Of Counsel: The Challenges of the Modi-Jaitley economy, Arvind Subramanian, Penguin Random House, Rs.699, Pages 347
The abrupt manner of his departure and flimsy excuse he proferred for quitting his high office as chief economic adviser (CEA) to the government of India (family matters including the birth of a grandson), for spiriting himself to the bowers of Harvard University, leaving the billion-plus citizens of this tottering republic to an uncertain fate, had prejudiced your reviewer against Arvind Subramanian, author of this memoir. However the resolve to write a jaundiced review of Of Counsel melted away after one started — and substantially finished — reading this clear-eyed account of the author’s four-year stint in North Block, Delhi as principal economic advisor of the BJP-dominated coalition government at the Centre.
Despite its plain and understandable bias in favour of the BJP/NDA government and his “dream boss” Union finance minister Arun Jaitley, this book is written in a frank, fluent and engaging style unexpected of a practitioner of the dismal science, and is notable for its deep lateral thinking, logic and mentally stimulating properties. Your reviewer purchased this volume in hope that it would provide illuminating insights into the complex and controversial economic issues of the past quinquennium — demonetisation of high value currency notes in 2016; the troubled rollout of a complicated Goods and Services Tax; the RBI-government clash on the issue of recapitalising public sector banks which prompted the resignation of the Central bank’s governor Urjit Patel; the deep agrarian crisis which has resulted in a suicides epidemic in rural India, and a chorus of demand for waiver of farm loans which could destroy the country’s banking and credit systems.
To the author’s credit, these challenges and issues which have snowballed to the extent that the odds against re-election of the BJP in General Election 2019 — now barely 75 days away — have reduced considerably, are squarely confronted and intelligently debated, even if not satisfactorily answered.
According to Subramanian, it’s important to understand that post-independence India is a unique “precocious development nation” inasmuch as it is “a complete outlier in having sustained democracy at very low levels of literacy, deep social fissures, and with a highly agrarian economy”. Despite these formidable challenges, in his opinion, the “economy hasn’t been doing too badly: 6-6.5 percent growth rates for the past 35 years, but with lots of problems,” he writes.
Against this backdrop, Subramanian provides his take on the landmark economic initiatives of the Modi-Jaitley administration of the past five years. On demonetisation the CEA makes it plain that he was not consulted or informed about this “unique initiative” which “presupposed an extraordinary amount of resilience in the economy”, and of which he heard on television on November 8, 2016.
Without directly criticising demo, the author comments on its “two puzzles” — political and economic. First, if demo was as great a shock to the poor and vulnerable at the bottom of the social pyramid, why did the BJP sweep the assembly election in Uttar Pradesh — India’s most populous (215 million) and poorest state — called in Feb-March 2017? Secondly, why did it have a minimal impact (“not impose greater cost”) on the economy? The CEA’s speculative ruminations about these posers are engaging, even if not conclusive.
The other much overdue and more laudable initiative of the BJP/NDA government was to legislate and pass the Goods and Services Tax Act, 2017. But according to the author, despite the patently clear advantages of GST (national market, wider tax base and increased revenue, self-policing feature), the “great structural transformation” is incomplete without inclusion of land, real estate and electricity within its ambit. The case for a more comprehensive GST is made over 27 pages and is highly recommended for a proper understanding of this complex but high-potential initiative of the Modi-Jaitley administration.
On the issue of the ballooning NPAs of public sector banks, the inevitable outcome of the unwarranted nationalisation of all major banks in 1969, the author’s recommendation to establish a PARA (Public Sector Asset Rehabiliation Agency) aka ‘bad bank’, to purchase the NPAs of public sector banks (PSBs) and salvage what they can from the assets of debtor companies and individuals, and recapitalisation of PSBs from the RBI’s “excess” reserves, is well argued and deserves deep consideration and debate.
Adding value to the book is the chapter on agriculture in which Subramanian recommends ‘loving some agriculture less’ (wheat, rice) and the rest (pulses, vegetables, fruit) more. Essentially, it’s a call to cut back over-subsidisation of cereals and staples and eventually to replace minimum support prices and input subsidies with direct money transfers to small farmers and landless labour, and move towards a direct qualified universal basic income (QUIB) support model in lieu of all subsidies, an idea whose time has come.
Although this is an honest and thought-provoking recitation of Subramanian’s four-year sojourn as CEA to the Union government, its downside is the author’s narrow-minded premise that “economists must focus on economics”. Subramanian turns a Nelson’s eye to the communally divisive politics of his BJP masters, the deteriorating law and order situation countrywide which has hit private investment, continuous neglect of public education and health reforms which have resulted in mass unemployment and rock-bottom productivity in industry and agriculture. This is the major infirmity of this otherwise engaging and enlightening memoir.
The hard truth is that good economics can’t be practised in a social vacuum. The defining feature of the developed OECD countries where Subramanian preaches economics, is that ground conditions conducive for the practice of rational economics have been mindfully created. Unfortunately for the “world’s most precocious democracy” obliged to nurture the world’s largest child population, the Modi-Jaitley government has conspicuously failed to create conducive ground conditions for sustained economic growth and development.