Former RBI governor Raghuram Rajan has said that the Indian economy is “too big an economy to be run from the top”, criticising the Narendra Modi PMO for taking an “extremely centralised” approach.
ThePrint asks: Is Raghuram Rajan right to say strong Modi PMO, centralised decision-making hurt economy?
Rajan right to call out Modi govt’s governance model. Modi should know PMO and CMO are different
Economist and Senior Fellow at Observer Research Foundation
Raghuram Rajan is right to call out the Narendra Modi model of governance as struggling. The Prime Minister contested in 2014 on his record as the chief minister of Gujarat, where a similar micro-management style appeared to have paid dividends in terms of growth.
But there is a vast difference between the PMO and a CMO. While a chief minister can behave like a project manager, taking a close interest in every major decision and its implementation, the Prime Minister cannot.
A PM must set a policy direction, and ensure that administrative processes are structured in such a way that this policy direction is carried out at every level of the central government. But that needs a coherent policy vision in the first place, which as Rajan pointed out, is lacking. What a PMO cannot do is be the final clearinghouse for every major file, the final touchpoint for every major decision. That is not being a “strong PM”, it is being a weak manager.
A centralised vision of governance is particularly difficult when the PMO itself is no greater in size. There is no full-time economist advising the PM, for example, the way Larry Summers advised then US President Barack Obama.
If PM Modi wished to change how decisions were made, he should have expanded the PMO, and stopped relying on bureaucrats to carry out his instructions.
To blame centralised decision-making for India’s economic woes may not be appropriate
Every government has a particular way of functioning and formulating policies. It is true that major policy decisions are based on the concurrence of the bureaucratic machinery at the PMO, but to blame the centralised decision-making model of governance for the economic woes of India may not be appropriate.
We do not have a counterfactual evidence to say this with certainty. In a diverse economy like India, there may be a case for single point decision-making when diverse interests and trade-offs have to be taken care of.
Having said that, it is not true that ministers are disempowered. The Indian bureaucracy is responsible for providing broad direction of reform agenda, but whether reforms see the light of day ultimately depends on political will.
While the Modi government has brought in several structural reforms like the inflation targeting regime, the Insolvency and Bankruptcy Code (IBC), the GST, opening up FDI; some policies were implemented hastily, which derailed the economy from its high growth path. The lesson is to formulate appropriate counter-cyclical policy responses to arrest slowdown.
The government has been taking a number of measures, but more needs to be done. It is also to be acknowledged that economic revival is a slow and painful process and the Modi government would do well to avoid hasty policy jerks.
Views are personal.
Would be excessive to blame slowdown on this PMO, but that office must also take its share of blame
Professor, National Institute of Advanced Studies
A strong PMO invariably leads to errors in economic decision making. This was true even during Indira Gandhi’s regime. Under Narendra Modi, the PMO has become more centralised and even more prone to errors in economic policy.
From demonetisation to GST, there is no dearth of economic policies riddled with issues in conceptualisation and enforcement.
Conceptualisation is constrained by the reliance on a few trusted minds in the PMO or other small groups, rather than gaining from the wider set of ideas that public debate throws up. The reliance on a highly centralised PMO also prevents policymakers from getting genuine feedback from those who are directly affected by the government’s policies.
Matters only become worse when a centralised PMO tries to simplify matters in a way that makes it easier to manage. Cutting down the rates of indirect taxes under GST – even pursuing a single rate – may be easier to manage, but across a diverse country, like India, it makes the rates insensitive to local conditions.
This affects tax collections, leading to a growing informal sector. As centralised policymakers seek to counter informality with stronger laws, the fear affects the sentiment of investors.
It may be somewhat excessive to blame the current slowdown on an excessively centralised PMO, but that office must also take its share of the blame.
Raghuram Rajan made a political statement in the guise of an economic one. Shows his leanings
National Spokesperson, BJP
The Indian economy has sizably grown and there are institutions, structures and systems that have been put in place to run it. These systems are now comparable with the best in the world.
The economic wings of the Centre, states, regulators and the RBI form the backbone of the management of the country’s economy.
To say that the PMO is running India’s economy has nothing to do with the reality on the ground. It is very surprising that Raghuram Rajan has made such a statement because he knows how India’s economy functions. We know he has political preferences, but one expects more honesty from a person of his stature. His is a political statement in the disguise of an economist — clearly showing his liking for another political ideology over the BJP’s. Rajan is entitled to his views, but he should be more open about his political leanings and preferences.
Of course, the PMO also has a role to play in managing the economy, but that role is limited to occasional advice and ensuring that everything is done as per the Constitution and mandate of the people.
His comments were made to paint the Modi government in poor light.
The BJP has given India a strong, honest and efficient government. This government does not sleep and works like a dedicated team under Prime Minister Narendra Modi’s leadership.
Ministers do not fight with their Prime Minister like they used to during former PM and Congress leader Manmohan Singh’s terms. Raghuram Rajan likes a weak PMO, which was evident during Singh’s tenures.
Raghuram Rajan comments justified. Centralised governance won’t have impact India needs at ground level
A.K. Shiva Kumar
Economist and former member of India’s National Advisory Council
Raghuram Rajan is entirely justified in reiterating that an economy of India’s size and diversity cannot be managed effectively by a centralised system of governance. This has been well understood all along. This idea was the motivation behind the 73rd constitutional amendment in 1992 that bestowed power and authority on the Panchayati Raj institutions to function as units of self-government. That no central government has acted to adequately empower panchayats is another matter. But, doing so now is critical.
India’s economic growth record in the last 25 years has been impressive. However, the country lags behind on critical dimensions of human development like health and nutrition, basic education, and tackling climate change – subjects that are principally the responsibility of the state governments, and not the central government. Unless India accelerates progress on these non-economic and other social fronts, it might become difficult for it to accelerate growth – let alone sustain it.
India’s progress in the future will hinge critically on enhancing the capacity of the state and the local governments. This is because India urgently needs to find local solutions to national problems. A strong centralised system of governance is not likely to make the impact India needs at the ground level. These can be realised only with an exceptionally strong system of decentralised governance.
By Taran Deol, journalist at ThePrint