Government could name new chief economic advisor this week; but does the regime need a CEA?
The problem with advice on economics is that it's more of a recommendation, and while some ideas sound good they may not necessarily be politically feasible, more so in an election year.
There has reportedly been a shortlisting of candidates for the post of the Chief Economic Advisor (CEA); and as is expected there are names of two experts from foreign investment banks, one from an academic institution and one from within the department.
Logically elevating someone who is designated as Principal Economic Advisor, who has also served in various organisations including a foreign bank makes sense as the person has been through the thick of things and knows how the systems work.
Curiously the age limit has been put at 56 and the post does not insist on a doctorate, which makes it intriguing as this normally opens the doors for non-academics too where they may be defined as those who do not have such a qualification. Also, as has been the trend in the past, the short-listed candidates appear to have a strong proclivity to overseas experience and qualification.
While it is debatable as to whether the background matters, the revealed preference by successive governments is that such a resume has an edge. Or maybe the post necessarily requires global exposure in present times and a pure domestic background is not good enough.
A broader question is whether we require a CEA? At present, at the official level there are a plethora of economists. The Reserve Bank of India (RBI) is now considered to be different from the government as often the view taken by the central bankers are of a different order. Often the work emanating from this institution has to defend against not always lowering interest rates which is a perennial demand from the government.
Outside the RBI there is the Department of Economic Affairs which houses the CEA and the Principal Economic Advisor. A few streets away is the NITI Aayog that has another set of reputed economists who look after a transformation agenda but is better known when arguing for rate cuts or reiterating that the green shoots in the economy are more visible, and conjecturing better times are on the horizon.
Closer to the PMO is the Economic Advisory Council which has another set of economists whoadvise the PM directly. Besides these names that have become media celebrities, there are other such economic advisors in various ministries who advise on specific jurisdictions.
Normally, it is opined that when there are several economists there would be multiple views in various directions. However, if one looks at economists in these three institutions, there is a consensus and there is never a divergence in publicly stated views, which is interesting. Also invariably there is strong justification for every act of the government (which is understandable as this is one of the duties of all economists in all organisations) and there is always the sense that things are going on track – to the extent of sounding rosy at all times when growth is eight percent or 7.1 percent or 6.7 percent. There is never a view that a particular policy has not worked the way it was conceived.
Hence, for something like demonetisation, while the entire clan of economists outside these frontiers had pointed out with data that several things went awry, the official economists highlighted only the gains from such a move. In fact, at times with specific members the decibel levels of some would always tend to be much higher and forceful, with a lot of data and equations thrown in to prove that the economy will do best with zero interest rates!
In such a scenario, what should be the role of the CEA? One job which is spoken of is the Economic Survey, an annual feature that can be topped with a half yearly review. The Economic Survey has over the last decade or so become more or less the CEA’s creation and has moved away from being a statement on how various sectors have fared with the latest authentic data on different economic variables (which may not be really new as it does not go beyond what has already been released by the CSO and other departments) to a more normative and prescriptive document. The GDP forecast for the coming year is something one looks forward to, though with the range now being elongated, one still searches for the official number which is revealed in the Budget.
These documents from the time of Kaushik Basu has brought in a lot of theory and knowledge from the academic world which, though impressive (as they could read as essays in any of the highbrow referenced Economics journals), often may make less sense for the common man though appeal to the more informed people. The content is moulded by the CEA. Basu had something on ideal country ratings that never came back into the content subsequently when the CEA changed. Similarly, Subramanian had his theory of universal basic income that will also be a one-time affair.
Subramanian also made the three major focus areas of the government – Jan Dhan, Aadhaar and mobile phones into a cool concept of ‘JAM’ that has now been associated with his legacy. Therefore, these are all ideas which are popped up which are in the media glare for say 48 hours and then move out of the focus of discussion. Or else there could be the usual clichéd suggestions of controlling the fiscal deficit and spending money effectively.
In the contextual world, the CEA however made a big difference when the GST rates were being formulated as this was a huge exercise that was undertaken. But such things happen once in a while and would not be a regular phenomenon.
A subject that has been in the news in the last year is banking but, here the responsibility goes directly to the FM or Finance Secretary. While the office of the CEA would be providing its inputs, the Director and Producer of the show would be the former two positions.
The problem with all advice on economics is that it is more of a recommendation, and while all such ideas sound good they may not necessarily be politically feasible. And running government needs more politics than economics. Further, any structural changes that have to be implemented would presumably be in the realm of the NITI Aayog, which has evolved to resemble in a way the erstwhile Planning Commission sans the outlays and those voluminous documents. The CEA becomes active on fiscal issues but ultimately the goals set for consolidation are so macro in nature that political exigencies tend to override these
The CEA however becomes a very effective spokesperson for the government directly and the last few incumbents have been brilliant thinkers and speakers who have been spreading the agenda of the government in various forums. Also, one of the responsibilities of the CEA is to have the annual meetings with the global credit rating agencies where elaborate presentations are made on the strength of the economy. Unfortunately, given the fixed mindsets of these rating agencies, their views remain intransigent and rarely change. But this kind of an engagement does reach the news headlines.
It will be interesting to see if any new dimensions are now added by the new CEA especially if the appointee is one with a corporate background.
(The writer, chief economist, CARE Ratings, is author of 'Economics of India: How to Fool all people for all times')
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