And so the fourth and final horseman is heading back across the Atlantic. Viral Acharya will soon follow in the retraced footsteps of Arvind Subramanian, Raghuram Rajan, and Arvind Panagariya. Media comment projects the country as the loser, but no one is alarmist in the way some were when Rajan headed back to Chicago. Nor does current comment reflect the extreme fears raised by Acharya in his famous speech about central bank independence. But then, neither do too many people reflect the view reportedly expressed by Arun Jaitley as finance minister, that one of the mistakes the Modi government made was to import economists from abroad.
Let’s be clear: The country IS the loser when it loses top-flight economists. But before we come to that, consider the possibility that experts can be wrong. Acharya’s academic qualifications and expertise in central banking are widely acknowledged, but he does have to answer questions on his record at the Reserve Bank of India (RBI). On his watch, the RBI’s macro-economic analysis has been wrong on the inflation rate as well as the economic growth rate — over-estimating both. Flowing from those misjudgments, he has been wrong also in his advocacy of interest rate policy, opposing two of the recent rate cuts announced by the RBI.
There is the question of cultural fit. Foreigners doing business with Indians find that Indians don’t say “no” when they disagree, preferring to shift ground or resort to indirect signalling. That’s unlike in the US, say, where you are expected to bluntly say “no” if that is your position. Similarly, those within the Indian government system do not speak out publicly against the government they serve. When you are governor or deputy governor, you do not have the freedom of speech that an ordinary citizen enjoys. Differences are aired only internally.
On the occasions when someone feels the need to start a public debate, it is not done in apocalyptic terms. Naturally, when Rajan and Acharya spoke out bluntly (in the case of the former, on issues with which he was not officially concerned), it did not go down well. And yet, on the one issue (demonetisation) on which one might have expected Rajan to take a stand, he became a homegrown Indian: He advised against, then went along.
Still, it was not a mistake to hire these economists. Rajan’s determination to clean up banking led to the asset quality review, which exposed the extent of the hidden rot. Next, while it is no secret that Rajan and his deputy (later successor) Urjit Patel did not get along, it was under Rajan that Patel formulated a policy framework for the RBI, making inflation control the primary goal of monetary policy. This reflected international thinking on the issue, but was contrary to the view of previous, homegrown governors like Y.V. Reddy and Bimal Jalan. Still, monetary policy has been recast.
In the finance ministry, Arvind Subramanian’s many policy prescriptions were usually ignored by the government despite his strenuous advocacy. But his report on the modal rate for the goods and services tax did get indirect acceptance, while his opposition to multiple rates has found partial purchase after his departure. Subramanian has also been recognised for raising the quality of analysis in the government’s annual Economic Surveys. But after his recent questioning of the official growth numbers, he must be persona non grata.
At the NITI Aayog, Arvind Panagariya came early and left two years ago. He did not get as much face time with the Prime Minister as he may have expected, perhaps because his reformist thinking on macro-economic policy was tangential to the approach of the Modi government, which has been more interested in programmes and projects, and in specific issues like how to reform medical education. The NITI Aayog played its part here, but Panagariya’s big ideas like coastal economic zones have not materialised.
Today, with growth having slowed and macro-economic challenges in every direction, would the government have benefited from the advice of “Harvard” economists? Perhaps, but judging by past record, it probably would not have paid much heed.