What happens to NITI Aayog?

Modi govt must realise that it is not enough to set up a body like the council, but more important will be to respect its independence and pay attention to its advice

Prime Minister Narendra Modi has set up an economic advisory council to assist him with its views and suggestions on economic issues of importance. This development is generally welcome. The prime minister does need policy advice from a group of economists. 

But the constitution of the council, with NITI Aayog Member Bibek Debroy as chairman, may have been ordered a bit too late. Almost two-thirds of this government’s tenure is already gone. In the remaining one-third of time left, when preparations must be underway for the next general elections, it is reasonable to expect electoral politics, more than sensible economic advice, to determine the course and content of policy action. 

You might argue that sensible economic policies that fail to recognise politics do not really work in a democracy. But India’s past experience suggests that the government’s political compulsions have been so powerful that they have often played havoc with the implementation of sensible economic advice, even when offered by an officially constituted body. Thus, suggestions of good economic policies are often ignored when elections are just around the corner. Worse, they are tweaked to make them politically palatable, but economically incapable of yielding the desired results. 

The constitution of such a body has presumably taken place now because of the economic headwinds the government currently faces. Growth has slowed, inflation may cross the current comfort zone if oil prices continue to remain firm, the current year’s fiscal deficit target is posing a challenge due to fears of a revenue shortfall and demands of an investment stimulus, exports are yet to pick up, the current account deficit has widened and the global environment of easy money is about to change, putting further downward pressure on the Indian rupee. Hopefully, the council has been set up to address these very concerns and not to provide room for a few trusted people, as is being speculated. 

It is, therefore, reassuring that the government order on the council’s constitution reiterates its independent status. Independent diagnoses of economic developments and independent suggestions for policy action will, therefore, be a key factor determining the effectiveness and credibility of the council. Another factor contributing to its effectiveness and credibility will be the trust the prime minister has in the chairman and members of the council. 

If the council under the previous governments functioned effectively and carried credibility, it was because whether it was Sukhamoy Chakravarty, Suresh Tendulkar or Chakravarthi Rangarajan, each of them as the chairman of the PM’s Economic Advisory Council enjoyed both independence and the confidence of his respective prime minister. The Modi government must realise that it is not enough to set up a body like the council, but more important will be to respect its independence and pay attention to its advice. 

What does this mean for the finance ministry? So far, the prime minister has been relying extensively on the finance ministry. That reliance will undergo a qualitative shift. Given the depth of advice available in the finance ministry, Mr Modi will continue to seek inputs from North Block. But with the Economic Advisory Council in place, he will have a new source of advice and an opportunity to seek a second opinion within the government system. 

Simultaneously, the presence of the council will secure the much-needed balance between the influence exercised by civil servants on economic policy making and the advice offered by economists within the government system. For the first time during the tenure of the Modi government, economists are likely to enjoy an influence on policy formulation that cannot be easily dismissed by the civil servants. This, too, is a welcome development.

A more significant question pertains to the role of the National Institution for Transforming India or NITI Aayog. Will it have to remodel itself, now that the council is there to advise the prime minister on economic policies? Among other things, the NITI Aayog is mandated to provide to the prime minister a national agenda framework, work with states to help them realise their development potential, ensure inclusive growth and resolve inter-sectoral and inter-departmental issues to help implement the development agenda. 

There will be some overlap between the functions of the council and those of the Aayog. To ensure clarity of role, the government should further delineate the mandate of the Aayog, perhaps requiring it to now focus more on states, the larger development agenda, resolving inter-departmental and inter-sectoral issues and monitoring of projects and programmes.  That should leave macro-economic analysis and policy recommendations for the council to deliberate on. 

Note that the council is chaired by Dr Debroy, who will continue to function as member of the Aayog, but will report directly to the prime minister as far as his responsibilities under the council are concerned. The council’s member-secretary, Ratan Watal, is still a principal advisor in the Aayog.  In the past, the council used the erstwhile Planning Commission as its nodal agency for administrative and budgeting purposes, but there were no dual roles. The council could continue to use the Aayog as its nodal agency, but dual roles for its chairman and the member-secretary should certainly be reviewed to avoid confusion and potential conflict.