Who could say the emperor is naked?


he downgrade of India’s rating outlook to negative from stable last week by global rating agency Standard and Poor’s, citing slow pace of fiscal reforms and diminishing growth prospects, was no surprise. Equally predictable was the reaction from the government. While C. Rangarajan, chairman of Prime Minister’s economic advisory council, finds the rater’s action unwarranted and said it will have to upgrade India later this year, finance minister Pranab Mukherjee conceded that it’s a timely warning, but he is confident that the economy will be back on the growth path.
By Hindustan Times
A few days ahead of Standard and Poor’s action, India’s chief economic adviser Kaushik Basu dared to say the emperor is naked. Media reports cited Basu telling a think tank in Washington early last week that major economic reforms in India were unlikely to happen before the next parliamentary elections. He is also reported to have referred to corruption scandals and said that decision making had slowed because of factors such as bureaucracy not taking risks and the coalition nature of government. He said there could be a rush of reforms after next elections in 2014.
Basu’s honest observations kicked off a debate between the government and the opposition, with the Bharatiya Janata Party accusing the government of policy paralysis, a senior minister saying the opposition’s non-cooperation prevented Bills from getting passed, and the Communist Party of India (Marxist) cautioning the government against going on the path of financial reforms. The noise prompted Basu to say he was misquoted and India will see “some important” reforms in the next six months.
Before Basu’s candid confession, at a function to rerelease a book of essays in honour of Prime Minister Manmohan Singh, Raghuram Rajan, currently the Eric J. Gleacher distinguished service professor of finance at the Booth School of Business, University of Chicago and an honorary economic adviser to Prime Minister, said: “…even as the world becomes more competitive, India’s star has dimmed in the last few months, as our governance is besmirched by corruption scandals and our macroeconomic health has deteriorated. Alarm bells should sound when domestic industry no longer wants to invest in India, even while eagerly investing abroad.” According to him, we still have tools to tackle our problems, but we must exercise those tools with vigour and a sense of urgency.
Unfortunately, there seems to be no urgency and coalition politics is blamed for the snail’s pace at which things are happening in every sphere. Also, the vigour is lacking as new faces are rare in policymaking in India, a nation with the largest young population. Jim Yong Kim, a Korean-American health expert, who will succeed Robert Zoellick in July as president of the World Bank, is just 52. US treasury secretary Timothy Franz Geithner is now 50. He was president of the Federal Reserve Bank of New York at 41 and became the US treasury secretary at 48. Ben Bernanke became the chairman of Federal Reserve at 55.
But India is a different story. Rajan, born in 1963, became the chief economist of the International Monetary Fund at 40 but has not been able to get into any meaningful role in India’s policymaking because he is young. Our Prime Minister is 80, the chairman of his economic advisory council is also 80, and the finance minister is 77. Indeed, all of them are extremely competent and well aware of what should be done to push reforms but had there been a few young minds around them, things could have moved faster. Incidentally, Singh became the governor of the Reserve Bank of India in 1982 when he was 50, relatively young for this post, and his deputy Rangarajan too was 50.
Interestingly, in the early 1990s when India faced the worst economic crisis in its history, a bunch of young policymakers opened up the economy. Bimal Jalan was 50 when he was made the chairman of the economic advisory council to the Prime Minister in 1991. A decade before that, at the age of 40, he was the chief economic adviser. Montek Singh Ahluwalia, currently deputy chairman, Planning Commission, the youngest division chief in the World Bank’s bureaucracy at the age of 28, was India’s finance secretary at 50. Shankar Acharya, too, became the government’s chief economic adviser at a relatively young age, 48, in 1993.
If we could have young economists in their 40s and 50s playing a seminal role in pulling out India of a grave economic crisis and charting the road map for reforms in 1900s, why can’t we have new faces and fresh ideas now? Has the talent pool dried up or do we have a bias against youth when it comes to economic policymaking? We need policymakers who can hold a mirror to the naked emperor.
My colleague Sunil B.S. helped me with research for this column.
I am taking a summer break for eight weeks; shall resume this column in July.

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