Different strokes in North Block

The pre-Budget Economic Survey should become the voice of the govt, and not just that of the CEA

The office of the chief economic advisor in the finance ministry has always been one of the most coveted positions among professional economists. Many of India’s well-known economists have donned that role. Some of them have contributed a great deal towards shaping the government’s economic policies, while many others have grown in stature and gone on to become top-notch economic administrators and one of them even became the country’s prime minister. 

The purpose of this piece, however, is not to evaluate the performance of these illustrious economists as chief economic advisors, but to point out a recent trend in their style of functioning and reflect on what implications that shifting focus may have on economic governance in the country. 

A key function of the chief economic advisor is to produce an annual pre-Budget document that outlines the key developments in the Indian economy during the year under review and present the many policy issues that the government must grapple with to achieve the goals of higher economic growth. Apart from producing this document, the chief economic advisor also acts as the eyes and ears of the finance ministry on key economic issues. 

This role has remained largely unchanged as chief economic advisors have continued to engage with the government’s economic policymaking with their inputs, even though in recent years there has been a debate over the degree of their involvement in some areas, particularly the management of the external sector, including trade and balance of payments, and data reforms like updating base years of various economic indicators. In particular, the relations between the office of the chief economic advisor and the Reserve Bank of India in the last couple of years have been a focus of attention.

But the most noticeable change in the chief economic advisors’ functioning in the last few years pertains to the way they have approached their task of preparing the annual pre-Budget Economic Survey. Till 1990-91, the Economic Survey used to be a document that focused on sectoral reviews and an introductory chapter on an overview of the economy that also dwelt on the key policy issues and challenges that the government must tackle. In addition, there would be a rich section on statistics covering public finances, economy and key infrastructure as well as social sectors.
 

Ashok Desai, who played the role of the chief economic advisor but was designated Chief Consultant from 1991 to 1993, brought about a significant change in the structure of the Economic Survey. He split the Economic Survey into two volumes — the first volume was written by him focusing on an assessment of the key challenges before the economy and the second volume retained the earlier structure of providing chapter-wise assessment of different sectors of the economy and an updated section on data. Dr Desai also improved the way economic statistics were presented.

Economic Surveys prepared by subsequent chief economic advisors made further improvements in the presentation of data. But they went back to the earlier single-volume format with the first chapter focusing on the key economic policy issues, highlighting the challenges and opportunities for the government, while the remaining ones dwelt on different sectors of the economy. But all these chief economic advisors made sure that there was no excessive importance given to what they wrote in the first chapter. Indeed, no chief economic advisor lent their own name as the leader of the team that authored the Survey.

That culture changed somewhat with Arvind Virmani who introduced himself and his team as the author of the Survey for 2007-08. Kaushik Basu, who succeeded him in 2009, continued that practice. But the chapter that Dr Basu wrote overshadowed in importance and significance all the other chapters in the Survey. New ideas to tackle governance challenges were presented, even though they did not have any direct connection with the Budget.

Predictably, much of the discussion that followed was on what Dr Basu’s views were on the state of the economy and what needed to be done. Little attention was focused on what the other equally important chapters had to say on various social and economic infrastructure sectors. The statistics section also lost its relative importance, partly because more recent data were available from other sources, particularly from the Reserve Bank of India, and partly because there was no distinct improvement in the way the available data were presented in the Survey. Raghuram Rajan, who succeeded Dr Basu, maintained the same trend of leaving his personal mark on the document. The current chief economic advisor, Arvind Subramanian, has continued the same practice and has brought about a remarkable improvement in the quality of analysis and content in the Economic Survey. 

Two implications of this shift are worth noting. One, there is now a disconnect between the central messages of the Economic Survey and the finance ministry’s approach to economic policymaking. Earlier the Economic Survey would provide a clue to the official thinking of the finance ministry or the finance minister on key policy issues. Today, that disconnect is disturbing because the Economic Survey now represents the voice of the chief economic advisor and not necessarily that of the finance minister or the finance ministry, let alone the government.

Two, the overemphasis on the first chapter has taken an avoidable toll on the quality of the other chapters on economic and social sectors. Precious little has been done in the last few years to bring about similar improvements in the quality of other chapters of the Survey. The last Survey, in fact, did not even have the chapters on the other sectors. Nor did it have the statistics section and a promise was made that these sections would be produced by June with updated information. 

This may already have had an adverse impact on the morale of the staff of the Economic Division within the finance ministry. There is need to improve that morale as also upgrade the overall quality of the Economic Survey. The pre-Budget Economic Survey should become the voice of the finance ministry or the government on economic policy issues, and not just that of the chief economic advisor.