Economists in policy-making

The finance ministry has rarely had more than two economists in key secretarial positions at any point in time. An exception was in the early 1990s.

In addition to Montek Singh Ahluwalia as finance secretary and Ashok V Desai as chief consultant, the government decided to bring in Shankar Acharya as chief economic advisor. Journalists covering the finance ministry then were puzzled by this move.

When asked why Acharya, an economist, was being brought in, even though Desai was very much there and doing the job of a CEA, Ahluwalia offered this cryptic reply: "I guess the finance ministry could do with some more economists."

The import of that comment dawned on journalists a few weeks later. It became clear by then that Desai was on his way out and Acharya was to take charge as CEA.  That comment was interpreted as Ahluwalia's way of saying that North Block does not have room for more than two economists.

Indeed, the finance ministry in the following years has never had more than two economists in secretarial positions. The CEA's post has traditionally gone to an economist. And the only other economist in the ministry has been either the finance secretary or the advisor to the finance minister.

In 1998-99, Vijay L Kelkar was the finance secretary and the other economist in the finance ministry then was Shankar Acharya as CEA. Once Kelkar joined the International Monetary Fund in the latter half of 1999, the ministry was left with only one economist.

Kelkar returned to the finance ministry as advisor to the finance minister in 2002. But by that time, the finance secretary was S Narayan, who was not an economist. So that capped the number of economists in senior secretarial positions to two -- the other being CEA Ashok Lahiri.

Since the beginning of this month, however, the tradition has been broken with the finance ministry placing three top economists in key secretarial positions. Commentators are hailing this combination as the most formidable team in North Block since the 1990s.

The team of economists is headed by Rakesh Mohan, economic affairs secretary. Parthasarathi Shome, advisor to the finance minister, has already made an impact on the way the government's fiscal policy reforms are being planned for the next Budget. And then you have CEA Ashok Lahiri.

What a change from Jaswant Singh's days. The former finance minister made no secret of his disenchantment with economists. He was reported to have even said that a board should be displayed outside North Block: Men at work, economists should stay away.

Jaswant Singh probably preferred to work with Indian Administrative Service officers because economists would often fail to understand the political compulsions of packaging economic reforms.

So he preferred ordinary IAS officers to head the various departments even though he could have easily sought advice and help from economists by appointing them in key positions. The combination of Vijay Kelkar and Ashok Lahiri seemed to have been enough for him.

But would it be fair to compare the three economists currently advising P Chidambaram with the formidable team that ran the finance ministry in the 1990s? Unlike Chidambaram's current team, Manmohan Singh's team in the 1990s had a fair share of competent officers from the IAS.

In fact, it was largely because of these fine IAS officers that Manmohan Singh's early initiatives in fiscal policy, tariff reforms and industrial licensing liberalisation bore positive results for the Indian economy.

The presence of Ahluwalia, with his vast experience in economic administration, Ashok V Desai and Shankar Acharya helped. But K P Geethakrishnan, M R Sivaraman, N K Singh and Y Venugopal Reddy played an equally important role in ensuring that those reforms were successfully implemented.

This is the big difference. Chidambaram's team has three accomplished economists, but few experienced IAS officers to provide that edge. Running a ministry with only economists is fraught with risk. You need a powerful and effective group of IAS secretaries who have a better understanding of how to work the system and ensure results for the minister's policies.

Economists provide the much-needed glamour to the finance ministry within the country and outside. But it is the IAS officers who can advise the minister on which proposal might prove to be a political embarrassment and, therefore, a trap.

An additional problem that might arise is the fact that the United Progressive Alliance government is dependent on the Left parties for its survival. All these economists occupying key positions in North Block have had a stint with the World Bank or the IMF.

The Left parties were already vocal in their criticism of the role of the World Bank and the IMF in Planning Commission consultative committees. It will not be a surprise if they question the role of these economists in economic policy-making as well.

Ahluwalia and Acharya, in spite of their World Bank background, were never a problem for the Narasimha Rao government in the 1990s because the government was not critically dependent on the Left. Today, Shome, Lahiri or Mohan may just pose that problem.

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