Subramanian Swamy is wrong on facts about Arvind Subramanian’s US testimony

BJP leader Subramanian Swamy’s attack on the Chief Economic Advisor (CEA) Arvind Subramanian, based on latter’s 2013 testimony (pdf) to the US Congress, has caused much flutter in political circles, even prompting finance minister Arun Jaitley to formally discard Swamy’s allegations. Jaitley has issued a warning to the 76-year-old BJP maverick leader saying that his attack on the CEA is unfair. Politicians should exercise restraint while attacking ‘those in government who cannot respond’ due to their official decorum, Jaitley said. Remember, Jaitley was largely silent when Swamy mounted a historic, below-the-belt attack on RBI governor Raghuram Rajan that eventually forced the governor throw in the towel in the ring. But, in the CEA episode, Jaitley swiftly responded to back his advisor with a strong warning to the septuagenarian leader. Post this, Swamy, has offered to “suspend” his demand to sack the CEA if the BJP government considers him an ‘asset’ despite knowing all about ‘AS’. But the question is this. Was Swamy indeed correct in saying that Subramanian encouraged the US to act against India’s interests in the testimony?

Here Swamy is referring the testimony Subramanian made in the capacity of a Senior Fellow, Peterson Institute for International Economics and Center for Global Development on 13 March 2013 before the ‘Ways and Means Committee of the United States Congress’ on US-India trade relations. [caption id=“attachment_2644726” align=“alignleft” width=“380”] Chief economic advisor Arvind Subramanian. PIB image [/caption]A closer look at this testimony would, however, tell us that there isn’t really anything in the document that was actually “against” India. At the most, the testimony is an account of facts. Subramanian’s testimony can be summarised in the following points: One, Subramanian begins the testimony acknowledging that India is a fast growing economy with a vibrant trade market. Such a market offers opportunities for the US businesses, he says. Subrmanian goes on to explain how US exports to India have been booming across good and services and how there is an improvement in the bilateral foreign direct investment (FDI) flows. “Trade and FDI flows between the two countries are balanced, minimising the scope for macroeconomic and currency-related tensions,” Subramanian notes. Two, Subramanian then goes on to explain the economic troubles India faced at that point in time, such as the sharp drop in the GDP growth from 9 percent to 4.5 percent, high fiscal deficit and dwindling external balance. This is more of factual representation of the prevailing conditions of the economy then. To counter the adverse economic scenario, Subramanian says, the Indian government initiated economic reforms including opening up segments for foreign direct investment. Three, at this point, Subramanian lists out the challenges to US companies operating or wanting to operate in India. He observes that there is a weak and uncertain regulatory and tax regime in India, which has bearings across segments such as civil nuclear industry, infrastructure and re-emergence of protectionism in certain sectors. Again, stating a fact. Four, Subramanian talks about the discrimination US companies faces in India because of the trade partnership agreements India has signed with other countries that are competing with the US, such as Europe, Japan and Singapore. Subramanian explains how this could be detrimental to the larger interests of US companies. “Soon, if not already, this discrimination may be the bigger challenge for US business than some recent sectoral measures,” Subramanian says. Where Swamy probably found evidence for Subramanian’s anti-India activity was the latter’s counsel to the US that it should seek the support of WTO multilateral dispute settlement procedures to ‘address friction where Indian policies are demonstrably protectionist’. The US should not be ‘reticent’ in this regard, he says. But, as an academic who offer comments based on his study at a hearing on bilateral trade, one can’t find fault with Subramanian for saying this. Subramanian was indeed looking at the Indo-US bilateral trade relations testimony to US Congress from the US point of view, but it is wrong to conclude that he was ‘acting’ against India. Subramanian has also observed that India has an excellent record of compliance with WTO rules. In fact, Subramanian is pitching for improvement in India-US trades. “There is merit in initiating deeper bilateral trade integration between India and the United States as a framework for giving recognition to the broader strategic imperative of closer cooperation between the two countries, for pursuing further liberalization in both countries and for reversing the discrimination that each is inflicting on the other.” The larger tone of Subramanian’s testimony is that India is emerging as a power in world economic landscape, despite its domestic woes, that is hard to ignore even for world’s largest economy. Not many would disagree with Subramanian when he says in 2013 that India’s regulatory environment was challenging and was unlikely to see major improvements in the short-to-medium term. Pointing out the core problems in an economy and deliberately showing a country in bad light are two different things. Subramanian’s Congress testimony was at best an honest assessment of the situations prevailed in India that time. He was correct in observing that “clearly, one of the major impediments to boosting India’s economic prospects and opportunities for domestic and foreign investors is its regulatory regime, including weak governance, corruption, uncertain tax and investment climate. Improving this regime is a first-order priority for India from a purely domestic perspective but it would also benefit foreign business.” Subramanian is bang on this point. Many of the problems Subramanian elaborated in the testimony such as land acquisition as impediments to creating a favorable investment-friendly climate is relevant even today. When Subramanian notes that such an environment could create dilemma for American business looking at India, he was giving an honest assessment based on facts to the US Congress. There is no sign of a deliberate ‘anti-India’ narrative here. The bottom line is this: Swamy has conveniently picked his supportive arguments from the testimony to make his case against Subramanian. Like the Rajan episode, Swamy’s narrative against Subramanian is built on wrong premises.