Exclusive: Ex-CEA Arvind Subramanian on What’s Ailing Our Reforms

In this interview, former CEA Arvind Subramanian talks about the ‘puzzle’ of demonetisation, and much more.

2 min read

In his upcoming book, Of Counsel: The Challenges of Modi-Jaitley Economy, India’s former Chief Economic Advisor (CEA) Arvind Subramanian observes that one of the major reasons why reforms are ‘stymied’ in the country is that “India went from ‘crony socialism to stigmatised capitalism (sic)”.

In an exclusive interview with The Quint, Subramanian opened up on what he means by stigmatised capitalism.

“Stigmatised capitalism is a problem of 20-25-30 years, and thus it is unfair to blame any single government for it.”

“Bureaucrats can’t take decisions, public sector bankers can’t take decisions. So more and more cases go to judiciary, because people think that is the only institution left with credibility,” he said.

The increasing dependence on courts to resolve every issue is bothersome, Subramanian said, while talking about the issue of the process under Insolvency and Bankruptcy Code (IBC) getting overloaded as far as resolving stressed assets is concerned.

Subramanian, however, regards the introduction of IBC as one of the major achievements of the Modi government, during his tenure as the CEA.

Subramanian mentioned the importance of IBC in the same breath as that of the Goods and Services tax (GST), which was also implemented during his regime. Referring to GST as a ‘phenomenal achievement’, he admitted that there were glitches and rate structure issues with GST.

“It is such an ambitious reform that it will never be perfect, it will always be an evolutionary process,” he conceded.

The other marquee economic reform of his tenure – demonetisation – has, however, left Subramanian befuddled with what in his book he refers to as “two puzzles”.

“The first puzzle is, if demonetisation affected the informal sector, why did people vote in favour of it in elections?” he said.

As far as the economic puzzle of demonetisation is concerned, Subramanian said the impact of demonetisation on GDP was not as severe as it should have been, in the case of 86 percent cash being removed from the system.

“I have a lot of questions – Don’t we gauge the informal sector properly in GDP numbers? Are we underestimating the resilience of Indian economy? Are we yet to see the effects?”
Former CEA Arvind Subramanian

The former CEA also touched upon the recent feud between the government and the Reserve Bank of India (RBI). He said the two cannot afford a standoff if they are to address the issue of non-performing assets (NPA) and twin balance sheet.

He opined that the best way to deal the situation is to bring some reforms in RBI without compromising its autonomy. “In democracies, ultimately politicians are accountable to people. They have maybe higher status.”

“But all of them have realised that having independent agencies are good for democracy.”

“Some creative tension will be there and there should be. But all this should take place within the ambit of the mandate of RBI's autonomy” he said.

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