If the prime minister is to drive the economy, it can’t be done without more in-house economics expertise.
There is little to be gained by speculating over what exactly it was that led to Subhash Garg losing his job as the finance secretary, the most powerful bureaucratic post in the country after the principal and cabinet secretary. It can’t be the decision to raid the RBI’s reserves since, even though that has been criticised by most economists as well as ex-RBI officials, this is something that Arvind Subramanian came up with when he was chief economic advisor; also, while Garg may have pushed for the idea of threatening RBI by holding the consultations under Section 7 of the RBI Act, everyone in the government was aware of this. Nor can it be the decision to issue a sovereign bond that resulted in Garg falling out of favour since finance minister Nirmala Sitharaman has just said there is going to be no change in the plan.
The short point is that everyone in the government—including the PMO that played a larger than usual role in the budget’s formulation—was fully briefed about the issues, and their pros and cons. And while it is true the super surcharge on the rich, and the FPIs as a result, was a big disappointment for those looking for tax cuts—especially in corporate taxes where India’s effective tax rates are nearly double those of our competitors, like China—there is a whole lot more that is ensuring investment levels continue to fall, so the problem goes much deeper than what Garg may or may not have done.
Just last week, this column recounted, with horror, how the apex decision-making body for telecom—the Digital Communications Commission (DCC) comprises several top secretaries of the government—took a decision that favoured RJio and hit the incumbents Airtel, Vodafone and Idea for no apparent reason; ironically, one of the three DCC members who opposed the penalty was Subhash Garg. And surely, the decision to reappoint the Trai chief, despite extremely biased functioning, which was commented upon by both the Telecom Dispute Settlement and Appellate Tribunal and the Supreme Court, wasn’t Subhash Garg’s?
It isn’t just in telecom, there are too many problems that investors are facing across a host of industries. If the U-turn in the commerce policy after Walmart spent $16 billion to buy Flipkart affected one type of investor directly—others got warned that Indian policy was fickle and can be manipulated by business interests—the decision to impose a common minimum wage across the country will further accentuate the problems of India’s rigid labour laws. It is not possible these issues haven’t repeatedly been brought to prime minister Narendra Modi’s attention as he meets industrialists from time to time; or he can just read the newspapers where these issues are regularly aired. He also has an economic advisory council, PMEAC, and its members—and ex-members—have even gone public with some of their concerns on these very issues. And yet, despite being told that it is not possible to have, in the current global and Indian growth environment, much higher investment levels if India’s tax rates are so high, the prime minister didn’t think it fit to ensure that the Budget brought down taxes.
Since it is inconceivable that Modi wouldn’t have wanted solutions to these issues each time they were brought up, if he is to tackle them properly, he needs a more efficient mechanism to ensure this. One of the similarities between PV Narasimha Rao and Atal Bihari Vajpayee’s governments—both were seem as India’s most reformist governments—was the presence of an empowered prime minister’s office (PMO) that could cut across bureaucratic layers and ensure important decisions were taken quickly.
Modi also needs an economics minister in the PMO, someone with 24×7 access to him to filter out the raft of bad ideas—like demonetisation—a prime minister has to deal with and who can effectively counter the thousands of status-quo ideas that bureaucrats routinely come up with. When it is pointed out that, despite the government repeatedly claiming to have freed up natural gas prices, this applies to just a fourth of current production—the rest gets paid just 40% market price—the bureaucratic answer is that, were gas prices to be raised two-and-a-half times, this would raise prices of electricity as well as fertilisers. In such a situation, a high-profile economics minister, who would be present at all such meetings with the prime minister, would immediately tell the prime minister that raising fertiliser prices was, in fact, in India’s best interests. While the poorer farmers could be given a direct cash subsidy to cover the higher fertiliser costs, market-based pricing would stop diversion of fertilisers and also prevent over-consumption; since 60-70% of oil/gas revenues accrue to the government anyway, this can be funded by the government’s share in the higher revenues oil/gas firms get. Indeed, if the bureaucracy didn’t make a distinction between “marketing” and “pricing” freedom—most people think they are the same—even an ONGC would get $10 more per barrel, a government report tells us; imagine how this would both boost government revenues and also encourage more investment.
There are, literally, hundreds of such issues that come up before the prime minister every day—is a sovereign bond better than relaxing limits for FPI purchases or fully freeing them up as has been done for equity?—and while he can always call upon outside experts for advice, as he did via Niti Aayog two weeks before the Budget, he needs his own Chief Economic Advisor to constantly filter the advice and, more important, once the PM has taken a call, to ensure that the decision is implemented in its fullest sense. Else, we’re soon going to run out of Subhash Gargs to blame for the government’s dismal economic performance.