The third high profile departure of Chief Economic Advisor (CEA) Arvind Subramanian coming shortly after the decision to withdraw support to a PDP government in Jammu and Kashmir is a bit of surprise. The exit of Raghuram Rajan, an appointee of the UPA government from RBI was expected and Arvind Panagariya from the NITI Ayog was less of a surprise.
The common thread in the exit of the three Tamilians is yet another south Indian leader Subramaniam Swamy and sections of the people who were opposed to “western imports”. They all came from the institutions in US and have also gone back there.
Indeed there was opposition within the folds when Subramanian was named for his job. It was not for his economic belief but for his sharp views on the Gujarat model and even Prime Minister Narendra Modi. He had debunked the Gujarat model in July 2013. He wrote in his column on April 5, 2014, “Prime Minister Modi will expose a paradoxical tension between his mandate and mission”.
It was a surprise that with such sharp views he was appointed the chief economic advisor in October 2014. His predecessor Raghuram Rajan had moved to RBI and the post lay vacant for13 months.
His major contribution was in the presentation of the annual Economic Survey. He made it an immensely readable document. There was open discussion on critical issues that also marked the path for the economy. The Survey itself brought out how 50 big houses were responsible for large PSU bank NPAs.
One could get from the Survey an analysis of the twin balance sheet problems affecting the banking sector credibility, disparate agricultural patterns and productivity stressing on different irrigantion strategies, impact of gender inequality and ineffective export subsidies for textiles.
He is the creator of JAM – jan dhan, adhar and mobile – for direct transfer of public benefits. He was also criticised for promoting adhar for banking and other services. Many consider it to be risky throwing millions to an unsecured system where privacy is compromised. A legal battle is on. He is accused perhaps inappropriately for the manifold increases in bank charges on withdrawals and taxes on interest accrual.
Swamy since June 2016 has been targeting him and even doubted his patriotic credentials but finance minister Arun Jaitley stood by him. Subramanian hailed Jaitley as a “dream boss”. Jaitley said that he came out with new ideas. “He participated in every meeting of GST, gave his independent views and was heard in rapt attention by almost every finance minister”.
Jaitley appreciated his early diagnosis of the twin balance sheet problem as it had led the government to adopt macro-economic strategy of higher public investment in the 2015-16 budget.
Despite such appreciation his say in policy-making possibly was limited. The Economic survey denotes how a Rs 6,000 crore government package did not boost exports of readymade garments. His recommendations for a simple GST were also not heard. One reason may have been he suggested a minimum rate of 18 percent.
Panagariya had cautioned against the fiscal spending spree. It too was not heard. Similarly Raghuram Rajan’s views on demonetization were ignored.
Such high profile economists and political pragmatists always have differences. Finally, the political players have the last say as they also have to care for the vote bank politics. Subramanian obliquely says in an interview, “Politicians have their reasons for not doing things. And one has to understand that”.
The three – Rajan, Panagariya and Subramanian – are considered fine economists. Despite apprehensions of some hardcore like Swamy and others they wittingly are not known to have given inappropriate advice.
But having come from the US they were all at the butt of criticism. Rajan was a hardliner in the RBI and Subramanian ensured transparency in understanding the government functioning though possibly at a cost.
Subramanian was a critic of Reserve Bank of India’s (RBI) failure to assess inflation and openly demanding interest rate cut. Though later it proved not beneficial for the economy and Subramanian was found a bit off the mark.
Moreover RBI was found to be on track on inflation. A rate rise that has ensued now following the US rate revisions is being considered as the appropriate move to save the banks and prevent many undesirable borrowers from accessing bank funds.
The latest monetary policy committee meeting is unanimous on growth and inflation. An MPC member Ravindra Dholakia justifying decision for rate hike said that inflation at 4.8 – 4.9 percent is a concern and need to be addressed at a time when economic growth is on a path to recovery. This is in contrast to the view of Subramanian. So economists stationed at different places can have different perceptions and the chief’s view need not always be correct.
But Subramanian has sanguine advice in not “risking the hard-earned macro-economic stability”
Possibly the recent four-year high profit margins of 50 percent of companies in the last four quarters is an indicator of the turnaround. Though is just the beginning of the process after a long recess.
The time for a let-up has yet to arrive. Whether the economists contribute or can do so remains a matter of discussion, their advice has importance for framing up the policy. But no politician goes fully by the advice of either an economist or any expert. The politics has its own grammar and every player tries to stick to that.
Now the challenge is how to create more jobs, a critical economic and political necessity. It requires a far higher pace of growth, says Subramanian and “The global economic situation is lot less favourable. There is no magic wand to solve the job crisis and it is linked to investment, growth and exports”, he says. These are all not easy solutions.
Politically job growth is crucial. Economists so far have not been able to solve it. With the exit of another economist, it is only expected that there would be more political decisions to solve some of the critical issues. Some crash programmes to create jobs in the next few months as also solve some of the volatile problems like Jammu and Kashmir may be on the cards.
(By Shivaji Sarkar Views expressed are personal)
