As fiscal blues raid, where are our smart economists?

Amid the bungee jumping by the rupee and the economy, do we need economists of theoretical perspective to run policy matters? But then, who will watch these economists?

trithesh

Trithesh Nandan | August 28, 2013


Lording over the slide? (Clockwise from top left) would-be RBI governor Raghuram Rajan, finance minister P Chidambaram, prime minister Manmohan Singh, and planning commission deputy chairman Montek Singh Ahluwalia.
Lording over the slide? (Clockwise from top left) would-be RBI governor Raghuram Rajan, finance minister P Chidambaram, prime minister Manmohan Singh, and planning commission deputy chairman Montek Singh Ahluwalia.

With the rupee on a freefall against the dollar, making life difficult for people in the newsroom to come up with new version of the same headline (rupee hits a fresh-from-the-oven ‘record low’) every day, Ron Somers, president of the US India Business Council, has an interesting poser. “Where are your brilliant economists like Manmohan Singh, P Chidambaram and Raghuram Rajan?” he asked when Governance Now met the American businessman in New Delhi on Tuesday for his take on Indo-US trade.

“What are they doing when rupee has had the greatest fall in the last 18 years?” he asked further.

Indeed, where are they? Let us look at the big dads on the fiscal front:

WHO: Manmohan Singh, India’s prime minister since 2004. He steered the economic liberalisation policy of 1991 and is known as the architect of modern Indian economy. Presenting his maiden budget in July 1991, Singh famously said, “No power on earth can stop an idea whose time has come”. Yes, that idea transitioned the economy – and kept it going for nearly two decades – from a closed one to liberalised one.

HOW: Singh has a rich bio-data, with Economic Tripos (first class honours) from Cambridge University, followed by DPhil from Nuffield College, Oxford University. His PhD topic was “India’s Export Trends and Prospects for Self-Sustained Growth” in 1962.

NOW: As the driver of arguably the most corrupt cabinet in the history of independent India, Singh took over at a time when economic growth was in the 7-8 percent region. Between 2004–11 – a period that includes the 2008-09 global financial crisis – India’s annual growth averaged 8.3 percent, according to IMF. On Aug 28, investment bank BNP Paribas cut India’s growth forecast to 3.7 for 2013-14. So, where are those ideas whose time had come in 1991, Mr Manmohan Singh?

...

WHO: P. Chidambaram. He was part of the same Team Narasimha Rao along with Manmohan Singh that steered Indian economy towards liberalisation. When he broke ranks with the Congress and became finance minister in the 1996 United Front government, Chidambaram famously brought out the ‘Dream Budget’. He is also credited with injecting more liberalisation after he took over the reins from Manmohan Singh in 1996. He was back to North Block as finance minister in 2004, when UPA-I stormed to power, and after a couple years as the home minister, he was back to the finance ministry in 2012.

HOW: Sound on finance matters, he has a Masters degree from Harvard University, USA.

NOW: With the rupee crashing and the economy moving at snail’s pace, the FM is looking at “consensus” from the opposition as well on further liberalisation. For a man not known exactly for his modesty, that may be seen as a bit of a comedown but his idea bank seems a little empty now. "The prime minister and I both agree that India cannot afford to grow at less than 8 per cent," he told the Lok Sabha on Aug 27. Everyone would agree on that. The question is, how? No one, Mr PC, and that could include you, knows that.

...

WHO: Raghuram Rajan. He is the new financial whiz kid for the UPA government, appointed chief economic advisor to the finance minister not long ago – and before long elevated to the position of RBI governor. While he is credited with predicting the 2008 global crisis in 2005, he couldn’t predict the fall of the rupee as the chief economic adviser.

HOW: The Eric J. Gleacher Distinguished Service Professor of Finance at the University of Chicago’s Booth School of Business, Rajan completed his PhD from Massachusetts Institute of technology (MIT) in 1991. He wrote his thesis on “Essays on Banking”.

NOW: Taking charge as the RBI governor in early September, Rajan’s first priority will be to stabilise not only inflation and growth but also take measures to arrest the fall of rupee. But how, and when, he will put a brake on all that is still a huge question mark.

...

WHO: Montek Singh Ahluwalia. One of the lead players during the economic liberalisation move in the 1990s as a bureaucrat in the finance ministry, and at present deputy chairman of the planning commission, he is Manmohan’s Man Friday on matters economics. He is credited for writing ‘Reforming the Global Financial Architecture’, published in 2004 as economic paper by the Commonwealth Secretariat, London.

HOW: An enviable bio: MA and an MPhil in economics from Oxford University, where he was a Rhodes scholar.

NOW: With many critics questioning the very veracity of the planning commission due to Ahluwalia’s markedly pro-market stance, analysts say all his economic knowledge would mean little for India unless the slide is stopped somewhere. Now, how to hit upon this ‘somewhere’ is something not many, including Ahluwalia, have any clue about.

...

A FEW OTHER MEN

WHO: D Subbarao. When he was offered another term as governor of RBI, Subbarao politely turned it down, saying he wants to “move on”. He took over as the 22nd governor of RBI in 2008. Prior to that, he was the finance secretary. While he has a wealth of experience in finance over the last 40 years, all his experience has not been helpful in the RBI where his measures have been regularly criticised. He was also at loggerhead with the finance ministry on several matters.

WHAT: A PhD in economics with thesis on fiscal reforms at the sub-national level, he is an MS in economics from Ohio State University, USA, and was a Humphrey fellow at MIT in 1982-83.

...

WHO: C Rangarajan. Now chairman of the economic advisory council to the prime minister, Rangaran was the RBI governor when Manmohan Singh reformed Indian economy in the early 1990s. As chairman of the economic advisory council, he is known as one of the PM’s backroom boys, guiding policies on economy.

WHAT: Having served in several positions relating to the Indian economy, he holds a PhD from University of Pennsylvania, USA.

The prime minister also gets advice from several other economists, including his friend and Nobel laureate economist Dr Amartya Sen. The PM and the finance ministry also gets assisted by top financial experts, all holding PhD degrees from renowned varsities abroad.

So why is India in such dumps despite such an enviable talent pool? One reason could be India’s policy is more theoretical than pragmatic, as political economist Jean-Pierre Lehmann told Governance Now in 2011. Like Plato, Lehmann also believes a country needs philosophers to run itself. “We have more influence from economists now but we need more influence from philosophers on what kind of society we want,” Lehmann had told. (Read: Philosophers, not economists, needed to run India: top economist Lehmann)

The Roman poet Juvenal wondered in his Satires, "Quis custodiet ipsos custodes?" – or, "Who guards the guardians?" At this juncture of the Indian economy, the question is who will watch these economists?

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