It is not too late for Mr Modi to take over finance portfolio & fix things

The economy needs a full-time FM and, if we must have a part-time one, no less than the prime minister should supervise the management of the macro variables

In India everyone is a macroeconomist which means everyone knows how to fix things like the fiscal deficit, the current account deficit, inflation, the exchange rate, the interest rate, and so on.

 

But this also brings to mind something Dr Prodipto Ghosh, who was then in the Prime Minister’s Office (PMO), said way back in 2001. It was at one of those quarterly macro review seminars that Shashanka Bhide – who was chief economist at the NCAER then – used to organise.

 

The economy had been in investment doldrums since 1996 because of the election-oriented interventions of the Congress government in the last quarter of 1995. The fizz of the previous three years had collapsed suddenly and a series of events, such as the Asian crisis of late 1997, the US sanctions following Pokhran II in 1998 and the Kargil war in the summer of 1999, had made a quick recovery well-neigh impossible.

 

It was in this gloom-filled context that everyone gathered around the table had made his or her suggestions. After listening to them all, Dr Ghosh had responded tartly: “Yes, we know what has to be done but we wish we knew when.”

 

He then explained how difficult it was to get the timing of interventions right and how much of the government’s time was spent on discussing this. I suspect his comments may have had something to do with the annoyance of the late S S Tarapore, former deputy governor of the Reserve Bank of India, over the September 1995 intervention that knocked investment out.

 

And, although Dr Ghsoh did not quite say it, the implication was clear: since no one in government could agree on the timing, in the absence of a decisive finance minister, many much-needed interventions never happened and things went from bad to worse.

 

It’s the timing, stupid

 

The issue of timing assumes importance in view of India’s current predicament, which was outlined very succinctly by Shankar Acharya a few days ago in Business Standard. The burden of Mr Acharya’s song was that all macro fundmentals had deteriorated very rapidly in just six months.

 

When asked about it, the current Chief Economic Advisor, Arvind Subramanian, agreed that Mr Acharya was right. But he also said that things were not as dire as they were in 2013.

 

That may well be the case but, looking ahead, the government will have to make some interventions right away to prevent further problems down the road.

 

And this is where we have a problem that is peculiar to the Modi government: its municipal approach to economic policy has been so overwhelming that it has persistently neglected the big picture.

 

Not just that: it doesn’t have a full time finance minister at this crucial juncture. This has happened three times before: in 1958 when Jawaharlal Nehru took over the finance ministry; in 1970 when his daughter did the same thing; and in 1988 when her son did it too.

 

But they were prime ministers at the time. That made a big difference.

 

Looking at the nature of the problem now, the economy needs a full-time finance minster and, failing that, if we must have a part-time one, no less than the prime minister to supervise the management of the macro variables.

 

Sadly, Mr Modi, beyond focusing on project execution, has never shown much inclination to engage with the economy. And now that the general election is less than a year away, he is hardly likely to change his preferences.

 

In short, as the American astronauts said when their spacecraft was blowing a gasket, we have a problem. But unlike in their case, in India no one is dealing with it.

 

It is not too late even now for Mr Modi to take over the finance portfolio and fix things. The sooner he does it, the better it will be for the economy.