-known economic reformers within its ranks—starting from the prime minister himself, Manmohan Singh, and moving down the line—that government was noteworthy for the absence of any significant structural, or ‘second generation’, reforms under its watch.

While it would be an easy way out to say that the Singh government was unable to undertake reforms because of the recalcitrance of coalition allies, the truth is that the ideological slant of the ruling coalition’s chairperson, Congress leader Sonia Gandhi, and her advisers was more in tune with the rolling out of newer, bigger and better entitlement schemes than it was to unplugging structural bottlenecks on the supply side of India’s economy.

On the other hand, when good economic policy goes hand-in-hand with good economic advice, the direction of causality is not necessarily from adviser to politician but sometimes works in the reverse direction. Put simply, governments tend to appoint advisers who share a philosophical and ideological bent. So reform-minded governments tend to recruit reformist advisers. Would one then say their good economics is the result of good advice? Or, rather, does good advice provide the intellectual framework for the good economics that emerges as a political consensus? This is not an idle speculation, as it describes the success of the P.V. Narasimha Rao government in pushing forward with difficult macroeconomic and structural reforms following India’s 1991 crisis. Thus, as I wrote in these pages long back, the success of the original economic reforms of 1991 and beyond must be credited, at least as much if not more, to the political cover that Rao gave those reforms as to their technocratic execution by his finance minister Manmohan Singh. As is well known, I.G. Patel had been Rao’s original choice and Singh was chosen only after he declined. It is hard to imagine how the reforms would have been markedly different under Patel instead of Singh.

This is in no way to denigrate the important role that Singh played. Rather, it is to point to the fact that the first generation of economic reforms had followed a template which, by 1991, represented a consensus among market-oriented economists and policy analysts, going back to the seminal work of Jagdish Bhagwati and others as far back as the 1960s.

Of course, often bad economic policy also gets a certain intellectual cover from bad economic advice that has been solicited. For any economic idea, good or bad, there is usually an economist ready to provide a rationale for it. Former US president Donald Trump surrounding himself with protectionist advisers is an obvious case in point.

Ultimately, then, the success of Tamil Nadu’s EAC will principally reflect not the expertise of the eminent economists who populate it, but the wisdom of the government that appointed it.

Vivek Dehejia is a Mint columnist

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