Setback to Policy Making

Arvind Panagariya

Panagariya’s exit would hit Modi’s idea to implement Gujarat Model on Pan India level


Long before Narendra Modi catapulted to the national scene and won the parliamentary election with a thumping majority in 2014, Jagdish Bhagwati and Arvind Panagariya, two accomplished economists with a right-of-centre leaning had been talking about the Gujarat model.

In their well-researched articles, other forms of writings and speeches they had been talking as to how India could be transformed to become an economic powerhouse if the government pursued the right path. They had also been providing a forceful counter to Nobel laureate Amartya Sen who by then had become one of the most vocal opponents of Modi and a professed supporter of Rahul Gandhi.

When Modi decided to abolish Planning Commission and create a body called NITI (National Institution for Transforming India) Aayog by an executive resolution on 1 January, 2015 one of the two — Bhagwati or Panagariya was perceived natural choice to head it. Sources said since Bhagwati was over 80, it was his considered view that a younger Panagariya in his early 60s would be better suited to hold that position.

To Panagariya’s credit, several of NITI Aayog’s inputs were incorporated into Modi government’s policies on economic reforms. Take for instance, the proposal to merge rail budget with annual budget, advance date of presentation of budget so as the new financial year for the government could well and truly begin from 1 April, and the work is on progress on his proposal to change the financial calendar from 1 April to 31 March to 1 January to 31 December. Disinvestment of Air India was NITI Aayog’s proposal, which the government is following with certain pace. There are also suggestions that some important cabinet notes were drafted by NITI Aayog instead of ministries concerned and later given to the ministry concerned for further perusal as per the laid out norms.

In the last two years, Panagariya had become the face of Modi government’s economic reforms and his departure from NITI Aayog and as such from the policy making process, as also from being one of the principal spokespersons of the government on economic issues would be a setback for the government. More so, because he was handpicked by Modi to be vice-chairman of a body which the prime minister himself heads.

Panagariya would continue to serve the institution till 31 August and thereafter the outgoing NITI Ayog vice-chairman would be free to move on to his next destination.

Sources said Panagariya first met the prime minister about a month and a half ago to discuss the issue, “with the request to relieve him from his current duty” so as to he could return to his “first love”, academics. Panagariya was a teacher in economics at the Columbia University before he joined the government. He has held important positions in the World Bank, International Monetary Fund, Asian Development Bank, UN and so on.

Panagariya in his informal interactions with certain people has maintained that he was missing academia and was getting reminders from authorities, faculty and students in Columbia University urging him to clarify when he could possibly return to teaching. But that seems to too simplistic an explanation for his premature exit from a post, which meant a lot for him and for the leader who had chosen him to be at the helm. Was he seen to too much of a rightist when in some key economic areas government was actually pursuing socialist policies? Was there a latent tension in NITI Aayog, which also has a high profile CEO Amitabh Kant and three full-time members including Bibek Debroy, Ramesh Chand and VK Saraswat?

It would be a matter of immense interest in the government and business circles as to whom Modi chooses to replace Panagariya and how soon he decides to name a replacement, but the sudden departure of its vice-chairman has put under the spotlight the numerous occasions when difference of opinions between the think-tank and other wings of the government came to the fore.

Unlike the erstwhile Planning Commission, where deputy chairman Montek Singh Ahluwalia was the final authority after the Prime Minister, in the Niti Aayog, several important initiatives were being almost completely handled by other high-ranking officials of the think-tank, leading to creation of multiple power centres within the body. Another difference from Ahluwalia’s time at the Planning Commission was that while Panagariya was given a cabinet rank, he did not attend cabinet meetings, unlike his predecessor.

In January, Panagariya had raised the first red flag on the possibility of taxpayers being harassed post-demonetisation and had reportedly written to the Prime Minister’s Office, highlighting the need to codify rules to ensure that people, especially women, are not made to suffer for having deposited old notes between November 8 and December 30 last year.

Panagariya had suggested that there should be no questions asked on cash deposits up to Rs 2.5 lakh. This would help the taxman and the taxpayer, given the large number of depositors during the last 50 days. The income-tax department has been receiving information about cash deposits of over Rs 2 lakh and Rs 5 lakh from banks on daily basis.

During the first two years of the NDA government, Panagariya is also said to have been unhappy with the pace of reforms undertaken by the government, considering that the think-tank issued a number of recommendations for policy overhauls. The draft of Niti Aayog’s three-year action plan, which was prepared under Panagariya’s tenure, had also pointed out several concerns in the Centre’s economic policymaking that needed urgent attention. It had flagged numerous concerns including those over rising tax disputes; higher recapitalisation requirement for public banks burdened with non-performing assets; and, scope for interpretation in tax laws.

The Niti Aayog, under Panagariya, also faced flak from RSS affiliate Swadeshi Jagran Manch, which organised a roundtable on the think-tank’s functioning in January and criticised various recommendations put forth by it including for sectors such as agriculture and health. It has also criticised Niti Aayog’s support to genetically modified crops. According to a source, Panagariya was upset that nobody from the government stood up for him or the Niti Aayog.

Panagariya had also differed with Chief Economic Advisor Arvind Subramanian’s proposal on launching a universal basic income scheme. Panagariya argued that India does not have the fiscal wherewithal to implement such a scheme. “At the current level of income and our needs for investment in health, education, infrastructure and defence, we simply do not have the necessary fiscal resources to transfer a reasonable basic income to 130 crore Indians,” Panagariya had told The Indian Express in an interview in January. So, fume emerges only when there is smoke.