Three sins of EAC

THE Economic Advisory Council to the PM has wasted a fortnight in finding out the obvious. After labouring for days, all that it could conclude was that the economy was in the midst of a slowdown. Quite a discovery. It also identified about 10 usual suspects such as economic growth, employment and job creation around which it would structure its much-awaited report. Before the EAC, several individuals, experts and institutions have already discussed these issues threadbare. Besides the critics of PM Modi’s economic decisions such as demonetisation and hasty implementation of GST, even BJP insiders like Yashwant Sinha and the RSS had expressed anguish over the slowdown. The World Bank and the International Monetary Fund, too, have recently lowered India’s growth estimates, citing similar reasons. The Asian Development Bank and the RBI had already revised downward their growth forecasts. But, the EAC spent a crucial 15 days in reinventing the wheel.

Its second sin is to give in to the Finance Ministry’s influence, direct and indirect. It seems that Chief Economic Adviser Arvind Subramanian’s presentation to the council would have conditioned the minds of its members. After all, the PM had purposefully created the EAC as an institution whose independent and detached advice would be available to the competent authority. Instead, the EAC appears to have climbed back into North Block’s comfort zone.  

 The EAC committed the third sin by prejudging the issue of fiscal stimulus. Even before it could formularise its recommendations, EAC chairman Bibek Debroy rejected the idea of a mid-year fiscal stimulus — without offering any alternative. Perhaps, a stimulus package would breach the fiscal deficit target. Achieving a set fiscal deficit target is an obsession of every finance minister because it gets him a thumbs up from international rating agencies. Normally, the government must make efforts to achieve deficit targets, but not necessarily at the cost of growth. Accelerating growth is a must to generate jobs and alleviate poverty. Under this emergent situation, it is natural that the government would borrow more to boost the economy through increased spending and revive private investments by offering fiscal incentives. It must be hoped that the EAC has a viable alternative policy prescription up its sleeve.