Exit of CEA
By Shivaji Sarkar
The third high profile departure, now of Chief Economic Advisor (CEA) Arvind Subramanian coming shortly after the decision to withdraw support to the PDP government in Jammu and Kashmir is a bit of a surprise. The exit of Raghuram Rajan, an appointee of the UPA government from the Reserve Bank of India 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 another south Indian leader Subramaniam Swamy, and sections of the people who were opposed to “western imports”. They all came from institutions in the US and have gone back there.
Indeed there was opposition within the folds when Arvind 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 and in a column on April 5, 2014 wrote: “Prime Minister Modi will expose a paradoxical tension between his mandate and mission”. It was a big surprise that with such sharp views he was appointed the CEA in October 2014. His predecessor Raghuram Rajan had moved to the RBI and the post lay vacant for 13 months.
Subramanian’s 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 irrigation strategies, impact of gender inequality and ineffective export subsidies for textiles. He is the creator of JAM – jan dhan, aadhar and mobile – for direct transfer of public benefits. But he also came under criticism for promoting aadhar for banking and other services, as many consider it to be risky, throwing millions to an unsecured system, where privacy is compromised. To this effect a legal battle is on. Further, he is accused perhaps inappropriately for the manifold increases in bank charges on withdrawals and taxes on interest accrual.
Since June 2016, Swamy has been targeting him by even doubting his patriotic credentials. However, Finance Minister Arun Jaitley had stood by him and while Subramanian hailed Jaitley as a “dream boss”, Jaitley too returned the compliment saying 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”, said Jaitley, appreciating 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 simplistic GST were also not heard and one reason may have been because he suggested a minimum rate of 18 per cent.
Apparently, Panagariya had cautioned against the fiscal spending spree and he too was not heard. Similarly, Raghuram Rajan’s views on demonetisation 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 of their 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 hardcores 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 RBI’s failure to assess inflation and openly demanding interest rate cut. This later did not prove 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 per cent is a concern and needs 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.”
The recent four-year high profit margin of 50 per cent of companies in the last four quarters is an indicator perhaps of the turnaround, even though it’s 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, however, their advice has importance for framing up the policy. But no politician goes fully by the advice of either an economist or any expert. 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”. These are all not easy solutions.
Politically too, 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.-INFA