The challenge of counsel

OF COUNSEL

The Challenges Of The Modi-Jaitley Economy

Arvind Subramanian

Penguin Viking

347  pages; Rs 489 

Don’t judge a book by its cover, it is said. But the cover photo of Arvind Subramanian’s latest book may well impress you. There they are, the Chief Economic Advisor (CEA) with his boss, Finance Minister Arun Jaitley, standing in front of North Block seemingly deep in discussion on grave matters of national and global importance. 

The depth and breadth of the content of the book is impressive too -- the Goods and Services Tax (GST), the twin balance sheet problem, the Reserve Bank of India’s excess capital, Jan Dhan, Aadhaar Mobile, the public perceptions of capitalism, state-owned banks, bankruptcy laws, climate change, and Roger Federer. 

The book bears the former CEA’s distinctive writing style — conversational, long sentences — with which we are familiar from his eminently readable Economic Surveys. He reiterates the ideas and concepts from those surveys and the speeches he delivered during his tenure in North Block. 

He talks of “stigmatized capitalism”, and rightly points to the political cost of saving troubled corporations, not least because Rahul Gandhi’s “suit-boot ki sarkar” gibe prevented the Narendra Modi government from taking the steps it should have taken to solve the toxic-asset mess in public sector banks much earlier. He writes in detail about the work that went into birthing GST and the behind-the-scenes discussions in the GST council by Mr Jaitley that many commentators don’t fully appreciate. 

He correctly elucidates the concept of “capitalism without exit”, which talks of the inability of both inefficient private sector enterprises to exit before the Insolvency and Bankruptcy Code (IBC) was enacted, and the government’s difficulties in relinquishing bad policies (like subsidies) or exiting inefficient state-owned companies like Air India and several banks.

These issues and a host of others such as the question of universal basic income, the RBI’s inflation targeting, and the twin balance sheet problem make up the bulk of the book. It is worth reminding readers that Mr Subramanian offers no new theory or concept. What seems to have changed is his views about several of these topics. 

For example, on the government’s 2015 Indradhanush scheme to recapitalise state-owned banks, Mr Subramanian writes, “Not just in retrospect, but even at the time, it was clear that Indradhanush and the RBI’s efforts were inadequate financially and also failed to provide any mechanism for debt write-downs.” 

Fair enough, but in his five Economic Surveys (he had authored two separate Surveys in 2017), Mr Subramanian never once expressed these reservations. The most he could muster then was that it was a good move and needed to be followed up. 

The IBC will go down as one of the Modi government’s biggest reforms. Mr Subramanian astutely highlights one point: That with the growing distrust in the executive and the legislature, the IBC shifts the onus on the judiciary, in the form of company law tribunals, to deal with bankruptcy cases. Again, this critical point was not fully explored in any of his Surveys. 

Recent coverage focused on his opinion that demonetisation “was a massive, draconian, monetary shock”. He was never as forthcoming during his tenure as CEA. That is why many have asked why he did not resign on moral grounds if he felt so strongly. That is a little unfair. Mr Subramanian is a professional economist. Like any other professional in any profession, he would want his CV to have hefty career achievements. And few achievements come bigger than the post of CEA to the Government of India. 

As CEA, Mr Subramanian worked enthusiastically trying to make himself useful and effective. He had defining reports on the revenue-neutral rates on GST, and on pulses and foodgrains, and a well-argued dissent note to the panel, of which he was part, in charge of recommending a new fiscal roadmap. 

But in his enthusiasm, he is known to have rubbed people up the wrong way. He does not mention, for example, how RBI Governor Urjit Patel (who stepped down from his post on Monday) complained to both the PMO and Mr Jaitley about the tenor of Mr Subramanian’s communications with the central bank. 

Mr Subramanian writes about how a CEA should work not only with the secretaries but also the officers lower down the hierarchy. Anyone who has covered policy will tell you that an “outsider” has to earn the respect of the bureaucrats, who have their own unique style of working, rather than demand it. Mr Subramanian earned some respect, but also demanded a lot of it. Known to have survived for as long as he did because of Mr Jaitley’s partiality for him, Mr Subramanian was very much part of the back-biting on Raisina Hill that he writes about. 

That is why it is interesting to see the names he has omitted from the Acknowledgements. He has thanked former and current secretaries like Hasmukh Adhia, Rajiv Mehrishi and Subhash Garg. But there is no mention of Ashok Lavasa and Shaktikanta Das — anywhere in the book, for that matter. They were, respectively, finance secretary and economic affairs secretary, two of the senior-most bureaucrats in the finance ministry, for most of his tenure. The omission of Mr Lavasa’s name is surprising, but it was an open secret that Mr Das — a by-the-book bureaucrat — and Mr Subramanian did not get along. Ultimately, however, Mr Subramanian was an advisor and, more often than not, he was over-ruled by the crusty career bureaucrats. 

Which brings me back to the cover. Those of us who have tracked Mr Subramanian’s tenure as CEA know that the photo is misleading. A more accurate photograph would have been of Mr Jaitley flanked by his five secretaries, with Mr Subramanian a step behind them.