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The resignation of Arvind Subramanian in 2018 as chief economic advisor (CEA) was not a surprise. Whilst CEA, he had coordinated the preparation of a superb set of economic surveys; for the rest of the year, he would fly all  over India giving excellent lectures. His advice to then finance minister Arun Jaitley must have been equally good; but Jaitley’s budgets showed no sign of it. As Arvind wrote later, he used to barge into Jaitley’s room from time to time and give him  relevant economic advice; Jaitley listened with his characteristic courtesy, and forgot it the moment Arvind left the room. 

Arvind enjoyed being CEA despite his disconnection with power. But the irrelevance of his advice finally struck him, and he left, ostensibly  for “pressing family commitments" that included becoming a grandfather. Then the men in power seem to have looked around for a Subramanian closer to home, and found one at Hyderabad’s Indian School of Business. Now K.V. Subramanian too has left. Although he had announced his  departure a couple of months ago to give the finance ministry time to put a successor in place, he has not yet been replaced. 

The media entered many horses in the race.  To narrow down the options, they floated a new theory, that the next economist as CEA would be selected by the finance minister on the basis of gender uniformity. 

Such speculation might be fun for those who like watching races, but the question as to who would be the best CEA was generally ignored by public watchers. The reason was obvious: The job requires an economist, but the country’s leadership does not seem to take much interest in economics. We may watch racehorses with bated breath; but would we ever ask which CEA would be the best for the race course? This is not to equate governance with horse racing, but simply to point out the disconnect between economic policy and the current government’s orientation. 

Ignoring economics is not uncommon among rulers across the world; some rulers have too short a vision, some are much too busy dealing with their competitors, some accord priority to private interests, and some are simply incapable of absorbing economic advice. But well-run democracies in general have independent economists in government and listen to them while making policy. India had a tradition of not listening to them and making huge mistakes. The country began listening to them—including me for a while—after the economic crisis of 1991. Now that a crisis of the kind experienced a little over three decades ago  is virtually impossible, at least in the short run, politicians have returned to their independence  of economics.

That is unlikely to change soon, since the party in power, the Bharatiya Janata Party (BJP), faces no threat. Hence, it is pointless to ask who would make a good CEA. The question worth asking is this: What is the state of the economy and what economic policies does it call for? Growth-starved optimists would jump at the 4.3% rise in industrial production between September and October 2021; if it continues to rise this fast, it will rise by 49% in a single year. But let us slow down. Companies are not half as optimistic. Orders received for machinery in November were 64% lower than in 2019-20; new investment projects in the current quarter are 70% lower. 

The BJP is the favourite party of businessmen; it has received the bulk of electoral funds for years. But their fortunes have not looked up under its rule. Why not? Maybe the finance minister omitted to ask her CEA how to rescue business. Her followers will no doubt think up other explanations; if they fall short, abuse of opposition is always an option. But it will not revive the economy.

How is the economy doing? The closest indicator comes from national income statistics. According  to a press release of the National Statistical Office dated 30 November, gross value added (GVA) at 2011-12 prices in the second and third quarters of 2020 fell by 22% and 7% respectively, and rose by 19% and 9% in the same quarters of 2021; the net effect was that GVA in July-September 2021 was 170 billion or 0.5% higher than two years earlier. In other words, it was virtually the same as in 2019. As the IMF stated in its report on annual consultations with the government, the slowdown in those two quarters led to a fall in imports, an improvement in the balance of trade and a rise in exchange reserves; that was the good side of the collapse. The government spent an additional 10% of gross domestic product (GDP) to counter the disruption caused by covid. As a result, its fiscal deficit shot up from 4.3% in 2019-20 to a projected 8.6% and 7.3% of GDP in the next two years, and gross government debt rose from some 70% to 90% of GDP.

The IMF avoided reference to the government’s penchant for expenditure; instead, it suggested that the government should collect 1.5-3% of GDP more in taxes, and save half a per cent by reforming subsidies. This advice is probably consistent with the government’s inclinations. But the taxes would come mainly from productive taxpayers; that would worsen India’s economic prospects even further. At least the IMF did not encourage the Centre to continue its spending spree out of money printed by RBI or generated by bank credit. Not that the government needed encouragement; it is likely to carry on.

Ashok V. Desai is former chief consultant to the finance ministry

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