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The Economic Advisory Council to the Prime Minister (EAC), headed by Bibek Debroy, came out with 10 themes for accelerating growth and employment over the next few months.
The reconstitution of the Council in itself is a good beginning. This is not to say that a bunch of economists on the council possess a magic wand that can revive growth in a jiffy. It signals that we are continuing with collective, institutional methods of decision-making, instead of relying on individuals. It could lend a timely advisory to the Prime Minister on “critical interventions” by interpreting signals emerging from various other high level think-pads or data and trends.
The IMF is the latest among multilateral agencies to have downgraded India’s growth forecasts. The World Bank, OECD and ADB have pared these numbers. Even the RBI cut its forecast for FY18 growth by 70 bps at one go. Having said that, there is a cyclical bounce- back around the corner as the effects of demonetisation and GST fade away gradually. A lot of high frequency indicators do indicate that as well. Auto sales, air traffic, rail freight and trade data offer positive cues.
Thus, the EAC should obviously look beyond the cyclical. The EAC has already made it clear that it doesn’t favour running a bigger deficit to pump-prime growth. So what can it look at?
Options before EACQuick-fix solutions : In the realm of policy advice, the government already has NITI Aayog of which Debroy and Ratan Watal are members. The Aayog is preparing a 15-year vision and a seven-year strategy document, and has already circulated a three-year action agenda. Given the understanding that the EAC is supposed to focus on “critical interventions”, it is expected to come out with jhatka or real quick solutions, as against the halal solutions to be covered under the Aayog’s strategy paper. The quick solutions could include reviving the credit cycle or a growth-boosting Budget in the near term.
Economic policy entrepreneurship: Can the EAC spot windows of opportunities and nudge the government into action? The IMF in its latest outlook averred that “recent data point to the broadest synchronised upswing the world economy has experienced in the last decade”. We have been also observing a slower but surer uptick in global trade volumes. Can the EAC come up with some bold policy suggestions even if it involves risk-taking that can enable India to take advantage of this?
Potential growth & productivity: Assessing the potential growth rate and productivity lie at the heart of policy making. The EAC being an assortment of distinguished economists, can shed some light on India’s growth potential, which seems to have been slipping according to the RBI and others. The assessment of potential growth and the output gap could determine future monetary and fiscal policy manoeuvres. Ditto for measures to boost productivity levels which have sagged.
New approachesIgniting entrepreneurial and corporate growth: The balance sheet recession issue is known and has been highlighted ad nauseam. Are there any measures that could ignite the spark for entrepreneurs? Most of the yesteryear sector poster boys for job creation and darlings for the middle class, ie BFSI, IT and telecom, are in the doldrums for various reasons. Can ways be found to create new stars?
Deepen growth dividend : The IMF has highlighted that growth rates in India have not resulted in matching gains in income for a bulk of the population. It found in its study, that in India, real per capita GDP grew by 4.9 per cent a year during 1993-2007, but the median household income was estimated to have grown by 1.5 per cent a year. The Council should seek to deepen the growth dividend.
Narrow gap between the various think tanks: It will be big service if the EAC is able to narrow the differences of opinion among some high profile think tanks.There has been a huge chasm between the Finance Ministry and the Chief Economic Advisor, on the one hand and the MPC on the other, over the inflation trajectory. Arriving at a golden mean will help.
The writer is Chief Economist, Mahindra & Mahindra
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