Incoming NITI Aayog vice chairman off to an unfortunate start

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New Delhi | Published: August 9, 2017 4:47:42 AM

Incoming NITI Aayog vice-chairman off to an unfortunate start, dissing expat Indian experts in government.

NITI Aayog, Rajiv KumarIf Kumar is able to convince the government to jettison inflation-targeting once he takes charge of NITI Aayog, this will be a big achievement. (IE)

Incoming NITI Aayog vice-chairman Rajiv Kumar, going by a news report in The Indian Express, has launched a broadside against Indian-born foreign economists—former RBI Governor Raghuram Rajan and outgoing NITI Aayog vice-chairman Arvind Panagariya are cited as examples of this tribe by Kumar in his Dainik Jagran piece the Express has reported upon. The foreign influence on Indian policy-making, Kumar says, is waning under Narendra Modi and “we may see experts being posted who understand India’s ground realities in a much better manner, and who can commit to stay and work till their term ends”. While railing against the influence of “multilateral organisations like IMF, World Bank or those universities to which these experts would have incredible reverence”, Kumar goes on to say, “if Lutyens’ Delhi rumours are to be believed, more such resignations can come”.

While such talk will, no doubt, appeal to the swadeshi brigade, it is difficult to appreciate the point Kumar is making, more so in a world where ideas permeate across countries freely. And while it is true the Washington Consensus is widely derided, there can be little doubt that many of its central tenets are broadly sensible, though they obviously need to be tailored to the reality of every country. It is obvious that a rigid adherence to fiscal discipline can be suicidal—in the current situation of low private investment, had the government not been spending as much as it is on capex, the economy would be in worse shape, but consistently out-of-whack deficits cause major macro-economic problems. Redirecting public expenditures from indiscriminate subsidies to education and healthcare, another Washington Consensus element, is indisputably a good thing. Ditto for moderate tax rates to broaden the base.

While Kumar cites China as a country that has always carefully listened to the experiences of the World Bank and the IMF but formulated policies keeping in mind its goals and ground realities, he would have done well to have remembered what Deng Xiaoping said about it being irrelevant as to whether a cat was black or white as long as it caught rats! Arvind Subramanian, the chief economic advisor, is both educated abroad and has worked for many years in the US—assuming that this is a bad thing!—but as long as he comes up with smart policies, such as the one to boost apparel exports and employment, his interventions must surely be welcomed.

Being wary of the Anglo-American influence on Indian policy is one thing, but it is also important to keep in mind that many attributes of Chinese success are very difficult to emulate. Nor is it clear whether the global environment would allow another China-style hyper-export-oriented economy to prosper, and there is the issue of whether a democratic government can get away with what the Chinese have. The most successful Chinese policy, and completely antithetical to the Washington Consensus, is its consistently undervalued exchange rate and how this boosted Chinese exports growth for decades. Apart from the fact that Kumar will have a tough time convincing the Modi government of this policy since it is a big believer in a strong rupee, as Renu Kohli has argued in this newspaper (, India needs a lot more fiscal discipline—that dreaded Washington Consensus again—if it is going to be able to emulate the Chinese experience and a much deeper commitment to structural reforms in order to avoid the massive inflation a weak currency results in.

Apart from the issue of what the correct policy response to any situation should be, it is also difficult to think of too many experts who can be considered truly swadeshi by virtue of not having either studied overseas or spent a considerable part of their lives there. Independent India’s most successful economic experiment, the 1991 reforms, were mostly guided by people who, by this new yardstick, would be considered ‘imported’ and therefore to be shunned.

To be sure, many foreign experts come up with bad ideas, but then so do local ones. Inflation-targetting, to cite one such policy in recent times, was certainly a bad idea, but surely the political establishment must bear the lion’s share of the blame for this even though it is true Rajan batted for this—but without Rajan, it has to be said, it is difficult to believe the fight against bank defaulters would have reached where it has today. If Kumar is able to convince the government to jettison inflation-targeting once he takes charge of NITI Aayog, needless to say, this will be a big achievement.

Indeed, though Kumar has got off to a bad start, in his new avatar, he would do well to focus on the policy changes India needs, and not worry so much as to whether they are videshi or swadeshi. So, for instance, whether or not “free market wallahs” have flagged this as a to-do item, he must push for labour reforms that, among others, are a big reason for why India has such small firms and such poor productivity. Whatever one’s views of World Bank policy prescriptions, keep in mind, the Doing Business indicators on which the Modi government is trying to improve India’s rankings are a product of that very institution.

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