Economic Advisory Council's success rests on PM Modi, say experts

Emphasis laid on building a good rapport between the country's PM and the Council to ensure the body doesn't end up becoming another 'talk shop'

The Economic Advisory Council to the Prime Minister (EAC-PM) was set up because a need was felt for an additional sounding board on economic issues that would report directly to Prime Minister Narendra Modi, apart from the NITI Aayog and the office of the Chief Economic Advisor (CEA) to the Finance Ministry, senior officials told Business Standard.

Also, the idea seems to be to promote healthy competition among various advisory groups within the government and enrich its decision making. 

The choice of the members reflects the divergence in opinions and approach that the government has sought.

A government official said that since the NITI Aayog and the EAC-PM would report directly to Modi, there could be a possibility that they could pitch ideas on similar topics or policies. It will be up to the Prime Minister to decide which idea to implement and the extra advice will also provide him a wider spectrum of opinions. 

The government on Monday announced setting up the EAC-PM headed by eminent economist and NITI Aayog member Bibek Debroy. The EAC to the Prime Minister is making a comeback after over three years, though with a tweak in the name. In its earlier avatar, under former Prime Minister Manmohan Singh, it was known as the PM’s Economic Advisory Council, or PMEAC, and was headed by former Reserve Bank of India governor C Rangarajan. Rangarajan, wholeheartedly welcomed the move. 

“I welcome the move. It is time to set up an EAC. It should have been done earlier, in my view. The choice of the members and the chairman is an extremely good one. It can play an influential role in policy-making by providing independent analysis,” he told Business Standard.

“The body’s effectiveness depends on how much access and time the PM gives it,” he said, adding that the first challenge for it would be to weigh in on what needed to be done to revive the economy. 

“It should not only provide advice on broader issues, but sector-specific problems as well, primarily on how to get private sector investment going again,” the former RBI governor said.

Pronab Sen, former principal advisor to the Planning Commission and present country director of the International Growth Centre’s (IGC’s) India Central Programme, said that he had maintained that the Prime Minister needed to have his own set of economic advisors who reported directly to him and to whom he could speak directly, because everyone else was essentially representing the view of his or her ministry or department.

But he, too, had a word of caution on the government's willingness to accept the advice.

“By and large, it is a good concept but if and only if the Prime Minister develops a good rapport with it or else it will become another talk shop like NITI Aayog and the entire exercise could turn futile,” Sen said. 

The real purpose would be solved if the PM met the EAC members frequently and, more importantly, informally without any barriers, Sen added.

The Modi government decided to set up the panel (EAC-PM) to propel the economy amid various parameters showing signs of weakness.

The council will analyse any issue, economic or otherwise, referred to it by the PM, according to its terms of reference. The body, which is an independent council, can also take up issues suo motu. It will address issues of macro-economic importance and present its views to the PM. 

The EAC-PM will have three economists as part-time members — Surjit Bhalla, Rathin Roy, and Ashima Goyal. 

Former finance secretary Ratan Watal has been appointed member-secretary of the council. He is currently principal adviser to the NITI Aayog.

The jury is still out on how effective the EAC-PM’s role will be and how it will contribute to the economic discourse and decision making within the government. 

Jayati Ghosh, professor of economics at Jawaharlal Nehru University (JNU), said that one needed to first see the kind of advice and suggestions that the council offered before making any judgement on it.

The Centre has set up the EAC-PM in the backdrop of gross domestic product  growth for the April-June quarter falling to 5.7 per cent due to demonetisation and destocking by companies following pre-goods and services tax (GST) jitters. 

It is against this backdrop that top policy-makers in the government have held a number of meetings to brainstorm on ways to revive the economy, revive exports, spur investments and create jobs for the millions entering the workforce every year.

As reported in Business Standard earlier, while there have been deliberations on ways to raise resources to finance higher capital spending beyond the budgeted Rs 3.10 lakh crore for 2017-18, for now the various departments have been told to spend the allocations provided to them already.

There have also been discussions on methods of non-fiscal stimulus, including more infrastructure bonds issued by central agencies like the National Highways Authority of India, and recapitalising banks through either bond issuances or paring the government’s stake in state-owned lenders further.

It has been debated in meetings whether to spend within budgeted means or allow the fiscal deficit target, previously considered a ‘red-line’, to slip. 

This is a marked departure from the Centre’s previous stance, though analysts and economists across the board said the government should choose in favour of the former as private sector investment still remained subdued.