Sanjaya Baru | Modi’s macroeconomics: a confusing lack of clarity


The reconstitution of the Prime Minister’s Economic Advisory Council, with a prominent economist, Rakesh Mohan, replacing another eminent economist, Anantha Nageswaran, should not be interpreted as anything other than a routine bureaucratic decision. The incumbent’s term was over and someone had to fill the position.

Few people really expect this change in composition to make a difference in thinking and action on the economic policy front at the highest levels of decision-making, given Prime Minister Narendra Modi’s track record. He has shown little interest in macroeconomics and at prime ministerial level it is the big picture that matters, not the details of sector policy that line ministries should normally focus on.

Likewise, the decision of the Chief Economic Adviser, Krishnamurthy Subramanian, to resume his academic duties, with his term ending just two months before the presentation of the Union budget and the economic study to Parliament, was also discussed. routinely. The position will be filled by December, and the transition is unlikely to make much of a difference in the writing of the Economic Survey. With the minimum qualification for the post diluted, no longer a doctorate but only a master’s degree in economics, the current second in command, Sanjeev Sanyal, can easily step into the post and finish writing the survey. Mr Sanyal, a Rhodes Scholar, is talented and is known to have the ear of the Prime Minister, being a staunch loyalist of Narendra Modi.

The reconstitution of any advisory council to the head of government in any modern economy is still the subject of numerous analyzes and interpretations. Analysts look to political indicators, the ideological predilections of those leaving and those entering to interpret likely influences on the head of government.

In India, too, there was a time when government observers scrutinized who was on the inside and who was on the outside when it came to economic policy making. During the years in power of Indira Gandhi and Rajiv Gandhi, the battle for political influence opposed “left” and “right” economists. Prime Minister Manmohan Singh had his own opinion on economic policy, but gave equal attention to the views of other talented economists like C. Rangarajan and Montek Singh Ahluwalia. After the UPA came to power in 2004, Dr Singh played a key role in economic policy formulation during the early years, but during his second term much of the political initiative slipped into the hands of then-finance minister Pranab Mukherjee.

Observers of economic policy in New Delhi have often wondered who among government economists Prime Minister Narendra Modi pays attention. The chairman of the Prime Minister’s Economic Advisory Council, Bibek Debroy, and Niti Aayog’s vice-chairman, Rajiv Kumar, must certainly have the prime minister’s ear and he should read all the notes they present to him, but it doesn’t is not clear. what impact their points of view and those of other members of PMEAC and Niti Aayog had on the thinking of the Prime Minister. Reading some of the published works of these notables, one wonders whether government policy makers have read them or not.

More recently, a gulf has arisen between the traditional Swadeshi economists of the BJP and the more market-oriented economists in foreign trade policy. Economists Surjit Bhalla and Rakesh Mohan, both advisers to the prime minister, have diverged over a range of political issues over the past two years, with the exception of privatization, and it remains to be seen which of them will have the upper hand. more influence over the prime minister.

As for the CEA of the Modi government, the less we say, the better. Neither Arvind Subramanian nor Krishnamurthy Subramanian had the kind of influence on the Prime Minister’s thinking on economic policy that some of their illustrious predecessors had. Dr Subramanian will likely be remembered more for his insistence that the recovery from Covid lockdown was V-shaped, ignoring its visible K-shape, than any other political idea.

Unsurprisingly, even within the Ministry of Finance, the CEA has been reduced to the status of head of research rather than head of policy. It is often forgotten these days that the CEA is not only an official of the Ministry of Finance but is in fact the main economic adviser to the government of the Union. Some of the former incumbents have had a profound influence on politics as they have managed to get the attention of no less than the head of government.

The political mandate of the CEA was not only broader in the past, but the Annual Economic Survey, which is produced under the responsibility of the CEA, was generally regarded as the official economic policy statement and document of the government. Over the past decade, starting with Dr Kaushik Basu and continuing with his successors, the Economic Survey has grown into a semi-academic publication, as have many think tank papers.

The two finance ministers, Arun Jaitley and Nirmala Sitharaman, distanced themselves from some of the Inquiry’s ideas, saying it was not from the ministry’s point of view but the authors of the publication. Beyond appearing in the mandatory media interviews before and after the budget, it is not clear what role today’s ACEs actually play in budgeting. Many distinguished ACEs have been called upon in the past to draft the Budget Speech for the Minister of Finance. It seems that is no longer the case. However, if Mr. Sanyal becomes the CEA, he may well end up writing the finance minister’s next speech.

The lack of clarity on the thinking of the Prime Minister and the Minister of Finance on macroeconomic policy has baffled investors time and time again. Reckless initiatives like demonetization, truncated ideas like issuing sovereign bonds on world markets, a confused policy of tax on goods and services, etc. give the impression that the economic policy of Narendra Modi’s government is shaped by trial and error rather than a medium to long term strategy.

Mr. Modi’s policy of trial and error and hit and run on the economic front has meant that the most informed opinion on the economy, including that of those who advise the government at various levels , is that economic growth will remain subdued until his second term, and his ten-year average will remain well below that recorded during Dr Manmohan Singh’s decade in power.

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