Listen to economists
Govt must be open to advice and correct course
The impact of the pandemic on the Indian economy’s growth was, as the government figures released recently make clear, larger than in most other large economies. The Indian economy contracted by 23.9 per cent in the first quarter this year. There may well be some bounce-back, now that the country has re-opened significantly, but it is also true that potential growth has been falling for some years, and the effects of the pandemic have already led to a contraction. New ceilings on growth seem to hit the economy every few years — from the after-effects of demonetisation, to problems with goods and services tax, and now Covid-19. Yet, the government’s confidence in its handling of the economy apparently remains undiminished. It is time, perhaps, for it to be open to the measured and thoughtful criticism of its economic management that is emerging from multiple economists with excellent reputations.
Several economists have offered suggestions about the way forward. Raghuram Rajan, a past chief economic advisor and former Reserve Bank of India (RBI) governor, has said the recent data should “frighten” the government “out of its complacency” and urged it to ensure that existing relief mechanisms such as employment under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) were used to the fullest. Unfortunately, as former chief statistician Pronab Sen has pointed out in an interview to The Wire, the initial funds provided by the Union government for the MGNREGA have not been replenished and the scheme “collapsed” in the past month. Dr Rajan’s point is that there is much that can move the economy forward without additional spending — that reform is its own sort of stimulus. While the government’s actions a few months ago did indeed unveil certain reforms in agriculture in particular, the momentum for serious reform has since died down. This is unfortunate, but it reflects an atmosphere of confidence within government — expressed best by the chief economic advisor recently that a “V-shaped recovery” is on the way.
Other economists have written persuasively about lasting problems underlying the government’s economic plans. Former RBI governor Urjit Patel, in a new book, has made public his worries that early gains against cronyism in the banking sector are being rolled back and diluted. His erstwhile deputy, Viral Acharya, has renewed his warnings against fiscal dominance of the monetary authority and dilution of the RBI’S independence. Many of these economists — such as Dr Rajan — might be dismissed within government as having served its predecessors as well. But that surely cannot apply to Dr Patel — or for that matter to the first vice-chairman of the NITI Aayog, Arvind Panagariya, who has spoken repeatedly against anti-trade policies being pursued by the government under the guise first of “Make in India” and now of “self-reliance”.
This chorus of concern is now being reflected in the general coverage of the Indian economy in the global press, which has turned critical or is questioning after years of general praise of the government’s achievements. These are all bellwether indicators, and take on special significance at a time when the government will hope to tap global markets for crucial financing for its priorities. For the country’s sake, senior officials and ministers should take active steps to exit a bubble in which they are exposed only to supportive or politically “reliable” opinions. The economy needs action. At this time, any further mis-steps will prove very costly indeed, and well-intentioned advice should be given due attention.