To keep a closer eye on economic developments and seek advisory on addressing macroeconomic and other important issues, Prime Minister Narendra Modi announced the constitution of a five-member Economic Advisory Council to the Prime Minister (EAC-PM) under the chairmanship of Bibek Debroy, member Niti Aayog on Monday.
The EAC-PM is an independent body to give advice on economic and related issues to the Government of India, specifically to the prime minister. According to the release, the terms of reference of EAC includes, “To analyse any issue, economic or otherwise, referred to it by the prime minister and advising him thereon; to address issues of macroeconomic importance and presenting views thereon to the prime minister. This could be either suo-motu or on reference from the prime minister or anyone else; to attend to any other task as may be desired by the prime minister from time to time,” said the statement issued by the government.
The other four members in the committee include part-time members — Surjit Bhalla, Rathin Roy and Ashima Goyal along with Ratan Watal, principal advisor, Niti Aayog as the member secretary.
In 2014, the NDA government had disbanded the PMEAC which was earlier headed by former Reserve Bank of India governor C Rangarajan.
The constitution of the EAC-PM, on Monday, comes amidst growing concerns over the pace of growth in the economy and the slow pace of job creation. While the government has been pushing for skill development, not many have entered the job cycle. Government data shows that the Pradhan Mantri Kaushal Vikas Yojana (PMKVY), has been struggling to achieve end-results. Till July 2017, while 30.67 lakh candidates got trained or were undergoing training across the country, less than a tenth — 2.9 lakh candidates — received placement offers.
Even on the GDP growth front concerns have been growing in the market. In the quarter April to June 2017, the GDP growth fell to 5.7 per cent from 7.9 per cent in the corresponding period last year. The reduction in growth came despite the government stepping up expenditure in the initial months. During the April-July period, the government spent Rs 95,126 crore on capital expenditure, which is 30.8 per cent of the full year target of Rs 3.09 lakh crore – as against 28.9 per cent in the same period last year.
While the government constituted the EAC amid the economic slowdown, Bibek Debroy had recently advocated taxing farmer’s income above a certain threshold. However, Niti Aayog and the government had distanced themselves from his views.
Surjit Bhalla, chairman Oxus Investments, has been vociferous in his advice for steep reduction in rate cuts to push growth. In a recent tweet Bhalla said, “Most important cause of GDP slowdown is cost of capital, not demonetisation, not exchange rate; RBI needs to get real.” Both Debroy and Bhalla are columnists with The Indian Express.
Rathin Roy, director of National Institute of Public Finance and Policy, voiced mixed views on the demonetisation move. While in a tweet on November 10, 2016, he said , “if you reissue high value notes and in fact increase their number then this is not demonetisation,” in another tweet on November 14 he said that he said that he would have timed it (demonetisation) differently as political costs will come because of bad execution.
Amid the ongoing debate about providing fiscal stimulus, Ashima Goyal, Professor, Indira Gandhi Institute of Development and Research has publicly stated that a fiscal stimulus in 2017 will have much different impact than the one in 2008. Goyal said that farm loan waivers will probably reduce rural demand and that there cannot be much of an aggregate fiscal stimulus, given the legislative caps on deficits of states and Centre and therefore, there can only be a shift towards revenue expenditure.
Ratan Watal, former finance secretary, who headed the committee on digital payments, in its recommendations submitted to the finance ministry in December 2016, suggested a nominal levy on high-value cash transactions, along with monthly, quarterly or yearly limitations on cash transactions, among measures to disincentivise use of cash in the economy.
The Economic Advisory Council to the Prime Minister was first constituted by the then Prime Minister Manmohan Singh on December 29, 2004 under the chairmanship of C Rangarajan. The council included Saumitra Chaudhuri, VS Vyas, Pulin B Nayak and Dilip M Nachane as its members. In UPA I, the council included Govinda Rao and Suman K Bery. The council had, however, resigned upon the completion of the then Union government’s term on in May 2014.
The work of the council included offering advice to the PM on policy matters from time to time. Besides, it also prepared a monthly report on economic developments at home and abroad for the Prime Minister.