November 5, 2008 11:30:03 pm
Prime Minister Manmohan Singh is making a good-faith attempt to speak frankly about the crisis and send out the right signals about the administration’s response. At a meeting with corporate CEOs on Monday, he said that India should gird itself for a global downturn, and made it clear that expected government expenditure would be sufficient to keep demand going. A similar positive move was the induction of Raghuram Rajan, an economist at the University of Chicago, as honorary economic adviser at the PMO. Getting Rajan on-board is useful in two ways: both in terms of immediate usefulness, and in terms of its systemic implications.
Immediately, it shows commitment to credit market reform.
Rajan, the author of the report that bears his name which lays out the roadmap for expansion of credit and credit histories across India to mobilise rural savings, came of age as an economist during the Southeast Asian currency crisis, and has served with the IMF. Crises, international governance and credit crunches are issues that have exercised him for years; as the IMF takes on a new role and the government prepares for the big summit in DC, thoughts of the sort he’ll provide will be vital.
The second manner that it is useful is that it shows the government is moving outside its comfort zone in search of new ideas. Rajan is not the quintessential insider, Delhi-centric, policy economist who has spent his career understanding the labyrinthine ways in which economic policy is formulated by this country’s powerful; he is someone who has a global vision, has seen the problems India faced being addressed and discussed in different contexts, and has sufficient security and respectability in his day job to speak his mind to his benefactors here. Some systems have been blighted by such advisers, yes; but India’s problem has always been that it has never had space to accommodate them. The finance ministry has two advisers — Shubhashish Ganguly and Jahangir Aziz — brought in from outside; it is good to know that the PMO is following suit. Flexibility, heterodoxy, and thinking out of the box — that’s what crises need.
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