PM Modi puts free-market stamp on new policy panel

By Frank Jack Daniel and Rajesh Kumar Singh

NEW DELHI (Reuters) - Prime Minister Narendra Modi on Monday named right-leaning economist Arvind Panagariya to run his new Policy Commission, hammering a final nail into the coffin of socialist planning that defined the first 67 years of independent India.

Panagariya, a professor at Columbia University in New York, will head a bench of thinkers comprising fellow free-market ideologue Bibek Debroy and a former top government scientist who designed a nuclear-capable ballistic missile.

The Indian-born economist's calls to roll back the state have influenced Modi's outlook and drawn comparisons, which he rejects, with Margaret Thatcher's attack on labour regulations and state industry in 1980s Britain.

India's first prime minister, Jawaharlal Nehru, adopted socialism to industrialise India after independence in 1947, a route that was later partly abandoned as India fell behind giant neighbour China's rapid economic growth.

But the legacy of central planning survived a round of liberalising reforms in the 1990s in the form of 5-year plans drawn up by a Soviet-influenced planning commission.

India's growth has hit its longest trough since the 1980s over the past two years, a cycle blamed by private economists on a lack of structural reforms to revive investment and create jobs and infrastructure.

"With the appointment of Panagariya and Bibek, the breakaway from Nehruvian socialism is complete," said Rajiv Kumar, a senior fellow at the Centre for Policy Research, a think-tank in New Delhi.

"Knowing both Arvind and Bibek, I am sure they will rapidly push for an open, private sector-led, more liberal order."

Panagariya told Reuters last year that he did not support a Thatcherite agenda, saying India should give markets a freer rein but that it still needed growth in social spending in a country that has about a third of the world's extremely poor.

"Here, in India, we are trying to give back markets the space that belonged to them in the first place and was usurped by overactive regulations," he said in an email interview, given in his capacity as an adviser to Rajasthan.

FISCAL LOOSENING?

Panagariya has previously advocated a loosening of fiscal deficit targets that he said were stifling growth to allow for more capital spending.

That view is shared by Arvind Subramanian, another heavyweight economist brought in from the United States last year to advise the finance ministry. In a December economic report Subramanian advocated higher infrastructure spending by the government to kick-start stagnant private investment.

Their views could be influential as Finance Minister Arun Jaitley prepares his first full budget, to be presented in parliament in February.

Panagariya, Subramanian and Debroy were vocal critics of Jaitley's first budget, an interim measure drafted after Modi's election victory in May. All three described it as too cautious given the government's resounding mandate.

Their appointment suggests that Modi also wants a more radical finance bill this year.

Modi scrapped the 65-year-old Planning Commission in the New Year, replacing it with a body he said would do more to involve the regions.

The 64-year-old premier will formally chair the new National Institution for Transforming India (NITI), which is designed to function as both a think-tank and a policy forum. Panagariya, as vice chairman, would hold cabinet rank.

Modi also named V.K. Saraswat, ex-head of the government's defence research arm, to a full-time post. Seven senior ministers will join the panel, along with representatives from India's 29 states and seven union territories.

(Additional reporting by Rajesh Kumar Singh; Editing by Douglas Busvine, Kim Coghill and Mike Collett-White)