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Can Tamil Nadu’s dream team of economists make a difference?

Populist politicians rarely listen to their hired economists. To be sure, Tamil Nadu isn’t the first state to appoint global economists as advisers. That credit goes to Kerala, which appointed Gita Gopinath, now Chief Economist IMF, as adviser in 2016. It was an experiment, which had turned out to be a farce

June 22, 2021 / 05:35 PM IST
Former RBI Governor Raghuram Rajan.

Former RBI Governor Raghuram Rajan.

On June 21, the Tamil Nadu government said it has created a five-member Economic Advisory Council to advise the Chief Minister in tackling the pandemic mess.

The Council is as A-list as it gets—Nobel Prize-winning economist Esther Duflo, former RBI Governor Raghuram Rajan, ex- Chief Economic Adviser to the Government of India Arvind Subramanian, welfare economist Jean Dreze and former Union Finance Secretary and one-time Economic Adviser to Prime Minister Narendra Modi, S Narayan.

The council contains names who are globally acclaimed and whose words carry weight anywhere in the world on economic issues. At least three of them have spearheaded India’s economic policy thinking at some point or the other in the recent past.

Their views

One can look for important insights from the contemporary comments and writings of these economists on COVID-19 and general economic measures needed to uplift the poor in developing economies.


Not long ago, Rajan criticised the Indian government’s “lack of leadership” and “complacency” for the Covid mess.

“If you were careful, if you were cautious, you had to recognize that it wasn’t done yet,” Rajan said in an interview to Bloomberg Television. 

Similarly, Duflo recently said in an interview that while the pandemic's economic impact cannot be predicted, issues like pause in child immunisation programmes and families pushed back to below poverty line can have long-lasting damage.

Duflo’s husband and economist Abhijit Banerjee, another Nobel laureate, went on to state that the nationwide lockdown imposed by the Indian government last year to curtail the spread of COVID-19 infections, and the resultant migration of poor people from cities to their villages by walking hundreds of kilometres on foot was a "pure plumbing failure".

Arvind Subramanian has long advocated universal basic income (UBI); in fact, the idea was first suggested by him as Chief Economic Adviser (CEA) in the Economic Survey of 2016-17.

The Survey had proposed that 75 percent of the population were to be provided with Rs 7,620 per annum, based on the official poverty line from 2011-12.

Last year, Banerjee too said India should immediately begin cash transfers of Rs 1,000 per person per month as an ultra-basic version of UBI.

Jean Dreze, in an interview with Moneycontrol on June 4 said a fresh stimulus package is essential and so are relief measures for poor people. Income transfers in cash or kind is a useful way of combining the two.

Dreze said the big lesson for India is it must abandon the US model of health care.

“The US model is a fragmented system where some people, like war veterans, enjoy free healthcare as a public service, others rely on health insurance, others still pay for medical expenses out of pocket, and a substantial minority is effectively deprived of any healthcare worth the name except in emergencies,” he explained.

According to a statement by the Tamil Nadu government, the Economic Advisory Council will advise Chief Minister M K Stalin on the state’s economic and social policies.

General guidance

They will also provide general guidance on economic and social policy, social justice, and human development-related issues, and in matters connected to equal opportunities for women and the well-being of underprivileged groups.

These appointments come at a time when the world and India in particular, is ravaged by a deadly, prolonged pandemic with the Indian economy bearing the brunt of the lockdown.

The Indian GDP is expected to contract around 7.7 percent in fiscal year 2021.

The government and the RBI have launched combined efforts to arrest a further fall, but there is uncertainty ahead on economic recovery, along with rising inflationary pressure.

Tamil Nadu’s message to other states and the Centre is that unprecedented crises such as COVID require out-of-the -box thinking and wider consultations with top experts are critical to avoid the devastating economic consequences of the pandemic at the earliest.

But the question is how well would getting top economic advice benefit a state, which given the lack of fiscal space, has been rampantly promoting the politics of populism?

"Getting top economists will perhaps get the state government some international attention, maybe to attract some foreign investors," said a leading economist who focuses on the Indian economy at a leading rating agency.

He, however, doubted for good effect, ``whether politicians anywhere listen to economists," speaking strictly on condition of anonymity.

Delicate fiscal position

The Tamil Nadu state government itself has admitted its delicate fiscal position but has nonetheless gone ahead with announcing populist policies.

It has been candid enough to admit that the fiscal situation of the state is precarious with persistent high revenue and fiscal deficits, and a large overhang of debt.

Most economists hired by the state have favoured putting more money in the hands of people to speed up economic recovery.

Can a fiscally constrained state government do that beyond a point? Where is the money, asked the economist quoted above?

Politicians tend to rely on populism to appease voters and economic advisors have a limited role in policy decisions if the leadership doesn't approve their ideas, he opined.

Among the measures M K Stalin promised in his manifesto include Rs 4,000 for every rice ration card holder, which goes beyond his recent announcement of Rs 1,000 a month for housewives, cutting petrol prices by Rs 5 per litre and milk prices by Rs 3 per litre.

An experiment that went wrong

It would be instructive to note that ideas put on the table by these top economists seldom get local acceptance, if the Gita Gopinath experience in Tamil Nadu’s neighbouring state, Kerala, is anything to go by.

Kerala had appointed Gopinath, who later became Indian Monetary Fund (IMF) Chief Economist, as its adviser in 2016.

She faced severe criticism from the Left Democratic Front (LDF) government's own cadres who alleged that Gopinath was promoting pro-American and neo-liberal policies.

Soon after the appointment, Kerala chief minister Pinarayi Vijayan faced opposition from some senior leaders in his own party who said Gopinath’s economic policies conflicted with the Left ideology.

Some others said the Left's neo-liberal phobia was undermining Vijayan’s effort to bring in professional expertise to steer the state's growth. But ideology and economics are rarely compatible.

In fact, veteran CPM leader V S Achuthanandan even wrote to the party’s central leadership questioning Vijayan’s decision.

Marxist economist Prabhat Patnaik then cautioned the LDF government that it “should not fall into the trap of new economic development strategies. Such strategies are often anti-labour and against the interests of the common people.”

The Left saw Gopinath's induction as an affront to their ideology. This ruffled some feathers in the Left fold, prompting the CPI-M politburo to seek an explanation from Vijayan's government and the CPI to question the appointment.

Arguably, Gopinath couldn’t leave any significant impact on the state’s economic policymaking.

Of course, Kerala isn’t Tamil Nadu as the political climate is different. Yet, one needs to wait and watch to assess whether Stalin’s experiment shows results and if it translates into tangible results.
Dinesh Unnikrishnan is Deputy Editor at Moneycontrol. Dinesh heads the Banking and Finance Bureau at Moneycontrol. He also writes a weekly column, Banking Central, every Monday.
first published: Jun 22, 2021 05:35 pm

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