CEA’s Exit: Little Evidence To Suggest It Was Due To Differences With Modi Government

It is sometimes wrong to read too much into a departure or to see a pattern where there may be none. The announcement yesterday (20 June), that Chief Economic Adviser Arvind Subramanian will leave before his extended term ends, has been read by some as being the result of pressure from “RSS-type” swadeshi economists.

Some media reports also linked his departure to the earlier two of Raghuram Rajan from the Reserve Bank of India in 2016, and Arvind Panagariya from NITI Aayog in 2017.

Then we had the usual diatribes from P Chidambaram, former finance minister, whose family has been charge-sheeted by the Income-Tax Department for non-disclosure of foreign assets. Chidambaram tweeted: “I am disappointed, but not surprised, that Dr Arvind Subramanian has decided to leave the government before the end of his term. Dr Arvind Subramanian was either not consulted or his views were brushed aside on many important issues. It is no longer a secret that the CEA was not consulted before demonetisation.”

This is a load of bull, for Subramanian did not need to be consulted on demonetisation. Only the Reserve Bank of India needed to be in the loop, and it was. Also, if this non-consultation was the reason for his premature exit today, he could have refused an extension last year, when his three-year term ended.

The post-announcement love-fest between him and Jaitley, now manifest, suggests that Subramanian is not leaving due to any major disagreement with the government, though he probably would have opposed demonetisation if he had been asked for his opinion. While Subramanian called Jaitley a “dream boss”, Jaitley confirmed that his “departure will be missed by me”, since he liked Subramanian’s “dynamism, energy, intellectual ability and ideas.”

Trying to see a pattern in the exits of three foreign-trained economists is also a bit of a stretch. While Raghuram Rajan probably did not get an extension because he was too outspoken in his criticism of the Modi government, Panagariya, even today, continues to be largely supportive of the Modi initiatives, and the government regards him as a friend. The reason for his departure probably had more to do with him being put in the wrong role – that of head of a newly-formed NITI Aayog with ill-defined objectives. Panagariya’s ideal role would have been as head of the PM’s Economic Advisory Council (EAC), but that body was formed only a month after Panagariya left NITI. The job went to Panagariya’s colleague at NITI Aayog, Bibek Debroy.

The reality is that Modi appointed Subramanian even though the latter had criticised him before 2014. This fact alone suggests that Subramanian was not in the PMO’s doghouse. If anything, Subramanian’s outspoken views on interest rates – he took on the RBI’s over-cautious approach to cutting rates when retail inflation was low for much of 2017 – should have made him a favourite with the Modi government.

If he was living on borrowed time, it was not evident in the things he was involved in: among other things, his report on GST rates formed the basis for working out the initial revenue-neutral rates by the GST Council; his was the voice that called for a small fiscal stimulus given the economy’s double-balance-sheet problem; and his Economic Surveys brought in fresh ideas and, arguably, made greater waves than the Modi government’s budgets.

It is fair to say that Subramanian outperformed compared to expectations. While some people may have a grouse about foreign-trained economists getting the plum jobs, Subramanian was a man who adjusted his views to the realities of Indian politics and economics.