Government needs a pool of quality advisers to revive growth; economists can save economy, not historians

During her recent Mumbai visit, the underlying tone of Nirmala Sitharaman’s response to questions on the Union Budget and measures taken so far to rev up the sagging economy was this: “We have done everything possible to revive the economy. What more you want?”

Sitharaman, who took over the Union finance minister’s hot seat from late Arun Jaitley, had just delivered a disappointing national Budget that fell way short of expectations. In fact, Sitharaman’s Budget made more headlines for her long talk than the content itself. Even the personal tax tweaks announced by the minister was a sham, considering it meant very little advantage to those who opted to shift to the new regime.

By now, the government may be short of tools to address the economic slowdown. That isn’t a surprise. The government has a very less economic headroom for any extra spending. That’s a big reason why Sitharaman could afford just a 0.3 percent increase in spending allocation as a percentage of GDP.

Right now, there is a dearth of quality advisers to help Sitharaman shape her policy response. Often, the policy responses are delayed or inadequate. The quality of data is a major concern. The government is not too fond of those who criticise its economic policies, even if it is a Nobel laureate. Sanjeev Sanyal, Principal economic Adviser to the Ministry of Finance, recently made headlines when he said Indian history needs to be revisited and rewritten to help future generations appreciate the true history of India. On another occasion, Sanyal claimed that Mahatma Gandhi did not make any efforts to rescue Bhagat Singh from the gallows. Sanyal’s interest in historical events is his personal choice. But, where his attention and expertise is needed most in economic policy making. Meanwhile, the latest economic survey even sourced data from Wikipedia and other private entities, raising questions on government’s data division, even as Sitharaman made a firm reference to ‘quality of data’ in her 160 minutes long Budget speech.

At this point, the economy is sailing in uncharted waters, with very few talking points other than the $5 trillion economy target by 2024. But, there is no single economist in the country who believes that this target is possible considering that it would mean far higher growth rate (at least 9 percent) in the next few years to achieve this size, which doesn’t look feasible now.

The government has laid out a plan to infuse Rs 102 lakh crore to develop the country’s infrastructure. That’s easier said than done, considering that it has been spending an average Rs 8 lakh crore on infrastructure since 2013. The banking sector is a mess with high bad loans set to rise further if the economic recovery doesn’t take the route soon enough. The government, last year, announced the merger of 10 state-run banks to four but the proposal is yet to take effect formally. On the disinvestment front, the government is hoping to mop up Rs 2.1 lakh crore in 2020. But a large part of that hinges on substantial private participation.

A slowing economy has taken a toll on tax revenues. This has put the government in a tight fiscal situation. The signals emanating from factory output and high retail inflation aren’t good. The dangerous combination has put the monetary policy in a dilemma. The RBI has attempted to boost credit tinkering reserve requirements for banks lending to certain segments. But, the problem of the Indian economy is not high borrowing costs but lack of demand.

During the UPA years, India had a much better team of world-renowned economic experts to guide the economy from the front. To repair the economy, the Narendra Modi government needs professional expertise and critical voices. Recently, reports suggested that the government is considering to induct BRICS bank chairman, K V Kamath to the finance ministry to strengthen economic management. Kamath, an experienced banker, could add value to the government’s economic policy team.