There is an unusual, but time-honoured, arrangement in the ministry of finance (MoF). Apart from the many secretaries to the government, there is the post of chief economic adviser (CEA). He is an employee of the government (MoF), but he is also, in a sense, independent of the government. He can hold and express (in restrained language) views contrary to the government’s views. He can criticise (in polite words) policies and programmes of the government. He has a lot of freedom in preparing and presenting the Economic Survey, and advising the government — a freedom not available to other secretaries to the government. The government, of course, has the freedom to reject his advice.
I regarded the CEA as the doctor-in-residence to check his patient’s health every day and, in case the patient fell ill, to prescribe the course of treatment and the medicines. A bad patient will not take the medicines, and make his own diagnosis and prescription.
Economic Survey vs Budget
Dr Arvind Subramanian has been a good doctor since his appointment as the CEA in October 2014. The NDA government has been a terrible patient. The uneasy relationship between a good doctor and a bad patient is best illustrated by the divergence between the Economic Survey (ES) and the Budget.
Let me illustrate:
1. The ES emphasised the four ‘R’s (Recognition, Resolution, Recapitalisation and Reforms) and pointed out that, although the first three had been done, banking reforms had not been undertaken. The Budget was the occasion to outline the reforms and set a schedule. Instead, what we got was Elizabethan prose about “an ambitious reform agenda under the rubric of an Enhanced Access and Service Excellence (EASE) programme”. It was another case of the tail (acronym) wagging the dog (programme).
2. The ES defined strategic disinvestment as “adopting a pragmatic approach for the government to exit from non-strategic business to optimize economic potential for business enterprises by promoting efficiency and professional management in the company”. The government declared the government’s prize strategic investment was collecting Rs 37,000 crore from ONGC! The oil exploration company borrowed the money to pay government for the HPCL shares that will reduce the fiscal deficit by 0.2%. It was a stratagem, not a strategy.
3. The ES doctor had a medley of drugs to boost exports. The patient dismissed the concerns in one sentence and pronounced that he was hale and hearty: “Our exports are expected to grow at 15% in 2017-18”. Not a word more. A modest rise in exports in recent months may have made the government complacent. There are no grounds for complacency because merchandise exports have barely come back to the level of a few years ago. Besides, the finance minister was wrong. Export growth during April-December 2017 over the same period last year was 11.24% and
Aggressive Tax Estimates
4. On tax revenues, the ES pointed out that “It is striking that the Centre’s tax-GDP ratio is no higher than it was in the 1980s” and observed, after demonetisation and the GST, it would be interesting to see how good the collections have been and also the projections for the next year. Based on revised estimates, it appears that the gross tax to GDP ratio will be 11.6% in 2017-18. Nevertheless, the government has predicted that in 2018-19, income-tax will grow at 19.8%, the GST will grow at a whopping 67% and gross tax revenue will grow at 16.7% . Notwithstanding the doctor’s concerns, a very ill person has left an aggressive will.
5. The ES identified the headwinds to growth: the backlash against globalisation, the difficulties of transferring resources from low-productivity to high-productivity sectors, the challenge of upgrading human capital to the demands of a technology-intensive workplace, and coping with climate change-induced agricultural stress. The government abandoned Planet Earth and soared into space to declare “Combining cyber and physical systems have great potential to transform not only innovation ecosystem but also our economies and the way we live. To invest in research, training and skilling in robotics, artificial intelligence, digital manufacturing, big data analysis, quantum communication and internet of things… will launch a Mission on Cyber Physical Systems to support establishment of centres of excellence.” I suppose we must wait for the finance minister to return from his space odyssey to remind him of the headwinds on Earth.
6. The ES pointed out that savings and private investments had been consistently falling for a few years, that the twin engines that propelled the economy’s take-off in the mid 2000s are running below take-off speed, and the government must announce a roadmap for reviving private investments. In the Budget, the finance minister did not even acknowledge the worrying situation of savings and investments!
Paying Lip Service
7. The ES highlighted the importance of health and education for maintaining competitiveness. The finance minister spoke extensively on the two issues, but this is what he did when it came to
The government continues to be in denial. It denies the objective situation in the economy. It denies farm distress. It denies joblessness. It denies the arguments of the Opposition. Now, it denies even the diagnosis and the prescription of the doctor it engaged in 2014.