Hopeful of Modi govt, anxious about macro economic decisions, says Arvind Subramanian

Draws parallel bewteen Deng Xiaoping and Modi, suggests forging FTA with US government

While hopes are very much that the new Narendra Modi government took charge in centre would address the governance and other micro economic situation, it should also be keen on not following populist gimmicks in macroeconomic issues. For instance, it has to do away with the diesel subsidy and bringing in Goods and Services Tax (GST), says economist Arvind Subramanian. He also drew parallel between Modi and Chinese reformist leader Deng Xiaoping.

Speaking in an event organised by the Rotary Club in the city, Subramanaian, a Dennis Weatherstone Senior Fellow at the Peterson Institute for International Economics and senior fellow at the Center for Global Development said, "I am very hopeful about the new government. It is also since the starting point is quite low."

 

He said that the decentralised democratic structure, which led to the dynamics of competition between the States, has the power to change and the government headed by Narendra Modi would add to this with a "a functional Delhi to complement this dynamics."

The decentralisation leads to competition between different States, putting pressure on the State governments to perform better, as against another best performing State, especially the social media and the modern tools spreads more awareness and opinion related to this rapidly. However, a non functioning centre would be a hindrance to growth and this is where the Modi government with decisiveness in decision making, better governance, less corruption could help, he added.

Drawing parallel between Modi and Deng Xiaoping, he said, "I think the best comparison (for Modi) is with Deng Xiaoping in China."

The Chinese leader represented a decisive break from all the madness of Mao Tsedong while Modi represents a decisive break from the dynasty in Congress. Deng Xiaoping is a pragmatist and obsessed with doing things and Modi also wants getting thing done. Both are decisive and there is a long term horizon they seem to have. Modi is speaking in terms of decades, being ready for the next election and there is a sense that the challenge is a long term one.

"What it means is that the temptations to do cheap gimmicky things in the short run, I am hoping very much, that the new government will resist," he added.

Another parallel is that both of them have baggage. Deng Xiaoping was ruthless when it came to repressing democratic voices emerging in China and Modi also has his own baggage, he added.

He said that the Modi government would work towards development of infrastructure and revitalising of bureaucracy, by backing their necessary decisions, where there was a decision making vaccum.

"Where I think I am a little bit anxious is in the macro economic side. India last year barely escaped a major financial crisis. We have inflation running at 8.5 per cent. Not giving in to the populist gimmicks is an area I am watching for," he said.

"I am not entirely convinced that the new government's heart is into maintaining macroeconomic stability as it is on the governance and the micro side," he added.

Speaking to reporters later, he added that some of the major things the government should look into include doing away with the diesel subsidy and implementing GST. The government should also stop increasing the minimum support price for rice and wheat, which has its impact on control over inflation. The opening budget is very important for the new government, as it is time to take tough decisions for the benefit of long term. This is particularly when the last budget was much worse than it appears to be, he added.

Indo-Pak ties

The relationship between India and Pakistan and India and United States (US) are highly important for the country in a long run and the new government should look at forging a Free Trade Agreement (FTA) with US, said economist Arvind Subramanian.

For the last around one year, the India-US relationship was very bad and since the GDP growth has come down, the foreign investors has lost their interest in India.

He said that the India-Pakistan relationship going sour has a potential to derail India, though the country cannot do much to take it upside. Similarly, the India-US relationship is also very important to India, considering it is also a people to people relationship with a large number of Indians working in US. However, this relationship has a potential to grow upwards and it also has a strategic importance considering the assertive nature of the neighbouring power - China.

The India-US relationship was at its peak during the passage of civil nuclear agreement and the country need something similar to motivate the relationship. "Forging an FTA with the US government is the best idea infront of the new Modi government for this," said Subramanian.