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Chief Economic Adviser Arvind Subramanian’s free-market convictions dominate his academic work and do not conform to the nationalist and protectionist streak among the leadership of the Rashtriya Swayamsevak Sangh (RSS), the ideological mentor of the ruling Bharatiya Janata Party. But his academic views are unlikely to dictate his policy prescriptions, top government sources told The Hindu.
“Academic studies guide policy formulations, but policies are not dictated by it. The final policy decisions will always be made by the political executive with inputs and advice from the CEA,” one source said.
The senior government functionary explained that Dr. Subramanian’s appointment indicated a trend of internationally acclaimed experts of Indian origin offering to work in India. “Dr. Subramanian’s track record is extraordinary,” he pointed out. Raghuram Rajan, former CEA and now Reserve Bank Governor, also left his position of Chief Economist at the International Monetary Fund to work in the Indian government. Both were colleagues at the IMF.
Dr. Subramanian is a reformist at heart and stands for open, liberal but transparently regulated markets, economist Rajiv Kumar told The Hindu. He will bring to the job emphasis on de-bottlenecking of the supply side and since he favours free trade he will most likely push for increasing India’s exports and for the domestic sector to be less clogged with regulation.
Though few CEAs have traditionally majorly influenced policy-making, Dr. Subramanian has the advantage of being more than a pure academician having worked in the IMF and World Bank systems due to which “he is likely to be a more successful CEA in the midst of the government system and not at the margins of it, marginalised by the bureaucracy,” said Dr. Kumar. Though how much this influence will be will depend on his rapport with the Finance Minister and the Prime Minister. Dr. Subramanian’s approach is thus in sync with the core of the Modi government’s stated intentions of liberalisation and transparent regulation.
CEAs typically define their roles within the government framework which is constrained among other imperatives by political compulsions and Dr. Subramanian is not likely to be different.
He has shown pragmatism in his critiques of the Modi government’s decisions. For instance, he wrote about the delay in implementing the increase in natural gas prices that is likely to benefit private contractors such as Reliance in the KG Basin: “An increase in natural gas prices is essential. But controversy on the pricing formula, as well as the Kejriwal critique of cronyism to which this government is sensitive, probably justifies additional reflection and time before action is implemented.”
Certain other decisions he rejected completely. For instance, he wrote that the Modi government’s maiden budget should have come clean on budgetary accounting, even if this meant accepting the higher deficit number rather than retaining the UPA government’s fiscal arithmetic that included artificially reduced or deferred expenditures by up to 0.3 per cent of the Gross Domestic Product. Some of the budget numbers he found ‘implausible.’
“Tax revenues are projected to grow by nearly 20 per cent. That defies credibility given that nominal GDP growth is unlikely to exceed 13 to 14 per cent (9 percent for inflation plus 5 per cent for real GDP growth),” he wrote, cautioning that transparency and credible numbers evoke confidence and unreliable numbers will eventually elicit cynicism and since good governance was supposed to distinguish this government from its predecessor the budget should at least have started reducing the aggregate fiscal deficit by 0.3 to 0.5 percentage points.
Similarly, he differed with the Modi government’s refusal to ratify the World Trade Organization’s proposed Trade Facilitation Agreement (TFA) unless it makes ‘satisfactory’ progress on the food security proposal crucial to protecting India’s minimum support prices for its farmers.
“… supporting agriculture is valid, but no, the tactic at the WTO negotiations may be less so … Food subsidies and even income support to poor farmers should gradually be replaced by cash transfers but since this takes ages, India should try to change WTO obligations itself,” he wrote, adding that India should withdraw its opposition to the TFA, reformulate its position on agriculture, proceed to persuade its partners of the merits and fairness of its new position, and revisit this issue at the WTO in the near future.
Dr. Subramanian had also warned that if the Bali deal collapses, the blow to an already weak WTO would be significant and India would bear much of the blame. Since it didn’t pay heed to this advice, the government has landed the WTO deal in the situation he had cautioned against.
He highlighted the problems in hiking sugar subsidies and import duties on sugar. “Aimed at appeasing the sugar lobby in Maharashtra but also in Uttar Pradesh, this measure is problematic… Apart from its many problems, it leads to water-intensive and water-wasting resource allocation, which is bad for the medium term given India’s plunging water tables. If the aim was to help sugar farmers being paid their dues, this was a very inefficient way of doing so.”
From: The Hindu