Days after the Narendra Modi government took charge, a top official asked one of India’s foremost economists at a meeting how, despite Manmohan Singh having been at the helm, the UPA regime had produced two consecutive years of sub-par growth. It was a respectful query, but the economist was taken aback.
One of the early decisions the new government took was to dismantle the Planning Commission, which had an influential role in allocation of resources to states, and to replace it with the National Institution for Transforming India, or NITI, Aayog. And the Prime Minister’s Economic Advisory Council (PMEAC), which in the Manmohan Singh decade had had substantial engagement with the government on economic policy issues, was not restructured.
But now, 40 months into the government’s term, a new PMEAC has been announced, headed by NITI Aayog member Bibek Debroy, to advise the Prime Minister at a time of increasing concern over the economic slowdown.
It was over three and a half decades ago, against the backdrop of another difficult economic situation, that the PMEAC had first come into existence. After returning to power in 1980, Indira Gandhi faced formidable economic challenges. The impact of the global oil shock and drought was reflected in a decline in national income and soaring prices. Finance Minister R Venkataraman stressed the need to arrest the slide and set the economy on the path to stability and growth. Indira brought in Sukhamoy Chakravarty, who had, in the mid 70s, headed the Planning Commission’s Policy Perspective Division, and had taught alongside Amartya Sen and Manmohan Singh at the Delhi School of Economics.
In its early days, the Council had the famed economist K N Raj, besides C Rangarajan and Vijay Kelkar, who was its Secretary during 1982-83. Chakravarty, who briefed the Prime Minister occasionally on the state of the economy, continued in the post even after Rajiv Gandhi succeeded Indira in 1984. Around 1986-87 — when the government had opened up the economy a little and allowed liberal foreign borrowings while spending to boost growth — the Council made a presentation to the Prime Minister, flagging emerging faultlines, and warning of an emerging fiscal imbalance. According to oldtimers, Rajiv acknowledged the input, and his Finance Minister, V P Singh, announced the government had decided to accept the report of a committee appointed in 1985 by then RBI Governor Manmohan Singh to review the working of the monetary system, and to change the definition of the budget deficit.
Manmohan Singh himself headed the Council briefly when Chandra Shekhar was Prime Minister, before moving on to become Advisor to the Prime Minister in the months leading to the balance of payments crisis of 1991. Bimal Jalan, finance secretary in the V P Singh government and a while in the Chandra Shekhar government, was moved to head the Council.
Under the P V Narasimha Rao government, of which Manmohan Singh was Finance Minister, the Council held only a few meetings. The PM was briefed once in a while, without any recording of its minutes.
Things changed after Atal Bihari Vajpayee became PM in 1998. The economy was again in trouble after the Asian crisis, the Economic Advisory Council was expanded with the Prime Minister himself heading it, and a 12-member Council for Trade and Industry was appointed. The Economic Council had heavyweights such as I G Patel, former RBI Governor, P N Dhar, a former Secretary in Indira’s PMO, and noted economists Arjun Sengupta, Amaresh Bagchi, Ashok Desai, Montek Singh Ahluwalia, Kirit Parekh and G V Ramakrishna — along with Vajpayee’s Principal Secretary Brajesh Mishra and Secretary in the PMO N K Singh.
At a meeting of the Council in July 2002, Vajpayee unveiled an economic agenda for 8% growth — featuring plans to provide 10 million job opportunities annually, re-target subsidies and spending, push economic reforms, and better implement policies and improve execution. Through this period, the Finance Ministry remained dominant in economic policymaking.
After he became PM in 2004, Manmohan Singh, conscious that he could no longer afford to focus on multiple economic issues, got his former RBI colleague Rangarajan to head the PMEAC, which was now more compact, with fewer than half dozen members. Rangarajan had the status of cabinet minister — and with a powerful Finance Ministry under P Chidambaram and later Pranab Mukherjee, and a Planning Commission headed by Montek Singh Ahluwalia, the Council was seen as the advisory group best equipped to provide independent advice to the PM. During 2004-14, the Council often brought out its own review of the economy, besides reports on a range of issues. On the PMEAC were economists such as Suresh Tendulkar — who headed it for a year in 2008-09 — Saumitra Chaudhuri, Suman Bery, Dilip Nachane, Pulin Nayak, G K Chadha and Satish Jha.
Manmohan Singh’s Council was the most influential in the over three-decade history of the institution. It drew its strength from the confidence and trust that the economist PM had in the Council head. The revived Council — with Surjit Bhalla, Rathin Roy and Ashima Goyal as members and former finance secretary Ratan Watal as Secretary — will analyse economic and other issues that the Prime Minister refers to it. Like in the past, the Council has been revived at a time when the economy faces headwinds — however, unlike in the days of a strong Finance Ministry and the Planning Commission, it has to probably negotiate fewer conflicting views now. But the pressure for quick fixes will be high. 2019 isn’t far.