Critics of Modi government dropped from PM Economic Advisory Council

The Narendra Modi government dropped Rathin Roy and Shamika Ravi from the Economic Advisory Council (EAC) to the Prime Minister on Wednesday without citing a reason.

Both Roy and Shamika Ravi from the EAC-PM, an independent body which advises the government, especially the Prime Minister, on the economy and related issues have been increasingly critical of the Modi government’s policies.

Roy, who is the director of the National Institute of Public Finance and Policy (NIPFP) and a Business Standard columnist, had spoken of a ‘silent fiscal crisis’, pointing out the stark difference between the 2018-19 revised tax revenue estimates and provisional actuals, The Wire reported.

Roy, had in the past slammed the far-right utterances on the nation’s fiscal deficit and recently criticised the Centre’s plan to issue overseas sovereign bonds, The Telegraph reported.

Warning about the state of the economy, Shamika Ravi, director of research at Brookings India had said that the country was facing a structural slowdown and it needed major reforms and not mere tinkering. “Leaving economy to the finance ministry is like leaving the growth of a firm to its accounts department,” she had said.

Sajjid Chenoy, the well-known India economist at JP Morgan, is the new part-time member of the EAC-PM.

Part-time member Ashima Goyal of the Indira Gandhi Institute of Development Research and full-time members Bibek Debroy of NITI Aayog and Ratan Watal will continue to be part of the EAC-PM.

Debroy retains his role as chairman of the EAC-PM while former finance secretary Watal will continue being the member-secretary.

Roy along with the RBI governor Raghuram Rajan had urged the government to reconsider plans to float a dollar-denominated sovereign bond and Roy further urged the government to hold wider consultations before going down a path that would bind the country into a cycle of perpetual debt and rising payback costs linked to falling exchange rates.

“I have grave concerns about this proposal on grounds of economic sovereignty, and about the macroeconomic consequences... The government should instead look at relaxing the rupee bond limits for foreign portfolio investors,” Roy had said.

“I would pay very careful attention to former RBI governor Raghuram Rajan’s statement, and I would urge very respectfully, a public consultation on this subject, a public discussion, rather than imperial announcements of borrowing programmes being made without taking account of these facts,” he had added as per The Telegraph.

Taking head-on the policy of the government, Roy had said, “Show me one country after the World War which has done a foreign currency sovereign bond and not paid dearly for it. Brazil, Argentina, Turkey, Greece, Indonesia have all paid a price for foreign currency sovereign borrowings.”

Later, in an article in the Business Standard, Roy said: “I have been concerned about some macro-solutions proposed to address the slowdown. Calls for fiscal stimulus are misplaced and would, without much-sustained benefit, jeopardise the hard-earned macroeconomic stability attained since 2014. Monetary and credit policy transmission needs fixing, not further rate cuts. Using speculative foreign money for sovereign spending would raise risk without ameliorating the credit and liquidity situation.”

According to The Telegraph, in a television interview before the General Elections, Roy had expressed outrage at the way ruling party in various administrations — without any knowledge of economics — cavalierly suggested profligate fiscal policy courses without any idea or appreciation of the disastrous consequences.

Roy has also asked how the Modi government claimed to have capped fiscal deficit at 3.4 per cent in 2018-19. “How is this done, given the stunning shortfall in the tax-GDP ratio?” he asked.

“In my professional judgment, you will not able to tax as much as has been forecast in the 2019-20 budget. Therefore, either you will have to borrow more, or you will have to spend less. If you borrow more, it has implications for the overall economy. If you spend less, then too, it will have implications,” he had said.