India needs a third generation of policy economists to provide the political leadership with a broad future agenda on the economy
In an interview he gave to The Indian Express in July 2016 to mark 25 years of economic reforms, Manmohan Singh spoke about the importance of the policy economists who had worked on the reforms agenda in the years preceding the actual event. His statement needs fresh attention at a time when Arvind Panagariya has resigned from NITI Aayog. Two other lateral entries into government in the past few years also moved on after short stints – Kaushik Basu and Raghuram Rajan.
Economic policy is a collaborative effort between political leaders, civil servants and policy economists. The 1991 reforms would definitely not have been possible without the political backing provided by P V Narasimha Rao.
The radical policy changes were pushed through an inertial bureaucracy by senior civil servants such as A N Verma and Naresh Chandra. And a stellar group of policy economists prepared the ground for the change of direction in the years preceding the actual event.
Most of them were lateral entries into government – Manmohan Singh, Montek Singh Ahluwalia, Bimal Jalan, Vijay Kelkar, C Rangarajan, Shankar Acharya, Rakesh Mohan and several others. These economists stayed on for many decades, though a few lateral entries such as Vijay Joshi and Ashok Desai had short stints.
Some of their contributions through the 1980s – and this is not a comprehensive list – are worth repeating here. Manmohan Singh wrote the landmark seventh Five-year Plan that shifted the focus of industrial policy from asset creation to productivity.
Ahluwalia was at the forefront of trade reforms. He also wrote the famous “M Document” in the summer of 1990, which anticipated many of the major policy reforms announced between 1991 and 1993.
Bimal Jalan was the main author of the long-term fiscal policy.
Vijay Kelkar was the driving force behind fiscal and tax reforms, including the goods and services tax.
C Rangarajan committed the Reserve Bank of India to monetary targeting, and also worked hard to end the automatic monetisation of fiscal deficits.
Shankar Acharya was arguably the most influential chief economic adviser ever.
Rakesh Mohan prepared the industrial policy reforms agenda.
Also, outside experts such as M Narasimham and Raja Chelliah provided road maps for financial and tax reforms.
The team that provided intellectual heft to the economic reforms was the second generation of economists in government. It replaced an earlier generation that had people such as C D Deshmukh, J J Anjaria, I G Patel, L K Jha, P N Dhar, Lovraj Kumar, Pitambar Pant – while the Planning Commission itself had used the talents of young economists such as Jagdish Bhagwati, Amartya Sen and T N Srinivasan.
At the same time, B R Shenoy, M Narasimham, Deena Khatkhate, Anand Chandavarkar and V V Bhat were in the economics department of the Reserve Bank of India.
India now needs a third generation of policy economists to provide the political leadership with a broad future agenda on the economy, as well as advice on how to manage it in the short term.
The cupboard looks a bit bare right now, despite the presence of talented economists such as Urjit Patel, Arvind Subramanian, Bibek Debroy, Viral Acharya and Sanjeev Sanyal. This is in sharp contrast to the manner in which China has upgraded the quality of its economic administrators over the past decade, though that reflects not just the political will to get experts into government but also the rapid advances in the quality of Chinese university education.
There are two intersecting routes to strengthen economic expertise in Indian policy. First, there is a crying need to bring a new generation of policy economists into government, similar to what happened in the 1950s and then in the 1980s.
Second, the task of policy research should be done in collaboration with a network of universities and research institutes across the country.
The path-breaking Economic Surveys helmed by Arvind Subramanian over the past three years are an excellent example of how young economists from within the finance ministry, as well as from outside, can be brought into the policy process. More of this needs to be done.
There is a growing chorus of voices arguing that governments do not need economists. All they need are good administrators. The reality is more complex. A motoring analogy could be useful. It is the political system alone that has the right to decide which direction a country should be moving in. Then there is the need for experts to design policy paths that will help the country get there. And the eventual journey is highly dependent on good administrators who keep the vehicle on the road.
India seems to be weak on one of the three components of good economic management right now.