PM's Economic Advisers Make Motherhood Statement On Slowdown -- We'll Think Of Something

Raman Swamy

The Prime Minister’s newly-constituted Economic Advisory Council met for the first time and held a press conference on their deliberations on the state of the economy.  

A few key points emerged - 
i) There was consensus that the economy has slowed down.  This is very significant because till now the government has been in denial mode, claiming that the current downturn is only a passing phase.

ii) The five economists hand-picked by the Prime Minister revealed that their initial sharing of ideas had identified a “variety of factors” – and not just one or two – that have led to the fall in GDP, rise in joblessness and general economic sluggishness.   This is a hint that, in their collective view, GST and Demonetization alone cannot be blamed for the slowdown.

iii) All the economists on the Council agreed that urgent short-term steps needs to be taken to revive the economy – they underlined the need for “demand-shock” and “supply-side shock”.   

iv) They also balanced this by laying equal stress on “relatively long-term measures” and “structural corrections”.

v) They made it a point to repeatedly stress that the Council’s task was “only to make recommendations” and “not to formulate policy inputs”.   This is also significant because both the Finance Ministry and the Reserve Bank were growing uneasy about whether the Council would step on their toes.

vi) The Council members also made it a point to underline their role as advisors to the Prime Minister directly - none of their thoughts and ideas would be aired in public.  This again should come as a relief to the Finance Ministry (which is focused on fiscal management) and the RBI (which deals solely with monetary matters).

vii) The economic advisors however gave a clue to their thinking on the contentious issue of “fiscal consolidation” – they asserted that “the goal of keeping the fiscal deficit under control” should not be sacrificed for short-duration quick-fix remedies.     

In order to appraise the public about the outcome of their first meeting, the Council members told the media that they had prepared a “preliminary working plan” --  in effect they had unanimously identified Ten Themes or Areas that needed to be studied in depth at subsequent meetings so that a set of recommendations can be formulated for presentation to the Prime Minister. 

The Ten Themes they listed were as follows -  a) economic growth, b) employment and job creation, c) informal sector and integration, d) fiscal framework, e) monetary policy, f) public expenditure, g) institutions of economic governance, h) agriculture and animal husbandry, i) patterns of consumption and production and j) social sector.

Observers were quick to recognize these Ten Themes for what it was - A Motherhood Statement.

In Politics as well as Business, the term “Motherhood Statement” refers to a plan that everyone is bound to agree with.  It is a "feel good" action-plan which ticks all the boxes and leaves nothing out.    

In the press conference, therefore, the Economic Advisory Council members were able to state that in the debut meeting the five economists had been able to “identify the specific areas” that needed to be prioritized to revive economic growth and generate employment opportunities.   Chairman Bibek Debroy said:  "There is a consensus among us about the various reasons that have contributed to the slowdown in the growth rate and the areas on which action needs to be taken".

The other members of the Council nodded in unison - Ratan Watal (who is also Principal Adviser in NITI Aayog) and part-time members Surjit Bhalla, Rathin Roy and Ashima Goyal.  They affirmed that the meeting had taken stock of the current, economic, fiscal and monetary policy environment and identified the ten focus issues.  

Interestingly, while indicating that a report containing their recommendations would be submitted to the Prime Minister in the “next three or four months”,  they also said:  "We will come up with a do-able solution, keeping in mind next year's Budget".  

This has given rise to some questions.  The timeline of “two or three months” would imply that the report to the Prime Minister would be submitted only in January next year?  Secondly, the mention of the Budget is intriguing – will the inputs of the advisors influence the formulation of Arun Jaitley’s Budget, due in early February?   

Another intriguing question relates to a remark made by member Rathin Roy about the latest IMF report on the Indian economy.  The IMF and the World Bank, he said, “often go wrong”.

The IMF has lowered India's growth forecast for the current fiscal by 0.5 percentage points to 6.7 per cent.  The World Bank has pegged economic expansion at 7 per cent, down from 7.2 per cent projected earlier.  The Asian Development Bank too has lowered India's current fiscal growth to 7 per cent from 7.4 per cent. The RBI itself cut economic growth forecast to 6.7 per cent from earlier projection of 7.3 per cent.

But Rathin Roy evidently does not agree.  He saiud:  "IMF's growth projections are 80 per cent wrong...World Bank's growth projections are 65 per cent wrong".

Replying to a question regarding jobs, Bibek Debroy said:  "Whether we like it or not, we don't have good data on employment.  In a country like India, you cannot get good data on employment and jobs from surveys. The labour bureau enterprise surveys covers less than 1.5 per cent of total employment".

Oct 13, 2017

Raman Swamy [email protected]

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