Rattled Modi appoints an Economic Advisory Council

Stung by criticism from all around for causing mayhem in the economy through a foolhardy decision like demonetisation, Prime Minister Narendra Modi on Monday appointed a five-member economic advisory council that will advise him on economic issues.

The council would be headed by Niti Aayog member, Bibek Debroy, and will have three part time members, including Surjit Bhalla, Rathin Roy, Ashima Goyal. Niti Aayog principal advisor Ratan Watal is the member-secretary of the council.

The decision to have a council of professional economists comes after a decline in GDP growth for three consecutive quarters, muted industrial activity, stunted exports with a rising current account deficit. India's GDP is now growing at 5.7% - a far cry from 8-10% growth that Finance Ministry Arun Jaitley used to talk about in 2015.

Is a turn around possible?

“At least the government has realised that economic decisions have to be taken after consultations with professionals. Earlier, the government and the PM not only avoided taking advice from professional economists, but also derided them. PM Modi made a comment that he believed in hard work more than Harvard. Now at least there is a realisation that economy needs professional tool kits that are provided by economists,” said professor Ravi Shrivastava, who teaches economics at the Centre for the Study of Regional Development, Jawaharlal Nehru University.

In the erstwhile UPA government, prime minister Manmohan Singh used to have a strong economic advisory council headed by C Rangarajan. However, when the NDA government came to power, Modi did away with the culture of seeking advice from economists.

One of the biggest economic gambles in the country - demonetising 86% of the currency in circulation - was taken without consulting a single economist in the country. The rash move resulted in over a one percentage point decline in GDP growth and about 1.9 million people losing jobs.

The Financial Times, in its editorial published on Monday castigated Modi, saying, “Prime Minister Narendra Modi bears direct responsibility for the failure of the rash experiment in demonetisation. He took the decision to withdraw banknotes representing 86% of cash in circulation — in an economy that runs on cash — consulting the central bank and telling his cabinet just hours before the announcement. It has achieved little. Consumption suffered and, with 99% of the banned notes now in the formal banking system, anyone in possession of black money appears to have laundered it.”

Even though the government has vehemently denied any negative impact on the economy due to demonetisation, the economic indicators over the past six months have posed serious questions to the PM. The only defense so far was the bull run in the Indian stocks markets, which too, seem to be giving way to bears, with the BSE Sensex falling by 750 points in the last two trading sessions.

Will there be a change in economic policies?

This is the biggest question. If the economy is failing at the moment, whose advice can fix it? Most of the members of the advisory council have been sharing their views on the Indian economy through regular columns in media. And it comes out, that they are staunch supporters of the government's economic decisions, especially demonetisation.

Take for example, Bibek Debroy. He fiercely criticised India's former chief economic advisor, Kaushik Basu, for speaking against demonetisation. “Where does Dr Basu work now? He is based in US. I have a great deal of respect for him… That someone who is away from India may not necessarily be aware what is happening in India.”

Surjit Bhalla too has been a staunch supporter of the economic policies of the government. On demonetisation, though, he had mixed views.

In a piece published in the Indian Express, he had said , "If successful, this will go down as the biggest reform in India, bigger than the GST (though the two are related) and bigger than the industrial policy reform of 1991. But, and there is a but, while the policy is very effective in its attack on past black money, it is silent on the creation of money."

The government has followed a strict path to fiscal consolidation, even as a set of economists outside the government has advised against the move. So when Rathin Roy, who is considered to be 'fiscal hawk' comes in the advisory council, will there be any change in the course of government's economic policies?

Nonetheless, having professionals around in official roles is always better than not having them at all. But Abhijit Sen, member of the erstwhile Planning Commission has a pertinent and very basic question: “When these people advise the PM, will he listen to them?"

Nobody knows. Especially in the case of Modi, who believes in his own cult more than the expertise of professional economists.