After an eventful tenure, CEA Arvind Subramanian bids farewell

Conversing with Arvind Subramanian has always been a singular experience. Bursting at the seams with ideas and concepts, the outgoing Chief Economic Advisor jumps from topic to topic. He converses freely on economic theories, data and policy proposals, often starting a subject without finishing the previous one.
 

As a result, one can never figure out when his comments on non-performing assets end and when those on fiscal deficit begin. This of course shows a person with an enviable breadth of knowledge on his subject, who perhaps thinks two-three sentences ahead.

When Subramanian was appointed the CEA in October 2014, perhaps he himself did not anticipate how eventful his tenure would end up being. The biggest impact he has left on the policy and economic landscape are through his economic surveys.

The surveys before him were ordinarily a data bank of the economy in the year gone by. His economic surveys, however, have stood out for starting debates and discussions on a number of issues, including providing targeted government services through the ‘JAM trinity’ of JanDhan-Aadhaar-Mobile, toxic assets in the state-owned banking system, the problem of twin balance sheets, Universal Basic Income for the poor, the concept of ‘stigmatized capitalism’ and in the last survey, a portion on India’s ‘unwanted’ missing women.

By his own admission, these surveys have been widely read in India and across the world, and have also become part of the syllabus in various universities and colleges.

These topics, and others, led to furious debates in media and among policy-watchers and economists. So much so that Finance Minister Arun Jaitley had to clarify a number of times that the job of the CEA was to come up with ideas, irrespective of whether they would be implemented or not. He did ruffle feathers among some sections in the government, but especially those in the Reserve Bank of India. 

Some of the major recommendations made by Subramanian:

Twin balance sheet problem: In his 2016-17 survey, Subramanian spoke about the double whammy of overleveraged companies and distressed assets being held in bank books. This was the basis for the government’s action to reduce NPAs through bankruptcy code.

Revival of public sector investment: In his first document, the mid year economic review 2014-15, he pushed for higher public expenditure. Govt followed suit with record capital expenditure outlay in 2015-16, 2016-17, 2017-18.

JAM Trinity: Subramanian pushed the idea of targeted subsidies and government benefits through the trinity of JanDhan-Aadhaar-Mobile, in his 2015-16 survey. Almost all of the government’s subsidies to beneficiaries are now routed through these channels under the DBT scheme

UBI: Subramanian, in his 2016-17 survey, pushed for a minimum level of cash transfers for India’s poorest. This proposal has not yet gained traction in the central government, though some states have shown interest

Bad bank:  In his 2017-18 survey, Jaitley proposed a bad bank to take over all the toxic assets of the banks, dubbed the Public Sector Asset Rehabilitation Agency. 

The government is examining the feasibility of setting up a such a bank 

 

The CEA has also been one of the most vocal critics of the Reserve Bank of India’s six-member Monetary Policy Committee, and its inflation modeling. The second part of his 2016-17 economic survey had said that there was a wide divergence between headline numbers and inflation targets.

The survey said that in the last fourteen quarters before the July-September 2017 period, inflation had been over-estimated by more than a 100 basis points in six quarters, with an average error of 180 basis points. “The conclusion is inescapable that the scope for monetary easing is considerable, more than that suggested by comparison with neutral interest rates,” the survey said.

In fact, the tabling of the survey had been considerably delayed as some sections in the topmost rung of government had objected to Subramanian’s strong criticism. In June that year, Subramanian had reacted quite strongly when MPC held rates. “In recent times, seldom have economic conditions and the outlook warranted substantial monetary policy easing.” He had said that non just headline prices, but core inflation had declined as well and indicated that the Reserve Bank’s “inflation forecast errors have been large and systematically one-sided in overstating inflation.”

However, he shared cordial relations with Jaitley and most officials.

Subramanian has also been a member of a high-profile panel which was tasked with recommending a medium-term fiscal roadmap for India. Subramanian had authored a lengthy dissent note to the panel’s recommendations, in which he suggested that the focus of policymakers should be on reducing primary deficit rather than fiscal deficit.

As the rule-based WTO system faces headwinds from UK's Brexit vote and election of Donald Trump as US president, Subrmanian argued that these developments may actually have the opposite effect.

In spite of being one of the government’s pre-eminent advisors, Subramanian was not consulted by the government on demonetization, even as it was called an ‘economic decision’ and 'structural reform'. In fact, he came to know like the rest of us, on November 8, 2016, when Prime Minister Narendra Modi announced it in a televised address.

Also, in 2015, he had headed a panel which was to recommend to the Goods and Service Tax Council a possible tax structure under GST. He had suggested a standard rate of 17-18 per cent for most items and a revenue neutral rate of 15 per cent, recommendations which were not taken up.

On Wednesday evening, hours after Jaitley announced that Subramanian would be leaving, reporters asked him what are the issues he wished he could have worked more on. Subramanian replied by talking about Universal Basic Income. “If I had the time, I would have done more work on that front. I also wanted to help with the creation of posts of CEA for various states. The state governments are enthusiastic on that idea and I would have liked to work on it,” he said.

In the politically correct and stifled world of policy making and governance, Subramanian has come across as someone honest in his assessment. “One should be forthright enough and be ready to face the fallout of such actions,” he told reporters.

“Whether you call me a good CEA or a bad CEA, that is your prerogative, but I am confident none of you will call me a lazy CEA,” he said.