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Economy Jul 31, 2012

Raghuram Rajan as PM’s adviser will not help UPA in any way

By Venky Vembu

There's a new broom out in North Block. Prime Minister Manmohan Singh, who has taken additional charge of the finance portfolio from putative President Pranab Mukherjee, is evidently implementing sweeping changes in the bureaucratic set-up there to cast it in his own image.

Officers who were closely identified with some of the more discredited economic and taxation policies of Mukherjee's term in office are being bundled off on other assignments. Just as significantly, Manmohan Singh is looking to infuse the economic policymaking and implementation teams with some fresh blood.

Indicatively, Manmohan Singh is reportedly looking to persuade Raghuram Rajan, former chief economist at the IMF and a professor of finance at the University of Chicago, to take up an influential position in economic policymaking, according to a report in Economic Times.

"Dr Rajan's name is being considered actively," The Hindu Business Line reported, quoting highly placed government sources.

Rajan already serves as an honorary economic adviser to the Prime Minister. AFP

Rajan already serves as an honorary economic adviser to the Prime Minister, but given that Kaushik Basu's term as Chief Economic Adviser to the Prime Minister expires on 31 July, Manmohan Singh is keen to secure Rajan's services in that capacity.

The wisdom of appointing a man of Rajan's stature to enhance and influence the government's economic policymaking is, however, open to question. Not because he doesn't have ideas to contribute - he does - but because the government is not exactly lacking in ideas to fix the economy.

The government's all-star economic team - from Manmohan Singh himself to Montek Singh Ahluwalia to C Rangarajan to Kaushik Basu to RBI Governor Duvvuri Subbarao - have between themselves analysed the economy threadbare, and can comfortably agree on the broad contours of policy action needed.

Everyone from the Prime Minister downwards has in recent days been giving voice to the failings in the economy that have contributed to the slowdown in growth, and the way to go about fixing them. For instance, returning from his overseas visits, Manmohan Singh said all the right things that needed to be done to revive economic growth and address macroeconomic deficiencies.

The problems of fiscal management and of the balance of payment and of the current account deficit would all need to be tackled "effectively and credibly," he acknowledged. More critically, he noted that obstacles or policy impediments that came in the way of foreign investment - both portfolio and FDI - would need to be removed.

And Rural Development Minister Jairam Ramesh, who appears to be angling for the post of Finance Minister, has written a letter to Congress president Sonia Gandhi and the future Prime Minister-in-hiding Rahul Gandhi identifying the problem areas in the economy and the specific recommendations for fixing them.

According to The Indian Express, Ramesh airily dismissed the government's recent announcement of austerity measures as "meaningless" - and instead suggested specific ways to lower the fiscal deficit and the subsidy burden: raise diesel and LPG prices; introduce a tax on diesel passenger cars, particularly SUVs; and cut the budgets of key ministries by 5 percent. And although Ramesh's recommendations to Sonia Gandhi are politically opportunistic - he does not, for instance, mention the fiscal burden of the NREGA or the Food Security Bill - he makes some broad-sweep recommendations that are not so wide of the mark.

And economic commentators, including we at Firstpost, have ensured through our contributions (see, for instance,here and here) that the government is never short of ideas on precisely what needs to be done to get the Indian economy back on its feet.

So, to reiterate, the problem isn't with generating ideas that make for sound economic policy. The problem has always been in summoning up the political will to implement what everyone knows needs to be done.

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by Venky Vembu

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