PM’s advisory council a check on Jaitley

That the Prime Minister’s Economic Advisory Council (EAC) has met and identified confidentially the reasons that it attributes to the economic downturn in the country is a reflection of Narendra Modi’s apparent realisation that he needs to look at the economy not solely through the eyes of Finance Minister Arun Jaitley. It is a hard reality that Jaitley has been in the thick of controversy over the perceived failure of the demonetisation of high-value currency and the initial hiccups of the Goods and Services Tax (GST). It was widely speculated that the Finance Minister was not kept in the loop at least on demonetisation but being the country’s finance minister he could not shrug off responsibility. There is indeed complete silence on why Jaitley was not part of the EAC’s first meeting with the Prime Minister. If he was abroad attending the annual meetings of the World Bank and the International Monetary Fund, could the Prime Minister not have waited for him to return?

The five-member Council was unanimous that the government shouldn’t stray from the path of fiscal consolidation, thus ruling out a fiscal stimulus to reverse the downturn in the economy. Council chairman Bibek Debroy said the committee had reached a consensus on the fiscal consolidation policy being followed by the government. The twin objectives of the council would be to accelerate growth and employment in the next six months. It is unclear as to what would be the remedy if the Finance Minister does not agree with the palliatives suggested by the advisory council. While some creases in the cloth can be ironed out, would it not be counter-productive if the EAC and the Finance Minister function at cross-purposes? The Council, which includes Niti Aayog advisor and former finance secretary Ratan Watal, and economists Surjit Bhalla, Rathin Roy, and Ashima Goyal, would convene again in November.

Ahead of the meeting of the World Bank and IMF for which Jaitley is away to the US, a report put out by the Bank while acknowledging the slowdown in the Indian economy recommended greater focus to help boost the informal economy. It said sound policies around balancing public spending with private investment could accelerate growth to 7.3 per cent by 2018. It said while on the one hand, public and private consumption gained pace: after implementation of the 7th central pay commission recommendations; and due to the revival in rural demand after normal monsoon and agricultural impetus, on the other hand, overall demand slowed as public investments started to wane. According to the bank, GST is expected to disrupt economic activity in early 2018, but has momentum to pick-up. The World Bank study said the most substantial medium-term risks are associated with private investment recovery, which continues to face several domestic impediments such as corporate debt overhang, regulatory and policy challenges, along with the risk of an imminent increase in US interest rates. "If the internal bottlenecks are not alleviated, subdued private investment would put downside pressures on India's potential growth," the report said.