NDA's likely advisors are good economists, but can they prevail over bad politics?

At long last, the Narendra Modi government is finally in the process of getting some economic expertise on board.

According to this report in the Hindustan Times, there are three names doing the rounds for the post of chief economic advisor and three names for the head of the Expenditure Management Commission (EMC) that finance minister Arun Jaitley announced in his budget speech.

The three reportedly in the reckoning for the CEA’s post are Bibek Debroy, Arvind Subramaniam and Sidharth Tiwari. The three choices for EMC chairman are Bimal Jalan, Vijay Kelkar and Shankar Acharya.

The choices bring a sense of comfort. Left-leaning economists would anyway have been ruled out under this regime, but fortunately, there are no overtly swadeshi types either. These are all economists inclined towards a more open economy and doing away with excessive government intervention (though the degrees may vary).

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The names for the CEA’s post show some continuity with the previous regime (yes, again). The names of both Subramaniam and Tiwari were doing the rounds after the last CEA, Raghuram Rajan, left to become the Reserve Bank of India’s governor, with Tiwari being a bit ahead in the race. The only thing that could queer the pitch for them will be their background of working on foreign shores. Subramaniam has worked at the International Monetary Fund and Harvard University and is now with the Peterson Institute for International Economics. Tiwari has been with the IMF for 24 years. Both the previous CEAs - Kaushik Basu and Rajan - also came from the United States. The left will, of course, raise a fuss, but the RSS may also have something to say about this.

If this does become a problem, will the choice then fall on Debroy? The government system can certainly do with some shaking up that only an outspoken iconoclast like Debroy can do, but will Debroy play ball is the moot point.

The names for the EMC chairman’s post are weighty, if a tad predictable. All three have been part of the government system - Jalan (a former RBI governor) and Kelkar are former finance secretaries and Acharya was a CEA - and know the intricacies of its working.

But what is it that whoever of these becomes EMC chairman will say that has not already been said before? More importantly, will the government go by whatever the EMC report suggests? Past experience leaves little hope for this.

Actually, the setting up of an EMC is a bit puzzling, since the previous NDA government led by Atal Behari Vajpayee had set up an Expenditure Reforms Commission (ERC) headed by former finance secretary K. P. Geethakrishnan, which submitted its report in 2000. This was also a budget speech announcement.

The Geethakrishnan ERC had a pretty wide scope. It was to suggest ways to cut overlap among ministries and departments, a roadmap for reducing the functions of the central government, look at staffing patterns of central government ministries and departments, review the setting up of autonomous organizations and their funding and, above all, review the framework of all subsidies and user charges. The ERC gave a total of 10 reports and the reports on the food and fertilizer subsidies were the most publicised ones.

The report on food subsidy had talked about indexing the price at which subsidised food grains are given to the poor to the cost of procuring and distributing it, freezing the minimum support price at the previous year’s levels and reforming the Food Corporation of India.

It had gone into the excruciating details of fertilizer pricing and suggested bringing prices to the level of import parity price over a period of five to seven years, dismantling of the retention price scheme replaced by a system that provides incentives to manufacturers to be cost efficient, and ensures a desired level of self-sufficiency with minimal subsidy from the government and moving the industry from the control regime to that of what it called competitive self-reliance.

The reports on the 13 departments and autonomous institutions had also made suggestions on downsizing and restructuring them as well as on how to tackle the issue of surplus manpower.

But nothing has happened on any of these, barring a partial reform of the fertilizer subsidy regime.

Kelkar has been the author of several reports on expenditure reform and fiscal consolidation, the last report having been submitted in September 2012. In that, he had suggested bringing down the subsidy bill to 2 percent of GDP in 2013-14 and 1.8 percent in 2014-15 and restructuring Plan expenditure. Once again nothing has happened on these recommendations.

Will things be any different now? The thinking of all the economists whose names are in the reckoning is pretty well known - none of them favour the populism that is the hallmark of economic policy making in India. As CEA, will either Tiwari, Subramaniam or Debroy advocate or provide the rationale for fiscal profligacy or economic policies that promote cronyism?

Likely not. As EMC chairman, even if Jalan, Kelkar or Acharya produce a report that is markedly different from Geethakrishnan’s, it is only likely to be more, not less, critical of wasteful spending. They are hardly likely to be politically correct (though the extent of incorrectness may vary).

The NDA government has done little till now to show that it is jettisoning the bad economics of the UPA. So, it’s great that it is considering these names to involve in the process of framing economic policy. But there’s little point appointing good economists as advisors if ultimately bad politics is going to ensure that their suggestions are ignored.