One more exit

The stepping down of Arvind Subramanian marks the third high-profile policy thought leader’s exit from the Modi government, after Raghuram Rajan and Arvind Panagariya. In his near-four year term as Chief Economic Advisor, Subramanian spoke his mind on a number of key issues, perhaps perceiving that he should act as an independent voice within the government, to do justice to his role. Hence, he made no bones about his disagreement last year with the Monetary Policy Committee, arguing that it had consistently overestimated inflation and should have cut rates. He also wrote a persuasive dissent note as part of the panel to review the Fiscal Responsibility and Budget Management Act, arguing against a blind pursuit of a fiscal deficit target. He said it would make more sense to focus on primary deficit (deficit sans interest payments). This view seems to have worked its way into recent Budgets, with their emphasis on public spending as a way to boost growth — particularly in the context of what Subramanian termed the ‘twin balance sheet’ problem of banks and corporates which had paralysed private investment. Finance Minister Arun Jaitley has conceded that his analysis of the NPA issue convinced the government to push public spending — which seemed to have propped up the economy. In the world of policy, Subramanian’s influence was to be seen in the GST Council’s efforts to arrive at a rate structure that corresponded to his 18 per cent ‘revenue neutral’ rate. He made a case for targeting subsidies through the Jan Dhan-Aadhaar-Mobile trinity, which the Centre has sought to implement with some ardour. He also conceded, in the Economic Survey 2016-17, that demonetisation had hurt growth, subtly distancing himself from those who had sought to dismiss its effects as a mere blip.

It was in the Surveys that Subramanian left his stamp. He transformed the annual economic policy document of the finance ministry from being a dour overview of policies and events to a springboard for fresh ideas. Hence, ‘universal basic income’ was conceived as a social safety net for an economy that seeks to pursue labour market reforms. There is, however, no indication that the Centre has taken this proposal seriously. The Survey raises questions on what trajectory Indian manufacturing should take. Policy-makers need to break out of fixing immediate issues to addressing these questions.

However, the larger issue is why specialists with the best credentials do not stick on. Subramanian was targeted by the ‘swadeshi’ camp not just for being a ‘foreign-trained economist’, but perhaps for keeping a studied distance from illiberal, fringe elements. While he and the Finance Minister seemed to enjoy each other’s confidence, it is not clear whether that extended any further. Subramanian was kept in the dark on the DeMo decision. He never went out on a limb to support it either. His successor should pursue his understated liberalism and neutrality.

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