Tamil Nadu sets up advisory panel with eminent economists

The Tamil Nadu government wins all-round praise for setting up a well-balanced council of eminent minds to guide it in the path to economic recovery.

M.K. Stalin, Tamil Nadu Chief Minister, handing a package of essential commodities to a migrant labourer, in Chennai on June 25.

In a move applauded widely, the Tamil Nadu government announced on June 21 that it would constitute a five-member economic advisory council headed by Raghuram Rajan, former Reserve Bank of India (RBI) Governor, to advise Chief Minister M.K. Stalin on measures to be taken to revive the economy, which has been devastated by two successive waves of the COVID-19 pandemic.

Although the economy is in dire straits across the entire country, each State is now left to fend for itself as the government of India had decided that it did not need domain experts to suggest ways and means to tide the country over one of the biggest crises independent India has ever faced. Tamil Nadu’s move, which was welcomed by almost all opposition parties, was met with a stony silence from the Bharatiya Janata Party (BJP). The State’s decision is being looked upon as a way out of the current economic nightmare, which has led to the loss of several million jobs across India and has pushed crores of people into poverty.

Team’s mandate

The team of economists does not have a rigid mandate, as is usually the case with committees and commissions, but it has been given the overarching responsibility of taking into consideration the State’s economy as a whole and not work on piecemeal suggestions. According to a senior leader of the ruling Dravida Munnetra Kazhagam (DMK), this is the reason why all the economists on the council agreed to be part of it. The other members of the team of economists are Arvind Subramanian, former Chief Economic Adviser (CEA) to the Central government; Nobel laureate Esther Duflo of the Massachusetts Institute of Technology (MIT), United States; development economist Jean Dreze, who places people at the centre of all policies; and S. Narayan, former Union Finance Secretary.

In all, the committee has the right balance of two world-renowned macroeconomists, two social welfare economists and a seasoned bureaucrat well-versed in India’s welfare schemes and its benefits, who are expected to identify and discuss issues and provide suggestions on what paths to take.

Named Tamil Nadu’s Economic Advisory Council to the Chief Minister, the committee will be headed by Raghuram Rajan. Rajan left his job as RBI Governor in 2016, reluctantly, at the end of his first term. He had hoped to stay on to see through some of the macroeconomic changes he had set in motion; indeed, it was speculated that although Rajan would be agreeable to a shortened second term, Prime Minister Narendra Modi was not keen on it.

In June 2016, the Bengali newspaper Ananda Bazar Patrika first reported that Rajan had sent in his request to the Prime Minister to be relieved at the end of the first term.

Just a few months after Rajan left, Modi announced the disastrous demonetisation drive, which devastated the Indian economy. However, to this day, every BJP spokesperson describes the move as a ‘masterstroke’, although the reality is vastly different, as was recorded in Frontline , first in the Cover Story article “ Monumental blunder ” (December 12, 2016) and then in subsequent issues.

The Chennai-born Arvind Subramanian, who took over the job of Chief Economic Adviser to the Government of India in 2014, a year after Rajan left the position to take charge as RBI Governor, had to defend the various ham-handed measures of the Narendra Modi government, including demonetisation. He held the job for just under four years and finally quit citing personal reasons. (“ Growth story in shreds ”, Frontline , July 5, 2019.) Soon after Subramanian left the job and went back to the U.S., former Union Finance Minister P. Chidambaram tweeted: “I am disappointed, but not surprised, that Dr Arvind Subramanian has decided to leave the government before the end of his term. Dr Arvind Subramanian was either not consulted or his views were brushed aside on many important issues.” He added: “It is no longer a secret that the CEA was not consulted before demonetisation. The CEA’s views on GST rates and his report on the Revenue Neutral Rate (RNR) were rudely brushed aside and, as a result, we have an animal that is not GST.”

In short, two of the five members of the council worked with the Narendra Modi government and decided not to stay on because they differed with the rulers on what exactly constituted economics.

Jean Dreze, who worked with the second United Progressive Alliance (UPA) government, contributed significantly to the first draft of the National Rural Employment Guarantee Act (NREGA), which later became the Mahatma Gandhi NREGA. He is a right to food activist who works on issues such as hunger, famine and gender inequality.

Dreze is also not in the Modi government’s good books. In March 2019, he was taken into “preventive custody” in Jharkhand along with two other activists for not getting permission before conducting a meeting. They were later released. (“ Economists should also engage with popular movements and people at large ”, October 12, 2018.)

Esther Duflo won the Nobel Prize for economics in 2019 along with Abhijit Banerjee and Michael Kremer “for their experimental approach to alleviating global poverty”.

The Nobel Prize website notes: “One of humanity’s most urgent issues is the reduction of global poverty, in all its forms. Abhijit Banerjee, Esther Duflo, and Michael Kremer have introduced a new approach to obtaining reliable answers about the best ways to fight global poverty. It involves dividing this issue into smaller, more manageable, questions. Since the mid-1990s, they have been able to test a range of interventions in different areas using field experiments, for example for improving educational outcomes or child health.”

S. Narayan co-authored a book on the welfare-oriented development policies in Tamil Nadu called The Dravidian Years: Politics and Welfare in Tamil Nadu (“ Foundations of justice ”, Frontline , August 31, 2018). He has the rich experience of working with three Chief Ministers of Tamil Nadu—M. Karunanidhi, M.G. Ramachandran and J. Jayalalithaa—and later in the Atal Bihari Vajpayee government at the Centre.

TN governor’s address

The constitution of the council was revealed in the Governor’s address to the Tamil Nadu Assembly on June 21. The customary address lays out the path for the government to adhere to during the year.

Governor Banwarilal Purohit said: “Based on the recommendations of this council, the government will revitalise the State’s economy and ensure that the benefits of economic growth reach all segments of society. “In recent years, we have seen a slowdown in Tamil Nadu’s economic growth rate. The government will make all out efforts to reverse this trend and usher in a period of rapid economic growth taking full advantage of the available limited window of the demographic dividend.” He added that the council was being formed to “chart out a rapid and inclusive economic growth path for Tamil Nadu”.

On June 22, Palanivel Thiagarajan, the State Finance Minister, said on Twitter: “I am privileged to work with individuals of such great talents and warm hearts. Each one accepted without even asking who the other members were. M.K. Stalin and I are grateful for their service and committed to acting quickly on their inputs—suo motu or in response to requests.”

The Tamil Nadu’s government’s move came in for appreciation from economists and some political parties. Kaushik Basu, former CEA to the Government of India (2009-12) and former Chief Economist of the World Bank, tweeted on June 22: “The new economic advisers to the TN govt are terrific economists and individuals of integrity. A political leader needs courage to appoint advisers who will have the courage to disagree with leader. Congrats. This gives hope for good policy and growth.” Economist Ratin Roy too said that the “distinguished senior council” will “serve the State well”.

Derek O’Brien of the Trinamool Congress said on Twitter: “Think Federal. April 2020: Bengal sets up Global Advisory Board with international experts to combat COVID-19. June 2021: Tamil Nadu appoints Economic Advisory Council with global experts so that financial benefits reach all. States act for the future.”

White paper on finances

As a first step to figure out the rot in the system, the State government has decided to come out with a white paper on Tamil Nadu’s finances. The Governor said: “The fiscal health of the State is a cause for serious concern, and this government will focus on improving the fiscal position and bringing down the overall debt burden. As a first step, a report (white paper) detailing the true state of Tamil Nadu’s finances will be released in the month of July, so that the people of Tamil Nadu are fully informed.” The Comptroller and Auditor General’s report on fiscal discipline for the year ended March 31, 2019, cites several issues, including over-projecting of revenue, runaway growth of revenue expenditure, using of borrowings to finance revenue expenditure (as against capital expenditure), lowering of development expenditure, decline in return on investment and increase in outstanding liabilities.

Thiagarajan said that before the DMK came to power, it was not aware of three things: one, the Union government would switch about Rs.50,000 crore from excise to cess (which is not shared with States); two, the scale of the second wave of COVID and the spending required (which, he said, would amount to several thousand crores of rupees); and three, the full extent of the fiscal decay. The Tamil Nadu government is expected to present the annual Budget in July and convey to the people of the State the true extent of its liabilities. The DMK government believes that this will constitute a starting point for its planning, even as a new COVID-19 variant, the Delta plus, is spreading across some parts of the country.