A free run for the free-market advocate

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New direction Panagariya’s job is to turn NITI Aayog into a relevant vehicle in fast changing times
New direction Panagariya’s job is to turn NITI Aayog into a relevant vehicle in fast changing times

Barely a week ago, he wrote for a business daily that the Narendra Modi government’s real test would be in the next Budget document: without a clear roadmap of reforms in it, the dream of acche din (good days) might become history. As destiny would have it, renowned Columbia University professor Arvind Panagariya is now the first vice-chairman of the newly created niti Aayog, at a time when people here and abroad are looking at India to shed its diffidence and embark on real economic growth.

His is as much a political posting as there could be, for he has been a known votary of the Gujarat model for a long time now. But being close to the prime minister will not resolve basic issues such as giving a firm direction and focus to his exertions as niti Aayog chief.

Mentored by renowned trade economist Jagdish Bhagwati, but very much his own man in several respects, Panagariya will have to make the newborn entity into a relevant vehicle in fast changing times.

According to The Wall Street Journal, “The reincarnation of the often-controversial Planning Commission comes at a time when Panagariya has for months been mooted as a potential member of Modi’s economic policy team, and his academic career contains clues about the sort of advice he will provide at the helm of the new government think-tank.”

As is clear, trade and particularly its effects on nations and their development has been the focus of the 62-year-old’s scholarly work. His research, according to observers, can be knottily technical, something which he will have to perhaps unlearn at his new calling.

A major theme of his is regionalism, or how free- or preferential-trade agreements among groups of neighbouring countries differ from other kinds of trade-liberalising measures in their economic effects.

At the same time, he has written elaborately on the nitty-gritty of economic policies in India: from sales taxes to food-welfare programmes and labour laws. As The Wall Street Journal puts it, Bhagwati describes him as an “American-style economist… He really works with numbers”.

Bhagwati remarked in jest that he himself can’t work with numbers, trained to look upon people who dealt with numbers as inferior human beings.

Panagariya’s writings on the Indian economy have an unmistakable free-market bent. He was early to praise the opening up of trade, production and foreign investment that began in 1991.

Earlier, he wrote that India has moved away from accepting bottlenecks created by controls as facts of life. But the euphoria soon melted into disillusionment. He is not a votary of replicating China’s export-driven boom, which given the Indian attitude towards private enterprise required considerable rewiring. He has, on occasion, spoken of how Indian firms have to invest much time and effort to obtain clearance for land use and infrastructure, including power, water supply and communication facilities.

He is a known votary of several things: layoffs need to be made easier under the law to encourage the labour-intensive manufacturing that can pull workers out of small-scale agriculture. Food and fertiliser subsidies need to be redesigned to trim the federal budget deficit. Electricity generation and distribution need to be restructured on a larger scale to end power shortages. Improving infrastructure, downsizing the bureaucracy, repairing State-run banks.

Don’t these sound exactly like what Modi has spoken over the past 13 years? That the themes haven’t changed much in nearly 15 years is indicative both of Panagariya’s steady views and of India’s slack progress in some of these areas.

Shortly after Modi’s election victory, Panagariya highlighted the roots of the policy paralysis within the Indian government. “Overcoming the deadlock in New Delhi must be complemented by the creation of healthier partnerships with India’s state governments,” The Wall Street Journal quotes him as saying. He wanted that “New Delhi must be readier to sign off on state initiatives to attract investors. And it must also get more serious about evaluating states’ progress in meeting those goals in a timely fashion”.

To that end, Panagariya recommended that the Central government commit to giving states “timely permission” to amend laws on subjects where they legislate concurrently with the Centre. That, he suggested, would “open the door for speedy labour and land acquisition reform”.

Panagariya may be in a distinct minority, but his endoresement of the Gujarat model is also based on the “large cuts it has made in poverty among Scheduled Castes and Muslims”. According to him, at 7.7 percent, Gujarat boasts the lowest poverty ratio for Muslims in rural areas. He also feels that “the state counts among the seven states with a lower poverty ratio for the Muslims than Hindus in urban and rural areas combined”.

Panagariya’s lively debate with Nobel laureate Amartya Sen on the issue of redistribution of wealth and economic growth saw him arguing that growth should be given priority as without it social goals will be difficult to meet.

He also had an extended debate with the likes of former Planning Commission member Yogendra Alagh, who did not agree that Gujarat had an agriculture growth rate touching 8-10 percent as made out by economists as diverse as Shankar Acharya, Bibek Debroy, Ashok Gulati, Ravi Dholakia and Panagariya.

Alagh said that the distinguished set of economists were overlooking the “unpardonable statistical sins” of choosing a bad initial year or a bumper terminal year to base their viewpoint on and they also used current rather than constant prices in support of their claims.

On the issue of mgnrega, when 28 leading economists wrote a sharp letter to Modi saying that the nda government is trying to dilute the rural jobs guarantee scheme brought in by the upa government, Bhagwati and Panagariya came to the prime minister’s defence arguing that the economists’ sense of disquiet over multiple moves (some of them going back to the preceding government) to dilute or restrict the provisions of the Act were misplaced.

They said that the scheme, after taking into account corruption and leakages, essentially spends 248 to deliver a net
50 per family and was a highly inefficient poverty alleviation measure.

They contended that in the absence of social audit and because of the corruption and leakages the scheme was a disaster in actual terms, after intially providing 50 million households jobs annually at a relatively smaller cost, but the “widely ranging social benefits” were becoming a mirage.

It will thus be closely watched how niti Aayog rectifies not only Gujarat’s but several other states’ performance on social inclusion.

Said to be one of the chief brains behind the recent set of labour reforms introduced in his own state of Rajasthan, Panagariya is an unabashed admirer of Modi who, according to him, has restored confidence among the bureaucracy, improved inter-ministerial coordination and greatly speeded up environmental clearances for various key projects. All that is fine, but can he author a change in the old-style model of top-down planning and really promote cooperative federalism? That will be one of the key tests that the economist, a known votary of a pronounced rightward shift, would face.

Investment per se does not lift an economy, its institutional character being vitally important. Will markets become more meaningful under Panagariya’s exertions in a key think-tank will be of great interest. He will soon finalise the names of experts and other full- and part-time members other than the ones announced thus far. Will the “directional and policy dynamo” deliver the goods?

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