Arvind Subramanian has had quite a paradoxical tenure as the Chief Economic Adviser (CEA) to the Finance Minister. While he brought a lot of pizzazz and heft back to the usually staid Economic Surveys and lent his voice to a number of pressing economic issues, the government repeatedly failed to heed his advice or consult him on important economic decisions on the other. It must be frustrating to be being an adviser with nobody to advise.
Some solutions
Mr. Subramanian’s first major contribution to the socio-economic framework was in the Economic Survey 2014-15, in which he wrote at length about the various developmental possibilities that arose from the Jan Dhan-Aadhaar-Mobile (JAM) trinity. The plan here was to use data obtained through the financial inclusion network of the Jan Dhan Yojana, the identity data of Aadhaar, and the accessibility offered by the mobile revolution to target financial assistance to those who need it. It was a great idea. It was not revolutionary in terms of innovation — it was bound to happen eventually — but it takes somebody in an official capacity to write it out and argue the merits and demerits before it is taken seriously. That’s what Mr. Subramanian did.
The idea has since taken off, with the government wholeheartedly embracing Aadhaar. The next Economic Survey saw the CEA bring to light an issue with doing business in India that few had actively thought or talked about until then: the difficulty of exit. While it was easy enough to begin a business venture in India, the CEA explained how it was extremely difficult for them to pack up or declare bankruptcy in such a way that they could easily dispose of their assets and settle their liabilities.
He called this, in his usual witty style, the chakravyuh problem. The Central government has since then taken decisive steps, such as bringing out the Insolvency and Bankruptcy Code, to address this issue. But credit must go to Mr. Subramanian for discussing a purely business issue in a way that made it relatable to even those with no business acumen.
However, it’s about at this point that the CEA’s role began to bump up against a ceiling of non-responsiveness. Along with the JAM trinity, Mr. Subramanian had (in the 2014-15 Survey) also discussed the problems with public-private partnerships (PPPs) in India and suggested ways to improve them. Several of his suggestions, such as restructuring existing contracts to share the load between developers and lenders, might have actually worked. But PPPs have yet to take off in any meaningful way.
On demonetisation
The 2016-17 Survey came amid great anticipation; it was the first time the CEA spoke about demonetisation. However, in keeping with his diplomatic silence following the announcement on November 8, 2016, the chapter on demonetisation was far more vanilla in its critique than previous analyses overseen by the CEA on other topics. Maybe it was still too early to gauge the impact of the move in any real sense. Or perhaps he had been instructed to go easy. Either way, the demonetisation episode brought to the fore the extent to which the CEA’s office was becoming sidelined in the current dispensation.
Several Surveys under Mr. Subramanian have talked about the ‘twin balance sheet problem’ afflicting corporates and banks. In other words, the effect high levels of bad loans were having on the abilities of banks to lend and companies to borrow. One of the solutions he came up with was to create a ‘bad bank’, to purchase bad loans clogging bank balance sheets and resolve them. While not a new idea per se, this was the most recent attempt to create a discussion about it. The idea was barely debated outside the Survey, and died a quick death with Finance Ministry officials dodging questions about it until they stopped being asked.
The idea of a Universal Basic Income, mooted in the 2016-17 Survey, also met the same fate. The chapter was a fascinating discussion framed as if it was taking place with Mahatma Gandhi himself — another example of the vigour and interest the CEA brought to the document. Here too, discussion within the government ended as quickly as it began.
Mr. Subramanian’s departure comes on the heels of other noteworthy economists (former RBI Governor Raghuram Rajan, and former NITI Aayog Vice Chairman Arvind Panagariya) also returning to the U.S.
Perhaps the time is ripe to overhaul the structure of economic advisers to the government. The post of the CEA should be moved to the Ministry of Statistics, which itself should be renamed the Ministry of Economics and Statistics. That Ministry is currently as much in need of an economist as of an econometrician. The post of the Chief Statistician of India has been lying vacant since February 1.
Next, all economists in the government advising the various ministries should be consolidated under this single ministry which can then decide how best its resources are used.
For now, however, the question Mr. Subramanian’s departure leaves us with is this: whether the position of the CEA is one the government finds useful at all. The answer may lie in how quickly the vacancy is filled and how much weight is given to the ‘adviser’ part of the role.
sharad.raghavan@thehindu.co.in