Another adviser turns out: does the government really care?

Despite breaking ties with power, Arvind enjoyed the CEA. But the irrelevance of his advice eventually struck him, and he went on to “suppress family commitments,” which included becoming a grandfather. Those in power then looked for a Subramaniam closer to home, and found one in Hyderabad’s Indian School of Business. Now KV Subramaniam is also gone. Although he announced his departure a few months ago to give the finance ministry time to succeed him, he has yet to be replaced.

The media entered several horse races. To narrow down the options, he formulated a new theory, that the next economist as CEA would be chosen by the finance minister on the basis of gender homogeneity.

Such speculation may be fun for those who like to watch the race, but the question of who would be the best CEA was generally ignored by the public audience. The reason was clear: the job required an economist, but the country’s leadership did not take much interest in economics. We can watch the horse racing with our breath away; But shall we ever ask which CEA would be best for the race course? This is not to equate governance with horse racing, but merely to point out the difference between economic policy and the current government’s orientation.

It is not uncommon for economics to be overlooked among rulers around the world; Some rulers have little vision, some are too busy dealing with their competitors, some prioritize personal interests, and some are unable to absorb economic advice. But in general, well-run democracies have independent economists in government and listen to them when making policy. India had a tradition of not listening to them and making big mistakes. After the economic crisis of 1991, the country started listening to him – for some time along with me. Now that it is almost impossible to experience a crisis like this three decades ago, at least in the short term, politicians have returned to their freedom of economics.

This is unlikely to change anytime soon, as there is no threat to the party in power, the Bharatiya Janata Party (BJP). Therefore, it is pointless to ask who would make a good CEA. The question is worth asking: what is the state of the economy and what economic policies are needed for this? Growth-hungry optimists will jump to 4.3% growth in industrial output between September and October 2021; If it continues to grow this fast, it will grow by 49% in a single year. But let’s slow down. Companies are not half optimistic. Orders received for machinery in November 64% less than in 2019-20; New investment projects are down 70% in the current quarter.

BJP is the favorite party of businessmen. It has received a major share of electoral funds over the years. But his fate has not seen in its rule. Why not? The finance minister may not have stopped asking his CEA how to save the business. Undoubtedly his followers would consider other explanations; If they fall short, then misusing the protest is always an option. But it will not revive the economy.

How is the economy doing? The closest indicator comes from national income figures. According to a press release by the Office of National Statistics on November 30, Gross Value Added (GVA) at 2011-12 prices fell 22% and 7% in the second and third quarters of 2020, respectively, and rose by 19% and 9%, respectively. in the same quarters of 2021; The net effect was that the GVA in July-September 2021 was 170 billion or 0.5% higher than two years ago. In other words, it was virtually the same as 2019. As the IMF said 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 trade balance and growth. in exchange reserves; That was the good side of the downfall. The government spent an additional 10% of the Gross Domestic Product (GDP) to combat the disruption caused by Covid. As a result, its fiscal deficit widened from 4.3% in 2019-20 to an estimated 8.6% and 7.3% of GDP over the next two years, and gross government debt rose from nearly 70% of GDP to 90% of GDP.

The IMF avoided reference to the government’s propensity for spending; Instead, it suggested that the government should collect 1.5-3% more of GDP in taxes, and save half a percentage by reforming subsidies. This advice is perhaps in line with the government’s inclination. But taxes will mainly come from productive taxpayers; Which will make India’s economic prospects worse. At least the IMF did not encourage the Center to continue its spending spree with money printed by the RBI or generated by bank credit. It is not that the government needs incentives; It is likely to continue.

Ashok V. Desai is the former Chief Adviser of the Ministry of Finance