Maha Bharat: Episode 33

Economic Advisers – Who they are and what do they do?

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What is it like to be responsible for the country’s future? on the face of it, Economic Advisers seem to have a simple job. But that cannot be further from the truth. What does it take to analyze all the mountains of data, and ensure that the right people in Government get the right advice, that could form the foundation of some of the biggest decisions the country makes?

Show Notes

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Full Transcript of Episode 33 –

In 2015, a news platform Business Standard ran a story you might remember — that India might back out of the United Nations Climate Change Agreement! This means that it might stop taking financial help from rich countries like the U.S. to fight climate change. What a great deal for the U.S., but for India? We would have to take care of our own expenses, develop our own technology!

This controversial news ran with a picture of a man in sunglasses, as if he was a villain: this was Mr. Arvind Subramanian, the man who had suggested this policy to the Prime Minister. 

And why had the news spread like wildfire, attracting so much criticism? 

Because Mr. Arvind Subramanian was the Chief Economic Adviser to India, at the time. “Economic Adviser” is a name you might have heard along with important decisions for our country: from Climate change, to GDP, from COVID-19 to petrol prices. 

[We hear news reports about economic advisors and the economic advisory council]

We heard about the Chief Economic Adviser and the Economic Advisory Council.You will also come across terms like the Economic Advisory Council for the Finance Commission or the Principal Economic Adviser,  but these are not the same things.

The common word here is: economic adviser. Of course, with most of the financial decisions that the government has to make, advice from economists and experts is crucial. So, an economic adviser is someone who analyses the functioning of the economy, looks for gaps in the system, and gives advice to the government. 

The question is — who exactly are these advisers, and what advice do they give the government? And the most intriguing of all: why are there so many advisers?

We’ll find out all of this and more today. 

The British economist John Maynard Keynes said that an economist must be a “mathematician, historian, statesman, philosopher.”

Arvind Subramanian, who was the Chief Economic Adviser of our government for four years — from 2014 to 2018 — added to this quote. He said that an economic adviser must have all of these and two more qualities: an understanding of the psychology of decision-makers in the government and the ability to persuade them. 

And that brings us to the definition of an economic adviser!

Most governments around the world have a group or an office of economic advisers, often called a council. Such councils have experts in economics and public policy. They analyse the economic climate of the country, and make a report, think of a plan — and submit it to the government. The most relevant example of an economic situation is the period of lockdown in our country this year. 

Shutting down our country had a very big impact on our economy — and if you were an economic adviser, your job would be to study this impact and estimate what happens next.

This plan usually consists of data that has been collected and recommendations on what can be done next. In the end, it is the government’s decision to implement this advice. 

But like Mr. Subramanian said, the job of an economic adviser ya Arthik Salahkar (आर्थिक सलाहकार) is not quite so simple. Not only should the adviser be a good economist, but they should also have knowledge about public policy — matlab, the laws and administration system that the government implements. The government relies on economic advisers to give unique solutions to the economic problems of our country. 

So, who are these economic advisers?

I’ll divide them into two broad groups.

Let’s call the first group the “Constitutional group”. The economic advisers in this group hold office in the government. They are directly or indirectly part of a constitutional body under the government of India. 

The most important Economic Adviser in this group is the Chief Economic Adviser of India. Right now, that is Dr. Krishnamurthy Subramanian. There are other economic advisers in the Department of Economic Affairs too, like the Principal Economic Adviser and the Senior Economic Adviser. This “group” works directly with the government as a part of the Ministry of Finance. Another part of this group is the advisory council to the Finance Commission of India. 

The Finance Commission ya vitt aayog is a body made under the constitution to work on financial matters — like tax distribution — between the centre and states. An Economic Advisory Council for this commission has also been formed, which works only with the commission. 

The second category — let’s call it the non-constitutional group.

This category consists of the Economic Advisory Council, a group of economic advisers who report directly to the Prime Minister. Bibek Debroy is now the chairman of this council. The Economic Advisory Council is a non-constitutional and independent council that was made to give economic advice to the government of India.

I know…there’s a lot happening here! A lot of the work done by these advisers often overlap. But they have defined roles and an important influence on the decisions that the government takes.

So, broadly, these are the most important economic advisers that our government relies on. But before we talk about them in detail…

Are you wondering about the government-advisory relationship? Or, let me put it in more specific terms: the leader-economic adviser relationship? (neta aur unke aarthik salahkar)

One of the oldest and most common examples of this is the duo of Chandragupta Maurya and Chanakya. But that’s not all — perhaps you’d be surprised to know that the leader-advisor way of ruling has always existed in our history, in some form or the other.

We often talk about the rulers in our history and their greatest achievements, like the Taxation system of the Mauryan empire or the Land Settlement laws introduced by Akbar. These are laws — hundreds and hundreds of years old — from which we borrow even today. But the credit (shrey) for these policies is due to not only the rulers.

It’s obvious that a successful leader – be it a King or a Queen or a Prime Minister — need not be an economist. It is their vision, popularity or power that makes them a leader. But once they’re at the top, they need an understanding of the state of the economy, and how to build the right policies for it. And this is where an economic adviser comes in. 

When we talk about large kingdoms, most economic and financial decisions were taken on the word of an important person in the King’s court: the economic adviser. 

Throughout history, powerful rulers have depended on their advisors. In the biography of a Chinese Philosopher called Lord Shang Yang, you will find a quote: “A thousand yes-men cannot equal one honest advisor,”. Matlab, ek hazar sevak bhi ek imandar salahkar ke barabar nahi hai. And this was thousands of years ago!

Over the course Indian history, you will find silent economic advisors helping run big and small empires. Todar Mal, one of Akbar’s Navratan or nine gems, was his Finance Minister and advisor. Many of the economic reforms taken during Akbar’s reign — the land revenue system called Zabt, new units of measurement and taxes, were all introduced by Todar Mal. Economic Advisers were the kings’ right hand men, and this continued into the British era. 

Actually, it was during the British rule that we had the first official Economic Adviser to the Government of India. 

In 1772, the East India company asked the respected Sir James Steuart to be the Economic Adviser to the Government of India. Sir Steuart was a famous Scottish economist. At the request of the East India Company, he wrote a book about the principles of money in Bengal. Sir Steuart was regarded as a great economic adviser to the East India Company. 

In the 1770s, Bengal was going through a currency shortage, and as a result, an economic crisis. So, the East India Company turned to Sir Steuart for advice. He suggested reforms to scrap the bimetal system — a system where both gold and silver coins were being used as currency. And in place of this, a new currency called the “Calcutta Rupee” was introduced! 

Mysteriously, after Sir Steuart’s tenure, the company abolished the post! 

We don’t know why, but this doesn’t mean that the British government ruled without economic advice. They continued to consult economists such as Thomas Malthus and J.S. Mill. 

But, what did these economic advisers do, really?

This can be understood from a story of perhaps one of the greatest economic advisers that an Indian ruler had, one whose contributions we can see even today. But I’m not talking about a Mughal Ruler or the East India Company. I’m actually talking about a small, but wealthy princely state in west India: The State of Baroda. 

Maharaja Sayaji Rao Gaekwad III was Baroda’s most favourite ruler! He was passionate about the development of the city, the intermingling of different cultures and modernization. In this pursuit, he travelled around the world, met different people, got introduced to new ideas — and brought them all back to Baroda. In 1906, during one such trip to the USA, the Maharaja met Ralph Whitenack, an economics graduate with a variety of experiences. The Maharaja was quite impressed, and asked him to be the economic adviser to the State of Baroda. His duty was to ensure economic growth and industrial development in the state. The Maharaja depended on Whitenack greatly.

At this time, the State of Baroda did not have a proper banking system. The Maharaja realized this, and so did Whitenack. One option was to open branches of the Bank of Bombay in Baroda. But Whitenack was quick to sense that the business community of Baroda was hesitant to put their money into these banks. He also realised that this would lead to a situation where deposits from Baroda went into the channels of Bombay. 

So, he came up with the idea of a “People’ Bank of Baroda”, an independent bank. Whitenack made it very clear that this was not a bank that would provide loans to the government. It was a bank for the people of Baroda — to help them build new businesses, and expand the industry in the state. Maharaja Sayajirao approved of this proposal, and the government set up a new bank with multiple branches in Baroda.

It is this bank that we know, today, as the Bank of Baroda. 

The job of an economic adviser is just this: not to set up banks, necessarily — but to identify a problem in the economy, and find out how a government policy can solve this problem. 

The tryst of the ruler-adviser continued even after independence. In 1956, the office of Chief Economic Adviser was created, and J.J. Anjaria was the first CEA we had. It’s interesting to note that our Prime Ministers have always depended on economists to make key decisions, and not all of them have been the CEA, necessarily. For instance, Pandit Jawaharlal Nehru depended on P.C. Mahalanobis to design the Five-Year plans. 

In 1980, Prime Minister Indira Gandhi also sought the advice of an economist outside the government — just like many prime ministers before and after her. 

Kyu? Well, with the rising oil prices, national income was on the decline. Foreign debt was increasing. It is during this time that the government decided to form an independent group that would offer economic advice directly to the Prime Minister. Mrs. Gandhi asked Professor Sukhamoy Chakravarty (सुखोमोय चक्रवर्ती), a respected economist, to chair the Economic Advisory Council. This council was not a constitutional provision — as we know. It was made so that there can be a group with an independent point of view, to counsel the prime minister on economic matters. Since there was no constitutional requirement to make this council, it was left up to the prime ministers if they wanted to set up the committee or not. 

Over the years, a few of India’s most notable economists have been a part of this council: from C. Rangarajan and I.G. Patel to Manmohan Singh. The interesting bit is that both I.G. Patel and Manmohan Singh have been the Chief Economic Adviser in the Finance Ministry, too. 

So, the duties of both these groups often overlap. The major difference is this: the Chief Economic Adviser has a fixed role in the government, whereas the Economic Advisory Council is formed and assigned duties as per the Prime Minister’s requirements. 

What’s “economic advice”, anyway?

From examples in history, we saw that economic advice can be anything from formulating a new taxation system in a kingdom to opening a bank to saving the economy from a crisis. But it’s not always this heroic!

An important job of economic advisors is to analyze present economic data — for instance, the rate of inflation, GDP and the performance of various sectors. Then, they make estimations about the future of the economy — aage kya hone wala hai? This gives the government as well as the citizens a better idea of what is to come. Recently, Dr. K.V. Subramanian, the Chief Economic Adviser, projected a positive economic growth for India after the Pandemic:

[We hear the voice of the Chief Economic Advisor on the recovery of our economy]

Former CEA Arvind Subramanian has said that the role of this office is not clearly defined. But there is one duty that’s fixed, and that’s preparing the Economic Survey of India. 

If you remember listening to our episode on the Union Budget, you’ll know that the Economic Survey of India is a summary of the Indian economy during a particular financial year and the issues it faces. It’s presented to the parliament just before the union budget. This report is prepared under the guidance of the Chief Economic Adviser. 

With a range of duties, every Chief Economic Adviser has a different story to tell. 

I.G. Patel, who became the Chief Economic Adviser in 1961 said that his duties involved signing and negotiating agreements, presenting at conferences, and working on the budget. During Patel’s time, the economy was suffering from the consequences of the Indo-China war. So, his main focus was to get the economy back on track.   

Arvind Subranian, who was the CEA from 2014 to 2018, on the other hand, recalls dealing with the aftermath of Demonetization. He also worked on one of the most important economic steps taken recently: Goods and Services Tax!

Arvind Subramanian, as the Chief Economic Adviser, helped amend the constitution to introduce the GST in the country. Another reform that Mr. Subramanian introduced was the JAM Yojana — a project which linked people’s Jan Dhan Accounts to their Aadhar and Mobile Number. He introduced a new online education platform, as well as improved the quality of Economic Surveys!

Clearly, as far as the role of the Chief Economic Adviser is concerned, the duty depends on the state of the economy at the time. 

So, how is it different from the Economic Advisory Council?

As we know, the council is not a fixed governmental office. In fact, when the NDA government came to power in 2014, the Economic Advisory Council wasn’t created for three years. But in 2017, the country’s economic growth plunged to the lowest level in three years. That’s when Prime Minister Narendra Modi put together a 5-member council, chaired by Bibek Debroy (बिबेक देबरोय). He also put the council under the Niti Aayog. The council was created so that the prime minister could seek the help of economic advisers on the measures to be taken to revive the economy. 

Usually, the Economic Advisory Council works on issues that the Prime Minister requests it to. This is another difference between the council and the chief economic adviser. The Prime Minister’s Economic Advisory Council, or the PMEAC as it’s called, has one chairman, one member secretary and 5 part-time members, as of now. These members are renowned economists, IAS officers and managing directors of companies. The council, as a group of independent economic advisers, studies the economy and its workings constantly. In fact, up until a few years ago, the council published a report called ‘Review of the Economy’. 

The Council holds regular meetings with the Prime Minister, and offers its inputs. For instance, in a virtual meeting held in May, the PMEAC said that a mid-year economic review should be conducted to study the impact of the Coronavirus lockdown on the economy. 

Sunne mein toh lagta hai, that the job of all these economic advisers are similar. Then why are there so many?

The simple answer lies in the history we discussed today. These groups of economic advisers came into existence because of different circumstances. The Chief Economic Adviser was made a part of the government as a constitutional requirement — while the PMEAC was created to help the government get out of an economic crisis. Other bodies, like the economic advisory council to the Finance Commission do the same job — but for a small, specific group that they are assigned to. 

India has so many economic advisers because we have felt the need for them, and thus continue to use their services. 

But the question remains: have these economic advisers been helpful to India?

Yes! In 1986, the PMEAC, headed by Sukamoy Chakravarty warned the government of a fiscal imbalance — in simpler words, they estimated that the economy would face a problem with debt and income in the future. Rajiv Gandhi, who was the Prime Minister then, accepted this input and worked with the RBI to incorporate a solution in the budget. At this time, Manmohan Singh was the RBI Governor. Fast forward nearly 20 years — Manmohan Singh became the Prime Minister of India. Between 2004 and 2014, the PMEAC was quite independent – it published its own reviews and the Prime Minister found the services of the council to be helpful. 

There are more examples like this, of course. What we can understand is that economic advisory is crucial for a government. After all, the White House has a Council of Economic Advisers in the U.S.A — and the U.K. has the National Economic Advisory Council. 

But the issue with there being so many economic advisers, with the government in the centre, is that there will be disagreements.

While ministers such as P. Chidambaram and economists such as Rathin Roy have criticised Chief Economic Adviser K.V. Subramanian for his views, there has been friction between the other groups too, such as the Economic Advisory Council and former CEA. 

With so many economists in the game, a situation of too-many-cooks-spoil-the-broth may arise.

We’ve understood that the ruler-adviser ki jodi is crucial — and has always been there. But what happens when the ruler doesn’t listen to the adviser?

The fact remains that economic advisers are merely advisers. They do not have any executive functions — matlab, the power to make or change laws. They can only make recommendations to do so. The rest is up to the government. 

Take for example a recent case. We all know that the Coronavirus lockdown has impacted the economy negatively — business, trade, MSMEs, agriculture — they have all taken a hit. In June and July, the Prime Minister chaired over ten meetings with advisers and other experts to deal with this situation. An Indian Express report will tell you that senior advisers from the Chief Economic Adviser’s office, PMEAC and other groups agreed on one thing: the government must increase spending and introduce reforms in the financial sector. They suggested that the government offer stimulus to the people – matlab – housing, subsidy, healthcare and such schemes.

But three months have passed, and no such schemes have been introduced.

How the economy will recover from the pandemic and the steps that the government will take — this, we will only find out with time.

But now we know the role all these economic advisers play in the overall scheme of things. 

That’s all I have for you today, folks! As always, I hope we learnt something new from our history and our present. I’ll see you next week in a brand new episode of Maha Bharat.

Credits

Narrated by – Dhruv Rathee
Producer – Gaurav Vaz
Written by – Anushka Mukherjee and Gaurav Vaz
Edited by – Medha V
Title Track Design – Abhijith Nath
Audio Production – Madhav Ayachit